Contract to permanent within first year

[knowsey]

Hi All

I set up my first limited company in July last year in order to run sales and market research as a contractor for a new set up to see if their product was viable. They are at the stage where they want to switch me into a permanent role on 4 days a week (at my request as got autistic child :-). Assuming we reach agreement, I would be starting as permanent in April or May this year.

This would mean that I have about £60k credit in the company bank account from just this one client after drawing about £8k in salary only this year.

I wondered what people would advise me to do with the company regarding dividends, tax efficient withdrawal of funds, winding up (possibly), IR35 issues? or any other advice basically!! Unfortunately my accountant just does the corp tax return and prepares my accounts, he doesn't offer advice!

Thanks in advance

[Paralytic]

I'd get an accountant who can advise on such stuff...

But, initial thought:

Take dividends for you (and spouse?) up to 7.5% limit. Assuming spouse is already in place with company shareholding, that takes bank account under £25K and can then be closed with a strike-off rather than an MVL etc.

I assume you've done some research and read the other threads on this matter on this board - if not, do that.

The above assumes you're ready to just stop contracting and see your future in permiedom.

Also read this:

What are the Tax Implications of Closing Your Limited Company? | Crunch


Moving from contract to perm is definitely opening yourself up to a world of IR35 pain if HMRC ever investigated you (even though they've said they will not target such situations), so only you can decide if you want to take that risk. If so, consider setting aside some funds for a number of years covering tax you'd otherwise have paid (as an employee) since you started contracting.

Is the client aware they have to make an IR35 determination from April (unless they are fall under the small client definition)?

[knowsey]

I'd get an accountant who can advise on such stuff...

But, initial thought:

Take dividends for you (and spouse?) up to 7.5% limit. Assuming spouse is already in place with company shareholding, that takes bank account under £25K and can then be closed with a strike-off rather than an MVL etc. Just me in the company, partner was not involved.

I assume you've done some research and read the other threads on this matter on this board - if not, do that. OK ty i had a quick search and could not see any directly relevant

The above assumes you're ready to just stop contracting and see your future in permiedom. Well I was unsure as I could leave the company 'open' to do a bit of work on my one day a week off

Also read this:

What are the Tax Implications of Closing Your Limited Company? | Crunch


Moving from contract to perm is definitely opening yourself up to a world of IR35 pain if HMRC ever investigated you (even though they've said they will not target such situations), so only you can decide if you want to take that risk. If so, consider setting aside some funds for a number of years covering tax you'd otherwise have paid (as an employee) since you started contracting. ok thanks

Is the client aware they have to make an IR35 determination from April (unless they are fall under the small client definition)?

think they are classified as small as only 5 employess and no turnover yet! responded to your points above in bold, thank you v much

[Paralytic]

Well I was unsure as I could leave the company 'open' to do a bit of work on my one day a week off

You could do this, but, since you're moving to perm in the next tax year (I'm assuming you'll be in a higher rate tax bracket?), you'll want to maximise your tax allowances for this year, so you could consider taking as much as you can up to the 7.5% dividend threshold. Search for a dividend calculator online.

The rest can be left in the company, and paid out as appropriate - dividends (£2K tax free if you don't earn them elsewhere), salary (if you're not in the higher bracket) and can justify it via the work you still do for the company.

This is pretty basic financial self-management, and the "correct" answer depends on your overall financial situation, so you probably should get proper advice.

If you do have a partner you can trust, you could transfer 50% of the share and pay dividends to both of you, but, again, get advice - there are some complex rules around transferring ownership purely for tax benefits.

[GhostofTarbera]

Keep £30K in reserve to pay for future tax demands from HMRC as being inside IR35 all along

It’s a slam dunk for them


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[knowsey]

Keep £30K in reserve to pay for future tax demands from HMRC as being inside IR35 all along

It’s a slam dunk for them


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interesting as the HMRC could well see it like that. I have not been working full time for this client and I have been seeking work elsewhere during this period. Do you think that might help or not?

[northernladuk]

I am assuming you've not got an accountant looking at your first post which is a bit baffling..but you need one now. Get one and speak to them. They'll be able to look at your current and future situation. All we can do is guess.

[GhostofTarbera]

interesting as the HMRC could well see it like that. I have not been working full time for this client and I have been seeking work elsewhere during this period. Do you think that might help or not?

No it won’t help one bit, it’s on a contract by contact basis, and your joining to do same job as a permie





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[knowsey]

No it won’t help one bit, it’s on a contract by contact basis, and your joining to do same job as a permie




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I appreciate what you are saying but up until now I have been doing market research (to check if the product could be sold and now we have indications that, after recent changes, it can be). Now because of the changes I'll doing sales. Not quite the same role but a tenuous link.

[northernladuk]

I appreciate what you are saying but up until now I have been doing market research (to check if the product could be sold and now we have indications that, after recent changes, it can be). Now because of the changes I'll doing sales. Not quite the same role but a tenuous link.

If its a different role then you are fine. You aren't carrying on outside to inside so nothing to compare.