Closing a limited company

There are a number of reasons why you may decide to close your limited company. This could be because a limited company structure no longer suits your needs, your business is no longer active, or the company is insolvent. You will usually need the agreement of all the company’s directors and shareholders to close down the company.

The method for closing down a limited company depends on whether it is solvent or insolvent. If the company is solvent, you can apply to get the company struck off the Register of Companies or start a members’ voluntary liquidation. The former method is usually the cheaper option.

It is the responsibility of the company directors to ensure that all of a company’s assets and liabilities are dealt with before it is dissolved. For example, you have settled any outstanding bills and collected all debts owed to the business. Any assets or rights (but not liabilities) remaining in the company at the date of dissolution can pass to the Crown as ownerless property.

Where a company is insolvent, the creditors’ voluntary liquidation process must be used. There are also special rules where the company has no director, for example if the sole director has died.

A company can also elect to become dormant. A company can stay dormant indefinitely, however there are costs associated with this option. This might be done if for example a company is restructuring its operations or wants to keep hold of a company name, brand or trademark. The costs of restarting a dormant company are typically less than starting from scratch again.

Brexit countdown importers

As we have reported previously, the UK government has confirmed that it will neither accept nor seek any extension to the Brexit transition period which expires on 31 December 2020. The EU has formally accepted this position. This means that the process for importing goods from the EU will change from 1 January 2021.

HMRC has published guidance to help those importing goods to prepare.

Some important points to bear in mind from 1 January 2021 are as follows:

  • You will need to make customs declarations when you import goods from the EU. These rules currently apply to importing goods from the rest of the world, including Switzerland, Norway, Iceland and Liechtenstein.
  • You will need to make customs declarations when you import goods from the EU.
  • The rules for importing some types of goods will change.
  • You will need an EORI number that starts with GB to import goods.
  • You will need to pay customs duties and VAT on all imports.
  • You will need to make customs declarations when you import goods from the EU. Under certain circumstances, it will be possible to delay making a declaration for up to 6 months after you imported the goods.

Note, this guidance applies to England, Wales and Scotland. Separate guidance on moving goods into, out of and through Northern Ireland is expected to be published shortly.

Clock ticking on the Annual Investment Allowance

The Annual Investment Allowance (AIA) allows for a 100% tax deduction on qualifying expenditure on plant and machinery to be deducted from your profits before tax. The relief is normally capped at £200,000 per annum but was temporarily increased to £1 million for a 2-year period from 1 January 2019 to 31 December 2020.

This means that there is now just over two months left to take advantage of the increased limit. If you are thinking of incurring large items of capital expenditure for your business (over £200,000), the timing of such a move should be carefully considered. There could be a significant tax advantage if you accelerate plans, where possible, to incur expenditure before the end of the 2020.

There are transitional rules for businesses whose accounting periods span the operative date of any changes. If the basis AIA changed in the period for which a claim is being made, the AIA must be time-apportioned accordingly.

The AIA is available for most assets purchased by a business, such as machines and tools, vans, lorries, diggers, office equipment, building fixtures and computers. The AIA does not apply to cars.

A claim for AIA must be made in the period the item was bought. This date is defined as the date when a contract was signed – if payment is due within 4 months of the contract being signed – or the actual payment date if it’s due more than 4 months later.

As always, it is important to consider commercial, cashflow and other matters as well as the tax effects. If you are contemplating a large capital purchase please call so that we can help you decide on the best-fit planning opportunities. 

Starting rate of Income Tax for savings

In the current tax year, anyone with taxable income of less than £17,500 will have no tax to pay on their savings income – interest received. This figure is calculated by adding the £5,000 starting rate limit for savings (where 0% of the interest is taxable) to the current £12,500 personal allowance. However, this £5,000 starting rate limit for savings will be reduced by £1 for every £1 of non-savings income in excess of £12,500. Accordingly, when non-savings income amounts to £17,500 all savings income will be taxable.

There is also a Personal Savings Allowance (PSA) which means that for basic-rate taxpayers the first £1,000 interest on savings income is tax-free. For higher-rate taxpayers the tax-free personal savings allowance is £500. Anyone earning over £150,000 does not benefit from the PSA.

Interest from savings products such as ISA's and premium bond wins do not count towards the limit. Taxpayers with tax-free accounts and higher savings can continue to benefit from the relevant PSA limits.

Banks and building societies no longer deduct tax from your account interest as a matter of course. Taxpayers who still need to pay tax on savings income will need to declare this as part of their annual Self-Assessment tax return.

