They could be short term but terminal factors such as not being able to open due to Covid-19 restrictions, or suppliers going out of business and owing them money or essential stock that can’t be sourced elsewhere.
There might be more historic negative circumstances involved such as longer term debt that has grown and can’t be realistically paid off or it might just be the end of a company’s natural life cycle.
Whatever the trigger - once the decision to close down a limited company has been taken, the most important consideration is how it should be done.
What is the most efficient, effective and stress free way possible to close down a business?
There are several methods available but each comes with its own pros and cons - advantages that can save a company time and money or disadvantages that could be potentially disqualifying and could even see directors pursuing them in legal trouble themselves.
In this blog, we’ll look at what they are.
Also known as striking off, dissolution is the formal legal action of closing a company.
Once completed, the business will cease to exist as a legal entity and it is officially removed from the Companies House register.
A member's voluntary liquidation or MVL is a voluntary process of closing down a business that is initiated by the shareholders or directors of a solvent company.
Creditors voluntary liquidation (CVL) is when directors decide to close the business because it has accumulated too much debt and doesn’t have any realistic way to pay it off.
When a business is forced to close by creditors using a court-approved, winding-up petition, this is known as a compulsory liquidation.
Sometimes the hardest part of closing a limited company is deciding that this is what has to happen to the business.
Once that decision has ultimately been reached, the method of closure will usually be dictated by the financial circumstances the business finds itself in but sometimes there is some leeway.
The best thing to do if you’re considering these options is to get in touch with us first.
After we’ve got a full picture of your circumstances we’ll be able to let you know the optimal course of action for you and your business and if we’re lucky enough, be happy to guide you through the process you decide to follow.
We’ve previously written about what the changes contained in the bill mean for directors of companies that have closed down, including ones that closed with outstanding CBILS or bounce back loan debt.
Dissolving a company is a simple and relatively quick and cost effective way of closing down a business but only under a strict set of circumstances.
We’ve covered at length the potential for the defaults from unpaid bounce back loans to run into the billions so the new law is a sign of how seriously the government is preparing to take the problem and what this means for directors.
The only current way available for creditors unhappy with the conduct of directors of a dissolved company would be to apply to have the company restored so they could then apply to have it placed into liquidation and ask the liquidator to investigate the conduct of directors.
This is a complex, time consuming and potentially expensive process which is why it is so rarely pursued. The new law simplifies matters and grants new powers to The Insolvency Service to investigate the conduct of directors of dissolved companies without resurrecting the business.
According to the latest available statistics from The Insolvency Service, the number of company directors disqualified fell to 972 for 2020/21, down 24% from the 1,280 in 2019/20.
The fall will be partly due to various temporary support mechanisms and measures brought in to reduce company insolvencies such as statutory demands and winding up petitions being suspended and the suspension of personal liability arising from wrongful trading.
The average length of directors disqualification held steady at around six years.
Disqualifications can happen for actions uncovered by liquidators including attempting to defraud HMRC (which purposefully avoiding repaying bounce back loans and CBILS would be classed as), falsifying records and transferring money out of an insolvent business.
In the early stages of the pandemic, HMRC gave as much forbearance as they could to delinquent companies as it was a unique situation but as the economy begins to open up and more businesses begin trading under more recogniseable circumstances, they will begin to step up their recovery actions.
Combined with the new legal powers granted to The Insolvency Service, which the government expects to be used to generate a return, the number of directors' disqualifications will be almost certain to increase in the next 12 months.
Chris Horner, Insolvency director with Business Rescue Expert, acknowledges this could be a nervous time for some directors but wants them not to worry unnecessarily.
He said: “Any director that liquidated their company through a Members Voluntary Liquidation (MVL) or a Creditors Voluntary Liquidation (CVL) has got nothing to worry about. I need to reiterate that as strongly as I can.
“The new legislation is primarily aimed at unscrupulous directors who have tried to avoid repaying creditors and dissolved their companies to do it.
“Done properly and for the right reasons, dissolution is the natural endpoint for many businesses and entirely correct - but using it to dodge your debts is not on.
“It damages a perfectly good process by association, and it would be great to see The Insolvency Service punish those that have deliberately set out to defraud.
“Businesses that have outstanding bounce back loans or CBILS borrowing and have to close shouldn’t worry unnecessarily either.
