[Hypothetical question] Caught in IR35 and closing down business

[eek]

However there are risks. A post from AccountingWeb (some time ago). Can HMRC demand tax from a Company that has already been wound up? | AccountingWEB

I can see why HMRC were annoyed. He applied to pay PAYE after making a request to strike the company off....

[Jessica@WhiteFieldTax]

Ignoring any aspects around ER on payment it seems to me that one would be in a very strong position there.

If HMRC do not object to the closedown then they are accepting the cos taxation position. It would be unreasonable if they were able to go straight to the employee because the company had been liquidated. They surely have to firstly establish the debt against the company before it can be transferred to the individual. That involves restoration in the first instance.

However there are risks. A post from AccountingWeb (some time ago). Can HMRC demand tax from a Company that has already been wound up? | AccountingWEB

"We have a situation where we wound a company up using ESC C16, with HMRC giving their approval of this. Some time later HMRC issued an enquiry notice into the company's CT600. We told HMRC that the company had been wound up, so they could not enquire. They replied, agreeing that they could not enquire (they hadn't checked that the company had been struck off, prior to raising their enquiry notice!), but they are now trying to use Schedule 36 Finance Act 2008 powers to give them access to the company's accounting records for the year in question. HMRC are of the opinion that, under ESC C16, the directors and shareholders agree to pay the company's tax liabilities, and that includes potential liabilities that may come out of the woodwork. As far as I know, the client has nothing to hide, so there will be no further tax liabilities. We are just trying to avoid the time and hassle of dealing with this HMRC pointless request, but unfortunately HMRC don't want to take the practical view and back off."

If HMRC were not informed of the striking off then that would weaken things.

However, provided everything has been done properly I believe you should be as safe as is possible.

Thats a new interpretation on Esc C16, possibly one HMRC officer freelancing. Its not common practice to use the ESC C16 declaration as a lever to re-open a closed company.

In any event with the new statutory enactment of ESC C16 - sorry haven't got statute to hand as I type - the declaration doesn't have to be made so its academic. You either have a statutory right to take less than £25k on strike off as capital or, if over £25k, you need a MVL or suffer the tax as a dividend.

[Jessica@WhiteFieldTax]

Ah, right you are. That was a nicety that I wasn't aware of.

Thanks to you both James and Blaster, I'm better informed now.

Hope our web content was useful.

[cojak]

Hope our web content was useful.

Yes, thank you too Jessica.

[Maslins]

Again, the bottom line is that closing your company provides no form of immunity and, if anything, could be the trigger point for an investigation.

We hear a lot of people concerned about this...but in >300 MVL Online cases to date, not once have we seen HMRC raise an enquiry, IR35 or otherwise (I'd say 50-75% of our clients are ex contractors, not always clear cut).

I can't say it'll never happen, but seems to me any fears that closing your company will immediately lead to the IR35 inspectors swooping in seem unfounded.

[eek]

We hear a lot of people concerned about this...but in >300 MVL Online cases to date, not once have we seen HMRC raise an enquiry, IR35 or otherwise (I'd say 50-75% of our clients are ex contractors, not always clear cut).

I can't say it'll never happen, but seems to me any fears that closing your company will immediately lead to the IR35 inspectors swooping in seem unfounded.

I doubt HMRC are that joined up yet....

[jamesbrown]

I can't say it'll never happen, but seems to me any fears that closing your company will immediately lead to the IR35 inspectors swooping in seem unfounded.

Yeah, I think that much is clear, otherwise we would've heard about it The point is that closing a company isn't an "anti-IR35 strategy" and it also offers HMRC a decision point. Any additional risk needs to be placed in the context of the overall risk of investigation, which is vanishingly small. The bigger risk is having ER denied retrospectively because it wasn't available (e.g. the contractor had every intention of continuing their trade). Lack of case law doesn't mean lack of risk on the latter, I think you'd agree.