Winding up the company
Closing your business will normally involve winding-up your company and taking out any residual value as a capital payment subject to capital gains tax (CGT) at 10% or 20%. HMRC will accept this as long as you are not involved with the same or a similar business within two years.
HMRC may view the revival of a ‘dead’ business in a new form as tax avoidance and can insist that the proceeds from the old business are subject to income tax at rates of up to 38.1% rather than to CGT. Therefore if you want to start up a similar business after a short break it may be better to sell your old company rather than liquidate it.
HMRC are concerned that companies which use tax avoidance schemes can be left with significant tax debts if the scheme fails. At that point the company is insolvent so it is dissolved and the tax is never paid to HMRC.
The Government wants individuals connected with companies that have avoided or evaded tax to be made liable for the missing tax when the company is wound-up without paying amounts due to HMRC. Instead of the tax debt dying with the company the proposed new law would allow it to be transferred to directors, shadow directors and participators in the company who are shareholders but not directors. This new law will take effect for periods ending after the day on which next Finance Act is passed in 2020. Please take advice before winding-up or liquidating your company.