Reply to: Going umbrella after MVL

[Amanensia]

Client is irrelevant. The point is you've gone from being a business owner, to a simple employee of a firm in which you have no ownership interest.

Might or might not be irrelevant for IR35 purposes, but that's an entirely different matter.

[ChimpMaster]

I recently took advice on this from my own accountant, and from a friend who is a tax partner in a major UK accountancy firm. Both were of the strong opinion that MVL -> Umbrella is absolutely no problem. As it turns out I didn't need to take advantage of this as several large clients in my field are routinely deeming their contractors (at least those in my fairly specific niche) outside IR35, but I would have had no concerns going MVL -> Umbrella if that hadn't been the case.

How about MVL and into Umbrella whilst still at the same client?

[cojak]

I recently took advice on this from my own accountant, and from a friend who is a tax partner in a major UK accountancy firm. Both were of the strong opinion that MVL -> Umbrella is absolutely no problem. As it turns out I didn't need to take advantage of this as several large clients in my field are routinely deeming their contractors (at least those in my fairly specific niche) outside IR35, but I would have had no concerns going MVL -> Umbrella if that hadn't been the case.

I completely agree with this.

[Amanensia]

I recently took advice on this from my own accountant, and from a friend who is a tax partner in a major UK accountancy firm. Both were of the strong opinion that MVL -> Umbrella is absolutely no problem. As it turns out I didn't need to take advantage of this as several large clients in my field are routinely deeming their contractors (at least those in my fairly specific niche) outside IR35, but I would have had no concerns going MVL -> Umbrella if that hadn't been the case.

[Crossroads]

Thread bump...

Are there any newer thoughts/opinions on the Umbrella-after-MVL scenario?

I'm mid-MVL after landing a pretty good permanent role. However as I'm approaching 6 months in the commute is grinding me down and the company culture/WFH options aren't going to be flexible enough I don't think (I'm going to ask the question but I suspect I'll be looking for something new).

I'm thinking that part time work/breaks between projects is what I need, otherwise I'm just going to retire early (could just about afford it), would be good to know if umbrella is a safe option or not.


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[Maslins]

Are we saying that MVL might carry risks /may not apply if someone plans to close their Ltd and move to a brolly?

Having never looked into it, my uninformed assumption was always that as long as you didn't set up a new ltd (phoenix) this might not raise any questions.

I think most would agree with you...though HMRC have made it clear (for example) liquidating a Ltd Co then setting up a sole trader business doing the same thing would be caught.

The problem is the wording is very vague. It talks about doing a similar trade or activity. HMRC have specifically stated (for example) liquidating an IT consulting Ltd Co to then take on a permanent job as an IT consultant would not be caught (barring some convoluted situations). They didn't specifically comment re umbrella.

Some people may argue umbrella is more like contracting than a permanent role, as can often be short term gigs, perhaps to do a specific project etc. However others will argue as legally you're an employee, taxed as an employee, it'd be safe. I fall into the latter camp, but that's just my opinion.

[youngguy]

I think your final few words are critical here.

For a lot of contractors, especially those with significant other as 50% shareholder, going umbrella would lead to a lot more tax (predominantly NICs) over 2+ years when compared to Ltd Co with low salary/high dividends. You'd need a pretty big war chest to outweigh the impact of that.

However, yes, IR35 reforms could remove the option of outside IR35 contracting for some. Personally I doubt it we'll see a big upswing in MVLs, as I anticipate:
- the higher skilled (hence higher earning) contractors will end up securing outside IR35 contracts, as they're more likely to control what/when/how they do their work.
- the lower skilled (hence lower earning) contractors who may well end up with inside IR35 contracts, would unlikely have built up sufficient war chests to make an MVL viable. Remember dividends in basic rate suffer 7.5%, lower than the 10% on an MVL.

Re the OP, there sadly aren't cast iron guarantees to many things these days, and your situation is one of them. However, I agree with most other posters that the risk for you is very low.

Are we saying that MVL might carry risks /may not apply if someone plans to close their Ltd and move to a brolly?

Having never looked into it, my uninformed assumption was always that as long as you didn't set up a new ltd (phoenix) this might not raise any questions.

[ccrowe]

Thank you for all the replies. They are very useful.

[Maslins]

If everyone knew that they could go brolly after MVL, with no risk at all, there would probably be more people going MVL, especially with IR35 reform coming in.

I think your final few words are critical here.

For a lot of contractors, especially those with significant other as 50% shareholder, going umbrella would lead to a lot more tax (predominantly NICs) over 2+ years when compared to Ltd Co with low salary/high dividends. You'd need a pretty big war chest to outweigh the impact of that.

