Outside IR35 Ltd co in holding structure

[northernladuk]

It looks like the UK fee payer may be a small company by legislation but they are a subsidiary of a larger foreign entity...assume this means that they are classed as a large company due to the links with the big company abroad?

I was hoping the property business would be able to assist with the MOO component of IR35

You couldn't be more wrong regarding the property business and MoO. It's IR35 101 so very basic stuff. IR35, as I've already said, is on a contract by contract basis. It's about that particular engagement. Many moons ago we had the business entity tests to see if you were a business in your own right but even then you'd fail that. A property business has nothing to do with your IT contracting.

You've made some pretty awful assumptions and guesses in this thread. Your grasp of IR35 and contracting seems a tad tenious in some areas so to start dicking around with complex structures on top of that is just a recipie for disaster. Lord knows how many assumptions or incorrect decisions you've made on this journey that you haven mentioned so far.

Get some proper professional advice and start asking a lot of questions. I'd be advising the same to someone who just has a bog standard LTD set up, let alone your carry on.

[Fuzzynavel]

You couldn't be more wrong regarding the property business and MoO. It's IR35 101 so very basic stuff. IR35, as I've already said, is on a contract by contract basis. It's about that particular engagement. Many moons ago we had the business entity tests to see if you were a business in your own right but even then you'd fail that. A property business has nothing to do with your IT contracting.

You've made some pretty awful assumptions and guesses in this thread. Your grasp of IR35 and contracting seems a tad tenious in some areas so to start dicking around with complex structures on top of that is just a recipie for disaster. Lord knows how many assumptions or incorrect decisions you've made on this journey that you haven mentioned so far.

Get some proper professional advice and start asking a lot of questions. I'd be advising the same to someone who just has a bog standard LTD set up, let alone your carry on.

Blunt but fair.
My view is that IR35 is just phase one of catching contractors...if they can't catch us this way then MSC legislation allows them to manipulate the situation to their advantage.

I don't do I.T contracting....it's probably not much different, but I do large Pharma business transformation programmes in regulated environments.

[Fuzzynavel]

It may be "tarnished" in your mind, but it's still a trading vehicle, you won't be able to close it and, in the unlikely event that HMRC win the CK/Boox at one or other tribunal or, finally, in court, then they will quite likely argue that you attempted to avoid the Reg 80 obligation by splitting your trade between two companies, and they will quite likely win on that part, IMHO. Also, be careful trying to aggregate two completely different businesses into one. Bottom line, none of that is likely to work and you may be better off putting this through an umbrella if these risks seem material to you. All that said, if HMRC win at tribunal, there is also a personal risk given the transfer of liability conditions in ITEPA Chapter 9, so I'm not sure it makes a huge difference as to whether you trade through the old company or a new one or even an umbrella (if that's what you meant be "tarnished", i.e. a risk that whatever assets the old company has might go towards the Reg 80).

I don't see the point in using an umbrella on an outside IR35 contract....it's just another intermediary taking a cut and complicating the client relationship. I have PAYE set up in my "tarnished" business and may as well just pay the tax as an employee whilst being able to still put legitimate travel expenses through the business. Is this a reasonable idea?

[Fuzzynavel]

Ok, another thought and this may just be me bending rules again.

If I use my original company for my new outside IR35 contract.

Assume I have an Outside IR35 SDS from the client and my work practices support this.

I do the work and my company bills for it. The money hits the company bank account and I have no expectation of money as an officer of the company. The company pays my legitimate expenses to carry out the contract and any VAT/Corp tax that is due.
I now have money sitting in the company bank account that belongs to the company. I could legitimately make an investment and lend that to another company with interest, couldn't I?
Again I am not planning taking wages from the other company either so there is no shifting money to avoid tax. Thoughts? I assume it will be too messy if the companies have a common part...i.e me?

[jamesbrown]

I don't see the point in using an umbrella on an outside IR35 contract....it's just another intermediary taking a cut and complicating the client relationship. I have PAYE set up in my "tarnished" business and may as well just pay the tax as an employee whilst being able to still put legitimate travel expenses through the business. Is this a reasonable idea?

I’m saying that the MSC legislation isn’t a risk you can easily manage so, on balance, I would forget about the old company being “tarnished”. If it were me, I would carry on as usual with the old company and taking the usual precautions w/r to IR35 and commercial risk, which are completely independent risks from the MSC legislation. Bear in mind that there are no tax free expenses inside IR35, by definition.

