As with many areas of UK tax law, Entrepreneurs’ relief is a relatively straightforward concept which is backed up by detail, sub-rules and exceptions that all end up making it quite complex. The introduction below summarises the elements that are likely to be relevant to contractors, consultants and freelancers working through their own limited companies.
Entrepreneurs’ relief is an allowance that reduces the rate of capital gains tax to an effective rate of 10% when businesses are disposed of. This is not just selling a business, so the cessation of trade and winding up of a limited company can apply here under certain circumstances.
The conditions for Entrepreneurs’ relief to apply when winding up a limited company are as follows:
- The reasons for stopping to trade through the limited company must be for genuine commercial reasons.
- The company must be a trading company in the twelve months prior to disposal.
- The shareholder claiming the relief must have held 5% or more of the share capital of the company for a minimum of 12 months and those shares must bring with them at least 5% of the votes (any additional shares acquired over the 5% within the final 12 months are still eligible).
- The 5% or more of shares must have been owned for a minimum of 12 months.
- The shareholder claiming the relief must also be an employee or officer of the company and must have been so for a minimum of 12 months.
A limited company with distributable reserves of £25,000 or less can be wound up informally by application to Companies House. However, for companies with a greater balance than £25,000 remaining for distribution it has been necessary since new legislation in March 2012 to appoint an insolvency practitioner to formally liquidate the company via a members’ voluntary liquidation (MVL).
If you are a client of Integro Accounting your accountant will be able to guide you through the MVL process and introduce you to a licensed insolvency practitioner who can complete the liquidation for you.
Why Integro Accounting?
Integro Accounting is the UK’s only specialist provider of fixed fee, limited company accountancy services for contractors, consultants and freelancers that was established to an award winning standard – our Practice Manager, Maria Hickmott FCCA, won The British Accountancy Awards’ ‘Accountant of the Year’ in 2011.
We were set up with the vision of providing a service that is the ultimate for the dynamic, busy professional of today in a language you understand.
Integro Accounting have designed a bespoke service for the contractor who is always on the go; never forgetting that one size will never fit all.
The relationship you have with your accountant is the most important factor in our service which is why we will always offer unlimited contact with your own personal accountant; whether that contact is via the phone, email or face to face.
We have our 3 offices located in London, the South-West and on the Bedfordshire and Buckinghamshire border. There are also meeting locations in many of the major cities and towns across the Home counties, South-West and South Wales, all conveniently placed so that you never have to travel far to meet your accountant.
If you have any questions about contracting or would like to find out more about how Integro Accounting can help you and business please call Christian on 01525 303984, email firstname.lastname@example.org or request a callback.