MVL and ER after new HMRC policy

[ITContractor82]

Hope somebody can help me because I´m very confused and I don´t know what to do at the moment.

My situation is this:

I have been contracting during the last 6 years, in an IT Company (Same one during all this time, with several different contracts of different lengths but no gaps between them).
During this time as per my accountant´s advice I have been paying to myself in Dividends and Salary, just the amounts to keep myself in the lower tax band. (Salaries around 10k, Dividends around 32k). I have also taken some amounts as expenses every year.

By doing this I have accumulated a quite large amount of funds in my business account, around 200k. This funds are not just sitting there I have moved them to different high interest accounts to make sure the Company makes the most of the capital.

My intention now is to stop contracting and go travel the world for some time, and later on I don't know but for sure not to come back to the UK to work as an IT contractor.

I thought the next logical step now would be to do an MVL and as I'm leaving for good to request the ER. Having all the distributed capital at the 10% rate.

But I have been advised that due to the new HMRC policy starting form 6th of April 2016, they are looking deeper in this kind of distributions.

What's your advice on this kind of situation? I never thought in a different way of doing the things as it seemed the natural way to do it, everybody was doing it this way, but now I find out myself with a high amount of funds and with the risk of HMRC considering it as Income and having to pay a 40% (or so) in taxes.

Any ideas?

Thanks in advance for your help.

[northernladuk]

You'll need it for when you lose your IR35 investigation

[WordIsBond]

If you aren't planning on returning to IT contracting in the UK, you can probably do MVL / ER without trouble. Read the link you provided.

[Maslins]

If you aren't planning on returning to IT contracting in the UK, you can probably do MVL / ER without trouble. Read the link you provided.

This.

[aoxomoxoa]

Reading the proposed revisions in the government document, the following situation is identified as a condition under which a winding-up payment will be treated as income distribution:

• within a period of two years after the distribution, S continues to be involved in a similar trade or activity

By 'activity', does this mean that moving from being a contractor into permiedom whilst performing the same job function would be caught? In my case we're talking about niche IT management consulting, and I have no plans to return to contracting (looking to retire in a couple of years).

[Fred Bloggs]

I would think that if leaving the UK long term, then there are tax planning opportunities to leave the UK and then withdraw the cash in to a more benign jurisdiction?

[dingdong]

Nobody knows for sure how HMRC will start intepreting and enforcing the rules but I would say it is highly likely that they will challenge people returning to permanent work in the same line of business.

Otherwise they will just see a flood of people cycling from contracting to permanent and back to contracting.

Even worse you won't know HMRC are going to challenge you till long after the MVL and your subsequent self assessment return. I think people should be playing it safe and avoiding the same line of work until HMRC have given a view that returning to permanent employment in a similar field is acceptable to them.

Challening this will be low hanging fruit for HMRC - they could easily just implement an automated reminder to open an enquiry two years after the MVL date.

[ITContractor82]

Hi! Many thanks for all your answers :-)

@northernladuk, you are absolutely right, exists a risk also on that bit as well, for that I have Qdos insurance that might give me a chance to at least
defend my case. Anyhow I would leave that topic for another thread.

@WordIsBond, At first sight it might seem I would be alright, but reading that and some other documetns I see that the main intention of HMRC is to
discorage contractors from making funds distribution decisions based on tax-advantage, I built up that sum because I was ignorant about how things work
and I also didn't have any reason or need to move the funds out of the Corporate account, it has been giving me an interest in the high interest accounts
so, why to move it out? My concern is HMRC to don't see it that way, and think I have just taken advantage of the rules and waiting to withdraw the money
when closing the company and getting the ER. Maybe I'm a bit paranoid, but the difference could be a quite big amount of money, so better safe than sorry!

@aoxomoxoa, I wouldn't be working as a contractor nor as a permanent and also almost for sure not in the UK, so I would be ok with that, are the reasons
explained above the ones worriying me. In your case I don't know, I have heard to move to permanent role is a valid reason, but I'm not the expert here.

@Fred Bloggs, Thanks! this is a great idea. Could you give me some kind of direction on that? A forum, blog or tax planning advisor?

@dingdong, not my case but I think this answers @aoxomoxoa.

Regards

[Fred Bloggs]

@Fred Bloggs, Thanks! this is a great idea. Could you give me some kind of direction on that? A forum, blog or tax planning advisor?

There are lots of places to go to get a lead on this, mainly expat forums. In a nutshell AFAIK, you need to identify a jurisdiction that does not tax overseas dividends. Go to that jurisdiction to live, having told HMRC you are out of the UK permanently/long term and do not intend to return. Once you're settled abroad, pay your dividends to your overseas bank account, close down the company, the bank account etc... Spend all your money.

[dingdong]

However remember if you do become resident in the UK again within 5 years HMRC will still come after you for the tax on dividends as if you hadn't left.

(And very soon all the OECD countries will be sharing huge amounts of financial information about individuals with each other so the days of people being able to hide things that happened overseas has long gone)