Tax Efficient Way to close Ltd

[jamesbrown]

At risk of being deemed a doom sayer

I tend to agree with your voice of doom, although it could play out in several different ways (with different implications for those claiming in future vs. now), such as further tightening of the TiS rules or ER w/r to qualifying criteria or changing the informal advice offered previously about the TAAR. Etc.

The TAAR does leave some room for interpretation and unexpected outcomes, and for those who currently believe they're safe to be not safe.

There will surely be many more people seeking an MvL and making bad decisions in relation to that over the coming years.

[ChimpMaster]

I tend to agree with your voice of doom, although it could play out in several different ways (with different implications for those claiming in future vs. now), such as further tightening of the TiS rules or ER w/r to qualifying criteria or changing the informal advice offered previously about the TAAR. Etc.

The TAAR does leave some room for interpretation and unexpected outcomes, and for those who currently believe they're safe to be not safe.

There will surely be many more people seeking an MvL and making bad decisions in relation to that over the coming years.

"Open to interpretation" is exactly the open ground HMRC aim for. It's non-committal. It allows HMRC to bend the rules and change the application of the law as it suits their needs at whatever time they choose.

Benjamin Franklin was so wrong when he wrote “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”

Tax is no longer certain.

Re: the part I've highlighted in bold: why do you think this will be the case?

[Hobosapien]

I think I am amongst those pessimistically predicting a rise in MvL, ER, and any other acronym one has relating to closing their Ltd and accepting defeat in the face of IR35. Got another one, AYSUACOTBAC. I think that's the one that NorthernLaddy and co use when they see a weakening of contractor resolve.

Along with the more onerous accounting and business rules already and likely to affect Ltds in the coming months/years (divi tax and associated relief reduction, making tax digital, clampdown on expenses and 5% buffer zone if inside IR35, potential impact on ER and pre-tax pension contributions, and those are just off top of my head ) it's is highly likely that many will 'do the math' (sic) and figure that the diminishing advantage of operating via Ltd will barely offset the stress and hassle of battling to remain outside IR35 and forever looking over ones shoulder for the HMRC bogeyman, instead choosing to operate inside IR35 as default unless client makes the determination and cannot change it mid or post contract and HMRC don't look to overturn client determinations upon investigation.

To back up my 'gut feeling' I'm also in the process of closing my Ltd having not used it for over a year (been using a brolly) and will only entertain opening another one if it makes sense not only financially but based on the potential stress and hassle of how IR35 looks in public and private sector in the coming years and beyond.

Anyone feeling the same may do well to weigh up their own options and decide what is best for them in terms of persevering with a Ltd, which to a large part will depend on the type of contracts they do and the roles they play for the client as to how much of a grey area they are in regards to being caught in or out of IR35.

Alternatively put it on hold (go dormant with Ltd if necessary) until it's known what is happening with IR35 in private sector and hope by then there isn't already a big queue of PSCs closing and looking for an ER judgement from HMRC.

Good luck with whatever course of action you choose and remember ... contracting inside IR35 is still better than being a full permie with all the employee business practices such as performance reviews that clients like to use on their staff and we as contractors will remain exempt from.

[JohntheBike]

Working inside IR35

Working inside of IR35 after working outside, would only be beneficial if the remuneration were roughly the same. I guess the issue is that for anyone moving from outside IR35 to inside, this is unlikely to be the case.

[jamesbrown]

Re: the part I've highlighted in bold: why do you think this will be the case?

Right, agreed. On your question above, the private sector rollout of the public sector rules on IR35 will undoubtedly create a demand for MvLs, as some fraction will switch to umbrellas, while others will leave contracting altogether. I don’t know what that fraction is. Some fraction of that fraction will then make bad decisions. The most obvious one will be that they initially move to an umbrella and then subsequently pursue an outside contract, within a few months of their last distribution (or even before), using another company. But there will be borderline cases too, and HMRC will begin to look at those when the exchequer risk begins to emerge in a more public way, perhaps in several years. You simply cannot trust their current reading of the TAAR, in my view.

But if you know what you’re doing and there are legitimate reasons, documented, you should be fine. I am not talking about that fraction of people.

[Maslins]

I'm inclined to think that the private sector will find a sensible way to minimise damage of the IR35 changes. Basically with end clients more carefully considering things their end to ensure working practices are outside IR35, with their lawyers/insurers helping to provide comfort for them.

Therefore I'm not anticipating any huge temporary upturn in MVLs specifically in ~16 months time. However sort of in line with Hobosapien's comments, I do think a combination of IR35 changes, MTD, Brexit, and the general "anti contractor" vibe that seems to be coming from the Tories (with Labour unlikely to be more lenient if they were to gain power), I can imagine many people thinking it's not worth it anymore.

Also reality is whilst of course a fairly large number of contractors will have a large war chest for a variety of reasons, in our (Maslins) experience the majority of contractors do clear out their profits consistently, so an MVL would never be of interest.

With TAAR, I do wonder if in the situation jamesbrown suggests, whether a judge might rule in favour of the client. Ie contractor closes company, can demonstrate reason is their client basically says "Post April 2020 we're nervous of new rules so we'll treat you as inside IR35", contractor goes umbrella, then 6 months later private sector relaxes things. Ie whilst tax might still be a key motivator, there would definitely be an argument that they were pushed by circumstances they didn't control.

Only time will tell. Great to have that certainty everyone wants for smooth running of a business!