[jamesbrown]

Ok, another thought and this may just be me bending rules again.

If I use my original company for my new outside IR35 contract.

Assume I have an Outside IR35 SDS from the client and my work practices support this.

I do the work and my company bills for it. The money hits the company bank account and I have no expectation of money as an officer of the company. The company pays my legitimate expenses to carry out the contract and any VAT/Corp tax that is due.
I now have money sitting in the company bank account that belongs to the company. I could legitimately make an investment and lend that to another company with interest, couldn't I?
Again I am not planning taking wages from the other company either so there is no shifting money to avoid tax. Thoughts? I assume it will be too messy if the companies have a common part...i.e me?

I am confused about what you’re trying to achieve. I don’t think you understand IR35 sufficiently well. The risk with IR35 is that all income is reassigned as PAYE income with interest and penalties, regardless of what is paid to the individual. Nothing has changed there, carry on as normal and forget about any schemes or tricks. Either your working practices are inside or outside IR35. The MSC legislation is based on payments made to the individual. Is that the risk you’re trying to mitigate here? I don’t think that really works either because, eventually, any (historical) income will be paid to you or a connected person, so the risk is latent. If the MSC legislation works for ordinary accountancy, contrary to the original intention, then all bets are off, so forget about managing that as a historical risk, and instead avoid it going forward by avoiding contractor accounting practices/packages that are at all hand holdey. You are over thinking. Focus on the core of what it means to run a business and operate outside IR35.

[Fuzzynavel]

I am confused about what you’re trying to achieve. I don’t think you understand IR35 sufficiently well. The risk with IR35 is that all income is reassigned as PAYE income with interest and penalties, regardless of what is paid to the individual. Nothing has changed there, carry on as normal and forget about any schemes or tricks. Either your working practices are inside or outside IR35. The MSC legislation is based on payments made to the individual. Is that the risk you’re trying to mitigate here? I don’t think that really works either because, eventually, any (historical) income will be paid to you or a connected person, so the risk is latent. If the MSC legislation works for ordinary accountancy, contrary to the original intention, then all bets are off, so forget about managing that as a historical risk, and instead avoid it going forward by avoiding contractor accounting practices/packages that are at all hand holdey. You are over thinking. Focus on the core of what it means to run a business and operate outside IR35.

This isn't me trying to get around IR35. This is me saying that I can lend the post tax cash in my Ltd co to another limited company and use it to buy property. As long as there is an agreement in place to loan, pay interest and return it at a set date in the future.
Yes, I will still have the issue of distribution of funds at some point in the future but I can make use of the money for a few years, generate significant passive income and kick the can down the road a bit.

[jamesbrown]

This isn't me trying to get around IR35. This is me saying that I can lend the post tax cash in my Ltd co to another limited company and use it to buy property. As long as there is an agreement in place to loan, pay interest and return it at a set date in the future.
Yes, I will still have the issue of distribution of funds at some point in the future but I can make use of the money for a few years, generate significant passive income and kick the can down the road a bit.

I mean, you literally started out with this objective in your OP, "Protection from IR35". So, it is you trying to get around IR35 or, minimally, not understanding IR35, but probably both. What you do with the company cash is irrelevant w/r to IR35, except that the cash may not exist to use as company money in any context if you are inside IR35. Again, focus on what it means to run a business and operate outside IR35 and forget about structuring your businesses in a way that mitigates against IR35 or the MSC legislation because all of that is flawed.

[Lance]

This isn't me trying to get around IR35. This is me saying that I can lend the post tax cash in my Ltd co to another limited company and use it to buy property. As long as there is an agreement in place to loan, pay interest and return it at a set date in the future.
Yes, I will still have the issue of distribution of funds at some point in the future but I can make use of the money for a few years, generate significant passive income and kick the can down the road a bit.

Why loan it to another company though?
Why not use it as capital?

Although you also mention a holding structure. Who owns the contracting LTD? If it's the holding company then you can pay the cash as dividends to the holding company with no personal tax consideration.

Lending money from one company to another sounds like a wheeze and one that you ought to get professional advice on. These will be associated companies so cannot be considered totally independent from a personal tax perspective anyway.

How much cash are we talking though? You mention strike off which implies <£25k and if that is true just get on with it.
If it's a couple of hundred k then pension is a good option. If it's getting towards a £1m then professional advice is strongly recommended.

None of which helps with IR35 which just is what it is and you need to either understand it better, or seek professional advice, or just work inside (which it sounds like you are anyway).

IANAL