MVL latest?

[zappakat]

Just wondering if anyone knows if there has been an update with regards to the MVL restrictions that may come into place this April? Specifically around entering permanent employment in the same sector within the 2 year suggested term.

I've been using the Nixon Williams MVL calculator for a rough estimate and it definitely looks preferable to go down this route rather than via extra dividends etc however I'm certainly not going to try and do something completely different e.g. butcher, baker, candlestick maker when I've been working in IT for the last 20 years.

I was originally looking to close down the company at the end of this extension however that's not going to be until the end of April. I've spoken to my accountant with regards to this and his judgement is to err on the side of caution and submit an application for MVL before April 5th. That seems a bit quick to me, plus I don't really want to come across unprofessional by ending a contract early.

Even though it takes months to complete the process as I understand it that once the application is being processed the company would not be caught by any changes that come in the new tax year. On a similar note does anone know how late can I make that application before April?

My primary reason for closing down the company is that I've had enough of the travel and living away from home.
I'm aware that I may spend some time on the bench as Newcastle isn't exactly awash with roles I'm looking for but hey it may give me some time to up-skill in other IT areas.

[jamesbrown]

AFAIK, you're too late, in practice. I believe the rules apply on the basis of when the largest distribution is received, not when you start the process, and this would be after April now. So I think that ship has sailed. There is (or was) a consultation process (I don't recall the end date), but I'm not aware of any updates. Bottom line, until they clarify what is meant by "activity", you have to assume that employment is caught, and I doubt this will (or can) be fully clarified without a rewording or case law precedent. You can't really take HMRC's opinion on this, because their opinion can change and, indeed, has in the past. Unless you're willing to go out on a limb, an MvL is essentially only a retirement option now IMO.

[zappakat]

Cheers JB, odd I only asked my accountant about 2 weeks ago and they didn't say anything about it being too late.

In that case I may as well see out the contract and lump it.

Basically means I'm working the last 6 weeks for free....

[ChimpMaster]

JB is correct and the budget next month will hopefully clarify the 2 year rule. Or perhaps, as with all things HMRC, they will leave things as far ambiguous as they possibly can, so that they can then 'clarify' the rules retrospectively many years later.

If 'activity' after MVL is deemed to include permanent employment in IT, then it'll be better (financially) for many to take the MVL and then sit on their backside for 2 years. Or perhaps work in a different capacity, say on operations/business teams rather than in IT.

[jamesbrown]

If 'activity' after MVL is deemed to include permanent employment in IT, then it'll be better (financially) for many to take the MVL and then sit on their backside for 2 years.

Exactly, and you'd hope, for precisely this reason, they'll come to their senses and explicitly remove "activity" and clarify trade as capturing sole-traders and company directors. If they don't, it won't capture nearly the revenue that the Exchequer expects. That said, I bet they don't; FUD is standard practice and they're notoriously bad at accounting for changes in behaviour in response to tax policy.

[Maslins]

Be inclined to agree with jamesbrown.

The guy behind the consultation has said he didn't think someone becoming an employee would be caught...but his logic was it WOULD be continuing the same trade/activity, but probably tax motivation was NOT a main motivator. My concern is HMRC could very easily change their view on that...and being honest if you're getting cash out at 10% vs 25+%, I think it'd be hard for you to argue that tax wasn't in any way a motivation.

[pr1]

Be inclined to agree with jamesbrown.

The guy behind the consultation has said he didn't think someone becoming an employee would be caught...but his logic was it WOULD be continuing the same trade/activity, but probably tax motivation was NOT a main motivator. My concern is HMRC could very easily change their view on that...and being honest if you're getting cash out at 10% vs 25+%, I think it'd be hard for you to argue that tax wasn't in any way a motivation.

Surely tax is "in any way" a motivation in 100% of MVL cases, contractor or not?

[Maslins]

Surely tax is "in any way" a motivation in 100% of MVL cases, contractor or not?

I think there's a question mark over whether it's a motivation in closing down the business in general, or choosing an MVL specifically.

If you get an amazing permie offer (and assuming here it genuinely is a great one that you want to keep for years, not just you want an excuse to cash out), then closing down the company is a sensible thing to do, as you won't need it anymore. You could comfortably argue you weren't closing for tax reasons. If it's choosing an MVL over striking off, then yes, I don't see how anyone could argue tax wasn't at least part of the reason (there are some other possible reasons, like obtaining certainty sooner...but realistically tax would be the main one).

[northernladuk]

But what about the mad rush to close down following the announcement : HMRC must think all their Christmas's have come up at once... But will probably completely miss the opportunity.

[jamesbrown]

Surely tax is "in any way" a motivation in 100% of MVL cases, contractor or not?

I know this is an obvious point, but the whole purpose of ER is to provide a tax break. There's no problem with having a tax motivation in seeking a capital distribution and ER, that's the point. The problem arises in relation to the wider set of conditions surrounding the 2yr rule (i.e. all conditions must apply, of which tax motivation is one). The upshot being that, if you plan to retire, for example, there's no problem in closing via an MvL and claiming ER (at least for the foreseeable future).