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

[Tardigrade]

Hi all,
Thanks in advance for your help. I'm in a very depressing situation.

Background
• Contracted under a limited company in the finance sector c. 2 years.
• Ceased working Nov 2015 and last invoice came in Dec 31 2015.
• Took up a permanent position Dec 2015
• Company completed winding up process post April 06 2016 (I received one wind up distribution before then).
• Informed SJD of plans c. October 2016. At no stage was I warned of any change in legislation, until it was too late to meet pre-April wind up deadline. At that point, I was told:
"If you are retiring, emigrating, going permanent, or doing something completely different, it is unlikely the new rules will affect you, therefore the liquidation can go ahead. If you are staying in your industry you will need to be permanently employed, or if contracting go through an umbrella company for at least two years after receiving your distribution to retain the benefit of the liquidation."
• I thought the permanent position would work out, and the above made sure if it didn't, there was a route back, as I didn't mind going through a limited co particularly as I thought there was a low probability of going back to contracting in this time frame.
• Accountant (new person, same company) now tells me the above isn't the case and there is no way for me to go back into contracting.
• Sadly the permanent role isn't working out - I'll be "encouraged" to resign sooner or later. I'd pay a prohibitive amount of tax if my distribution were treated as income. The new phoenixing rules are effectively a barrier to my returning to contracting. If it matters, there is no association between who I used to contract for, my present permanent employer, and who I may contract for going forward.
• I've asked SJD to find a solution; no help. They're not taking responsibility for anything, and now SJD are no longer communicative - I was promised a call with a manager, it never came, and my follow up emails have been ignored.

1. Is it worth suing SJD?
For me, SJD are at fault as:
1. They gave me clearly incorrect advice in the paragraph above that I acted on.
2. Knowing my plans, they should have and did not warn me about the need to wind-up before April.
3. I wasn't actually the limiting factor in the wind-up taking so long. SJD could easily have finished account preparation before they did - they didn't treat the case with any kind of urgency or priority and I'd argue this too was a failure as they should have known my wind-up was more important than other (not winding up) companies account preparations due to the change in legislation.

Do any of these things clear a path to action? Could I get compensation equivalent to the increased tax bill I face if I return to contracting?
2. Is it worth talking through with HMRC?
It has been suggested to me that HMRC can be helpful(!) and that if I explain the situation (to who exactly?) I might be given some form of permission to return to contracting without being hit by the phoenixing rules. Any validity to this?

3. Are there any issues with a FTC under a company's payroll?
A prospective client suggested this as a solution - essentially an employee for a fixed term contract.

4. Any other options?
Can I work under someone else's limited company as their "employee"? Can I form some kind of joint business agreement to protect my position with respect to any resulting business generated? Any other ways forward?

Thank you for your thoughts.

[SueEllen]

SJD aren't at fault.

No one apart from the government can be sure of what legislation will be passed and when it will be enforced.

[ChimpMaster]

I doubt you can sue SJD; you'll just eat away at your energy doing this.

Can you bring your old Ltd back to life, repay the distribution and return back to contracting as normal under the same Ltd?

Else the option is to stick out the permie job or find another one that you can perhaps use to build career or tech skillset.

Failing that, take 2 years off and enjoy that capital distribution.

[LondonManc]

I doubt you can sue SJD; you'll just eat away at your energy doing this.

Can you bring your old Ltd back to life, repay the distribution and return back to contracting as normal under the same Ltd?

Else the option is to stick out the permie job or find another one that you can perhaps use to build career or tech skillset.

Failing that, take 2 years off and enjoy that capital distribution.

Did you read the OP's post? How are they meant to take two years off with only two years of contracting under their belt?

[jamesbrown]

I think you're somewhat confused here, as SJD were simply offering a professional opinion on untested legislation. The bottom line is that you have no basis to sue them, given the information provided, and you haven't elaborated upon the second opinion, so it's rather difficult to comment further. It essentially amounts to an interpretation of "the same or similar trade or activity" in the amended TiS legislation. There is no case law precedent to assist here (other than case law that applies in other contexts), only the guidance provided to date by HMG. Clearly, SJD has very little control over this. Even now, there is speculation about caught scenarios and whether, for example, a sole trader, umbrella worker or PAYE employee would be caught. There's a good blog from a regular poster here:

Changes to tax on MVLs overstated | Chris Maslin's blog

My personal view is that (when the activity is similar) a PAYE position is on the least shaky ground, a sole trader would definitely be caught, and an umbrella scenario, most likely, but let's be clear that you have no 100% guarantee, even in your current PAYE situation, until there is relevant case law. Intention matters too though, and your intentions were clearly good.

[eek]

My advice would be to speak to a different accountant Maslin who also do MVL's may be appear later to give you some advice...

I actually think SJD is giving you bad advice here, because the changes were introduced after the liquidation started you probably aren't subject to those new rules but I would prefer an accountant or two to confirm that before doing anything...

[WordIsBond]

Fear, Uncertainty, and Doubt strike again.

OP is caught by the legislation as revised effective in April if three conditions exist. The first exists. The second will exist if OP goes back to contracting within two years.

The third almost certainly DOES NOT exist. That is whether the winding up was done to achieve a tax advantage.

OP did not wind up his company to achieve a tax advantage. He wound up his company because he had taken a permie job. If you do that for three months, and then return to contracting, HMRC might argue it was a sham. But OP has been a permie for nine months. Perhaps, if he contracted for 20 years, cashed out half a million pounds, and then was only a permie for nine months before going back to it, they might argue that was a sham, too. But two years of contracting followed by nine months as a permie? That's not a sham, that's changing job situations.

My advice to OP:
1. The longer you stay as a permie, the harder it will be for them to argue that your permie situation was a sham and that you were just trying to get a tax advantage. If you can make it last a year, that would probably be better.
2. If you can get your employer to put something in writing that they are asking you to leave, that would be better, too. That makes it clear that you aren't just choosing to rush back to contracting, you're being forced to do it. Again, that shows this was not all just a tax dodge, where you took an MVL to avoid tax and are now leaving your job to go back to it, rather you are going back to it because you've lost your job.
3. If that is tricky, instead of a letter of resignation see if you can get something you and your manager both sign agreeing to "termination by mutual agreement." That's evidence you can present that the job wasn't working out so you had to leave.

This legislation was not intended to catch people in your situation, if what you've described is true. It was intended to make it harder for those who are cheating on the rules to get away with it. If it were me, I'd read up on that condition C in the legislation (Maslins cited it in his article), and do everything I could to prove that it didn't apply in your case, since the reality is, it didn't. Read Maslins August update below his article. "Condition C will not be met where the individual is employed by an unconnected third party." That's you, and should put you in the clear.

I am not a lawyer or an accountant. And admittedly, I am just applying common sense to a question of how tax legislation applies in a particular case, and "tax legislation" and "common sense" often do not belong in the same sentence. But I would not go down without a fight on this one.

[NotAllThere]

" 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.

[scooterscot]

Get a contract in the EU somewhere, no need for a Ltd.

As others have said, SJD are not a fault.

Perhaps it is possible to list your new Ltd under another business category, which I assume is what SJD are advising you cannot re-enter as previously listed.

[jamesbrown]

Fear, Uncertainty, and Doubt strike again.

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).