Changing back to a sole trader from a limited company often results in a hefty tax bill.
From 1 April 2013 there will be a special disincorporation relief which will avoid any tax charge provided certain conditions are met. The relief is set to run for 5 years (to 31st March 2018) and will only be available to companies whose total value of qualifying assets (goodwill and land) does not exceed £100,000. A claim for disincorporation relief may be made where:
- a company transfers its business to some or all of the shareholders of the company;
- the transfer of the business is a qualifying business transfer (see below)
- the business transfer date falls between 1st April 2013 and 31 March 2018.
A claim for relief must be made jointly by the company and all of the shareholders to whom the business is transferred and is irrevocable.
As mentioned, the relief applies to a ‘qualifying business transfer’ to company shareholders. This broadly requires all of the following conditions to be satisfied:
- Condition A – The business must be transferred as a going concern.
- Condition B – All the business assets must be transferred, or all the business assets except cash.
- Condition C – The total market value of ‘qualifying assets’ (i.e. goodwill or land not held as trading stock) must not exceed £100,000.
- Condition D – The business must be transferred to individual shareholders only.
- Condition E – Each of those shareholders must have held shares in the company for at least twelve months ending with the business transfer date.
If you were considering changing from a limited company to a sole trader expert help and advice should be sought to see if disincorporation is the right option for you and your business.
A member of our team would be happy to discuss your individual circumstances and advice what the best route would be for you and your business.
Tel 01233 630000