Making a comeback from an MVL

**jamesbrown** · 3 February 2018, 19:24

Originally posted by zappakat View Post

Based on that thread would there be any issue from HMRC if I opened up a new company should that happen?
Would it make any difference if I went though an Umbrella instead?
Or am I screwed and need another permie role?

With the recent changes to the TiS legislation, it is now clear that you cannot engage in the "same or a similar trade or activity" within a two-year period, so it is highly likely that you would be caught, assuming you intend to conduct a similar trade to the one in which you engaged during that two-year period (and it would be broadly interpreted, like "software development", for example). Previously, the period of time was ambiguous. In terms of returning to an umbrella, the consensus among professionals is that this would be fine, because you are an employee of the umbrella (but it's a complex area of law and they could turn out to be wrong, many years hence).

**zappakat** · 3 February 2018, 21:46

Cheers James.

Yeah I had a feeling that would be the case.

**WordIsBond** · 4 February 2018, 07:21

I would not necessarily assume that was the case. You might have a look at this.

There are three conditions. Chris Maslins wrote about it here, but those conditions come straight out of the legislation.

Check out condition C.

If you really closed down in late 2016, went and took a permie job, and are then made redundant in 2018 and can't find other permie work, it would be pretty hard for them to prove condition C (you were trying to gain a tax advantage) applies. You'll need to prove you were in regular PAYE employment the whole time, and prove that you were made redundant (those things should be easy to prove). If a lot of money is at risk you might be wise to keep evidence of a serious job hunt for a new permie position before you run back to contracting.

But what do you mean by "closed" your company? Did you legally close it in 2016, or just stop contracting then? I ask because it seems a long time between 2016 and September 2017, and if HMRC is looking at 9/17 as your closing date rather than 12/16, starting up again in early 2018 isn't going to fly.

**jamesbrown** · 4 February 2018, 08:10

What matters is when the last distribution was received, because the two year period refers to the tax treatment of a distribution. Remember this is not a well-tested area of law w/r to contractors, so some caution is warranted, especially if relying on tax not being a primary motivation (the fourth condition in the TAAR, IIRC). While the preliminary guidance from HMRC appeared to suggest the main purpose test in the TAAR focused on the most aggregious cases (e.g. taking a capital distribution after each contract), you cannot rely on that being their interpretation in future. The absence of a clearance procedure is telling. If it were me, I’d operate through an umbrella for a while.

**Maslins** · 4 February 2018, 18:09

I'd agree with the comments above.

You probably would be safe to revert to contracting now, on the basis yours isn't a clear cut case of abuse and you have some evidence to suggest you never planned it as things now are.

However, if I were in your shoes I wouldn't want to take the risk. Often the difference between CGT on those distributions and dividend tax can be massive. Why put that at risk, even if it's a low risk, when it's just for a modest extra length of time?

**chopper** · 5 February 2018, 08:35

I guess one question is how large was the distribution. If it was a £100k distribution, HMRC will be more interested in changing that from CGT to dividend tax. If you're talking £10k, then its probably not worth scrapping over.

**jamesbrown** · 5 February 2018, 09:15

Originally posted by chopper View Post

I guess one question is how large was the distribution. If it was a £100k distribution, HMRC will be more interested in changing that from CGT to dividend tax. If you're talking £10k, then its probably not worth scrapping over.

Well, it isn’t going to be less than 25k, which is the limit for a capital distribution through a simple striking off. Below this, an MvL makes no sense.

**WordIsBond** · 5 February 2018, 12:31

Originally posted by jamesbrown View Post

What matters is when the last distribution was received, because the two year period refers to the tax treatment of a distribution.

In reference to the two year period, yes, that is what matters. In either case, he'd be on the wrong side of that guideline, so it doesn't matter for that anyway.

But that's not the only guideline. Intent matters (condition C).

And if he stopped trading, began the winding up process, and became an employee 15 months ago, gets made redundant this month, and starts contracting again in April after a respectable job search for another permie role, it's going to be very hard for them to argue his intent was to gain a tax advantage.

But if he began the winding up last summer, months after becoming an employee, then the picture looks much worse for him, IMO.

**jamesbrown** · 5 February 2018, 13:50

Originally posted by WordIsBond View Post

In reference to the two year period, yes, that is what matters. In either case, he'd be on the wrong side of that guideline, so it doesn't matter for that anyway.

But that's not the only guideline. Intent matters (condition C).

And if he stopped trading, began the winding up process, and became an employee 15 months ago, gets made redundant this month, and starts contracting again in April after a respectable job search for another permie role, it's going to be very hard for them to argue his intent was to gain a tax advantage.

But if he began the winding up last summer, months after becoming an employee, then the picture looks much worse for him, IMO.

Honestly, I don't think it makes much difference. If you're relying on the fourth condition, alone, in the TAAR (the main purpose test), you're on shaky ground, because this is subject to interpretation and could easily be reinterpreted in future. That's why HMRC don't provide a clearance procedure for a TAAR with a main purpose test; they would have no idea, until the point of investigation, whether tax was an important factor. Arguably, tax is always an important factor in an MvL.

HMRC has a history of reinterpreting its own "guidance". If you're near the end of the two year period, it's pretty moot anyway (i.e. wait!). YMMV, of course.

Making a comeback from an MVL