Kate Naylor, Tax Partner at Sagars Accountants reflects in her latest family business blog on what happens when family business owners make the decision to end their business? “There’s much to think about”, she says:
“Sale – In many cases a business runs to the point where the owners want to sell, they might be keen to retire or perhaps they get an offer that’s too good to refuse, but essentially the business is sold to new ownership. This can be relatively simple from a practical perspective, albeit an emotionally painful and stressful process for some owners. Take a look back at my blog on The future of the family business for more detail around the option of business sale.
Employee ownership trusts (EOTs) – If the business isn’t saleable, or alternatively you think that your employees could run the company and benefit from future growth, you could look into an EOT as a possibility instead, and my previous blog; Employee ownership trusts should serve as a good starting point.
However, for some businesses, it is the case that there comes a time when the last person to leave switches off the lights and locks the door and with the right advice, there can be a positive tax outcome…
Formal members voluntary liquidation – If a company has operated for a while and accumulated some value, it might be worth exploring a formal members voluntary liquidation which involves appointing a liquidator to realise the company assets. Provided you qualify, the first £1million may be taxed at 10%, otherwise it’s 20%, which still compares favourably with taking a dividend at 38.1%.
As with all good tax breaks, you must make sure you are not going to fall foul of the anti-avoidance rules which could tax it as a dividend. This could apply if you decide to undertake a “similar” business activity within two years of the liquidation proceeds being distributed – it’s vital you get bespoke advice if you are considering this route.
Alternative routes – Taking modest dividends out of your company over a number of years is another option so that you essentially create your own pot of cash to draw on. Depending on your total assets, you could use the company as your own Family Investment Company (FIC). Read my last FIC blog to understand how to structure a FIC to achieve family goals.
Get advice to help you make the right decision –As with many business decisions, it’s wise to get professional advice before you do anything. For one thing, just because you don’t think you can sell your business doesn’t mean that it can’t actually be sold. Clearly, you will know your business better than anyone, but do you know who else is out there in the market? Even if you are correct and a sale isn’t likely, there are practical and tax matters to think about before the business comes to an end.
Whilst it’s not always a comfortable conversation, this is something that we’re experienced in guiding our clients through and if you want to talk about it, we are here and happy to help.”
Contact Kate Naylor via email at [email protected]