MVL + ER - and then self employment

[aoc]

OK, so you've ruled out the advice because you're worried that in the autumn budget (in 5 months time) might have something in it that might negatively affect you in some small way.

I'd suggest you keep your company open, max out your dividends, pension, etc, and then maybe look at MVL in a few months time.

I also see that you've added a bit more context - you're not actually working in to the end client, but working through another consultancy.
Can you tell us - is your intention that when you go permanent to work for the end client or to work for the consultancy?

Yes I agree I will have maxed out the dividends etc, but as for MVLing early ignoring above advice, we all have different views / hopes / expectations for the future, and my view is securing a 50% reduction on my CG tax bill will be more than worth any administrative inconvenience and the (potential) additional costs should I need to go umbrella longer term.

The permanent role would be with the end client, and the intermediate consultancy is fine (indeed happy!) with this.

[WTFH]

Thanks to all for your points.

A bit more context, might clear up questions above.

Q: Why go MVL so soon?
- I want to get the MVL process started as soon as possible, because I don't trust the government to keep ER as an option when the full financial impact of the <ongoing medical crisis> hits e.g. in Autumn Budget.

Q: Why sole trader and not umbrella?
- The overwhelming advice above is "don't go sole trader", yep - I thought the focus of ER criteria and the MVL 2 year rule was on starting up another LTD, so I thought sole trader was an option. Currently my LTD contracts through another consultancy to the end client - the consultancy are open to sole trader or umbrella. My concern was with potentially only a couple of days work per month and zero in some months, would make me unattractive / the costs too inefficient for umbrella service companies.


I think it's now clear that if I want to MVL, and support this adhoc work, then umbrella is the safe and perhaps only realistic option. The umbrella would also already be in place should the permanent role evaporate, if I had go back to a contract (for up to the 2 years after the MVL). I just need to find the right one with a good SIPP payment option.

OK, so you've ruled out the advice because you're worried that in the autumn budget (in 5 months time) might have something in it that might negatively affect you in some small way.

I'd suggest you keep your company open, max out your dividends, pension, etc, and then maybe look at MVL in a few months time.

I also see that you've added a bit more context - you're not actually working in to the end client, but working through another consultancy.
Can you tell us - is your intention that when you go permanent to work for the end client or to work for the consultancy?

[aoc]

Thanks to all for your points.

A bit more context, might clear up questions above.

Q: Why go MVL so soon?
- I want to get the MVL process started as soon as possible, because I don't trust the government to keep ER as an option when the full financial impact of the <ongoing medical crisis> hits e.g. in Autumn Budget.

Q: Why sole trader and not umbrella?
- The overwhelming advice above is "don't go sole trader", yep - I thought the focus of ER criteria and the MVL 2 year rule was on starting up another LTD, so I thought sole trader was an option. Currently my LTD contracts through another consultancy to the end client - the consultancy are open to sole trader or umbrella. My concern was with potentially only a couple of days work per month and zero in some months, would make me unattractive / the costs too inefficient for umbrella service companies.


I think it's now clear that if I want to MVL, and support this adhoc work, then umbrella is the safe and perhaps only realistic option. The umbrella would also already be in place should the permanent role evaporate, if I had go back to a contract (for up to the 2 years after the MVL). I just need to find the right one with a good SIPP payment option.

[Hobosapien]

Other things to consider:

a. It will take at least 3 months for the Ltd closure process to complete even if simple without MVL/ER, so starting the process too soon based on potential imminent work scenarios offers little reward.

b. Client may not entertain a diirect contract with someone classed as self-employed, as they may end up being liable for employer NI and other related taxes, which is why many clients prefer to use an agency as an intermediary even if the contractor was found direct and agencies won't take on contractors as self-employed either.

c. If going permie with client (if all goes to plan) then use an umbrella so are permie for the new role even if it's supposed to be only temporary, as things may drag on longer (client may decide not to take on permies yet for financial reasons, or temporary role may be required for longer). Using a brolly draws a clearer line under the previous Ltd contract at same client for IR35 and also trading activity purposes when closing the Ltd.

d. You may think the interim role from contractor to permie is temporary but it's been known for such a transition to take years when a client wants the contractor but negotiations are ongoing, during which contractor is kept on in contract so best to operate in the established way unless there are other factors making that less desirable.

i.e. keep contracting in the most suitable way (Ltd or brolly) while you're not a permie and only change approach when it is necessary rather than in anticipation for something that may not happen.

