IR35 loses appeal case

[Lewis]

Didn't mean to say you wouldn't be allowed to strip the money out but that you wouldn't be allowed to close a company under investigation.

However while I suspect Hector would take dim view of you taking a big dividend before the company's actual financial position was established, I'm not sure what form that would take...

Maybe someone should try and see what happens

[DaveB]

Just a thought that crossed my mind on a slow Teusday afternoon...

If hector comes after you for IR35 and wins, does that mean your ltd can claim back the CT it paid on money that would not have been paid had it been taken out as salary?

[VectraMan]

I believe that IR35 investigations follow the company only.

I'm sure we've done this before (several times probably), but seeing as the intention of IR35 is to pretend the Ltd. company doesn't exist, I can't see how changing or closing companies can possibly help you.

[Lewis]

I'm sure we've done this before (several times probably), but seeing as the intention of IR35 is to pretend the Ltd. company doesn't exist, I can't see how changing or closing companies can possibly help you.

Sure it can. You have to pay HMRC from the company. If the company has no money HMRC get no money (this happened all the time with the old MSCs as far as I am aware). So HMRC must come after you personally for the money. From what Mal has said in the past they can only do that if they can show you deliberately avoided IR35 in the first place. Which is not the same as believing you are outside IR35 because you've had contract reviews etc..

So if you can reduce the company money during investigation then great. Alternatively clear it out at regular intervals. I doubt HMRC would allow you to close during an investigation, I have no idea about taking dividends whilst under investigation.

[VectraMan]

Sure it can. You have to pay HMRC from the company. If the company has no money HMRC get no money (this happened all the time with the old MSCs as far as I am aware).

Except having found to be inside IR35, any dividends you paid are now illegal and that money belongs to the company and not you. So the company has pleanty of money to meet the tax obligation, it just happens to be in your bank account.

[Lewis]

Except having found to be inside IR35, any dividends you paid are now illegal and that money belongs to the company and not you. So the company has pleanty of money to meet the tax obligation, it just happens to be in your bank account.

I follow your logic but do you have any evidence to back this up. I don't, but I have heard anecdotal evidence of MSC companies being caught for IR35 but HMRC getting nothing as company was closed down and new one opened for contractor next day. Plus Mal who knows more than I do has said on previous occasions that the money must come from the company, I have not heard of anyone having their dividends 'taken-back'. But you may well be exactly right. I am very keen to know.

[THEPUMA]

I follow your logic but do you have any evidence to back this up. I don't, but I have heard anecdotal evidence of MSC companies being caught for IR35 but HMRC getting nothing as company was closed down and new one opened for contractor next day. Plus Mal who knows more than I do has said on previous occasions that the money must come from the company, I have not heard of anyone having their dividends 'taken-back'. But you may well be exactly right. I am very keen to know.

I think it is me you are quoting regarding HMRC not being able to attack you personally. In fact Mal has always maintained that IR35 is a personal tax which is, of course, incorrect.

If dividends were paid out of the company legally, they cannot be recategorised as salary. In fact, IR35 doesn't recategorise dividends as salary from a legal perspective; it recalculates the tax as though they were salary which is subtly and crucially different.

HMRC can only recover monies from you personally if it can show that you conspired with the company to "wilfully fail to deduct tax".

So if you were earn income and pay it out as dividend on an arising basis, HMRC would be unable to recover any IR35 taxes from you. This is why they came unstuck with all the MSCs.

It would be interesting to see what would happen if you were to accumulate reserves, become embroiled in an IR35 investigation and pay all the reserves out as dividend prior to the resolution of the IR35 investigation. I wouldn't put my house on it but I reckon if you did it early enough you might be OK. "Wilfully failed to deduct" is very onerous for HMRC to prove.

On the other point raised, I would consider doing as Lewis suggests and set up newco for all subsequent trading, although you would need to carefully consider the impact this would have on the tax treatment of the accumulated reserves in oldco in the event of you winning the case. You would of course be able to draw them as dividends and allow the reserves in newco to accumulate more quickly but you may lose the opportunity of a capital dissolution in oldco.

PUMA

[malvolio]

In fact Mal has always maintained that IR35 is a personal tax which is, of course, incorrect.

Well strictly speaking it's a tax on your gross income paid for by your company, but we won't argue the point. It's always seemed pretty bloody personal to me.

[NotAllThere]

Just a thought that crossed my mind on a slow Teusday afternoon...

If hector comes after you for IR35 and wins, does that mean your ltd can claim back the CT it paid on money that would not have been paid had it been taken out as salary?

You're not the first, IIRC. Can some kind PCG member search their forums to find out?

I think the answer is: NO!

[VectraMan]

So if you were earn income and pay it out as dividend on an arising basis, HMRC would be unable to recover any IR35 taxes from you. This is why they came unstuck with all the MSCs.

In which case, why are we worried about IR35 at all? With such an easy get-out, who cares if they win?