“As long as they have documentary or other evidence that outlines what the loan was for, the motivation behind the application, how the company dealt with the pandemic and restrictions and what the money was spent on, they will be in a good position to confidently answer any questions they may be asked in future.”
It’s a strange time right now for everybody - not just directors and business owners.
It feels like a half-way house between eras, lockdown/post lockdown or pandemic/post pandemic, however you would describe it, we’re definitely changing from one set of attitudes, actions and sentiments to another.
While these changes play out, directors might naturally be concerned, not only for the future of their business but also about the decisions they’ve had to take for the good of the company during the past year and a half.
We’ll be happy to set their mind at rest regarding their own actions and also be able to outline their immediate options to improve their short-term prospects.
People and their situations change, relationships begin or end and new opportunities may present themselves which might have more potential financially, professionally or personally than the current enterprise.
Or while you started a company a couple of years ago with great intentions on how it would work as a charitable foundation, in the meantime you and your partner have become the most famous couple in the world and had to make some lifestyle decisions around this status.
All of the above is why the Duke and Duchess of Sussex, or Harry and Meghan if you insist on being informal, are dissolving one of their UK businesses.
This will leave the couple with more time to pursue their new media ventures including the Duke’s new mental health series for Apple TV called “The Me You Can’t See” which he will co-present with Oprah Winfrey.
As part of the process of liquidating the foundation, both the Duke and Duchess resigned as directors.
They launched their first charitable venture, the Sussex Royal foundation, in July 2019 after deciding to pursue their own philanthropic duties away from a joint foundation they shared with Prince William and Kate Middleton, the Duchess of Cambridge.
The charity was originally titled Sussex Royal - The Foundation - but this was later amended to become the MWX foundation, giving rise to speculation that as his formal royal titles and privileges were being withdrawn, so was the right to name any ventures as “royal”.
Chris Horner, Insolvency Director with Business Rescue Expert, said: “By choosing to close their MWX foundation through a member’s voluntary liquidation, or MVL, Harry and Meghan are choosing the most sensible and stress-free option.
“The business hasn’t filed any accounts yet but it’s safe to assume it didn’t have any critical money worries or would be unable to settle its debts within a timely period.
“This is a key point to understand - a business can only use an MVL if it is profitable or can pay off creditors with the proceeds of the dissolution.
“There are still several other appropriate methods for a business to close down, even if they have outstanding debts including bounce back loans.
“The MVL process has several legal steps that must be followed in order to be accepted but can be completed in as little as ten days if everything is in order.
“Our friend Ed can explain more. It’s no “Suits” but it’s still a great performance.”
If you’ve fallen in love with Hollywood or actual royalty, it might be hard to balance your new jetset lifestyle with the demands of running your own business.
Even though the initial publicity might be a bonus, it’s hard to keep checking inventory and staff rotas when you’re walking the red carpet.
Sometimes dissolving or closing down your business is the simplest and safest way to free up your future calendar.
Even if you haven’t met a handsome prince or princess, you might want to change your career direction. After all, that’s just what the Sussex’s have decided to do.
We offer a free, initial consultation to any business owner or director who wants to talk about their future - and how we can best help you turn ideas and plans into an effective, reality-based strategy.
Get in touch today to book your appointment. That’s more important to us than “by appointment”.
Striking off, or dissolving a company is one of the most straightforward ways to close a business down.
You print off a DS01 form, fill it out, pay your fee and send it to Companies House. Or if you’re less organised, maybe you fall behind on your annual accounts or other statutory filings, and Companies House will start a compulsory striking off process.
If the your company has no outstanding debts, it should go through without any unnecessary delays.
But it can also be objected to and the company dissolution suspended by creditors intervening within a two month window of the company dissolution application being filed.
Why can a voluntary or compulsory strike off be suspended? Here’s the main reasons:
HMRC can object to a strike off in order to pursue any owed taxes or returns not filed; suppliers can challenge the process if there are any unpaid invoices remaining or customers can halt matters if they are claiming that goods haven’t been received or that work is left uncompleted.
Having a strike off suspended can be frustrating and annoying but it’s an essential part of a checks and balances system to allow creditors voices to be heard and avoid any directors trying to close down a company without accounting for their due outstanding debts or taxes.
