Reply to: Long Contracts - Do I Extend?

[Archangel]

The previous poster *MAY* be correct that the length of contract has no bearing on an investigation (although evidence shows otherwise),

What evidence?

When I was investigated I had been with the client for 7 years, no mention of this was made during the investigation. (which I passed by the way)

I do wish people wouldn't post nonsense as fact.

[Lewis]

You need their approval to close the company. If you keep asking for it, they may just smell a rat. It's not an IR35 protection measure anyway - quite the reverse in fact, they'll probably run an aspect enquiry and then put you under a three-year investigation just in case. And you do save tax, because the taper relief on outstanding corporate assets, which is why they need to be sure you're closing for a genuine reason.

Sorry but I don't believe you. I know loads of people who have shut down companies including myself and none have had an aspect enquiry.

I said IF you make no tax gain, i.e. don't apply for any taper relief.

[malvolio]

I do wonder if they are that organised. How would they know it is the same client unless they investigate and look at the contract?

Plus if you don't actually avoid any tax by closing and opening a new company (i.e. you just do it as an IR35 protection measure) then what is there for them to object to?

I am also not convinced that an application to strike off can prompt an IR35 investigation. Are you aware of any cases where this has happened?

That said, I think all round it is easier if you are going to change company to do it whilst on the bench.

You need their approval to close the company. If you keep asking for it, they may just smell a rat. It's not an IR35 protection measure anyway - quite the reverse in fact, they'll probably run an aspect enquiry and then put you under a three-year investigation just in case. And you do save tax, because the taper relief on outstanding corporate assets, which is why they need to be sure you're closing for a genuine reason.

[malvolio]

Remember too, Arctic was not an IR35 case at all.

Nor did they lose any money. They won the case...

[Lewis]

Not conjecture. If there is no direct business-related reason, like starting a fresh piece of work or a new client, Hector will assume you are doing it simply to avoid paying tax. OK, you are, but that is rather the point... It's the basis of the Ramsay principle, where Hector will look though any apparently meaningless arrangements and make an assessment on the underlying reality

While you may get away with it once, doing it several times with no other signficant trading changes will attract his attention. If it does, no taper relief and probably a nice tax bill to boot.

I do wonder if they are that organised. How would they know it is the same client unless they investigate and look at the contract?

Plus if you don't actually avoid any tax by closing and opening a new company (i.e. you just do it as an IR35 protection measure) then what is there for them to object to?

I am also not convinced that an application to strike off can prompt an IR35 investigation. Are you aware of any cases where this has happened?

That said, I think all round it is easier if you are going to change company to do it whilst on the bench.

[malvolio]

What are you basing this on? Do you have HMRC guidance or case law?

Not having a go at you, it's just that I queried this the other day and no-one replied so I suspect this is just conjecture.

Not conjecture. If there is no direct business-related reason, like starting a fresh piece of work or a new client, Hector will assume you are doing it simply to avoid paying tax. OK, you are, but that is rather the point... It's the basis of the Ramsay principle, where Hector will look though any apparently meaningless arrangements and make an assessment on the underlying reality

While you may get away with it once, doing it several times with no other signficant trading changes will attract his attention. If it does, no taper relief and probably a nice tax bill to boot.

[ratewhore]

Closing the Ltd and starting a new one, whilst remaining in exactly the same course of business, will not be lightly seen at HMRC.

What are you basing this on? Do you have HMRC guidance or case law?

Not having a go at you, it's just that I queried this the other day and no-one replied so I suspect this is just conjecture.

[Fred Bloggs]

Let's be clear, if you are compliant on day 1 and you're still compliant on day 1000 you're just fine. HMRC may view you (and probably would) as a nice soft target though. Even so, they may not win. Remember too, Arctic was not an IR35 case at all.

[rawly]

Erm maybe I'm missing something but 4 years is 4 * 12 months = x4 the loss?

In any case I would probably not accept an extension after 2 years as I get bored very easily. I reckon after 2 years it's time to move on.

Oh Yeah You can see why I pay an accountant to do sums!

Actually, most of mine are 6 months. I completely agree with your 2 year limit though for the reason's you've also cited. I also get very bored! I am literally chalking off marks on the wall at the end of my current 6+3+<3 Gap>+6+6 contract (complicated hey!). I nearly died the other day when I heard (unofficially) they wanted another 6 months. I hate saying No, but there comes a time!

[b0redom]

the amount you might lose does has a massive bearing when choosing between 12 months and 4 years, it x8 the loss!

How many here could absorb a £10,000 loss and how many an £80,000 loss? I know what I'd choose.

Erm maybe I'm missing something but 4 years is 4 * 12 months = x4 the loss?

In any case I would probably not accept an extension after 2 years as I get bored very easily. I reckon after 2 years it's time to move on.

[rawly]

Must have had a lot of lolly in his time.

Well, less than 2 years then! Look, Arctic lost £99,000 based on a 5 years contract. So, what was he on? I could assume his daily rate might have been £600 / day from this, as I think you would make a margin of £20,000 tax saving per year using standard small business methodolgies.

So, are IR really going to drag a contract through the courts which was say 2 years (and only a more common £300 a day) which would yield £20,000 back if they won after 5 years in the courts a costing more than that?

IR are pretty dense, but they're not stupid. Or are they! They might have even made a small gain on the Arctic case, but even there it's hard to tell if they would have!

It's all so pointless TBH, I try not to let ir35 rule my mind. I check the contract out, do the work, and get on with my life! All I know is, I'd rather have one short 2 year contract going to court in the past 7 years than one big long 7 year one! It's common sense really.
(Well actually I'd rather have none going there! )

The previous poster *MAY* be correct that the length of contract has no bearing on an investigation (although evidence shows otherwise), but the amount you might lose does has a massive bearing when choosing between 12 months and 4 years, it x8 the loss!

How many here could absorb a £10,000 loss and how many an £80,000 loss? I know what I'd choose.

[Fred Bloggs]

At the moment IMO it would be rash to not extend. Duration on its own has little to do with IR35. Get a better accountant.

[pmeswani]

He read it on a lolly stick...

Must have had a lot of lolly in his time.

[malvolio]

That's interesting. Where did you get that information from?

He read it on a lolly stick...

[ChimpMaster]

- especially where you are staying wth the same client - are a potential trigger, which is the safer option?

And this is the crucial point. If you were leaving this client and starting another contract elsewhere, then closing the Ltd would have more relevance. Closing the Ltd and starting a new one, whilst remaining in exactly the same course of business, will not be lightly seen at HMRC.

I understand your position, in that closing a Ltd ties up loose ends and closes potential IR35 issues that might otherwise arise.

Wait until the contract is over before doing what your accountant suggests. It's even better if you have some time off between contracts in this case.