Johnston Carmichael, which has bases in Aberdeen, Glasgow and Edinburgh and is one of Scotland’s leading Chartered Accountancy and business advisory firms, is launching a dedicated service designed to help contractors unlock cash in their limited companies, which launches this week.
Contractor MVLshas been designed around a Members Voluntary Liquidation (MVL), a legal process which closes a freelance contractor’s limited company and allows the shareholders the possibility to receive tax efficient distributions.
Currently, if a contractor closes their limited company due to coming out of contract or embarking upon retirement, there can be substantial sums of money remaining in their business bank account.
The most common way to close the company is to take any remaining profit as a dividend. However, depending upon how much profit is left, contractors may be able to close the company via an MVL which offers greater tax efficiencies and thousands of pounds in potential savings.
“We are delighted to launch Contractor MVLs, which provides contractors with a platform to close their limited companies quickly and as tax efficiently as possible.
“Many contractors will already have arranged their tax affairs efficiently, by providing services through a limited company. It makes sense that when that company is no longer required, they continue to apply tax efficient strategies to close it down.
“Contractors closing their limited companies, who have retained capital in excess of £25,000 in their company, should consider using an MVL to extract the remaining capital. The UK Government has imposed a limit of £25,000, above which all distributions from a company would be treated as income and therefore taxed at the shareholders’ marginal rate of tax.
“When using an MVL, you benefit from your annual capital gains allowance (£11,000 for 2014/15) and also the possibility of utilising Entrepreneur’s Relief (both will depend upon the individual’s wider tax affairs and separate professional advice should be sought).
If you meet the criteria then you may only pay tax at the lower rate of 10%. Realistically, after considering the limited costs of an MVL, you will start to see benefits accruing in the form of tax savings if you have around £40,000 and above.”
Pictured is Johnston Carmichael Partner Donald McNaught