How you proceed next depends on the circumstances surrounding why Companies House are not striking off your business:
The first step in how to find out who objected to the strike off is simple.
You can contact Companies House directly and they will be able to tell you the nature of the objection and who made it. This is important because only then can you clear the specific impediment to your strike off being accepted.
For instance if HMRC have stopped the strike off then you need to find out which taxes are outstanding and for what period as it may be several years that have accrued rather than one outstanding period. In all likelihood if HMRC are the objecting party then they will write to you outlining their objection and suggested remedies.
If any other creditor objects to your strike off, again, you need to find out the exact debt or reason in order to deal with it effectively.
If your strike off application has been suspended due to an outstanding debt then you could settle it then submit the application again.
This removes the reason for the objection so there should now be nothing stopping it from proceeding. Obviously this depends on the size of the debt and the company’s ability to pay it.
If the company owes various amounts to different creditors then the problem becomes more intractable and brings into question the validity of striking off as a means of closing the business.
In this scenario, if you make a payment to one creditor that has objected but none of the others, it would be classed as making a preferential payment, which could have personal ramifications for the directors.
IMPORTANT - A company has to be inactive for three months before being eligible to be struck off and paying off debts from company bank accounts or funds could invalidate this requirement.
If you intend to pay off outstanding debts and resume a dissolution, you should get some professional advice first to ensure you meet the criteria and aren’t wasting your time as Companies House will not strike off.
While striking off comes with advantages, it is really only applicable to businesses that meet certain specific criteria in order to close.
If you don’t meet these then it doesn’t mean that the company can’t close. It only means that you should pursue a different method of closing the business such as liquidation.
This is where a licensed insolvency practitioner oversees the closure of your business, and deals with any assets and all the outstanding debts.
If your company has debts, then liquidation rather than dissolution is likely to be the best route to closure.
If a company’s directors took any earnings as PAYE salary, it may well be that if they liquidate the company then they can claim outstanding employment entitlements from the government’s National Insurance Fund.
If your company’s striking off has been suspended or objected to, then it's probably worth taking a moment to consider whether liquidation is a better option.
Chris Horner, Insolvency Director with Business Rescue Expert, offers this advice:
“Dissolution or striking off a company sounds like the ideal solution to close down a business but directors and owners usually don’t understand how prescriptive and narrow the acceptable criteria for doing it is, which is why a company’s striking off is suspended.
“In the hundreds of cases we’ve dealt with, so many businesses that want to close, have not been properly advised, and are therefore wasting valuable time and resources.
“Some directors have also been unaware of their rights to recover employment entitlements under liquidation, let alone that overall if you have significant outstanding debts liquidation is actually the best option for them.”
Tough love is still love.
If you’ve decided to close your business or if it looks like it’s not able to continue in its current circumstances then get in touch with us - for free - for a friendly but honest chat.
We’ll explore your situation in a bit more detail so we can explain what options you’ve got and what has the most realistic chance of success.
Whether it’s dissolution, liquidation or another process you might not have considered, we’ll tell you what you can do - then you can choose what’s best for you and your business.
April has certainly showered us with a lot of stories that you might have missed but don’t worry - you can catch up in one place right here!
Peacocks and Bonmarche emerge from administration
An investment consortium led by former Edinburgh Woollen Mill (EMW) CEO Steve Simpson completed a buy out of retailers Peacocks allowing them to exit administration.
The group will retain 200 of the chain's 400 plus stores, keeping 2000 jobs with hopes to keep more depending on the results of negotiations with the landlords of various outlets.
Peacocks went into administration in November 2020 as part of a process involving its parent - the EWM group.
Another former property of the group - Bonmarche - was also purchased by Mr Simpson in a separate deal with negotiations continuing regarding the fate of the previous 72 stores and 531 employees the company had.
The timing for these deals is fortunate as non-essential retailers were allowed to reopen to the public from April 12 and can take full advantage of consumers pent up demand.
Grensill jobs go
In a story that is continuing to make headlines for other reasons, 440 workers in Warrington have been made redundant after Greensill Capital Management Company Limited went into administration following the collapse of the parent company in Australia.
Greensill were also the main lenders to Liberty Steel so the ramifications of this process could continue to be felt throughout the year, especially if no buyer can be found for the business.
