Reply to: Anybody thinking of liquidating their Ltd co. already?

[Lance]

This is 100% not true.

95% not true.
If there is a likelehood of some genuine business through the LTD then keeping it open is good.
For most people (bum on seat, one client, permietractors) being forced inside by the client, closing the LTD is the best option.

[northernladuk]

This is 100% not true.

We need to get admin to put that in his signature just in case any newbies accidently takes him seriously.

[craigy1874]

In the light of IR35 next year it is by far the best to leave the LTD opened with no business for say 1-2 years. By this time it will be clear what is what and you will have generated say £8-16k loss which will be deducted next time you have turnover. And 90% of us will.
Win-win for you and f.uck HMRC.

This is 100% not true.

[Hobosapien]

Is there any evidence that lack of written evidence will increase the like hood of HMRC taking this approach. eg, from the Public Sector.

The "IR35 expert" at the agency advising my client on their IR35 approach told me that no (ie. absolutely zero) contractors were chased by HMRC when they moved from self-determined outside to Umbrella when IR35 was rolled out across the public sector. I took that with a pinch of salt, but he was adamant.

Going from the professionals that advise on such matters, presumably with real life cases to back up their advice (though not sure if we've had any details of such cases from affected contractors on here, so from the horse's mouth), the evidence needs to be available during any investigation so you can prove you did due diligence on either making the determination yourself (as in private sector currently) or a record of what evidence a client had to make their determination (as in public sector, and private sector relating to next April if all that goes ahead as proposed).

So for situations where the client is making the determination ask for at least an email giving the reasoning behind the determination with perhaps a copy of the CEST printout if they used that tool. If making the determination yourself, use a reputable third party to make the determination where they will provide written confirmation and they'll often stand by it in the form of insurance against the cost of an investigation.

Hopefully the liability of incorrect determinations made by clients means the risk of the contractor having to pay up any tax demands is much lower than situations where the contractor had full responsibility in making sure the determination was accurate, but don't go betting that hearsay and other word on the street type feedback will be accurate and remain that way. It's relatively easy to protect yourself for existing/future contracts, less so for old contracts where that horse may have long since bolted with any chance of getting proof of determination on its back.

[Paralytic]

The caveat is that unless due diligence is completed when determining the outside IR35 status, with written proof of evidence, then there is the possibility that HMRC would try to change liability from the Ltd to the director(s) if there were insufficient funds in the Ltd (such as following a closure) available to recover the tax bill they were pursing.

Is there any evidence that lack of written evidence will increase the like hood of HMRC taking this approach. eg, from the Public Sector.

The "IR35 expert" at the agency advising my client on their IR35 approach told me that no (ie. absolutely zero) contractors were chased by HMRC when they moved from self-determined outside to Umbrella when IR35 was rolled out across the public sector. I took that with a pinch of salt, but he was adamant.

[Hobosapien]

Am I right in saying that an IR35 investigation is based on the contractor and not the LtdCo? So is closing a company really going to make a historical investigation less likely?

IR35 relates to Personal Service Companies (PSC) so the liability initially rests with the Ltd and the director(s) is protected by the limited liability nature of a Ltd.

The caveat is that unless due diligence is completed when determining the outside IR35 status, with written proof of evidence, then there is the possibility that HMRC would try to change liability from the Ltd to the director(s) if there were insufficient funds in the Ltd (such as following a closure) available to recover the tax bill they were pursing.

So do due dilligence regarding IR35 determinations and if closing the Ltd follow the correct process and pay any taxes due, then the risk of being chased for personal liability for IR35 related taxes is highly unlikely. Some advocate retaining any IR35 investigation insurance for a period of time after the company closure for added peace of mind, as any investigation will be lengthy and possibly costly even if it ends with HMRC admitting there is no case to answer.

It's all been covered more thoroughly in recent times in other threads on this forum but the above is the state of play in a nutshell.

