IR35 Insurance as business expense

[TheFaQQer]

And incidentally, I must correct again those above who are saying that IR35 is a personal tax. It isn't. It is a company liability.

PUMA

So why is the first course of action, when you are being investigated, to take all the cash out of the business as a dividend and to bankrupt the company, before setting up again??

[Ravello]

So why is the first course of action, when you are being investigated, to take all the cash out of the business as a dividend and to bankrupt the company, before setting up again??

Am I missing something or does that not answer your own question? If you empty your business account to prevent further liability/ability to pay would that not imply that it's a company liability?

[TheFaQQer]

Am I missing something or does that not answer your own question? If you empty your business account to prevent further liability/ability to pay would that not imply that it's a company liability?

Exactly. I said it was a personal tax. Puma said it was a business liability.

If it was a business liability, then why wouldn't everyone claim to be outside IR35, and when they are caught, empty the bank account and let the limited company go bust? If IR35 is a company liability, then this way the employee / director gets the money and doesn't pay the tax because the company can't pay it. If IR35 is a personal liability, then this makes no difference since it's nothing to do with the company.

My (implied) answer was that they wouldn't / couldn't because it's nothing to do with the company, it's a personal tax.

If Puma is right, which he/she may well be, then why is no-one using this method of paying the tax??

[THEPUMA]

Exactly. I said it was a personal tax. Puma said it was a business liability.

If it was a business liability, then why wouldn't everyone claim to be outside IR35, and when they are caught, empty the bank account and let the limited company go bust? If IR35 is a company liability, then this way the employee / director gets the money and doesn't pay the tax because the company can't pay it. If IR35 is a personal liability, then this makes no difference since it's nothing to do with the company.

My (implied) answer was that they wouldn't / couldn't because it's nothing to do with the company, it's a personal tax.

If Puma is right, which he/she may well be, then why is no-one using this method of paying the tax??

It is possible you would get away with doing what you suggest. If the bank account was emptied after it became apparent that you were caught by IR35, there is some anti-avoidance legislation that could be applied.

There would be a bit of a dilemma at the beginning of an investigation if you are unsure whether or not the challenge will be successful in that if you declare a dividend then, it may be subject to 25% personal tax as opposed to 10% if entrepreneurs' relief were claimed on a liquidation of the company.

This is also a reason why you wouldn't want to draw every penny out of the company in dividends on an arising basis.

PUMA

[Fred Bloggs]

Exactly. I said it was a personal tax. Puma said it was a business liability.

If it was a business liability, then why wouldn't everyone claim to be outside IR35, and when they are caught, empty the bank account and let the limited company go bust? If IR35 is a company liability, then this way the employee / director gets the money and doesn't pay the tax because the company can't pay it. If IR35 is a personal liability, then this makes no difference since it's nothing to do with the company.

My (implied) answer was that they wouldn't / couldn't because it's nothing to do with the company, it's a personal tax.

If Puma is right, which he/she may well be, then why is no-one using this method of paying the tax??

I have tried to understand this for years. If it is just a company liability then why are we so worried about it? If Dragonfly Consulting Ltd doesn't have a spare £99k handy to pay Hector, then why would the victim of the recent case be worried? I struggle to understand it.

[TheFaQQer]

I have tried to understand this for years. If it is just a company liability then why are we so worried about it? If Dragonfly Consulting Ltd doesn't have a spare £99k handy to pay Hector, then why would the victim of the recent case be worried? I struggle to understand it.

That's my thoughts too - if the company hasn't got the money, then so what? I'll just get another one in a few minutes

[manstein]

I thought that if you were a director of a company and it went bankrupt then you couldn't be a director again for a period of time, or am I just thinking about personal bankruptcy?

If it's the case that you can be a director of company after company then I also don't see why anyone would pay the tax if they were caught by IR35.

I was always under the impression if I was caught by IR35 (I don't think I would be, but never can be sure) then the government could come after my house, etc. but thinking about that it doesn't make sense as I'm sure no director from Lehman's Brothers was sleeping in the street last night.

I would like to learn more about all this and reading these forums are informative but it seems the tax man is either very variable in his decision making or doesn't know one part of his anatomy from another.

If I ever do get an inspection I think I'll offer to initially discuss it with the inspector over lunch and slip in a few fine scotch whiskies!!