The various lockdown restrictions have severely impacted the health and fitness industries more than most.
While some are still struggling with restoring full services until all restrictions are lifted, Total Fitness has moved to take advantage of the protection insolvency procedures can bring to a company by entering a company voluntary arrangement (CVA).
A spokesperson said: “The cumulative effects of the lockdown restrictions have had a major impact on gym and health clubs across the UK.
“Total Fitness clubs have now been closed for eight months. With membership payments on pause, this means we are operating with very limited income and continuing costs.
“Total Fitness has been no exception to the impact of Covid-19 and is now seeking the assistance of all partners including landlords and suppliers to support the strong, long-term future of the business by launching a CVA.”
16 of its 17 facilities will remain in operation, opening when allowed while managers work with landlords and creditors to secure a solid and stable future for the business.
Another casualty of the coronavirus pandemic is the office outfit.
Working from home hasn’t stretched to wearing or buying a new suit so this collapse in demand has badly affected the upscale and upmarket clothes retailers.
One example is Brooks Brothers - the American based suit manufacturer and retailer have put their UK division into administration. This follows the parent company opening bankruptcy proceedings in the US before eventually being bought out by a consortium.
A spokesperson said: “The reason for appointing administrators is because of the prolonged closure of non-essential retail, despite the directors best efforts and regular communications with landlords and local creditors, mounting rent arrears and the problems of the worldwide group.”
The administrators have intimated that they would reopen the business’s three UK based stores at the O2 Arena, Westfield London and Bicester Village in Oxfordshire as soon as practicable, although the company had already surrendered the lease of their flagship London location on Regent Street.
Fellow US-based retailer Gap have also announced that they are considering moving to an online-only model in Europe which would have consequences for their retails stores and staff in the UK.
The downward trend continues for the fashion industry as Menswear supplier Prominent Europe that owns Chester Barrie and supplies retailers such as TM Lewin and Moss Bros has proposed an orderly wind-down and closure of its business.
Founded in 1993, the group’s owners stated that the decision was due to unprecedented changes in the menswear tailoring market.
A spokesperson said: “After deep consideration and with a heavy heart we have had to announce to our 40 employees that we will close our business over the next year in an orderly manner whilst satisfying our orders and liabilities.
Times are tough if you’re a retailer but what if you’re a charity and already rely on grants and donations to function?
The Quilliam Foundation was formed in 2007 as a think-tank to counter the growing influence of extremism in religious communities by fostering a shared set of social belonging and to advance liberal democratic values.
11 employees have been made redundant.
Maajid Nawaz co-founded the organisation in 2007 with best-selling writer Ed Husain, and said: “Due to the hardship of maintaining a non-profit during Covid lockdowns, we took the tough decision to close Quilliam down for good. This was finalised today. A huge thank you to all those who supported us over the years.”
Phantom Orchestra halved
Arts and entertainment have also been under huge pressure and even gradual reopening won’t be enough to bring the sector back in its entirety.
One example is the announcement from the Cameron Macintosh and Really Useful Group that their revived production of The Phantom of the Opera would only be using a slimmed-down orchestra rather than the full standard West End ensemble.
As a result, 13 musicians have lost their positions and won’t be playing when the curtain rises on the 35-year-old show’s new performances resuming at Her Majesty’s Theatre in July.
These include the harp, oboe, trumpet, horns and percussion as well as several violins.
A spokesperson for the promoters said: “The new production will be using the acclaimed orchestration for 14 musicians that was created for the international productions of the show.
“These orchestrations are just as thrilling and rich as the original but would not have been possible with the technology available in 1986. The new Phantom orchestra will remain one of the largest in the West End.
StepChange losing staff due to falling demand for services
StepChange, one of the UK’s largest national charities that offers expert debt advice and fee-free debt management is making close to 10% of its staff - 140 to 170 posts - redundant.
Chief Executive Phil Andrew said: “We are not immune from the wider pressures arising from Covid, despite the significant additional support we have received from Government and other sources during the pandemic.
“The Government, the Money and Pensions Service, and the debt advice sector itself were expecting a huge wave of demand to materialise once the emergency support measures fade away, and we still do.
