"Phoenixing" issue - sue SJD, or any other solution?

[missinggreenfields]

I agree to a point (especially w/r to the OP not being motivated by avoidance), but there are experts in this area that disagree over the interpretation of "the same or similar trade or activity", so there's some inherent FUD, and falling back to the condition on avoidance (not) being one of the main motivations is somewhat unsatisfactory. Some of the best posts I've seen on this were from Iliketax (although some may be OBE now).

Without any legal precedent about what "similar trade or activity" means, then it's still everyone's guess to a certain extent.

I'd be wary of closing my business down, taking a capital distribution, and then still doing the same thing (or similar) through any mechanism

[northernladuk]

I agree no one knows what it means but surely you know the answer if you shut your IT company down with you offering say DBA services and then start another offering DBA services, which is likely to be the case if that's your skill set. Not really any ambiguity there surely.

[jamesbrown]

I agree no one knows what it means but surely you know the answer if you shut your IT company down with you offering say DBA services and then start another offering DBA services, which is likely to be the case if that's your skill set. Not really any ambiguity there surely.

Yes, the edge cases on being caught are very clear, but the rest is best viewed w/r to a degree of risk. It's worth noting that the scenario you mention has always been caught. The new legislation tried to add some clarity to ambiguous scenarios, such as the length of time before doing as you describe, but it has failed to a large extent, as evidenced by these constant discussions.

[Fred Bloggs]

" I'll be "encouraged" to resign sooner or later"

Being encouraged is also known as constructive dismissal. For goodness sake, if you've any knowledge at all of employment law you should be able to keep your employers dancing to your tune until the two years have expired. Let the buggers try to sack you.

IMO, that is poor advice. You acquire most of your employment rights after two years employment. Under that they can just terminate you with contractual notice or pay in lieu. If you take this route, join a union ASAP so that they will fight any termination for you.

[NotAllThere]

IMO, that is poor advice. You acquire most of your employment rights after two years employment. Under that they can just terminate you with contractual notice or pay in lieu. If you take this route, join a union ASAP so that they will fight any termination for you.

The advice is to never jump. If they want to get rid of you, they should sack you. Why make life easy for them? Here's some of the games that can be played.

[WordIsBond]

I agree to a point (especially w/r to the OP not being motivated by avoidance), but there are experts in this area that disagree over the interpretation of "the same or similar trade or activity", so there's some inherent FUD, and falling back to the condition on avoidance (not) being one of the main motivations is somewhat unsatisfactory. Some of the best posts I've seen on this were from Iliketax (although some may be OBE now).

Hi, JB.

I know there were experts with different views on "the same or similar trade or activity." But the August clarification from HMRC to which Maslins linked is pretty clear.

Condition C is that the individual continues to carry on the same or a similar trade or activity
to that carried on by the wound-up company within the two years following the distribution.
Trade or activity is not defined, and is therefore to be interpreted widely as anything done by
the company. Condition C goes on to set out the way in which the individual would be
viewed as continuing the trade or activity It will include as a sole trader, through a
partnership, through another company, and through connection to the company of an
associate. Any connection to the same or a similar activity will suffice which will include, for
example, working as an employee for a spouse in a similar trade. Condition C will not be met
where the individual is employed by an unconnected third party.

The first text I highlighted is the basis for the differing views. The second, though, should answer without a doubt that part of the question.

The question you've raised, though, is not really relevant to the question OP is asking. If his employment constitutes "the same or similar trade or activity," he'd presumably be caught whether or not he goes back to contracting, by virtue of having been a PAYE employee in a similar activity. His question is not whether his employment kills his MVL, but whether there is any way he can go back to contracting. No one has advised him he's already caught, they are saying he'll be caught if he goes back. That's where intent to avoid taxes comes into play.

[Fred Bloggs]

The advice is to never jump. If they want to get rid of you, they should sack you. Why make life easy for them? Here's some of the games that can be played.

Agreed.

[VectraMan]

Get a contract in the EU somewhere

Like the UK?

I think this comes under the category of "if it sounds too good to be true...". You are trying to avoid tax, and you wouldn't get much sympathy outside a contractor's forum.

But I'm surprised an umbrella doesn't get you out of it.

[Maslins]

My view on this would be that the OP should proceed with caution to not fall foul of the rules. I agree that of course there's a reasonable chance they may go back to Ltd Co contracting and not suffer any consequences, either because HMRC don't bother to look, or because HMRC accept tax wasn't a main motivation.

To the comments re going into employment, my understanding is by this they mean the situation below would not be caught:
- Joe Bloggs runs Joe Bloggs Ltd doing IT consultancy.
- Joe Bloggs Ltd is liquidated, capital distribution.
- Joe Bloggs gets a permie role doing IT consultancy for 2+ years.
Ie Joe Bloggs may well be doing similar work post liquidation, but the change from Ltd Co contractor to employee is enough that won't consider it continuing the same trade.

However, in the OP's situation it's a bit different:
- Joe Bloggs runs Joe Bloggs Ltd.
- Joe Bloggs Ltd is liquidated, capital distribution.
- Joe Bloggs gets a permie role for 9 months.
- Joe Bloggs considering setting up Joe Bloggs 2 Ltd.
My understanding would be that they therefore would be returning to the same trade within 2 years, so certainly could be at risk, relying on other get outs (eg tax not a main motivator) to avoid the rules.

My view would be that the OP could of course get other permie roles, or even work via an umbrella to meet the 2 years post liquidation distribution. Then (and only then IMHO) could they return to Ltd Co contracting and be safe.

As others have suggested:
- condition A is pretty clear cut, and virtually every contractor will fall under that one.
- condition C is very vague, so IMHO if you're relying on that, it's a dangerous game.
- condition B therefore is the one that's reasonably black and white (ignoring differing views on same trade/activity), so if it were me, this would be the one that I'd try to ensure I kept on the right side of.

[TheCyclingProgrammer]

My personal view is that OP should not be caught by the new rules, but as pretty much everyone else has said, you are caught by 2 out of 3 of the conditions if you decide to return to contracting through your own company or as self employed within 2 years.

That leaves you with only one defence - that tax avoidance was not one of the main reasons for liquidating. Whilst from how you've explained it this does not appear to be the case, it is arguably the hardest to prove.

So I don't think SJD have badly advised you here. Their advice may be a bit incomplete but I think it is more accurate than the advice given by your new accountant.

In support of the argument that tax avoidance was not the motivator, the best that can be offered are the examples set out by HMRC in this letter:

https://ion2.icaew.com/taxfaculty/b/...n-a-winding-up

Examples 1 and 3 both show scenarios where a company is wound up because it is no longer needed due to retirement or because a permanent position was taken up.

The issue you have with returning back to contracting after a relatively short amount of time is demonstrating that you had fully intended to remain in a permanent role and had no intention to return to contracting so soon so you're essentially at the risk of HMIT's judgement if you are investigated.

I can't see any reason why you wouldn't be able to continue trading through an umbrella because you would still be an employee, and again from that letter:

Condition C will not be met where the individual is employed by an unconnected third party.