[Maslins]

I agree with jamesbrown, and also WTFH.

It's fairly clear that a Ltd Co business restarting as a sole trader can be caught by the rules.

Why can't you keep the Ltd Co open a few months longer, and do this ad hoc/part time contracting via it? This would also surely be less hassle than setting up a brand new business, new business bank account etc just for a few months work. You can then do the MVL after starting the permanent role.

[jamesbrown]

Interesting. I did think it ment via a LTD but you are correct reading back. My apologies.

No worries. It's mostly a grey area without much case law relevant to contractors, but "trade" will be interpreted broadly. Employment of any kind should be fine.

Some useful discussion around the issues and areas of greatest uncertainty (C & D) here:

Exploring the end of phoenixism | July 2018 | TAXline | ICAEW

[northernladuk]

No, it includes the "same or a similar trade or activity" (condition C). Self employment is not OK, unless you can somehow meet condition D w/r to tax not being a primary motivation (very doubtful). Conditions A and B are factual and met by default (close company, more than 5% of shares).

Interesting. I did think it ment via a LTD but you are correct reading back. My apologies.

[jamesbrown]

The 2 years is only to stop you pheonixing. You gain a tax advantage and then start again which is quite obviously aggresive tax avoidance. If you aren't running a LTD and don't plan on rinsing and repeating the process you'll be fine.

No, it includes the "same or a similar trade or activity" (condition C). Self employment is not OK, unless you can somehow meet condition D w/r to tax not being a primary motivation (very doubtful). Conditions A and B are factual and met by default (close company, more than 5% of shares).

[jamesbrown]

This would be clearly caught, in my view. The TAAR talks about "the same or a similar trade or activity". Self employment meets the definition of a trade. You could use an umbrella and that probably wouldn't be caught, since it's an employment and the general consensus is that umbrella employment wouldn't represent a caught activity (and it isn't a trade). There are other conditions to be met for the TAAR to apply, but they are mostly factual. It's possible that you could argue tax wasn't a primary motivation (D), since you intended employment later, but I don't think that would work.

IR35 is another consideration, although you mention a "distinct" change in role, so you're probably OK (providing it is very obviously distinct).

[northernladuk]

Removed out as information was wrong as proven by JB below.

[WTFH]

My contract ends shortly, and the plan is to immediately go the wind-up, MVL, ER route.

Why immediately?

During those months, my client is asking if I can support some post-project adhoc remote consultancy...

Don't wind up your company.
Keep it open until after you start your permanent job, not before. That way you can keep billing without any worries. Keep drawing salary and dividends. You're still running a company. Your client will still expect your company to have appropriate insurance.

(Unless there's parts of the story you're not telling us)

[aoc]

Morning all,

My contract ends shortly, and the plan is to immediately go the wind-up, MVL, ER route. My future plans are to go permanent at the client, but not for several months while I'm taking a break.

During those months, my client is asking if I can support some post-project adhoc remote consultancy - ad-hoc as in no obligation between the parties but if they want me, and I want to make myself available, then there's an agreement in place to let it happen. It would be up to 4 days a month on average so a low turnover. With the prospect of permanent I want to keep them sweet, I want to support this arrangement and I'm thinking of using a self employment business (because my LTD will no longer be trading).

With reference to the ER requirement to not start a similar business within 2 years - does this include self-employment businesses or is that rule aimed at the repeated liquidations of LTDs for CG rather than dividend income tax?
There will be a distinct change of role/duties and what I'd actually be doing - but the same end client as currently with my LTD, and the same systems. I'm worried that, if SE counts, it would still be too similar and alarm bells would go off.

Does anyone have a view on self-employment versus the 2 year rule?