“Based on 2021 experience to date, however, our original expectation of advising 400,000 clients this year is not going to materialise. The fact that we expected demand to increase in the future doesn’t change the current reality.
“As a prudent charity, we will not compromise our financial stability by relying on future funding to support our current operating costs.
The charity’s income is based upon how many clients it helps, with those volumes affecting the level of funds received from central government and devolved regional authority funds. They also receive an amount from creditors in recognition of its work to support people in repaying their debts.
They supported 200,000 clients in 2020, down from 300,000 in the previous year.
The charity has frozen pay and as well as making redundancies, still has staff furloughed under the CJRS.
Mr Andrew said: “It is not what we would have wished to do, even though it is absolutely the right thing to do.”
Breast Cancer Haven
The charity Breast Cancer Haven has also announced that it is suspending operations at all of its UK centres and putting all staff on notice of redundancy.
A spokesperson said: “It is with huge sadness our Board of Trustees have made the extremely difficult decision to suspend operations for the time being including pausing the delivery of our live online service.
“As a result of the pandemic our income has decreased significantly. At the beginning of March 2020, we were forced to close our five centres and other in-hospital face-to-face services.
“Despite this series of cost cutting measures and saying goodbye to valued colleagues, we are not able to continue normal operations at this time.
Despite the resumption of trading for many businesses this month, there is no sector or part of the country that has remained unscathed from the economic effects of the coronavirus pandemic and subsequent lockdowns.
If you want your business to be around to take part in the recovery then one of the best things you can do now is to get in touch with us for some specialist free advice.
After an initial chat with one of our experienced advisors, you will be in a better position to understand what choices you can make now to better prepare your business or to move in a new direction entirely.
Whatever you ultimately decide, you’ll be glad you got in touch.
The off-payroll working rules or IR35 were first reviewed in 2019 and were due to be implemented last year but were postponed for 12 months due to the Covid-19 pandemic.
Previously freelance workers who operated through their own personal service companies (PSC) determined their own employment and tax status but now responsibility for this decision has shifted to the company engaging their services instead.
Genuine freelance workers could now face higher tax payments and companies could face bigger bills from having to employ more staff directly with the higher associated costs.
We’ve previously written that the aim of the IR35 rule changes are to ensure that workers who would normally be classed as direct employees of a company, essentially doing the same job or the equivalent of other employees pay the same income tax and NICs as their co-workers.
A contractor working under their own PSC then would usually be paying less than an employee directly hired by the business to do the same job.
In a report to the House of Lords from the Economic Affairs Finance Bill sub-committee last year, they highlighted that some companies, especially in the oil sector, had imposed blanket status determinations on workers with some deciding not to use freelance contractors at all to ensure IR35 compliance.
The report also surmised that some workers could find themselves with the worst of both worlds - they would have none of the rights of an employee and none of the tax benefits of being self employed.
Andy Chamberlain, Director of Policy at IPSE, the Association of Independent Professionals and the self employed criticised the timing and the overall complexity of the changes.
He said: “The crucial problem with IR35 is still its complexity. In fact, it is so complex that HMRC have lost the majority of tribunals on its own legislation.
“Now the changes to IR35 are shifting this complexity from contractors themselves onto their clients. The result is clear: chaos.
“Many clients are pushing all their contractors inside IR35 - against the rules of the legislation. Many more are only engaging contractors through umbrella companies, while others are scrapping their contractor workforces altogether - just when, as the economy opens up, they will need them most.”
IPSE research found that 50% of freelance workers were planning to stop contracting in the UK altogether unless they found contracts unaffected by IR35.
Of these - 24% planned to seek contract work abroad, 12% said they would stop work altogether, 11% said they would bring forward plans to retire while 17% would seek a full time employed role instead.
The implementation of IR35 comes at a particularly difficult time for the freelance and self employed sector. According to the latest ONS employment figures, one in eight freelance workers - 660,000 - had left the sector in the last year.
These latest changes could see what is already a torrent turn into a flood.
Depending on their individual circumstances, contractors will have different options to choose from when it comes to tidying up their affairs.
A freelancer who’s personal service company has made a profit and can repay their debts within a 12-month period would be eligible to close their PSC through a Members Voluntary Liquidation (MVL).
An MVL offers several advantages than other methods to effectively close down your company.