[Jolie]

From what I gather HMRC can't (or won't) investigate a closed company

Am I right in saying that an IR35 investigation is based on the contractor and not the LtdCo? So is closing a company really going to make a historical investigation less likely?

[Hobosapien]

Defo, have done exactly that in the past. Talk to your accountant. Now have a property portfolio generating passive income from old contract income. Company history also helps when applying for commercial loans.

For any new contracts that might come along in the future, simply start an new Ltd.

There would still be a risk to the Ltd and therefore the director(s) if HMRC decided to investigate any previous contracts and decided additional tax was now due.

If it was me I'd assess the likelihood of a retrospective IR35 investigation. The older the contract the less likely and there is some statutory cut-off where they won't/can't open an investigation after a period of time unless part of a fraud investigation where special rules apply not normally relevant to IR35 incorrect determinations (in the eyes of HMRC).

This risk, however slight, also covers dormant Ltds, which also incur annual costs in preparing simplified account for companies house/HMRC and the annual statements to companies house, and any bank charges if account not cleared and closed.

Which is why I closed my Ltd while working through a brolly. As said, it's simple enough to open a new Ltd in the future if worthwhile for outside IR35 contracts.

[Amanensia]

I just went from contracting to perm.
Last invoice is paid this month.

I asked about closing company after as no more income. If perm doesnt work out just set up another company and go back to contracting.

He said one option is to leave company open but dormant.
If you close company you get entrepreneurs relief - you only pay 10% on remaining reserves.
if you reopen a similar company within 2 years this may be classed as dividends by HMRC.

anyone tried this path?

Which path?

If you liquidate and qualify for ER then yes you pay 10% on reserves, but can't set up another Ltd in a similar field for two years.

If you leave it dormant you haven't liquidated, so there's no restriction around taking on further work via the Ltd, but you don't get the reserves out as capital.

But you know this as it's what you said, pretty much.

What was your question again?

[techsoftlondon]

Accountant said one option is leave company open but dormant

I just went from contracting to perm.
Last invoice is paid this month.

I asked about closing company after as no more income. If perm doesnt work out just set up another company and go back to contracting.

He said one option is to leave company open but dormant.
If you close company you get entrepreneurs relief - you only pay 10% on remaining reserves.
if you reopen a similar company within 2 years this may be classed as dividends by HMRC.

anyone tried this path?

[LoanCharged]

Is it just reclassify LTD's main activity and just use the cash to buy property(ies)?

Spot on. Company turns into property SPV. As always, chat to your accountant.

[pscont]

Defo, have done exactly that in the past. Talk to your accountant. Now have a property portfolio generating passive income from old contract income. Company history also helps when applying for commercial loans.

For any new contracts that might come along in the future, simply start an new Ltd.

Inneresting this. Please shed more light on how did you do it.
Is it just reclassify LTD's main activity and just use the cash to buy property(ies)?

[Amanensia]

[*]If the company was not a close company at any point in the two years before the winding up date

Almost everybody's company on here will be a close company. This isn't an issue for an MVL unless you are phoenixing.

[LoanCharged]

If one wants to jump into buy to let which perhaps coincides with the time to close the ltd company. Would it possible to change the purpose of company and use the cash to deploy in BTL ?

Defo, have done exactly that in the past. Talk to your accountant. Now have a property portfolio generating passive income from old contract income. Company history also helps when applying for commercial loans.

For any new contracts that might come along in the future, simply start an new Ltd.

[ChurchillKnight]

MVL could be a good option, and prove to be the most tax-efficient route, if:

• You have £25,000 or more in retained profits
• The company has reached the end of its operational life (you have and will not have any use for it)
• You will not be involved in similar trading or activity as your company in the following two years after the winding up
• If the company was not a close company at any point in the two years before the winding up date

Of course discussing your unique situation with your accountant is always advised in the first instance.

Alternatively if you think you might get an outside IR35 role at some point in the future, you can choose to keep your company open (active or dormant) while working through an umbrella in the short term. It all depends on how you want to operate and the best option for you.