Reply to: IR35 Hell - Am I going to lose everything

[ChimpMaster]

So, one company every 2 years then (as gaps between contracts allow). Mitigate your risk with less messing about. It doesn't exactly take long to get a company trading, as every new contractor finds out.

I don't support doing this but why is having two companies overlapping a problem?

Associated Companies rule?
Phoenixing? (though never been proven I think...?)

[d000hg]

Because it can take a bit of time to open each company including bank accounts and FRS VAT etc.

It can also be a problem closing them which can take three months and highly likely you will have two companies open doing the same thing, possibly more if a gig ends short which opens a whole different can of worms.

So, one company every 2 years then (as gaps between contracts allow). Mitigate your risk with less messing about. It doesn't exactly take long to get a company trading, as every new contractor finds out.

I don't support doing this but why is having two companies overlapping a problem?

[ChimpMaster]

To IR35Hell, out of interest, what do you think triggered the IR35 investigation?

[jamesbrown]

That's the theory. Has anyone put it into practice? What this means is all anyone needs to do is get a contract review and make sure they empty their company of cash and they're effectively immune. It just doesn't seem very likely that HMRC would really stop there, and as there's money to be had could be an example of different rules being applied retrospectively in the future.

If we're saying that creating a company for every contract could look like tax evasion, then why does emptying your company of funds because you're worried about IR35 not also look like tax evasion?

There are a few different things being mixed up here. The Transaction in Securities legislation is intended to prevent a tax advantage from closing one company in order to start another. In terms of whether closing a company is an IR35 mitigation strategy, it isn't, in principle. In closing a company, all taxes must be settled, and there's an opportunity for HMRC to establish whether there are additional taxes (e.g. IR35) that should've been paid, although that opportunity is rarely taken. Following closure, there is nothing, in principle, to stop HMRC pursuing an IR35 investigation at some point in future. Further, in the event that negligence is proven, it may still be possible to transfer liability to the company director(s). In practice, however, there is a high bar for this, regardless of whether the company is trading or closed. More here.

[NotAllThere]

The case of directors being personally liable (or not) for company debts has been tested many many times. Correctly accounting for PAYE is a company responsibility - any debt needs to be met by the company. Without actual deliberate intent from the director (knowing that IR35 does apply) it seems very likely that limited liability holds. IANAL, but it's possibly that it's so obvious that it will never be tested in court.

...
If we're saying that creating a company for every contract could look like tax evasion, then why does emptying your company of funds because you're worried about IR35 not also look like tax evasion?

It would, in my view, weaken an IR35 defence if it could be shown that the purpose of such draining was to get around IR35 - and since it would probably put you into the higher tax bracket anyway, it would seem a bit odd. In this instance though, the company was shut down because the OP went permie.

[VectraMan]

There is a difference between being liable and being responsible.

If your accountant screws up your accounts, you are responsible in your role as an office of the company - but the liability for any costs arising from the screwed up accounts (e.g. additional tax, penalities) lie with the company. Not you personally - unless it can be showed that you behaved unreasonably (you didn't tell the accountants all the information, you hid income, you continued accruing debts for your company while knowingly insolvent).

HMRC would need to demonstrate to a judge that the director's decision that the contract wasn't within IR35 was unreasonable. Since he paid for a legal review of the contract, that would be very difficult to do. The reason you get insurance is so that you can keep running your company and defend against HMRC's claim that under IR35 your company owes them money. Limited liability isn't much help if you'd built up a war chest within your company. It's very much a last resort.

If you go down to one company per contract route you would still have to exercise due diligence wrt IR35. You'll save on insurance costs mind.

That's the theory. Has anyone put it into practice? What this means is all anyone needs to do is get a contract review and make sure they empty their company of cash and they're effectively immune. It just doesn't seem very likely that HMRC would really stop there, and as there's money to be had could be an example of different rules being applied retrospectively in the future.

If we're saying that creating a company for every contract could look like tax evasion, then why does emptying your company of funds because you're worried about IR35 not also look like tax evasion?

