Reply to: Taking salary as capital gains only

[IR35 Avoider]

Am I understanding correctly?

You turn over 100K and pay tax and NI so that 95K has either gone in tax or been paid as actual net salary or set aside in the company but earmarked as already taxed. (I.R. will let you take it out later as a dividend with no more tax due, I think.)

How does making a capital gain help? You only have 5K (less expenses) left which hasn't been taxed, the most you can avoid on that is 1.6K. Not much to shout about. I'm sure this isn't the plan - the plan involved somehow not paying the tax on the "salary" left in the company. I don't understand what's being proposed.

[ASB]

But since you haven't:-

a) Incorrectly paid the PAYE or NI
b) Broken any laws

Then it's a little tricky to see any sanction.

[The Late, Great JC]

Don't put any money on it.

The courts are not going to bar someone from holding a directorship for things as trivial as filling in IR forms wrong. There are other sanctions (fines) for this. It doesn't come anywhere near the requirements of illegal trading to be barred.

tim

You'd have to do something seriously Threaded to get barred from holding a directorship!

[tim123]

And I'm willing to guess they may start proceedings to get you barred from holding the office of Director for the incorrect payment of PAYE/NIC etc...

Don't put any money on it.

The courts are not going to bar someone from holding a directorship for things as trivial as filling in IR forms wrong. There are other sanctions (fines) for this. It doesn't come anywhere near the requirements of illegal trading to be barred.

tim

[boredsenseless]

And I'm willing to guess they may start proceedings to get you barred from holding the office of Director for the incorrect payment of PAYE/NIC etc...

[ASB]

Malvolio,

In order for it to be evasion there has to be some breach of the law.

What is actually illegal in:-

- Incorporating company.
- Winding it up.
- Distributing the funds (either as income subject to income tax or as captital - siubject to potential CGT).

- Repeating the process.

Answer. Nothing. [Although if you can actually demonstrate some illegality I will happily concede it is evasion]

Now, I would entirely agree that this is a very risky strategy. And if you made any tax saving (i.e. avoidance) it could only be by getting the concession - which is unlikely.

Further, if you did actually get the concession the IR could very well invoke Ramsey to effectively disallow the transactions (and this would then lead to penalties and interest).

[malvolio]

No it isn't, nah-nah-ni-nah-nah...

[Rebecca Loos]

other than to avoid paying tax
In your own words!!! So it is avoidance, and not evasion, otherwise you'd have said "other than to evade paying tax"

Rebecca in "pedantic yes, but so is the law!" mode

[malvolio]

It's evasion. The position quoted here is where a second legal entity takes over the old company's assets and business. In the OP's case, the same person owns both old and new companies, and there is no reason for the first company to have ceased trading, other than to avoid paying tax.

[Bradley]

Re:Avoidance

Jeez, more amateurs - go and read my reply again.

It will be seen as evasion (not avoidance, evasion) since you are using a completely artificial commercial construct

It's not evasion it's avoidance
http://www.hmrc.gov.uk/manuals/ct123manual/CT3685.htm

[boredsenseless]

Strange really isn't it - IR35 is there to extract tax from 'limited companies' that in the Governments view aren't 'real' companies.

So in order to circumnavigate this legislation you decide to operate in a way no real company would - therefore admitting that you are obviously trapped by IR35 and inviting an audit.

AS previously said by ASB - IR35 is a personal tax it really has little to do with your company

[ASB]

Tou Can

Sort of.

Assume you are clear of the IR35 issues then at wind up you can distribute your companys assets to it's shareholders as a capital distribution. But, you need an extra statutory concession (16 I think) from the revenue in order to do this. If you have been trading a year and have alot retained they may be somewhat reluctant to do this.

Repeating the process will make you more unpopular. However there is absolutely nothing to prevent from incorportating and winding up on an annual basis. Just make sure to do absolutely everything exactly correctly because if you don't you'll be in trouble. The tax man also has some powers to effectively ignore this sort of pheonix arrangment under certain ciscumstance.

Now if you are not clear of IR35 and do distribute capital reserves as capital then that - of itself - is fine (provided you got the concession).

However you are not clear of the IR35 liability because that is yours personally.

[planetit]

Your plan might be fine, but you would still have to calculate a deemed salary and pay PAYE/NIC on it. As far as I know, this weird distribution from the company (capital gain?) doesn’t enter into the equation of deemed salary. The only difference would be that you wouldn’t have any money left in the company to pay the PAYE/NIC.

P.S. Is the confusion perhaps that you think IR35 deemed salary is in some way connected to the actual salary you pay? It isn’t.

[scarletjim]

I'm sure we were all amateurs at some point!! Ok I found PCG now, I thought you were referring to some other piece of legislation that I hadn't heard of. Cheers for your help, I'll go away and do some reading/investigating (and not get prosecuted!)

[malvolio]

Jeez, more amateurs - go and read my reply again.

It will be seen as evasion (not avoidance, evasion) since you are using a completely artificial commercial construct - no real business would do what you propose. You would get an investigation as soon as your second SA form was submitted.

If the HMRC website is not a good source of info, please can you suggest somewhere reliable and clear?

I just did. You're already at one of them. The other is not too hard to find.