Taxpayers that have overpaid tax on savings interest can submit a claim to have the tax repaid. Claims can be backdated for up to four years after the end of the current tax year. The deadline for making claims for the 2016-17 tax year is 5 April 2021.

New financial support measures announced

The Chancellor, Rishi Sunak, has delivered his third major statement to the House of Commons in less than a month. This followed the Winter Economy Plan on 24 September and further announcements on 9 October that expanded the scope of the Job Support Scheme and introduced new grants for businesses forced to close because of local or national lockdown measures.

In his third statement delivered on 22 October, the Chancellor has significantly revised previously announced measures to help protect jobs across the UK whilst the country faces a fresh spike of the virus and a winter of uncertainty.

These measures are intended to offer increased support through the existing Job Support and self-employed schemes and to expand the availability of business grants to support companies in Tier 2 areas of England.

1. Job Support Scheme

Under the original terms of the Job Support Scheme, due to start on 1 November 2020, employees would have had to work at least one-third of their hours, paid as normal, in order to qualify. The government and employer would then each have covered one-third of any remaining hours the employee is not working.

Under the revised scheme announced today, the employer contribution to those unworked hours has been reduced to just 5% (from 33%), and the minimum hours requirements for staff has been reduced to 20% (from 33%). The Government will now fund up to 61.67% of wages for hours not worked, up to a maximum payment to £1,541.75 per employee.

These changes mean an employee will need to work just one day a week to be eligible for the scheme. The use of the scheme will be available to businesses in all alert levels.

The previously announced Job Retention Bonus, allowing qualifying businesses to claim a £1,000 for each CJRS participating employee, will remain. Employers can claim both the Job Retention Bonus and funding through the Job Support Scheme.

The Job Support Scheme will replace the existing Coronavirus Job Retention Scheme (CJRS) which ends on 31 October.

2. Self-Employment Income Support Scheme Grant Extension

The Chancellor also announced that the grants for the self-employed are to be doubled to 40% (from 20%) of previous qualifying earnings.

The initial lump sum will cover three months of profits from 1 November 2020 calculated as 40% of average monthly profits, up to a maximum total of £3,750. 

The extended scheme will apply for 6 months from 1 November 2020 with an initial taxable grant made available to those who continue to trade and meet the eligibility requirements.

An additional second grant will be available from 1 February 2021 to 30 April 2021. The level of this second grant amount is subject to review and will be set in due course.

3. Business grants

The Chancellor also announced an extension to the business grant measures previously announced for businesses in England that are forced to shut as a result of lockdown measures.

This extension to the scheme could benefit some 150,000 businesses in the hospitality, accommodation and leisure sector who are not legally closed but who are severely impacted by Tier 2 restrictions in England. These grants can be backdated to August in affected areas.

These businesses will be eligible for cash grants of up to £2,100 per month. The grant figures are based on 70% of the grant amounts (up to £3,000) provided to businesses that are closed.  

The amount affected businesses will be able to claim from their local authority depends on their rateable value:

  • Small businesses with a rateable value of or below £15,000 will be able to claim £934 per month.
  • Medium-sized businesses with a rateable value between £15,000 and £51,000 will be able to claim £1,400 per month.
  • Larger businesses will be able to claim £2,100 per month.

It will be up to Local Authorities to decide exactly which businesses are eligible to receive the grants. Local Authorities will also receive a 5% top up to help other affected businesses.

New cashback scheme proposed

The government has announced plans to allow customers to get cashback from shops without needing to make a purchase. At the moment, cashback is only available to those who buy goods. The new proposals have been put in place to help protect the UK’s cash system following a steady decline in the use of cash. This process has accelerated significantly during the coronavirus pandemic.

Under the government proposals, cashback without a purchase could be widely available from retailers of all sizes in local communities across the UK.

Although cash use is declining, with people increasingly choosing cards, mobile and e-wallets to make payments, it remains crucial for at risk groups across the UK – including the elderly and vulnerable. Many find that cash is more accessible than digital payment methods or that it helps them to budget and manage their finances.

Current EU law makes it difficult for businesses to offer cashback when people are not paying for goods and this has been a barrier to widespread adoption. The government is now considering scrapping these rules once the transition period ends on 31 December 2020.

It is not clear what impact such a move would have on retailers who could face additional costs and administrative issues dealing with providing cashback with no clear benefit for them.

The government has also said that it is considering giving the FCA overall responsibility for maintaining a well-functioning retail cash system given its existing regulatory role and consumer protection objective.

Distributions in anticipation of striking off rules

The Extra Statutory Concession (ESC) – C16 was a well-used extra-statutory concession that allowed company directors to treat final distributions as a capital disposal and close down their business in an efficient manner. ESC C16 was withdrawn in March 2012 and replaced by s1030A Corporation Tax Act 2010 (CTA 2010) provisions.

