To qualify for entrepreneurs relief, the company must be considered a trading company. This means it cannot have substantial investment activity. HMRC consider “substantial” to be in excess of 20%.
Normally for a contractor liquidations, the first few aren’t a problem. Interest rates are currently very low, so interest received will typically be peanuts compared to trading income. Also, there isn’t much cost/time required to put money in a deposit account.
However, it is likely the deposit account asset makes up >20% of your assets, most likely much more. Contractors need very little in terms of assets, a computer and a smart phone will be sufficient for most. They don’t hold stock, and hopefully don’t have too much in trade debtors.
Tax advisers have different views on this. Where the cash balance is far in excess of what the contractor is likely to need in a year, some would question whether/when it becomes an investment asset.
Our view is that provided most of the income earned and time spent is via trading not investment activities, this shouldn’t pose a problem. The stash of cash itself has arisen mainly through trading, so it’d take a mean inspector to attempt to argue your company had become an investment company, and therefore disallow entrepreneurs relief upon liquidation.