It’s generally quicker, more straightforward, can be beneficial for certain taxes and generally less expensive than other methods.
Any business that would be unable to pay off debts within a year or has no clear path to repayment should consider a Creditors Voluntary Liquidation (CVL) instead.
This is a formal process overseen by a licensed insolvency practitioner who would take over negotiations with creditors and look to settle all outstanding loans and debts including Bounce Back Loans along with any HMRC debt.
Being self employed or freelance is a balancing act at the best of times.
In exchange for the flexibility and tax advantages, you forego the certainty of a regular wage and the rights and security of being an employee.
Most of the time the scales will tip in your favour but the IR35 changes compound an already complicated and changing environment.
You might be forgiven for thinking that now you’re being asked to incorporate a juggling routine into your balancing act!
If you’re a contractor with a personal services company or are generally concerned about what the changes could mean for your career and future livelihood then you should get in touch with us today.
We offer a free initial consultation with an expert advisor who can clarify any concerns about your status and will be able to advise you on any outstanding HMRC issues you or your company has.
The 2021 budget announced by Chancellor Rishi Sunak yesterday contains more news items for businesses than you’d immediately spot or was expected.
Despite several announcements, there was no change to Capital Gains Tax or Business Asset Disposal Relief (BADR), meaning that there is still time to close a solvent business using a Members Voluntary Liquidation (MVL) and take advantage of the tax benefits before the end of this financial year at the end of March.
The other main headlines that will affect companies include:
The first rise in Corporation Tax since 1974 was confirmed although it has been delayed until April 2023. The rate will rise to 25% for businesses making profits over £250,000 although any company earning less than £50,000 will continue to pay the current rate of 19%. The rate will taper upwards for businesses as they get closer to the £250,000 level.
The CJRS of job furloughs will be formally extended until the end of September 2021. Employees will continue to receive 80% of their wages until then although businesses will be asked to contribute 10% in July and 20% in August and September.
Extended for a fourth time to cover the period from February to April. Will be based on 80% of average trading profits up to a maximum of £7,500. Applicable this time to those who have filed their 2019/2020 tax returns with HMRC.
Hospitality and Leisure businesses will pay no business rates between March and May 2021, then rates will be discounted by two thirds for the remaining nine months of the fiscal year. The 5% reduced rate of VAT will be extended until the end of September. It will then be gradually increased to 12.5% for six months before returning to the standard rate by April 2022.
There will be £5 billion of restart grants available for businesses to apply for once the lockdowns are gradually lifted later in the year. Additionally a new loan scheme will be launched to replace the Bounce Back Loans (BBLs) and Coronavirus Business Interruption Loan Scheme (CBILs). It will run until the end of 2020 and lend amounts from £25,000 to £10 million.
Colin Haig, President of R3, the insolvency and restructuring trade body, said: “The Chancellor’s decision to extend the furlough scheme, to provide further business grants and a new loans scheme, and to continue the business rates holiday will give welcome certainty for many business owners concerned at their prospects over the coming months.
“However, what was missing from the Chancellor’s Budget was detail about the Government’s role once these measures start to be withdrawn.
“As a key creditor in most corporate insolvencies, the Government has a direct role to play in supporting viable restructuring and business rescue proposals. HMRC in particular has not always taken a constructive approach to these proposals, and we would like to see this change sooner rather than later.
“By taking a more active and engaged stance as a creditor, the Government could help to save more potentially viable businesses, thereby safeguarding thousands of jobs, securing future tax income, and giving companies a chance to deal with liabilities resulting from the pandemic.
“There’s no denying the Government’s COVID measures have helped business in the short term, but as the Chancellor pointed out, these can’t last forever.
“Directors of struggling companies now have a few months in which to start making plans and taking decisions to secure the future of their businesses.”
There’s no time like the present to start planning for a better future.
While there is some degree of certainty about pandemic support measures being extended, they will end at some point meaning a cliff edge is waiting for some businesses that don’t take the necessary steps to secure their future now.
We can help explore the support and options available to you and your business and put steps in place so that when circumstances change, which they will, you’ll be in a position to take advantage and literally profit.
For most people, guessing what the Chancellor will announce in his budget and how it will affect them is a diverting parlour game.
