IR35 investigations - how far back?

[bananarepublic]

Apologies if this has been covered before, but how far back can HMRC go for IR35 investigations?

I've seen it said that HMRC can go back 4 years for tax and 6 years for NI, but what does this relate to? If my company year ends, say in October, I have to submit a corporation tax return 12 months later, at the latest. When does the 4 years start? From the end of the company tax year in question, or 4 years after the corporation tax return is submitted (i.e. 5 years after the end of the tax year). How do these rules apply to N.I.?

The background is that I finished contracting several years ago and want to know whether it is worth renewing my PCG membership.

P.S. I've left my company open for a possible return at some point to contracting.

[malvolio]

An IR35 investigation is not a standalone activity, it will derive from an aspect enquiry on your last year's SAR, which is effectively running a year in arrears. Therefore the advice is to continue your membership for the year you stop trading and the year after that. It's unlikely anything will kick off after that.

[ASB]

Not the question you asked but if the co was dissved the there is no entity to investigate.

Hmrc could get the co. Restored and attempt to tranfer the debt, but they would probably struggle. Theg had a chance when co going through dissolution.

[bananarepublic]

Not the question you asked but if the co was dissved the there is no entity to investigate.

Hmrc could get the co. Restored and attempt to tranfer the debt, but they would probably struggle. Theg had a chance when co going through dissolution.

No I still have the company, partly because I don't know how to shut it down and the few hundred quid left in it does not make it worth while paying somebody else to. I do the returns myself, but as the revenue is zero there is no tax to pay, so if I do make a mess of it, HMRC are hardly going to be beating down my door... (when I was contracting the returns were done by an accountant, btw)

[Jessica@WhiteFieldTax]

An IR35 investigation is not a standalone activity, it will derive from an aspect enquiry on your last year's SAR,

Thats not quite correct: it comes through the Employer Compliance route not the personal or corporate SARs. So its not an aspect enquiry as such, different set of rules.

But I agree, once the company is closed, OP would be unlucky to get any interest afterwards.

[Jessica@WhiteFieldTax]

No I still have the company, partly because I don't know how to shut it down and the few hundred quid left in it does not make it worth while paying somebody else to. I do the returns myself, but as the revenue is zero there is no tax to pay, so if I do make a mess of it, HMRC are hardly going to be beating down my door... (when I was contracting the returns were done by an accountant, btw)

If everything in the company is tax paid, then:

~ close bank account and transfer funds to you
~ DS01 form to Companies House
~ write to HMRC and ask them to close files for CT, VAT and PAYE. Tell them no income since last returns, company has been inactive.

Statutory waiting period of 3 months or so on DS01 for objections, once thats through Companies House close the company automatically.

[Zero Liability]

What's the difference then in liquidating the company that makes it so hard for HMRC to reclaim the taxes? I've seen it suggested elsewhere to keep the company open but maintain as low as possible an amount of money in it, so that HMRC are limited to those amounts if they investigate you and find you inside IR35, as closing the company can be a red flag to them, and they have powers to revive the company, although from what I understand this is where the contractor hasn't undertaken due diligence.

Also, like the number Jessica mentioned, I've seen it mentioned that HMRC has a 3 month window to object to the company's closure, but I've also seen a figure of 12 months thrown around - what does the 12 months relate to? How long is a sensible period to keep TLC insurance up once the company is closed, if this route is pursued?

[VectraMan]

IMO closing the company would offer no protection whatsoever. Partly because as a director you certainly can become personally liable for things like tax evasion, and partly because IR35 is essentially a personal tax and not a business one. But that's not an expert opinion; it would take somebody to test it.

I left the PCG 6 months after becoming a permie, and of course they were quick to try to pursuade me to stay for this reason (no mention of 2 years though). Frankly it sounded like a rip off, and I wasn't about to keep paying for another 6 years, though I suppose you could argue that either way.

[Jessica@WhiteFieldTax]

What's the difference then in liquidating the company that makes it so hard for HMRC to reclaim the taxes? I've seen it suggested elsewhere to keep the company open but maintain as low as possible an amount of money in it, so that HMRC are limited to those amounts if they investigate you and find you inside IR35, as closing the company can be a red flag to them, and they have powers to revive the company, although from what I understand this is where the contractor hasn't undertaken due diligence.

I don't think it makes any difference in practice.

They don't currently seem to be focused on reviewing closing companies so I don't thin its a risk factor of great significance currently.

The idea of keeping the company going with a low amount in it to restrict amount at risk only partly works; its easier for them to recover company funds, but they can try and attach personal liability to officers if company funds are exhausted. So they are not limited to company funds.

12 months, I think, comes from the time HMRC have to enquire into Self assessments. Its a red herring.
Simplifying a set of complex rules, recovery against an officer is only possible if there is a lack of due diligence in running the company affairs.

Also, like the number Jessica mentioned, I've seen it mentioned that HMRC has a 3 month window to object to the company's closure, but I've also seen a figure of 12 months thrown around - what does the 12 months relate to? How long is a sensible period to keep TLC insurance up once the company is closed, if this route is pursued?

3 / 4 months (can't remember) is the statutory waiting time for objections by any creditor / notifiable party to a strike off at Companies House.

They could, in theory, at any time, apply for restoration of a company. There is no 12 month restriction. However I've never known them apply for restoration. Restorations used to be court approved, I think - but am unsure - its now just Companies House approval. But, as I say, its uncommon - I think I've seen two or three companies restored in 25 years.

[Jessica@WhiteFieldTax]

IMO closing the company would offer no protection whatsoever. Partly because as a director you certainly can become personally liable for things like tax evasion, and partly because IR35 is essentially a personal tax and not a business one. But that's not an expert opinion; it would take somebody to test it.

Paraphrasing a set of complex rules, to attach personal liability to you, they would have to show negligence.

If someone has had contract reviews, kept a portfolio of IR35 compliance evidence, generally can show they've thought about it, then even if HMRC disagree with the in / out conclusion they could have a tough job proving personal liability.

By contrast it would be easier for them to pin personal liability on someone who had just ignored IR35, "its all a scare story isn't it?"

We've had, via AccounTax, those set of issues, and a well prepared client escaped personal liability in those circumstances - he commenced, for legitimate reasons, closing his company down during a drawn out IR35 investigation (about 24 months and ongoing) and HMRC assessed for IR35 when there were no funds in the company. They assessed personal liability but dropped it on appeal.