Reply to: MVL - my case

[TheCyclingProgrammer]

In practice I think it's got to be obvious that's not what HMRC want to achieve, as clearly it's better not only for the individual, but also UK Plc for that person to continue working in some capacity. It's a shame that whilst powers that be often talk about the spirit of the law, that seems to hold little weight in court.

I hear McDonalds are always looking for new employees...

[craigy1874]

Very nicely put him in his place maslins, well done

I actually agree totally with your advice and I do not think that a permie role would mean you are caught for ER as part of the two year rule.

[Maslins]

The capital distribution from a liquidation of an investment company would not qualify for entrepreneur's relief in the first place as an investment company is not a trading company. So why would HMRC add the term "activity" to block shareholders claims from an investment company when there is already a concrete block in the entrepreneur's relief legislation for distributions from an investment company.

Another epic fail from Maslins regarding MVL/ER. I remember last year when you were spouting a few months gap doing a permie role was sufficient to claim ER. I wonder how many people you have got into trouble with that advice.

1st sentence of your post = correct.

Rest of post = wrong.

Transactions in securities anti avoidance legislation (both old and new) has nothing to do with whether a capital gain qualifies for entrepreneurs relief or not. Where TiS applies, the distributions wouldn't be capital gains at all, they'd be taxed as dividends.

Additional rate taxpayer liquidating an investment company would suffer 38.1% tax on dividends, 20% tax on capital gain not qualifying for entrepreneurs relief (and not property). THAT is why HMRC might seek to "block shareholders claims from an investment company".

[JB3000]

I've said this before and have zero proof of it, but my belief of the reason they tag in "or activity" to trade, is not so it can catch things like permie employment, but so it catches investment businesses.

The capital distribution from a liquidation of an investment company would not qualify for entrepreneur's relief in the first place as an investment company is not a trading company. So why would HMRC add the term "activity" to block shareholders claims from an investment company when there is already a concrete block in the entrepreneur's relief legislation for distributions from an investment company.

Another epic fail from Maslins regarding MVL/ER. I remember last year when you were spouting a few months gap doing a permie role was sufficient to claim ER. I wonder how many people you have got into trouble with that advice.

[jamesbrown]

I've said this before and have zero proof of it, but my belief of the reason they tag in "or activity" to trade, is not so it can catch things like permie employment, but so it catches investment businesses.

You may be right, but it's incredibly complicated and what they intended remains largely speculative (and not necessarily relevant, as you observe). For example, there's a difference between a trade and a business (they could've chosen "business"), as well as between either of those things and an "activity". More here, for example.

[Maslins]

So with MVL the only sure thing at this stage is you will be OK if you take off a whole 2 years after the MVL is complete (or from when it begins, whatever the rule book says...). This includes avoiding a permie job: in many cases it means that HMRC are losing tax revenues because it will work out better for individuals to MVL and then not work for 2 years.

You could spend that time doing anything you like, safe in the knowledge that there is absolutely no point in working because your net income will be negative for those 2 years. No guilt.

What an odd situation for the government to foster.

If you want to adopt a zero risk policy, then yes, that seems to be the crux of it. I did mention this as part of the consultation process, that in some circumstances if the new rules remained as broad as they could potentially be perceived now, then the taxpayer could literally be better off sitting on their backside for 2-3 years after ceasing to trade, rather than have the risk of entrepreneurs relief be taken off them.

In practice I think it's got to be obvious that's not what HMRC want to achieve, as clearly it's better not only for the individual, but also UK Plc for that person to continue working in some capacity. It's a shame that whilst powers that be often talk about the spirit of the law, that seems to hold little weight in court.

I've said this before and have zero proof of it, but my belief of the reason they tag in "or activity" to trade, is not so it can catch things like permie employment, but so it catches investment businesses.

[jamesbrown]

What's the definition of "same trade or activity" though? If I left contracting as a java programmer and went permie for 2 years because I wanted to learn Python is that counted as the same?

"(possibly as a permie, but unconfirmed)" - is this the majority view of the experts or your own view? I'm not suggesting you're not an expert :-)

"Trade" is well-defined. It would capture those operating through a Ltd or as a sole trader, but not those in permanent employment. "Activity" is not well-defined, but it could include permanent employment (otherwise, what is the intention?). "Similar" is not well-defined, but I would venture that it might be quite broad, such as an industrial/SIC code. This is speculation on my part.

BTW, I'm certainly not an expert - I'm a contractor - I just have an interest in this area and I've read a thing or two about it It's difficult to talk about a "consensus" because there are a lot of vested interests. It's fair to say there's quite a bit of uncertainty.

[jamesbrown]

So with MVL the only sure thing at this stage is you will be OK if you take off a whole 2 years after the MVL is complete (or from when it begins, whatever the rule book says...). This includes avoiding a permie job: in many cases it means that HMRC are losing tax revenues because it will work out better for individuals to MVL and then not work for 2 years.

You could spend that time doing anything you like, safe in the knowledge that there is absolutely no point in working because your net income will be negative for those 2 years. No guilt.

What an odd situation for the government to foster.

