What happens if the revenue call about IR35 but there's no money in the business?

[LouC]

Hi everyone

I was chatting to a fellow contractor the other day about the new IR35 taskforce (or whatever it is), and whether it was worth taking out extra insurance (eg Qdos's TLC35) just in case I got the dreaded letter. Almost all my contracts in the last 6 years are bordeline (eg with sub clauses, but needs client sign off, etc), and I'm also a pro PCG member, so this is something I don't take lightly.

Anyway, my friend told me that his way round it is just to leave no money in his IT business.

He now has two businesses - the first is his IT business, and the second is an investment business. Him, his wife, and the investment business are all shareholders in the IT business, and after paying dividends to all three there's never anything in the IT business.

So, if the revenue call, check out his old contracts, and find his IT business liable for IR35 then he believes there's nothing the revenue can do.

Is that correct? Is the way to beat IR35 simply to keep no money in the business? What would the revenue do in this situation?

Thoughts, etc, would be greatly appreciated.

Thanks
Lou

[TestMangler]

Your friend is talking tulip. IR35 is based on the assesment of a personal tax.

[cojak]

Yep, your mate knows Jack Tulip.

And for any other tax demands, HMRC can go for broke (literally - see the No To Retro Tax thread).

[Clare@InTouch]

If IR35 applied then 95% of income should be salary. If you adjust the accounts to reflect that then suddenly there's no profit to pay dividends, so any that were taken could be ultra vires (illegal) and possibly repayable to the company/seen as a directors' loan.

I haven't seen it happen, but I think it's a bit too simplistic to believe withdrawing all the money makes you immune from IR35.

There's some (old) info here: CTM20095 - ACT: General: Notes on company law aspects of dividends

[jmo21]

He could be in for a big shock if hector ever comes knocking and he doesn't have his contracts/working practices nailed down.

[LouC]

Thanks everyone for your responses. I kind of figured it wouldn't be so straight forward...

@jmo21 - what do his contracts and working practices have to do with the original question? Have I missed something?

[cojak]

Thanks everyone for your responses. I kind of figured it wouldn't be so straight forward...

@jmo21 - what do his contracts and working practices have to do with the original question? Have I missed something?

Read up on IR35, his contract needs to show a lack of Mutuality of Obligation (MOO) / Direction & Control (D&C) (amongst other things) and his working practices need to demonstrate this.

[ASB]

It may be worth your while searching for posts made by THEPUMA. He made a reasonable case for why it may be difficult for the revenue to transfer the liability to the individual or another entity.

[LouC]

@cojak - he's been a contractor for over ten years, so he knows his stuff re IR35 clauses. The OP wasn't about whether her would be in IR35 or not. Like me (as well as many IT contractors) I imagine 99% of his contracts are 'borderline'.

What I'm really looking for is a way around IR35. Me personally, i'm a pro member of the PCG - plus i've taken out Qdos's TLC35 this week. But if there's another way round it, a loophole maybe, then i'm very interested in finding out more.

As for my friend's solution, i'm no tax expert (at all), but my gut instinct is that it won't work

@ASB - thanks, i'll have a look for those threads.

But are there any tax experts out there who would know for sure whether his solution of leaving no money in his business would foil the revenue if they come calling...?

Thanks again to everyone who's taking the time to respond

[kingcook]

Anyway, my friend told me that his way round it is just to leave no money in his IT business.

Errrr......

@cojak - he's been a contractor for over ten years, so he knows his stuff re IR35 clauses.

Ummmmm......