Outside IR35 Ltd co in holding structure

[Fuzzynavel]

Hello,

I have a bit of a niche question

I currently have a holding company which is 50:50 between myself and my wife.

The holding company has 100% ownership of a property investment business were my wife and I are directors.

The holding company also has 100% ownership of a VAT registered property development business where I am the sole director.

I have been contracting for years but am in the process of closing my old company for a variety of reasons...Boox related (if you know then you know)

I may be able to pick up an outside IR35 contract soon and was looking at setting up a new company under the holding company to service this need.

I am not intending taking any income from this company. It is possibly just going to be used to provide liquidity to the property companies or perhaps I will send the profit up to the holding company via dividend and pay myself from there. I will not be the only beneficiary of the money as my wife will get a dividend and salary too...this potentially gets rid of one of the IR35 questions..

I don't want to get involved in anything that is classed as tax avoidance....Are there any pit-falls with this plan?

I have also thought about adding a SIC code to the VAT registered property dev company to allow me to consult through that entity. There is already a good flow of finance(over £100k annually each direction (inbound and outbound)) through that company as we are actively working on projects. I can also use this business to charge my investment company for the time that I spend working on/in properties..
To me, it seems that if I use this route then I can cover off the mutuality of obligation questions and also make sure that I am not the only one using the income in the business.
Again, with this route, my wife and I would extract a dividend from profits (if we don't spend them all on properties).

I have 2 main goals:

1. Protection from IR35
2. provide liquidity to grow the portfolio

I also have a SSAS pension available that my company can put money into for tax efficiency and lend back to my property businesses.

Thoughts?

[jamesbrown]

It obviously won't offer you any additional protection w/r to IR35 because the whole point of IR35 is to "look through" the supply chain and associated contracts and make a judgement about whether you are effectively an employee of the end client, based on a hypothetical contract. In terms of the liabilities, they would initially fall on the contracting company under Chapter 8, but whether it is Chapter 8 or 10 will make a difference too. I assume you aren't attempting to MVL your existing company, because that would be a problem too, rather you are attempting to close (by strike off), but HMRC are/will be blocking.

In summary, I don't think your plan works, at least w/r to IR35.

[Fuzzynavel]

It obviously won't offer you any additional protection w/r to IR35 because the whole point of IR35 is to "look through" the supply chain and associated contracts and make a judgement about whether you are effectively an employee of the end client, based on a hypothetical contract. In terms of the liabilities, they would initially fall on the contracting company under Chapter 8, but whether it is Chapter 8 or 10 will make a difference too. I assume you aren't attempting to MVL your existing company, because that would be a problem too, rather you are attempting to close (by strike off), but HMRC are/will be blocking.

In summary, I don't think your plan works, at least w/r to IR35.

Hi James,

We are trying to strike off the original company...I made some earnings in the last tax year so we are waiting until everything is closed off after April to see if we are allowed to strike off or not.

I will be contracted by a European company with an office in the UK so I fall inside the scope of IR35 legislation

I am providing my own contract to the client which has been checked previously by QDOS for Outside IR35 compliance and will make sure that my documented working practices align with the legislation.
The fact that I will be working for my Property business at the same time should help (hopefully).

I may have to change to a project based milestone/scope of work based payment rather than time and materials to make it more watertight.

[northernladuk]

Are you called Douglas Barrowman by any chance?

I am providing my own contract to the client which has been checked previously by QDOS for Outside IR35 compliance and will make sure that my documented working practices align with the legislation.

It's them that makes the determination not you nowadays so your contract doesn't matter.

The fact that I will be working for my Property business at the same time should help (hopefully).

Help what? Prove you are outside? No it won't. Firstly they fee payer decides now and secondly IR35 is on a contract by contract basis.

I may have to change to a project based milestone/scope of work based payment rather than time and materials to make it more watertight.

Just get the SDS from the fee payer.. but no amount of fancy company structure or contract jiggery pokery is going to change anything if the client doesn't want you outside.