Indeed, I think that is the correct way to interpret it. The 2yr rule is a concrete specification of what would not be caught. Beyond this, it is less clear about what would be caught, and that hasn't changed much. It remains to be seen whether the outcome and intention are aligned (as is often the case with HMG/HMRC, unfortunately) because the outcome is potentially quite stupid for all involved if, en masse, those implementing an MVL decide to take 2yrs out, even from paid employment.

[Old Greg]

What's the definition of "same trade or activity" though? If I left contracting as a java programmer and went permie for 2 years because I wanted to learn Python is that counted as the same?

"(possibly as a permie, but unconfirmed)" - is this the majority view of the experts or your own view? I'm not suggesting you're not an expert :-)

HMRC asks your mum if you are still doing something to do with computers.

[oracleslave]

However, it is fair to say that, if a tax advantage were a primary motivation, and the OP carried on the same trade or activity (possibly as a permie, but unconfirmed) within 2yrs, they would, most likely, be caught.

What's the definition of "same trade or activity" though? If I left contracting as a java programmer and went permie for 2 years because I wanted to learn Python is that counted as the same?

"(possibly as a permie, but unconfirmed)" - is this the majority view of the experts or your own view? I'm not suggesting you're not an expert :-)

[ChimpMaster]

<snip>

There are absolutely no guarantees, at this stage, that the unforeseen scenario described by the OP would be caught or not caught. More would need to be known, and it would need to be tested. However, it is fair to say that, if a tax advantage were a primary motivation, and the OP carried on the same trade or activity (possibly as a permie, but unconfirmed) within 2yrs, they would, most likely, be caught.

So with MVL the only sure thing at this stage is you will be OK if you take off a whole 2 years after the MVL is complete (or from when it begins, whatever the rule book says...). This includes avoiding a permie job: in many cases it means that HMRC are losing tax revenues because it will work out better for individuals to MVL and then not work for 2 years.

You could spend that time doing anything you like, safe in the knowledge that there is absolutely no point in working because your net income will be negative for those 2 years. No guilt.

What an odd situation for the government to foster.

[jamesbrown]

Agree. And I think that's what the new rules are meant to avoid.

If you go back to what you were doing within 2 years then you pay the tax due . Why should someone get a tax break just because they decide to try something different for a bit and decide it doesn't suit them?

The new rules don't stop you going back but do appear to set a 2 year limit on when you can do it.

This is not correct. The TiS rules require three conditions to be met, of which one is concerned with a tax advantage being a primary motivation. The 2yr rule itself is simply a concrete specification of what had previously been interpreted (subjectively) as an attempt to carry on the same trade (i.e. if you immediately started another company carrying on the same trade, that would be caught; now there is a 2yr rule). There are conditions for the TiS to apply and, once they do apply, the 2yr rule is a concrete specification of what was previously a grey area, but there are other aspects of the updated TiS that remain grey. For example, the condition now refers to the "same or similar trade or activity", which remains open to interpretation (particularly "activity" until there is case law). Broadly speaking, the changes are to be welcomed, but they should've been clearer about the caught scenarios and definitions.

There are absolutely no guarantees, at this stage, that the unforeseen scenario described by the OP would be caught or not caught. More would need to be known, and it would need to be tested. However, it is fair to say that, if a tax advantage were a primary motivation, and the OP carried on the same trade or activity (possibly as a permie, but unconfirmed) within 2yrs, they would, most likely, be caught.

[GB9]

While you have a strong case, there may be a concern at HMRC that such a case could set a precendent of creating a small limited company that may be allowed to fail for tax purposes.

Agree. And I think that's what the new rules are meant to avoid.

If you go back to what you were doing within 2 years then you pay the tax due . Why should someone get a tax break just because they decide to try something different for a bit and decide it doesn't suit them?

The new rules don't stop you going back but do appear to set a 2 year limit on when you can do it.

[LondonManc]

While you have a strong case, there may be a concern at HMRC that such a case could set a precendent of creating a small limited company that may be allowed to fail for tax purposes.

[GB9]

As I say, it's untested. If you want my 2p, I think you'd have a fairly strong case on the grounds that it would be difficult to demonstrate avoidance as a primary motivation, assuming you are indeed intending to trade in a completely different area between now and whenever these unforeseen circumstances might arise (also, if you sought permanent employment afterwards, this would be even more difficult to demonstrate IMO). If, on the other hand, it's a sham, you can ignore this opinion. You can (and should) seek expert advice, but anyone that professes to offer a definitive answer probably doesn't know what they're talking about. Also, to be fair to your accountant, they weren't in a position to really warn you about this, as the legislation has been, is, and will remain open to interpretation, except in the most clear-cut cases of phoenixing (which were caught even before this change).

My understanding was that this change was to a straight yes or no answer. The current rules are there for the type of situation described I. E. Best endeavours, however these were being abused, hence the need for reform.

If the op thinks they may end up coming back to contracting then they should leave their business dormant but that wouldn't give the tax advantage.

I agree this is untested but as you say, the current rules already allow for the restart situation so there wouldn't be much point to the new rules unless they are enforced.