MVL - Autumn Statement

[jamesbrown]

I can't see any logic to the govt insisting someone doesn't work at all for 2 years...?

I do see the logic that they don't want a contractor restricting drawings to basic rate dividends, then liquidating every couple of years, rinse and repeat.

True, but there's a difference between a central expectation and how legislation is drafted. Legislation is very often drafted more broadly for a deterrent effect or to accommodate enforcement action if a central expectation isn't met. The classic example is M2F in the press release for the IR35 legislation versus the actual legislation, which is very broad in scope. Based on the post by Iliketax, if the drafting stays this way, there's going to be a degree of uncertainty about anything other than a major change of direction or retiring. It's going to be a long time before any case law is available.

[jamesearljones]

Except that there is the ambiguity of what is meant by the "same trade".

For example...

Closing your IT Ltd Co and getting a permie IT job in the same tech - is that the "same trade"?

Closing your IT Ltd Co and opening another Ltd Co offering services in a different tech - is that the "same trade"?

If we are presuming a permie IT job would be acceptable, what about this scenario:

Closing your IT Ltd Co and getting a brand new contract working under an Umbrella Company for 2 years.

[WordIsBond]

That "participator" provision could be a problem for a permie situation, if there is some kind of employee share plan or share options, and the company is in a similar activity to what you were doing.

I'd be surprised if it is intended to apply to an employee, and I think they'd have a hard time making it stick to an employee. That's not who they are after here. But if you become an employee of a small company and acquire, or have the right to acquire, more than 5% of the share equity, they might well go after you on that.

[jamesbrown]

Interesting article in the FT today (behind a paywall) talking about a surge in MVLs:

http://www.ft.com/cms/s/0/7f8197f0-b...#axzz3wTgX8Wit

Some poor advice in the mix though (given the context is about seeking a capital distribution, rather than a dividend distribution):

"Advisers said that for simple businesses, such as consultancies, there was relatively little disruption in liquidating a company and establishing another one, beyond setting up bank accounts and re-registering with HMRC. But transferring a trading business to another vehicle was more complex. "

[northernladuk]

Interesting article in the FT today (behind a paywall) talking about a surge in MVLs:

http://www.ft.com/cms/s/0/7f8197f0-b...#axzz3wTgX8Wit

Some poor advice in the mix though (given the context is about seeking a capital distribution, rather than a dividend distribution):

"Advisers said that for simple businesses, such as consultancies, there was relatively little disruption in liquidating a company and establishing another one, beyond setting up bank accounts and re-registering with HMRC. But transferring a trading business to another vehicle was more complex. "

Surely HMRC must be rubbing their hands here? There must but a good chunk of these that are doing it for no other reason than gain a tax advantage and are going to or already have set up another company to carry on with which is still blatantly against the rules MVL deadline or not.

[jamesbrown]

Surely HMRC must be rubbing their hands here? There must but a good chunk of these that are doing it for no other reason than gain a tax advantage and are going to or already have set up another company to carry on with which is still blatantly against the rules MVL deadline or not.

If the professional commentary in that article is anything to go by, they should be. At the very least, it implies that liquidation is straightforward for the purposes of gaining a tax advantage through a capital distribution and then starting afresh. It could just be shoddy journalism, where the advice was specifically about the practicalities of closing a company and not about taking a capital distribution, but I doubt it. Anyway, yes, it's clear that you cannot close a company and start a new one when a primary motivation is to obtain a tax advantage through a capital distribution, using ER or otherwise.

[Mister Clark]

This post is more out of curiosity than anything to see what other people make of my circumstances.

I left the UK in July 2014 and have not been back since.

At the time I left the UK I was unsure how long I would be away and, at that point, only had a working holiday visa for Australia and no job so there was a real possibility I would be back and working though my ltd again early 2015.

Fast forward and I'm currently working on a sponsored visa.

I decided post Autumn budget to liquidate my company; primarily because I'm unsure when I will be back to the UK (If ever). Primarily I want the money out but there's obviously running costs associated and I wanted to try and limit any potential IR35 liability.

I think it unlikely that the final distribution will be made before April 6th 2016.

Given these circumstances, if I return to the UK and want to contract again would I fall foul of the proposed 2 year gap between forming ltd companies if I enter back into the same trade?

I know it's the hallmark of HRMC to draft badly worded legislation, that it's still being drafted and my circumstances are very specific but surely there's going to be a ton of other folks with equally unique situations who are not taking the proverbial.

Any thoughts welcomed!

[JB3000]

This post is more out of curiosity than anything to see what other people make of my circumstances.

I left the UK in July 2014 and have not been back since.

At the time I left the UK I was unsure how long I would be away and, at that point, only had a working holiday visa for Australia and no job so there was a real possibility I would be back and working though my ltd again early 2015.

Fast forward and I'm currently working on a sponsored visa.

I decided post Autumn budget to liquidate my company; primarily because I'm unsure when I will be back to the UK (If ever). Primarily I want the money out but there's obviously running costs associated and I wanted to try and limit any potential IR35 liability.

I think it unlikely that the final distribution will be made before April 6th 2016.

Given these circumstances, if I return to the UK and want to contract again would I fall foul of the proposed 2 year gap between forming ltd companies if I enter back into the same trade?

