MVL and TAAR

[jamesbrown]

Am I correct to interpret this as there being two separate "risks"?

So for example say I:

1) received an initial distribution of £90k on January 2020,
2) then a final distribution of £10k on January 2021,and then
3) restarted a similar company/trade on February 2022, and then 4) HMRC investigate and say BADR isn't applicable given then "same trade" rule has been broken

In this case, does the first distribution remain eligible for BADR and that bill remains settled/closed? The second distribution which I initially paid the 10% rate on though would be reclassified and I'd owe the additional 10%?

Yes, in theory. It is based on the capital distribution. I'm not aware of anything in the legislation that would bring the first distribution into scope. Incidentally, you claim BADR on your SATR (or two separate SATR in this case), but that is not the focus of the TAAR, it is the capital distribution in the first place (and, then, of course, you would have the full distribution that fails the test reclassified as a dividend, so you would lose BADR too). Oh, and no, you would not owe an additional 10%, the first distribution would be reclassified as a dividend (assuming you failed the test, which is a little bit more complex than merely being within two years, it is more about motivation), so a lot more than that.

[DrStrange]

The two year timeframe starts from each distribution, not the final one. It is with respect to that individual distribution. It is only the final one in the sense that that you cannot engage in the same or a similar trade or activity within two years of the final one, but the clock is ticking from your first distribution (w/r to that distribution).

Am I correct to interpret this as there being two separate "risks"?

So for example say I:

1) received an initial distribution of £90k on January 2020,
2) then a final distribution of £10k on January 2021,and then
3) restarted a similar company/trade on February 2022, and then 4) HMRC investigate and say BADR isn't applicable given then "same trade" rule has been broken

In this case, does the first distribution remain eligible for BADR and that bill remains settled/closed? The second distribution which I initially paid the 10% rate on though would be reclassified and I'd owe the additional 10%?

[jamesbrown]

But you also said in earlier response that the 2 year time starts after final distribution which in my case was made this week. Hence my question about plans going forward.

The two year timeframe starts from each distribution, not the final one. It is with respect to that individual distribution. It is only the final one in the sense that that you cannot engage in the same or a similar trade or activity within two years of the final one, but the clock is ticking from your first distribution (w/r to that distribution).

[cameo]

The TAAR has nothing to do with BADR. The question is whether you are eligible for a capital distribution at all. That is where the TAAR comes in and the "same or a similar trade" definition arises and the associated time limit of 2 years w/r to the capital distribution that is at risk of reclassification. So, you're already too late at this point - you've begun the MVL, had capital distributions and you are engaged in some work on the side that is similar to the work you did before. So, really, your question is moot w/r to taking any different action at this point, it's too late.

However, as I said above, it probably isn't an issue. If you'd used an umbrella, it definitely wouldn't have been an issue, but it probably isn't an issue. Again, see the example I linked from HMRC about the landscape gardener, although that situation is more clearcut than yours.

jamesbrown But you also said in earlier response that the 2 year time starts after final distribution which in my case was made this week. Hence my question about plans going forward.

[jamesbrown]

I had a permanent job but started a limited company when I decided to do contracting. Then I took up a permanent job with the same client after IR35 was implemented. The Limited company was not closed and there was income coming into the company from work that I did outside my permanent job. After three years of doing the permanent job, I decided to close my Ltd company because I had no further plans to do contracting. The liquidation process started in March 2021. First distribution was last year and second distribution was this week. My concern is that I have a side income outside my permanent job which is considered similar trade. I wondered if HMRC will consider this as similar trade and question why I should be considered for BADR when I have been doing similar trade outside my PAYE job after initiating the liquidation. The side job/jobs gives me around 20% of my total annual income.

Not sure if I am making sense, but happy to provide more info

The TAAR has nothing to do with BADR. The question is whether you are eligible for a capital distribution at all. That is where the TAAR comes in and the "same or a similar trade" definition arises and the associated time limit of 2 years w/r to the capital distribution that is at risk of reclassification. So, you're already too late at this point - you've begun the MVL, had capital distributions and you are engaged in some work on the side that is similar to the work you did before. So, really, your question is moot w/r to taking any different action at this point, it's too late.

However, as I said above, it probably isn't an issue. If you'd used an umbrella, it definitely wouldn't have been an issue, but it probably isn't an issue. Again, see the example I linked from HMRC about the landscape gardener, although that situation is more clearcut than yours.

[northernladuk]

Erm..

My concern is that I have a side income outside my permanent job which is considered similar trade.

Then

I wondered if HMRC will consider this as similar trade

Haven't you kind of answered your own question there?

[cameo]

I think I caught the end of one of your PMs in an e-mail notification, which mentioned something about the company sitting there and not trading for a while. I think ER/BADR (which is a personal relief, separate from the TAAR/capital distribution) has a requirement for trading within the last 3 years, something like that, so you're probably fine as long as you traded relatively recently.

I had a permanent job but started a limited company when I decided to do contracting. Then I took up a permanent job with the same client after IR35 was implemented. The Limited company was not closed and there was income coming into the company from work that I did outside my permanent job. After three years of doing the permanent job, I decided to close my Ltd company because I had no further plans to do contracting. The liquidation process started in March 2021. First distribution was last year and second distribution was this week. My concern is that I have a side income outside my permanent job which is considered similar trade. I wondered if HMRC will consider this as similar trade and question why I should be considered for BADR when I have been doing similar trade outside my PAYE job after initiating the liquidation. The side job/jobs gives me around 20% of my total annual income.

Not sure if I am making sense, but happy to provide more info

[jamesbrown]

I think I caught the end of one of your PMs in an e-mail notification, which mentioned something about the company sitting there and not trading for a while. I think ER/BADR (which is a personal relief, separate from the TAAR/capital distribution) has a requirement for trading within the last 3 years, something like that, so you're probably fine as long as you traded relatively recently.

[JHamp82]

As far as I understand working through an umbrella won't be an issue. Its just if you start working through your Ltd company, and I think the period starts from the date you received final distribution.

[jamesbrown]

Hey, sorry PMs didn't work. It turns out you need to have 5 posts approved first.

I wondered if someone can advise me on the MVL process. My LTD company is being wound up this week. Final distribution has been made. My questions are:
1. Will my 2 year exile from 'similar trade' starts from the day the the final distribution is made or it starts from the day the liquidation process has been initiated,(in my case March 2021) ?

It begins from the date each distribution is made so, effectively, the last distribution, when you have two, which is quite common.

2. I have a day job which is on PAYE basis but I do some work outside my regular job which is 'similar'. Can I start using an umbrella company for my non-PAYE income without risking TAAR ? Or should I just stop doing any extra work outside my regular salaried job for safe side.
Thanks in advance

It is impossible to say, definitively, whether doing a small amount of work on the side is a risk, but it probably isn't. There are examples from HMRC on this. For example, see the landscape gardener example here (this is a random link but it reproduces a couple of the HMRC examples):

https://www.torrwaterfield.co.uk/new...ot-so-targeted

But, sure, doing this via an umbrella would be extra protection. TBH, it probably isn't needed, assuming it is incidental but YMMV.

[cameo]

I wondered if someone can advise me on the MVL process. My LTD company is being wound up this week. Final distribution has been made. My questions are:
1. Will my 2 year exile from 'similar trade' starts from the day the the final distribution is made or it starts from the day the liquidation process has been initiated,(in my case March 2021) ?
2. I have a day job which is on PAYE basis but I do some work outside my regular job which is 'similar'. Can I start using an umbrella company for my non-PAYE income without risking TAAR ? Or should I just stop doing any extra work outside my regular salaried job for safe side.
Thanks in advance