Reply to: MVL latest?

[MrContractor85]

My opinion, no. Forgetting about any new proposed rules, there have been anti avoidance "transactions in securities" rules around for yonks, which amongst other things can counteract the tax advantage of someone transferring trade of Oldco to Newco then liquidating Oldco.

Main issue was/is that there wasn't much guidance on where the line was drawn between an old trade ceasing and new one starting, vs someone simply taking a holiday from the same trade. The "new" rules put a fairly clear cut 2 year timescale on it.

Ignoring the above, the chances of you trying to put a company into liquidation now/soon and have it all done and dusted before 5 April 2016 are virtually nil IMHO.

Thanks...

Think someone said it earlier in the thread, but ETR really has turned into something you can pretty much only do pre-retirement...

[Maslins]

So a contractor could in theory open up another company "involved in a similar trade or activity" as long as it's completed before April 2016?

My opinion, no. Forgetting about any new proposed rules, there have been anti avoidance "transactions in securities" rules around for yonks, which amongst other things can counteract the tax advantage of someone transferring trade of Oldco to Newco then liquidating Oldco.

Main issue was/is that there wasn't much guidance on where the line was drawn between an old trade ceasing and new one starting, vs someone simply taking a holiday from the same trade. The "new" rules put a fairly clear cut 2 year timescale on it.

Ignoring the above, the chances of you trying to put a company into liquidation now/soon and have it all done and dusted before 5 April 2016 are virtually nil IMHO.

[MrContractor85]

Question...

Contractors with large company cash reserves need to act now to save thousands in tax

“We have suggested to HMRC that it would be more appropriate to apply the new rules to any liquidation which commences on or after 6 April 2016, rather than should the date of the distribution happen to fall beyond this date.”

Just so I've understood this correctly, an MVL processed and distributed pre-April 2016 will not be subject to the new regulation i.e. 2 year condition, main purpose being tax, etc. So a contractor could in theory open up another company "involved in a similar trade or activity" as long as it's completed before April 2016?

[jamesbrown]

presumably a SAP contractor and a COBOL contractor would operate under the same business SIC code i.e. it's broadly the same thing

Yeah, I think that's about the right level of abstraction to think about it, possibly even higher (e.g. some codes are pretty similar)...

[pr1]

What if a SAP functional expert wants to close his SAP contracting Ltd Co and become a Cobol programmer?

presumably a SAP contractor and a COBOL contractor would operate under the same business SIC code i.e. it's broadly the same thing

[pr1]

So many questions....

What if a bricklayer wants to close his bricklaying business and become a permanent/employed carpenter?

What if a mobile phone shop owner wants to close up shop and take up a permanent job as a phone salesman at O2 in Slough?

What if a SAP functional expert wants to close his SAP contracting Ltd Co and become a Cobol programmer?

I've got a load of various shades of purple bricks, please sort them into blue and red piles

[jamesbrown]

So many questions....

What if a bricklayer wants to close his bricklaying business and become a permanent/employed carpenter?

What if a mobile phone shop owner wants to close up shop and take up a permanent job as a phone salesman at O2 in Slough?

What if a SAP functional expert wants to close his SAP contracting Ltd Co and become a Cobol programmer?

On the first two, unless they explicitly remove PAYE employment, you'll never know until the case law is developed.

On the latter, you'd be clearly caught IMO, other conditions being met. I guess there's a sliver of uncertainty, but anything within IT would be dancing on a pinhead IMO, regardless of whether it's pursued as a trade or activity. If you were switching from SAP contractor to lifeguard at the local pond, you'd have an argument.

[northernladuk]

I've got a load of various shades of grey bricks, please sort them into white and black piles

50 shades?

And why does everything come down to race nowadays? You saying the black bricks are worth less than the white ones hey??

[pr1]

So many questions....

What if a bricklayer wants to close his bricklaying business and become a permanent/employed carpenter?

What if a mobile phone shop owner wants to close up shop and take up a permanent job as a phone salesman at O2 in Slough?

What if a SAP functional expert wants to close his SAP contracting Ltd Co and become a Cobol programmer?

I've got a load of various shades of grey bricks, please sort them into white and black piles

[ChimpMaster]

So many questions....

What if a bricklayer wants to close his bricklaying business and become a permanent/employed carpenter?

What if a mobile phone shop owner wants to close up shop and take up a permanent job as a phone salesman at O2 in Slough?

What if a SAP functional expert wants to close his SAP contracting Ltd Co and become a Cobol programmer?

[jamesbrown]

Yes...which is why I feel that it can always be argued that tax was a motivator, virtually every contractor's going to be a "close company", hence the only criteria they're realistically relying on revolves around "trade/activity". Hence why I think it needs clarification on a new PAYE role.

Yep, and why the comment of the guy leading the consultation needs to be treated with skepticism.

[Maslins]

I know this is an obvious point, but the whole purpose of ER is to provide a tax break. There's no problem with having a tax motivation in seeking a capital distribution and ER, that's the point. The problem arises in relation to the wider set of conditions surrounding the 2yr rule (i.e. all conditions must apply, of which tax motivation is one). The upshot being that, if you plan to retire, for example, there's no problem in closing via an MvL and claiming ER (at least for the foreseeable future).

Yes...which is why I feel that it can always be argued that tax was a motivator, virtually every contractor's going to be a "close company", hence the only criteria they're realistically relying on revolves around "trade/activity". Hence why I think it needs clarification on a new PAYE role.

[jamesbrown]

Surely tax is "in any way" a motivation in 100% of MVL cases, contractor or not?

I know this is an obvious point, but the whole purpose of ER is to provide a tax break. There's no problem with having a tax motivation in seeking a capital distribution and ER, that's the point. The problem arises in relation to the wider set of conditions surrounding the 2yr rule (i.e. all conditions must apply, of which tax motivation is one). The upshot being that, if you plan to retire, for example, there's no problem in closing via an MvL and claiming ER (at least for the foreseeable future).

[northernladuk]

But what about the mad rush to close down following the announcement : HMRC must think all their Christmas's have come up at once... But will probably completely miss the opportunity.

[Maslins]

Surely tax is "in any way" a motivation in 100% of MVL cases, contractor or not?

I think there's a question mark over whether it's a motivation in closing down the business in general, or choosing an MVL specifically.

If you get an amazing permie offer (and assuming here it genuinely is a great one that you want to keep for years, not just you want an excuse to cash out), then closing down the company is a sensible thing to do, as you won't need it anymore. You could comfortably argue you weren't closing for tax reasons. If it's choosing an MVL over striking off, then yes, I don't see how anyone could argue tax wasn't at least part of the reason (there are some other possible reasons, like obtaining certainty sooner...but realistically tax would be the main one).