I know it's the hallmark of HRMC to draft badly worded legislation, that it's still being drafted and my circumstances are very specific but surely there's going to be a ton of other folks with equally unique situations who are not taking the proverbial.

Any thoughts welcomed!

Well, if you have ticked the ER box on the tax return and start submitting tax returns again as a closed company director expect an investigation! Their systems will know you are a contractor because of the employment intermediary report your agency has to submit on you. Squeaky bum time!

Re: IR35, I believe HMRC can always transfer the company's debt onto you anyway so I don't think you can escape that easily!

So an ER investigation could very quickly become IR35 one as well!

Try not to lose too much sleep.

[RockyBalboa]

This post is more out of curiosity than anything to see what other people make of my circumstances.

I left the UK in July 2014 and have not been back since.

At the time I left the UK I was unsure how long I would be away and, at that point, only had a working holiday visa for Australia and no job so there was a real possibility I would be back and working though my ltd again early 2015.

Fast forward and I'm currently working on a sponsored visa.

I decided post Autumn budget to liquidate my company; primarily because I'm unsure when I will be back to the UK (If ever). Primarily I want the money out but there's obviously running costs associated and I wanted to try and limit any potential IR35 liability.

I think it unlikely that the final distribution will be made before April 6th 2016.

Given these circumstances, if I return to the UK and want to contract again would I fall foul of the proposed 2 year gap between forming ltd companies if I enter back into the same trade?

I know it's the hallmark of HRMC to draft badly worded legislation, that it's still being drafted and my circumstances are very specific but surely there's going to be a ton of other folks with equally unique situations who are not taking the proverbial.

Any thoughts welcomed!

Initial distribution prior to April '16 = okay; post-April second distribution = declare as dividend? (i.e. no ER).

[handyandy]

My pennies worth...


I have contracted several times in the past 25 years in IT roles (and my dad was an oil industry on-shore planner who contracted from the early 1970's until retirement).

I've started LTD's when contracting and closed them down if/when I got a good permie job (unlike many here I'm a bit of a tart and will go for the best deal for me and don;t care if I have to either play the political game as a permie or play the game of keeping several eyes open for the next gig as a contractor - either way it is just the normal stress of making a living). The only time I was somewhere in the middle was when I did just under 2 years on a contract via an MSC back in the mid 2000's - I did that as I was 'worried' about being IR35 caught and with hindsight regret I did;t just stick with a LTD.

The first and only time I have used this was about 6 years ago when I went permie again after 5 years of contracting with 3 different clients - i had >£100K of retained profit and used the entrepreneurs relief scheme (nice letter to HMRC) to wind up and pay 10% on everything over my CGT allowance for the year.

At no time up until around the late 2000's had I heard about Entrepreneurs relief or MVL as a route to extracting retained earnings (in fact my dad always used to say that it was not really an option to retain profits back in his day and would likely attract a revenue visit - at least that's the advice his accountants always gave him).

Now that's not to say that it was not possible to do a liquidation before the 2000's to take retained profits as a capital distribution from a one man PSC type LTD (I'm not sure I even remember the term PSC being used till recently), but I don;t think it was customary practice - perhaps that was due to the cost of a liquidation, maybe it was based on revenue action if PSC companies tried to do it, I suspect that it was changes to CGT and other taxes that came in during the Blair/Brown years that opened up an advantageous tax saving opportunity. My take is that until the 2000's the PSC contracting business was that much smaller and the revenue accepted it as a necessary evil but the majority of owner run businesses fell into more 'traditional' models (corner shop, local garage).

I think that the series of 'attacks' on PSC contacting over the past 15+ years has mainly been driven by the expansion of the sector and various governments being worried about people switching from traditional employment (often for life) into shorter term contracts which are outside the PAYE net. That obviously means those individuals are going to look at whatever options are available to reduce their tax burden.

Closing off the winding up with capital distribution route is part of the cat and mouse that seems to be part and parcel of the greater uncertainty we have to live with now. I expect there will be more moves in this area until the number of liquidations reduces and the average length of incorporation of such companies increases significantly. I would expect the government/HMRC to be generally supportive of the corner shop owner who runs his business for 20 years and then wants to sell up as a going concern or liquidate and sell capital assets and use the extracted capital distribution as a retirement nest egg. I think they will be less open to 'serial entrepreneurs' who open and close LTD's and try to get a tax break from it.

In summary - my expectation is that there is general government agreement (across all parties) that HMRC will be allowed to differentiate PSC type companies from others and tax them similarly to employed workers - the general drive of IR35, intermediaries legislation, T&E, Dividend tax changes, etc. is all aimed at doing this and there does seem to be a concerted effort to close every new loophole that is found - it's been going on for 15 years now and shows no sign of slowing.

Does this spell the end for contracting? No, but it certainly is very disruptive and it will probably take another 10-15 years for things to reach an equilibrium - my guess is that the equilibrium will be that contractors pay more tax but that we (at least the highly skilled and experienced ones) will then command higher rates as a result. However, I don;t think the days of contractors 'grossing' 2-3 times the amount of an equivalent permie and then retaining 75%+ will ever come back.

HA