Making a couple of pounds here and being offset by losing a couple there is how it usually goes. Online calculators and tools let people try their own hand at opening the red box and making some of the intricate calculations and seeing what the consequences could be.
It can be fun to be a sim Chancellor but if you’re a business owner or director, however, the consequences can be a lot more drastic and expensive in real life.
For instance, one area that will be getting a lot of attention and close scrutiny will be any plans for changes to Capital Gains Tax.
The government already commissioned a report that was published last year recommending a significant increase in rates - doubling them in all circumstances - and also further limiting the scope of Business Asset Disposal Relief (BADR) - the new name for Entrepreneurs Relief.
The report’s tightening recommendations included:-
If any or all of these recommendations are accepted and become law they’ll have a significant effect on any shareholder hoping to benefit from the Members Voluntary Liquidation (MVL) process.
Changes could come into force in a little as a month’s time so if you were considering an MVL to take advantage of BADR then there’s really no time to lose.
One thing we need to point out is that the tax point relates to the time you receive a distribution from the MVL, not when the company enters the arrangements.
So if you want to make the biggest tax saving in an MVL then you need to act before it’s too late.
If there are any changes announced in the Budget on Wednesday and you instruct us and provide the necessary required information no later than Friday 12th March 2021 then we guarantee* to facilitate the liquidation within this tax year, allowing any distributions to be made before Monday 5th April 2021 - when any new rules and changes would take effect.
We’ll show you how easy it can be to proceed swiftly and take advantage of an important benefit before it’s cut back or removed altogether.
*subject to demand and correct information being supplied in time
Insolvency statistics are a curious thing.
The Insolvency Service does a fantastic job in providing regular, reliable and comprehensive statistics.
They give us the clearest indication of precisely what is happening in every UK country regarding company insolvencies. The downside is that they are necessarily time-lagged so by the time the official figures for a certain month are released, we’re three weeks into the new month and already looking ahead.
So it is with the first official statistics for January. These are important because they give us the first official snapshot of 2021 and what this could tell us about the underlying strength of the UK economy and the health of the thousands of businesses that make it up.
The last monthly statistics release we covered for December showed a rise in the total number of company insolvencies which indicated that after a year of historic lows, perhaps cases were getting back to the numbers one would expect given the series of challenges businesses are having to overcome to stay afloat.
Well, the opposite has happened - they fell by over half.
The overall number of company insolvencies in January 2021 for England and Wales was 752, down from 1,228 in December 2020 and down by just over 50% for January 2020 which saw 1,515 cases registered.
We now know that December 2020 was the only month since the start of the first UK lockdown in March where company insolvencies were higher than in the same month of the previous year.
But compared to January 2020, the figures from last month are striking:-
Additionally there were 23 company insolvencies in Scotland (12 compulsory liquidations, 11 CVLs) and 3 in Northern Ireland (2 compulsory liquidations, 1 CVL) making a total of 778.
The Insolvency Service reiterates that as a result of pandemic itself and various Government support schemes including the Corporate Insolvency and Governance Act 2020 including the ongoing suspension of statutory demands and winding-up petitions, would have a strong influence on the numbers.
However none of these entirely solve the mystery of why corporate insolvencies rose in December yet fell away again dramatically in January.
Colin Haig, President of R3, the insolvency and restructuring trade body might have an explanation.
He said: “Many firms are still struggling - and those who usually rely on a strong pre-Christmas trading period will have suffered as the third lockdown meant people couldn’t shop as they have traditionally. i
“It’s possible that a number of businesses entered an insolvency procedure ahead of the December rent quarter day, which would help explain why corporate insolvencies - and more specifically administrations and CVLs - increased then and fell again in January.
“January’s fall in corporate insolvency numbers is primarily driven by falls in CVLs, CVAs and administrations.
“These figures don’t reflect the fact that the economic fallout from the pandemic is continuing to hit businesses, individuals and the wider economy. It’s clear the Government’s support packages - which were extended again in December - are helping prevent the rise in insolvency numbers we would have expected to see in an economic climate like this one.
“However, the support packages and bans on creditor enforcement actions can’t last forever.
“We hope that the Chancellor will use his budget on March 3rd to outline how they will be wound down in an orderly manner in the medium term, and how businesses, staff and the self-employed will be supported during this period.