[northernladuk]

So I usually get contracts for a year at a time. What is to stop me creating a new company each year? I use a one man band accountant(to try to stay under HMRC radar) - I think I will ask him about this. Having used him for 27 years I am sure he will help.

I thought that IR35 was on the person rather than the company. I always assumed if I was deemed inside IR35 that I would be personally responsible.

Cue barrage of abuse from NLUK. Do your worst. Just don't sent NLYUK round.

If you are talking a year then all you would need to worry about is there extra attention so many companies would attract and phoenixing rules. Both are risks that I am sure outweigh the IR35 risk if you do things properly.

[NotAllThere]

I find it very hard to believe there's any truth in this. The individual worker is also the director and the director is responsible for the company deducting the correct NI and tax. The argument that you're okay as long as you get advice doesn't quite wash; it's like saying you aren't responsible if your accountant screws up your accounts. And you are.

Also if Limited Liability protects you that makes the likes of QDOS insurance entirely pointless.

There is a difference between being liable and being responsible.

If your accountant screws up your accounts, you are responsible in your role as an office of the company - but the liability for any costs arising from the screwed up accounts (e.g. additional tax, penalities) lie with the company. Not you personally - unless it can be showed that you behaved unreasonably (you didn't tell the accountants all the information, you hid income, you continued accruing debts for your company while knowingly insolvent).

HMRC would need to demonstrate to a judge that the director's decision that the contract wasn't within IR35 was unreasonable. Since he paid for a legal review of the contract, that would be very difficult to do. The reason you get insurance is so that you can keep running your company and defend against HMRC's claim that under IR35 your company owes them money. Limited liability isn't much help if you'd built up a war chest within your company. It's very much a last resort.

If you go down to one company per contract route you would still have to exercise due diligence wrt IR35. You'll save on insurance costs mind.

[BrilloPad]

So I usually get contracts for a year at a time. What is to stop me creating a new company each year? I use a one man band accountant(to try to stay under HMRC radar) - I think I will ask him about this. Having used him for 27 years I am sure he will help.

I thought that IR35 was on the person rather than the company. I always assumed if I was deemed inside IR35 that I would be personally responsible.

Cue barrage of abuse from NLUK. Do your worst. Just don't sent NLYUK round.

[SueEllen]

Because it can take a bit of time to open each company including bank accounts and FRS VAT etc.

It can also be a problem closing them which can take three months and highly likely you will have two companies open doing the same thing, possibly more if a gig ends short which opens a whole different can of worms.

The reason you are doing this could also be viewed as evasion by HMRC.

Also some contracts are less than 3 months.

[northernladuk]

Out of curiosity, why?

Because it can take a bit of time to open each company including bank accounts and FRS VAT etc.

It can also be a problem closing them which can take three months and highly likely you will have two companies open doing the same thing, possibly more if a gig ends short which opens a whole different can of worms.

The reason you are doing this could also be viewed as evasion by HMRC.

[VectraMan]

It's a bit of a mish-mash - it's the individual worker who is subject to IR35, but it is the company's responsibility to deduct the correct NI and tax.

I find it very hard to believe there's any truth in this. The individual worker is also the director and the director is responsible for the company deducting the correct NI and tax. The argument that you're okay as long as you get advice doesn't quite wash; it's like saying you aren't responsible if your accountant screws up your accounts. And you are.

Also if Limited Liability protects you that makes the likes of QDOS insurance entirely pointless.

[LondonManc]

Apologies if this is a dense question, but if an IR35-caught debt is attached to the company and unlikely to be transferable to the individual, how come IR35 insurance and/or IPSE membership is taken out by the individual?

Come on NLUK, hit me with it...

From what I've read it depends on the IR35-caught nature. If you've legitimately ignored IR35 then you're liable; if you're a good boy who's been shafted by bad HR but have plenty of other evidence that you were operating outside then they'll struggle to get near you.

[d000hg]

Which is impractical to do.

Out of curiosity, why?

[psychocandy]

Least OP has got IPSE representation..... Abbey Tax are very good.

Did I hear a while ago that nobody had lost an IR35 case whilst being represented by IPSE??? Or is that an urban myth?