However, yes, IR35 reforms could remove the option of outside IR35 contracting for some. Personally I doubt it we'll see a big upswing in MVLs, as I anticipate:
- the higher skilled (hence higher earning) contractors will end up securing outside IR35 contracts, as they're more likely to control what/when/how they do their work.
- the lower skilled (hence lower earning) contractors who may well end up with inside IR35 contracts, would unlikely have built up sufficient war chests to make an MVL viable. Remember dividends in basic rate suffer 7.5%, lower than the 10% on an MVL.

Re the OP, there sadly aren't cast iron guarantees to many things these days, and your situation is one of them. However, I agree with most other posters that the risk for you is very low.

[ChimpMaster]

<snip>

If everyone knew that they could go brolly after MVL, with no risk at all, there would probably be more people going MVL, especially with IR35 reform coming in. Go MVL, get your stash out of the company, pay the brolly taxes for a couple years, since you might be chucked inside IR35 half the time anyway. Lots of people may do that, more may do so if they knew there was no risk to it. So HMRC probably won't want to set the precedent that shows there really is no risk.

But could you do this mid-contract or on contract renewal at the same client?

I suppose in many ways, HMRC would get want they want anyway. They know that fighting thousands of cases on an historical IR35 challenge would be difficult and time-consuming, with little chance of success, so by forcing many contractors onto a PAYE structure prospectively is a still a huge win for HMRC.

[WordIsBond]

If the OP hasn't done this purely for the tax advantage then fraud seems unlikely, as it's a genuine change in circumstances.

The two year rule pretty much shifts the burden of proof onto the taxpayer to prove a genuine change in circumstances.

HMRC could argue that OP knew all along he was going to blow all that money, that's not a change. How can OP prove that there's been a change here that he wasn't anticipating?

This isn't like the people who become perms and then get made redundant 15 months later. That's a change they couldn't anticipate, and they can prove it. But 'I got a good offer' isn't a change in circumstances that will impress HMRC. 'Getting an offer' is what contractors do all the time.

In my view the risk of starting a new Ltd would be pretty high in this case.

But to OP's question, the risk of going brolly is probably very, very low. The risk of HMRC winning a case on this would be low. The risk of them even trying is probably even lower. They have bigger targets with better chances of winning. And losing this one would set a precedent that they probably wouldn't like, because then the answer to the next guy who asked your question would be, 'No risk.'

If everyone knew that they could go brolly after MVL, with no risk at all, there would probably be more people going MVL, especially with IR35 reform coming in. Go MVL, get your stash out of the company, pay the brolly taxes for a couple years, since you might be chucked inside IR35 half the time anyway. Lots of people may do that, more may do so if they knew there was no risk to it. So HMRC probably won't want to set the precedent that shows there really is no risk.

[jamesbrown]

what is the actual risk though

This is essentially unanswerable since we know neither the probability nor the amount at risk, which could involve tax (the difference between a capital distribution, possibly after ER, and a dividend distribution), plus interest, plus penalties, speaking generally. Nevertheless, I think the risk to the OP is very low if they do as they describe. Still, it’s difficult to quantify. If they opened a new company, it would be higher (but also lower than the sort of deliberate phoenixing that the TiS was thought to be focused on), but again difficult to quantify. The problem is the legislation itself, which is very broadly drawn, and the lack of much guidance, together with HMRC’s tendency to change its mind and pursue something aggressively that was previously guided as unlikely.

[Lance]

Neither, the two-year period within the TAAR begins when the relevant distribution is made (there may be more than one).

There's no absolute certainty in this area, but the I think you're at the low-risk end of the spectrum, providing you can evidence what you've said and that you do indeed use an umbrella, which is a form of employment (so not a "trade", and probably not an "activity" as intended by the TAAR). Opening another company would be a higher risk, certainly.

what is the actual risk though?
If it's just to pay the tax advantage gained from the MVL but no fines/fraud/worse, then the risk may be worth it. I don't know as it's not my area, but I do like to understand the risks when maiking a decision.

If the OP hasn't done this purely for the tax advantage then fraud seems unlikely, as it's a genuine change in circumstances. Of course the money paid to the MVL company would be lost, if the extra tax has to be paid.

Might be worth a call to the company who did the MVL and ask them for an opinion.

[jamesbrown]

Is the two year period related to last worked date, or the date of liquidation?

Neither, the two-year period within the TAAR begins when the relevant distribution is made (there may be more than one).

There's no absolute certainty in this area, but the I think you're at the low-risk end of the spectrum, providing you can evidence what you've said and that you do indeed use an umbrella, which is a form of employment (so not a "trade", and probably not an "activity" as intended by the TAAR). Opening another company would be a higher risk, certainly.

[northernladuk]

IMO you are employed as an Umbrella client so I don't see how they can have a problem with it. The rule is to stop abusing the system and gaining an unfair tax advantage by closing the company and quickly re-opening another to abuse the tax situation again. By going brolly you aren't, you are shutting the company and then becoming an employee. It will be very difficult for them to argue and they are getting extra tax so can't see why they should.