This move meant that from 1 March 2012, the concessionary treatment provided by ESC C16 were replaced by more restrictive statutory rules which included the introduction of a new £25,000 threshold.

Under the legislation, distributions made in anticipation of dissolution under the striking off process will not be taxed as ‘income’ distributions provided:

  • at the time of the distribution, the company has secured, or intends to secure, payment of debts due to it, and similarly has satisfied, or intends to satisfy, debts due from it, and
  • the amount of the distribution, or total amount of distributions if more than one, does not exceed £25,000.

Directors with more than £25,000 of reserves will not be able to treat the final distributions as a capital disposal but rather as ‘income’ distributions.

Brexit countdown exporters

The Brexit transition period is due to end on 31 December 2020 and this means that the process for exporting goods to the EU will change from 1 January 2021.

Current guidance published by HMRC states that from 1 January 2021, businesses will need to make customs declarations when exporting goods to the EU. This is what you currently have to do if exporting goods to any country outside of the EU, including Switzerland, Norway, Iceland and Liechtenstein.

Businesses, especially those that currently only trade with EU should be making the necessary preparations for how they will trade with the EU next year. Businesses can make customs declarations themselves or hire a third party such as a courier, freight forwarder or customs agent to do the paperwork.

HMRC has published guidance to help those exporting goods to prepare.

Some important points to bear in mind from 1 January 2021 are as follows:

  • Make sure you have an EORI number that starts with GB. You will need an Economic Operator Registration and Identification (EORI) number starting with GB to import/export goods from 1 January 2021.
  • Check the rules for your type of goods. For example, check what import/export licences or certificates you need, check the labelling and marketing standards for food, plant seeds and manufactured goods and check the rules for importing/exporting alcohol, tobacco and certain oils.
  • Find out if you can charge VAT at 0% on goods exported to the EU.
  • Check if the EU business you're exporting to is ready. The EU business importing your goods will also need to prepare for 1 January 2021 changes.

Note, this guidance applies to England, Wales and Scotland. Separate guidance on moving goods into, out of and through Northern Ireland is expected to be published shortly.

When you can or can’t use the VAT Cash Accounting Scheme

Under standard VAT accounting, VAT is payable on sales whether or not the customer has paid and can lead to a claim for Bad Debt Relief. Under the Cash Accounting Scheme, VAT does not need to be paid over until the customer has paid.

A business can enter this scheme provided their estimated VAT taxable turnover for the next VAT year is not more than £1.35 million. The business can continue to use the scheme until their VAT taxable turnover exceeds £1.6 million.

Businesses can’t use the Flat Rate Scheme together with the Cash Accounting Scheme. However, the Flat Rate Scheme has its own cash based method for calculating turnover. Businesses are also ineligible to use the scheme if they are behind with their VAT payments, late filing returns or have committed a VAT offence in the last 12 months. 

Businesses do not need to complete an application form or advise HMRC to start using the Cash Accounting Scheme. They can commence using the Cash Accounting Scheme at the beginning of any VAT period or if they are not already registered for VAT from the day their VAT registration starts.

Businesses can leave the Cash Accounting Scheme voluntarily at the end of any VAT accounting period. They do not need to notify HMRC. They can then re-join the scheme at the beginning of any VAT accounting period, provided they continue to meet the necessary criteria.

Gaming behind the wheel?

Unbelievably, it has been illegal to make phone calls or text while driving a car, but not illegal to play games or take photos.

Clearly, this loophole is begging to be closed and new legislation proposed, 17 October 2020, will aim to do just that. A Government announcement says:

People using a hand-held mobile phone in all circumstances while driving will be breaking the law, under new Government plans unveiled by Roads Minister Baroness Vere today (17 October 2020) to close a legislation loophole and improve road safety.

It’s already a criminal offence to use a hand-held mobile phone to call or text while driving, but not for other actions such as taking photos. While still distracting, drivers have escaped punishment due to a legal loophole where such actions aren’t seen as ‘interactive communication’, and therefore do not fit the current definition of the offence.

Now, following a review of the offence, a consultation has been launched on bringing the law into line with modern technology – meaning drivers caught taking photos, playing games or scrolling through a playlist behind the wheel will be clearly breaking the law on mobile phone use.

Recognising that mobile phones are commonly used as a method of payment – such as at drive-throughs – an exemption will apply under the new proposals set out by government today to contactless payments, if a vehicle is stationary, and if goods or services – such as a takeaway meal – are delivered immediately.