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Light at the end of the tunnel OR a false dawn

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There may be a light at the end of a very dark tunnel for Energy Contractors working the Oil and Gas industry. The price of a barrel of oil had drifted up to $66 recently and some industry experts are suggesting it could go to $70 by the end of the year. Whilst this news is certainly encouraging, it’s likely to be some time before the Major companies begin to recruit again, in fact there may still be more redundancies ahead. 

For some Contractors this may mean that they need to carefully consider their position. Is contracting still cost effective? Would they be better off in a staff role? What would happen to their Limited Company and the funds they have within it if they did return to a staff role? What would be the most cost effective route to closing down the Ltd Co?

Recently Donald McNaught of Contractor MVLs outlined the benefits of using a MVL if Contractors did decide to close their Ltd Co’s. He suggested it would always be best to take professional advice before deciding what was best for any individual case, however using a MVL when closing a Limited Company can be particularly tax efficient. As a contractor, you have probably already arranged your tax affairs efficiently, perhaps by providing your services through a limited company. It therefore makes sense that when that company is no longer needed that you continue to apply tax efficient strategies to shut it down. Contractors moving into an employee position, who have retained capital in excess of £35,000 in their company, should consider using a Members Voluntary Liquidation (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 (£11,100 for 2015/16) and also the possibility of utilising Entrepreneur’s Relief. 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 £35,000 and above.”

Source: MVL

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Mervyn Stanley

Managing Director of Cameron Carnegie Consulting, a specialist Interim Sales, Marketing and Business Development consultancy focused on helping firms grow by developing and winning new business.

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