Striking off is the process by which a limited company is removed or “struck off” the Companies House Register. Once the company is removed from the register, it ceases to exist and can no longer trade, make payments or sell assets.
On 8th March 2021 Companies House resumed strike offs, having previously paused both compulsory and voluntary strike off processes in January.
Lucas Ross – Business Rescue, Recovery & Insolvency are supporting a number of contractors and advising those whose companies have overdue accounts, confirmation statements or other filing matters to bring them up to date to avoid compulsory strike off action being taken by the Registrar of Companies, which ultimately can result in companies being dissolved.
What impact does the 2021 Budget have on contractors wanting to close a company?
It cannot have escaped the notice of contractors that there was a myriad of headlines over the past few months regarding potential tax rises, particularly in the sphere of Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR) (formerly Entrepreneurs’ Relief).
In essence this means that those individuals who are leaving contracting and have retained reserves of over £25,000, can still benefit from a rate of 10% (if BADR applies) or 20% (ordinary CGT rate) once the annual exempt amount (£12,300 at present), has been utilised. Members Voluntary Liquidations are still proving popular amongst the enquiries we receive.
It is worthwhile noting that the chancellor has made it clear that taxes will need to be raised to repay public spending and with a further Budget due in the Autumn, contractors who find themselves with a dormant company once IR35 reform (the April 6th, 2021 off-payroll rules) is implemented, should consider their options quickly.
Another consideration has been centred around the uptake of Bounce Back Loans in the contractor sector. Unfortunately, for some, contracts have been hard to come by and it may now be some time since fee-paying work was carried out by some PSCs.
If this reflects you and your business, please ensure you speak to your accountant to make sure that any amounts being withdrawn from the company are being recorded and documented appropriately. It has historically been common (and tax-efficient) for contractors to be paid a low salary and for the balance of their remuneration to be paid as dividends.
The above, however, relies on there being ‘distributable profits’ being available for the payments made over the PAYE salary to be declared as dividends. In many cases, directors draw a fixed monthly sum for a 12-month period and then an annual dividend is declared to cover payments made.
If, however, at the end of the 12-month period (or indeed earlier if there is an enforced cessation before that) it is concluded that there were insufficient distributable reserves to cover the sums drawn, this could give rise to an overdrawn loan balance which is repayable to the company. For the avoidance of doubt, any distributions found to have been declared in excess of distributable profits must be repaid.
Will the Recovery Loan Scheme (RLS) help?
The new ‘RLS,’ was announced in Budget 2021 and is designed to provide support in place of the outgoing Coronavirus Business Interruption Loan (CBIL) and Bounce Back Loan (BBL) schemes.
There are concerns that the Scheme will have a limited impact in the contractor sector. RLS facilities are subject to credit checks and a viability review, however combined with a minimum loan facility of £25,001 (lower limits are available for asset finance agreements) arguably the scheme is aiming to support SME companies rather than contractor companies, who may struggle to evidence viability if there is no ongoing contract in place. In any event, the maximum term of an RLS loan is six years and interest is payable from the outset.
If any contractors have concerns regarding the solvency of their company or dividends drawn, then do not hesitate to contact us on 0330 128 9489 or email us at help@lucasross.co.uk