“Our members are telling us that companies are hesitant to make plans with conditions liable to change at any moment, so clarity around the future of the support schemes will help directors with their planning for the rest of the year.
“The debt burden which UK companies, especially SMEs, have built up is also a concern, as it will drag down the investment which will be a vital component of the economic recovery from the recession.”
Colin Haig’s description makes sense when you consider that entering an insolvency moratorium itself or other insolvency procedure that grants a similar protection such as a CVA.
It gives a company at least ten working days’ protection from creditors’ demands and actions while they work with a professional insolvency practitioner to see how they can make the business stronger and more resilient.
If you feel that your business could benefit from some professional, impartial advice then get in touch with us to arrange a free, virtual consultation.
We can help you make sure that your company is in the best position to take advantage because these legal and commercial conditions won’t last forever.
That’s one thing we can all be certain off.
Firstly the idea of being your own boss is a powerful one. It’s not for everyone to be sure, but if you ultimately like calling the shots for yourself then it makes sense to go ahead and do it.
Also some contractors work in industries where it is hard to find a regular company that would employ them so they have to form their own company in order to pursue their dream career and fill the niche they’ve successfully identified.
The second reason is that because contractors tend to be more entrepreneurial by nature, the inherent flexibility of their status is a great benefit.
Sadly, like all businesses, it can come with its own challenges including proving that they are actually independent contractors and not “disguised employees”.
This was the focus of Off-Payroll legislation aimed at making public sector recruiters responsible for assessing and vetting the true status of contractors working on their projects.
Brought in to help address tax avoidance, it has also caused a lot of worry and stress and ultimately led to many contractors to avoid working on public sector projects altogether to avoid uncertainty and doubt.
Sadly for them, the changes are due to be imposed on private sector employers too, so the dilemma will arise once again for contractors.
Many will have considered whether it’s worth all the hassle and expense of proving their employment independence and looking for a payroll job instead.
Covid-19 changed a lot of these calculations.
The IR35 or “Off-Payroll” legislation is due to be reinstated in April after being postponed for a year and many contractors who have been lucky enough to continue working and earning during the lockdown period will now find their roles and earnings coming under scrutiny in the near future.
The threat of IR35 might cause some to permanently look for the security of official PAYE employment or it might tempt others to bite the bullet and move forward with their retirement plans earlier than they would otherwise have wished.
Regardless of their personal circumstances, one final choice remains - what to do about their old company?
Optimistic contractors might want to keep their options open and hold onto the framework to provide them with a means of transitioning back into their previous independent existence when it’s feasible or economically advantageous.
But this could complicate their employment status if it’s queried by HMRC.
There would also be the legal duties of any company director even if they aren’t working for their own business at the moment. It might simply be easier to close their company down and reestablish one when material circumstances change.
So for any contractor facing this dilemma, there is an effective and efficient route that would allow them to tidy up any loose ends.
It could also be lucrative for them too.
We’re talking about a Members’ Voluntary Liquidation (MVL), the easiest and most straightforward way to close any solvent business - contracting or not.
Not every business will qualify for an MVL, however.
The business must be solvent, which means they must be able to reasonably pay their creditors in full within a 12 month period. They also need to have over £25,000 in assets and also have either stopped trading or be about to.
If all of these criteria are met then an MVL is definitely a strong option to consider.
If you act quickly you can also take advantage of Business Asset Disposal Relief (BADR).
BADR, as Entrepreneurs Relief was previously known until April 2020, is the rate of tax paid on the assets of your business as they are realised. It’s significantly lower than the equivalent rate of income tax that would be paid on any assets if they were released as a dividend.
A licensed insolvency practitioner who would oversee your MVL could allow assets to be disposed of as Capital instead, which is usually taxed at either 18% or 28%, but qualifying assets under BADR are taxed at 10% - potentially representing tremendous savings.
Another reason to act quickly to close your company is that there’s a lot of speculation that the Chancellor will be looking to change the rules on BADR in the forthcoming Budget in March making it more difficult to take advantage of - or potentially eliminating it altogether.
So if you’ve been thinking about closing your contracting business - now is the perfect time to pull the trigger and do it.
We’ll arrange a convenient free virtual consultation for you with one of our expert advisors to discuss what you want to do.
Then we can work on a plan together to get there and let you get on with your next employment adventure.