Ltd Company Complex BADR Question: some consulting as an individual?

[mandaris]

My wife and I are sole shareholders and directors in Limited Company A (a consultancy trading company) plus Limited Company B (a residential property letting company).
We recently acquired additional properties and income stream in Company B, and we have already greatly cut our activity and income within Company A over the past 6 months.
We now wish to retire from the Company A consultancy business and close it via Members’ Voluntary Liquidation (MVL).
We want to claim Business Asset Disposal Relief (BADR) at 14% on circa. £800,000 of retained profits. We clearly do not want this amount to be deemed to be a distribution and income tax charged.
I am aware that there are criteria for BADR to apply plus Targeted Anti-Avoidance Rules (TAAR).
My question is: I understand that if all four conditions below are satisfied then BADR cannot be claimed, and whilst I have sought paid advice with a report due back soon, I wondered if anybody had any thoughts or watch outs to throw into the mix since it is a large sum that makes us nervous?
Condition A: Individual receiving the distribution had at least a 5% interest in the company immediately before the winding up. * Satisfied
Condition B: The company was a close company at any point in the two years ending with the start of the winding up. * Satisfied
Condition C: The individual receiving the distribution continues to carry on, or be involved with, the same trade or a trade similar to that of the wound up company at any time within two years from the date of the distribution. * Not sure? See below…
We are not ‘phoenixing’ (setting up a new Limited company to continue to trade) and we are not marketing any services. However, as a previous business owner and consultant, it is not unusual that I might get asked for help sometimes as an individual.
Obviously, should there be any activity or income both would be massively reduced, but I guess I could still fall foul of the “doing something similar to that of the wound up company”.
Three example scenarios are below, and I ponder whether any or all might be a problem?
1. A couple of old projects included success fees. While I am no longer undertaking work, it is possible that in a years’ time some success fees might be identified by an old client as payable, and they may be willing to pay me as an individual realising that the company has closed.
2. As is the nature of business consultancy, there is a possibility that an old client might need a little further paid for advice relating to problems relating to a project we earlier completed, and it would be impolite and unprofessional to refuse.
3. I do not yet know how retirement will suit, and it may turn out that I need to, in some smaller capacity, supplement our other income as an individual rather than as a company. I guess this is the least likely to occur and probably the more contentious element.
Condition D: it is reasonable to assume that the main purpose, or one of the main purposes of the winding up is the avoidance or reduction of a charge to Income Tax. * Not Satisfied?
The main purpose is to retire due to sufficient income from other sources, Yes, I would prefer to pay 14% BADR now than 18% later, or income tax, but that is not the main reason.
Am I over thinking this? If Condition D is not satisfied then does that mean it does not matter about Condition C being satisfied insofar as those additional work scenarios taking place because all four items need to be satisfied whereas only three will be?
Thank you for any thoughts or views you might have?

[bd6759]

Have you taken income (salary / dividends) commensurate with the value of your labour?

You have the main points covered. But without seeing the accounts and drawings, it’s impossible to form an opinion.

[mandaris]

Thank you for taking the effort to read my long post! Appreciated.

Both my wife and I have been consistently drawing a small salary plus dividends up to around £50,000 each per annum. It is only us two within the business.

The amounts we draw down (in our minds) are respectable and are sufficient for our lifestyles.

The business has been making much more than that per year (between £200-£400k), mainly due to success fees on certain projects, hence retained profits.

Not sure if that helps?

[bd6759]

The main concern is that the retained profits will be caught by the “moneyboxing” anti-avoidance rules at s684ITA.

You need specific advice and possibly seek HMRC clearance.

https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm36800

[mandaris]

Thank you.

I have built up lots of profit, simply working 80 hour weeks and because Brexit fed many companies into the need for my services over the past few years. I got lucky. I hadn't even considered and did not know about potential tax advantages until having decided to retires and starting to research.

It might not matter, but the profits are actually invested via intercompany loan to another company set up to buy and let residential property, and I understand the loan owed to the MVL company will, via notation, be transferred to we the directors, so we become beneficiaries of the loan (and pay CGT on it during winding up) than receive cash itself.

I guess I just need to cross fingers on the basis that I want to retire, and it would be daft not to when I have done nothing wrong.

[bd6759]

Crossing your fingers and hoping does not fall within the civil standard of “doing nothing wrong”.