MVL - my case

[bluedrop]

Can I please have your thoughts on this?

I am/was an IT contractor - i have about £100k in retained profits (ltd company). I stopped trading in December (had my twins). Plan at that point was to return to work in 6 months time. Raising 3 kids is harder than what i expected it to be! I am now looking at closing down my company and starting a business from home.

I understand there are now new rules around MVL. If I start another company or take up a perm job doing IT work within 2 yrs, i will be liable for tax on the money.
My new business will not be IT related but i am wondering what happens if things dont go to plan in the next 1-2 years?

1. If my new business doesnt grow to plans?
Or
2. If my husband loses his job - a situation forcing me to take up an IT job?

Or any change in circumstances that lead me into IT contracting/perm job? Will HMRC expect me to pay tax on the MVL money?

[Old Greg]

Can I please have your thoughts on this?

I am/was an IT contractor - i have about £100k in retained profits (ltd company). I stopped trading in December (had my twins). Plan at that point was to return to work in 6 months time. Raising 3 kids is harder than what i expected it to be! I am now looking at closing down my company and starting a business from home.

I understand there are now new rules around MVL. If I start another company or take up a perm job doing IT work within 2 yrs, i will be liable for tax on the money.
My new business will not be IT related but i am wondering what happens if things dont go to plan in the next 1-2 years?

1. If my new business doesnt grow to plans?
Or
2. If my husband loses his job - a situation forcing me to take up an IT job?

Or any change in circumstances that lead me into IT contracting/perm job? Will HMRC expect me to pay tax on the MVL money?

I did my MVL a year ago so things may have changed. Have you had a look at: Members Voluntary Liquidation - MVL :: Contractor UK ?

[jamesbrown]

You'll need expert advice, but the 2yr rule is essentially to prevent a tax advantage when the intention is to carry on the same or similar trade or "activity". If you're talking about a completely different venture (i.e. a different field altogether), it shouldn't be a problem. However, in the unforeseen circumstances you mention, it could be a problem. It's difficult to know, because the legislation is untested and the guidance ambiguous.

[bluedrop]

However, in the unforeseen circumstances you mention, it could be a problem. It's difficult to know, because the legislation is untested and the guidance ambiguous.

This is what I am worried about. Is it a one way street for me to try out a new business that works around my priorities? What HMRC is telling me is - if your new business fails, you either give me £30k+ or stay unemployed for 2yrs !

[bluedrop]

Annoyingly, I am with a reputed contractor accounting firm. My accountant knows (since Jan) that I'm planning to go for MVL. He never bothered to tell me about this legislation change!

[northernladuk]

Annoyingly, I am with a reputed contractor accounting firm. My accountant knows (since Jan) that I'm planning to go for MVL. He never bothered to tell me about this legislation change!

But wouldnt have taken it because of the change in legislation mean it wasnt for a business reason so it wouldn't have been allowed anyway?

I don't understand why HMRC weren't all over this. Would have been an easy win surely?

[jamesbrown]

This is what I am worried about. Is it a one way street for me to try out a new business that works around my priorities? What HMRC is telling me is - if your new business fails, you either give me £30k+ or stay unemployed for 2yrs !

As I say, it's untested. If you want my 2p, I think you'd have a fairly strong case on the grounds that it would be difficult to demonstrate avoidance as a primary motivation, assuming you are indeed intending to trade in a completely different area between now and whenever these unforeseen circumstances might arise (also, if you sought permanent employment afterwards, this would be even more difficult to demonstrate IMO). If, on the other hand, it's a sham, you can ignore this opinion. You can (and should) seek expert advice, but anyone that professes to offer a definitive answer probably doesn't know what they're talking about. Also, to be fair to your accountant, they weren't in a position to really warn you about this, as the legislation has been, is, and will remain open to interpretation, except in the most clear-cut cases of phoenixing (which were caught even before this change).

[WordIsBond]

I agree, seems like you'd have a strong case.

If it were me in that situation, I'd definitely go MVL. I'd also put aside money to pay the extra tax. If I got dragged back into it within a few months, I'd probably just contact HMRC about what you do now, and pay whatever is do. But the longer you go doing other stuff, the stronger your case becomes, seems to me. If you are away from it for a year and then you have major life changes, then you obviously weren't just avoiding taxes. You had followed a change in lifestyle, but a major life change (other half out of work, whatever) forced you to go back. That's not tax avoidance, that's rolling with the changes of life. It gets harder to argue that if it was only 2-3 months, easy to argue if it is more than a year.

But I'd probably keep a quarter of it in reserve to cover dividend taxes. Until the two years are out, unless you do go back to IT work, then probably I'd save it for three years.

Another alternative: If your new business is not likely to be profitable for a while, you could simply keep the company open and pay out £40K a year in dividends (or whatever fits under the higher rate band after your income from your other business). It's not as dramatic as grabbing 100K right now, but in three years it's done with less tax than the 10% CGT using the MVL route.

[GB9]

As I say, it's untested. If you want my 2p, I think you'd have a fairly strong case on the grounds that it would be difficult to demonstrate avoidance as a primary motivation, assuming you are indeed intending to trade in a completely different area between now and whenever these unforeseen circumstances might arise (also, if you sought permanent employment afterwards, this would be even more difficult to demonstrate IMO). If, on the other hand, it's a sham, you can ignore this opinion. You can (and should) seek expert advice, but anyone that professes to offer a definitive answer probably doesn't know what they're talking about. Also, to be fair to your accountant, they weren't in a position to really warn you about this, as the legislation has been, is, and will remain open to interpretation, except in the most clear-cut cases of phoenixing (which were caught even before this change).

My understanding was that this change was to a straight yes or no answer. The current rules are there for the type of situation described I. E. Best endeavours, however these were being abused, hence the need for reform.

If the op thinks they may end up coming back to contracting then they should leave their business dormant but that wouldn't give the tax advantage.

I agree this is untested but as you say, the current rules already allow for the restart situation so there wouldn't be much point to the new rules unless they are enforced.

[LondonManc]

While you have a strong case, there may be a concern at HMRC that such a case could set a precendent of creating a small limited company that may be allowed to fail for tax purposes.