Reply to: IR35 re-opening investigations

[TheBigYinJames]

or the number of contractors who have simply foregone the ltd and used an umbrella instead.

That's me. After a big tax scare in 1994 (this was pre-IR35) and lots of wrangling between IR and my accountant, a final settlement and my company being struck off (voluntarily, I might add), I decided that for the sake of my health and happiness, that I would trade through a brolly in future. And I haven't set seen anything since to make me regret that decision.

[Cheshire Cat]

After reading thousands of posts on the subject, and hunting around the internet for clues, IR35 is still mostly a mystery to me. That said, I suppose that's really the objective of HMRC. Create a spectre that encourages contractors to choose the least tax effective business structure for fear of what might happen if they've misunderstood the rules, thereby maximising tax revenue. The ROI for HMRC must make IR35 a veritable cash cow. Whilst they haven't won many cases outright, there are only estimates on the number of ltd's who have just written the cheque, or the number of contractors who have simply foregone the ltd and used an umbrella instead.

My biggest confusion surrounds the nature of person vs company. Many posters suggest the company is the liable legal entity, and in closing that company, HMRC cannot retrieve money it might later calculate to be owed. But the core of IR35 is a disagreement about the amounts of "personal" taxation paid by the individual/s. In many cases HMRC have indicated they think the ltd company is a sham tax avoidance vehicle, and when they present you with a bill for tax owed, it is income tax and NICs they believe should've been paid, not unpaid CT.
With this in mind, and given the tenacious behaviour of some tax inspectors, I wouldn't feel immune from investigation simply because the company through which I'd been paid no longer existed. After all, I have still recevied the money through the company, so even if it was now closed, HMRC may take view that as I am the recipient of the funds, I am liable for the tax due.

Is there any concrete legal argument that this is not the case?

[sidknows]

I'm not a 100% sure about this but from what I understand , the Revenue have the power to revive dissolved companies within a certain number of years of the company being dissolved -- the costs may be prohitive but if its worth their while , they can do it
Maybe someone on the forum can clarify this a bit more

[max]

Closing UK Ltd Co every few years is very tidy way of clearing the decks. If I read correctly, accumulated Bal Sheet profits are already taxed at CT rate, and if say 100k was there, could be drawn out at cost of 10% extra ? Any limit to the 10% threshold ? Thanks.

£1m lifetime allowance is the limit.

After that 18%.

[max]

OK - Say I've got 200K in the company - can I ESC 16 it, pay 18% on the gross and then just start another one doing the same thing straight away?

Not 18%. 10% on the first £1M(lifetime allowance)

[ThisAndThat]

I forget why they started investigating, I think it was the old 'PAYE' thing. It quickly became apparent that the objective was IR35 by the tone of the questions. Interesting points zathras, as you say they were happy to close it down but as for re-opening...I doubt that very much. I have a domain name with my company as the owner. A long while after I closed the company someone contacted me about buying that domain, which I was happy to do. Big problem though, as the company no longer existed, it would take some serious legal work to actually transfer that name, in the region of 2 grand I seem to recall. I did it that way as a package of 'pointers' that put me outside IR35. Probably pointless really, I don't think any little things like that made one jot of difference. It all came down to the tax defender arguing my case.

[TheBigYinJames]

Out of curiousity, does anyone know if/how HMRC targets people it believes to be incorrectly operating outside IR35? Or are the investigations random and you are just unlucky if you get selected?

If people knew that they would avoid it. I believe not putting your head above the parapet is the preferred method, e.g. keep expense claims moderate, no weird 'investments' offshore etc.

[DonkeyRhubarb]

Is it really that easy?

Suppose your current company got investigated then surely they would look at all your previous SA returns and discover that you had been paid small salary and dividends through other companies. Couldn't they then investigate your IR35 status in those companies as well? The fact that the companies are closed may not matter if they can show that they were a "sham" anyway.

Out of curiousity, does anyone know if/how HMRC targets people it believes to be incorrectly operating outside IR35? Or are the investigations random and you are just unlucky if you get selected?

[zathras]

Guys, what is the time frame for the revenue people if they decide to re-open a closed IR35 investigation? I think general tax matters are 7 years and my case was fought and won about 6 years back. I've since then lost the details anyway.

Just wondering if they would drag open a case about a small fry like me after all this time in view of the recent wins? I closed the company (with IR permission as you need to do) and basically put it all behind me. The work history I had at the time was with one or 2 big clients for a couple of years then about 4 short contracts (some just a few weeks). Those were mad days in the year 2000 for sure and I would never work that way again.

Close an Ir35 investigation?

They never close one. They always reserve the right to go back if they ever find more information.

That said they are going to have to justify why

a) they gave permission to close a company which owed them money

b) they want to re-open the company.

It also is going to cost them money.

[Lewis]

So just to clarify... close a company and the taxman cannot open a tax investigation or go after the directors personally?

QB.

I don't think it is quite that simple. You must keep all company records for 7 years (some longer) there is a reason for that. But I think in general yes once a company is closed you are mostly safe.

A few months after I closed my first limited about 8 years ago I got a letter saying they wanted to do a PAYE audit. I said, company is closed, they said oh forget about it then.

[QwertyBerty]

So just to clarify... close a company and the taxman cannot open a tax investigation or go after the directors personally?

QB.

[Pickle2]

Thanks - so what's a regular basis? I've been trading for 15 years or so with this company. Could I close it, take a couple of months off and then start again, but plan on doing the same thing again in 4-5 years time - when I'll be retiring?

Without doubt. I have done exactly that before. And I know lots of others who have done the same. I went to australia to watch the ashes with my last "break". So it wasnt all good news.

You are wrong about paying 18% on your 200k though. You will only pay at 10% rate for your first million (lifetime limit).

[Chugnut]

Thanks - so what's a regular basis? I've been trading for 15 years or so with this company. Could I close it, take a couple of months off and then start again, but plan on doing the same thing again in 4-5 years time - when I'll be retiring?

I would imagine that's not something that has timescales against it, otherwise loads of people would be doing it, to the nearest day. I closed my company when I got a permie job because I genuinely wasn't planning on going contracting again.

Within 6 months, the job had turned to cack and I'd started a new company.

[nomadicguy]

Closing UK Ltd Co every few years is very tidy way of clearing the decks. If I read correctly, accumulated Bal Sheet profits are already taxed at CT rate, and if say 100k was there, could be drawn out at cost of 10% extra ? Any limit to the 10% threshold ? Thanks.

[Lockhouse]

Thanks - so what's a regular basis? I've been trading for 15 years or so with this company. Could I close it, take a couple of months off and then start again, but plan on doing the same thing again in 4-5 years time - when I'll be retiring?