But speak to a professional. Asking a bunch of contractors about highly risky complex company structures isn't the way to go about it.

[jamesbrown]

OK, so it's under Chapter 10, in which case the liability notionally falls on the Fee Payer first and any risk to YourCo partly depends on the contract wording and any claw-back clauses it might contain. Either way, your structure makes no difference w/r to IR35, likewise working for the property business, as IR35 is contract-by-contract, so it's best to focus on the other mitigations, like contract reviews, solid working practices etc. The risk is probably quite low, but not zero.

Regarding the strike off, I'm afraid HMRC will almost certainly object unless they make a mistake and let it slip through the net (unlikely). There are similar examples in the Boox/CK thread.

[jamesbrown]

Also, you may want to take advice about two businesses operating concurrently that are engaged in the same or a similar trade. Most likely, HMRC will consider those two businesses to be the same trade. This is a consideration w/r to the outcome of the CK/Boox case (normally, HMRC only cares about these sort of shenanigans w/r to VAT avoidance, but there are other considerations in your case).

[Fuzzynavel]

OK, so it's under Chapter 10, in which case the liability notionally falls on the Fee Payer first and any risk to YourCo partly depends on the contract wording and any claw-back clauses it might contain. Either way, your structure makes no difference w/r to IR35, likewise working for the property business, as IR35 is contract-by-contract, so it's best to focus on the other mitigations, like contract reviews, solid working practices etc. The risk is probably quite low, but not zero.

Regarding the strike off, I'm afraid HMRC will almost certainly object unless they make a mistake and let it slip through the net (unlikely). There are similar examples in the Boox/CK thread.

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

[Fuzzynavel]

Also, you may want to take advice about two businesses operating concurrently that are engaged in the same or a similar trade. Most likely, HMRC will consider those two businesses to be the same trade. This is a consideration w/r to the outcome of the CK/Boox case (normally, HMRC only cares about these sort of shenanigans w/r to VAT avoidance, but there are other considerations in your case).

I will need to talk to my accountant (or maybe QDOS) about this.
The other business is tarnished by the link with Boox. I had the company before using Boox and provided a tonne of evidence to HMRC to show that I was fully in control and ignoring bBoox advice when I wanted to. My case has been stood over....As they are chasing for tax years 2018-2019 they are running out of time and hopefully will forget about me. I assume that the tax investigation may prevent/hinder me getting insurance to carry out the work which will mean I can't do the contract.
Looks like I may be better just adding a SIC code to my VAT registered property company. If I'm ever asked I am just consolidating companies to streamline the accountancy overheads.

I am not actively trying to evade tax. I just need to be able to claim legitimate business expenses to travel to my client site abroad...To my knowledge, an Inside IR 35 appointment wouldn't allow that. I'm 99% sure that the client will give me an outside SDS as they already engage multiple UK consultants for remote jobs with a little travel.

[jamesbrown]

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

Yes on the first (Chapter 10, large client), no on the second, your other activities are completely irrelevant w/r to MoO on the contract in question.

[jamesbrown]

I will need to talk to my accountant (or maybe QDOS) about this.
The other business is tarnished by the link with Boox. I had the company before using Boox and provided a tonne of evidence to HMRC to show that I was fully in control and ignoring bBoox advice when I wanted to. My case has been stood over....As they are chasing for tax years 2018-2019 they are running out of time and hopefully will forget about me. I assume that the tax investigation may prevent/hinder me getting insurance to carry out the work which will mean I can't do the contract.
Looks like I may be better just adding a SIC code to my VAT registered property company. If I'm ever asked I am just consolidating companies to streamline the accountancy overheads.

I am not actively trying to evade tax. I just need to be able to claim legitimate business expenses to travel to my client site abroad...To my knowledge, an Inside IR 35 appointment wouldn't allow that. I'm 99% sure that the client will give me an outside SDS as they already engage multiple UK consultants for remote jobs with a little travel.

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).