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How To Cash Out Your Contractor Company

There are reliefs available ...

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POSTED BY JONATHAN VOWLES ON 18/06/2019 @ 8:00AM

A lot of entrepreneurs are concentrating on either starting or growing their business, but what about the other end of the business, when you want to cash out your contractor company?

When you want to cash out your contractor company, there are ways to do it and reliefs available!

When you want to cash out your contractor company, there are ways to do it and reliefs available!

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There are several different ways of doing that and this blog post is about a particular sort of company ... the contractor company. If you are a day rate contractor and run a contractor company you may well have built up a cash balance and are looking for a way to take that out of your company. We help our clients to carry out this process and there are a few tips and tricks to be aware of.

"The good news is that there are options
and a useful tax relief!"

Option one is a 'liquidation' and getting all of the money out as a payment to you and trying to make use of Entrepreneurs' Relief. If you are a shareholder of your own limited company then you can potentially get this ER relief, but there are criteria. Why should you be interested? Because you can cash out your company at a 10% tax rate!

Option two is 'striking off' the company using Section 652 of the Companies Act. If you have a small amount of money in the company (under £25k) then this also enables you to potentially use Entrepreneurs' Relief. Why should you be interested? Because this is a DIY or low-cost option.

Obviously, the key to cashing out a contractor company is being able to get Entrepreneurs' Relief and only pay 10% tax on the first £10m. The criteria for getting ER are:

  • you are selling all or a significant part of your shares

  • you must have owned the shares for at least 2 years

  • you must have been an employee or office holder for at least 2 years

  • the company must have been a trading company for at least 2 years

  • you must have owned at least 5% of both shares and voting rights and be entitled to at least 5% of the dividends and profits on winding up the company

  • you must not be involved in another limited company doing something very similar within 2 years of receiving the distribution from the old company. (Involved means neither you nor a connected party, such as a family member, are directors or shareholders of the new company.)

This blog post just skims the surface of what is a complex area of tax law and, as we all know, tax law changes frequently. If this is relevant to you and you'd like to cash out your contractor company then do give me a call on 01234 752 566 or click here to ping me an email and let's see how I can help you.

Until next time ...

JONATHAN VOWLES


PS:

If you're looking for a new accountant to help grow your business, do visit www.jvca.co.uk and discover how Jonathan Vowles Chartered Accountants can help you!


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More about Jonathan Vowles ...

I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.

My eclectic interests in growing and developing business span a number of areas … and can be summarised as strategic business advice and tax saving advice.

I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.

I relax by reading fiction and by getting away from the office in a campervan.

Telephone:

01234 752 566

Website:

http://www.jvca.co.uk