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Question About Company Formation And Closure

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Sorry if this isn't the right forum but this one seemed the closest. I've never owned a company before so please excuse me if my questions are stupid.

A friend recently closed down her loss making company and has been able to offset her losses against her income tax (she never gave up her old job luckily). That got me thinking. Let's say I wanted to start a company which invested money in stocks, or gold, etc. I could start with a loan to the company of, say, £5k. Over a period of time I could trade the stocks. After a year or two the company would either have:

1) Broken roughly even.

2) Made a profit.

3) Made a loss.

In which case it would seem obious that I could:

1) Broken even = continue trading.

2) Made a profit = close the company down, take out the profits (so they are protected) and start again with a new company.

3) Made a loss = close the company down, then offset the loss against my normal jobs income tax.

In summary it seems like a guaranteed win. If the company made a loss then it would be the taxpayer who shouldered the burden as I'd simply get that loss back from my tax the following year.

Is this correct? Or have I missed something fundamental? If it is then is there any implication of repeatedly closing the companies? Would I still be a bankrupt because my own comapny closed while still owing me money (and how could this be got around)?

Once again sorry if this is a really dumb question!

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Company losses cannot be used against personal tax liabilities, where the company has been existence for more than 3 years.

The only reason where tax relief could take place is within 3 years of incorporation. The reason being businesses are most likely to make losses when first starting out. So the wonderfully generous government has said as you would have paid tax on the money used to invest in your business, they will allow you to carry back the losses against your income for the 3 years prior to when you statrted the business. This only works where there is an actual trade.

Investment is not treated as a trade. Therefore your idea wouldn't work.

Also as a closed investment company, you would have excess management expenses not losses. And these are very difficult to use against other incomes in the company. Plus investment companies are taxed at the full company rate of 30% on all profits, with no annual exemption for capital gains unlike individuals.

Another point being that even if you could get tax relief for the losses made by the company, it is exactly that relief not reimbursement. Where by you would not pay tax on the corresponding amount of the losses. Therefore the largest relief would be is 40% of the losses. So you have still incurred at a minimum 60% of the losses.

The best thing I could see is to either use an ISA (Tax free gains)

or just do it as an individual as any capital gains made, especially on an initial investment of £5k should be covered by the annual exemption, currently £8.5k.

Any capital losses for an individual can be stored and used against future gains.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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