Reply to: IR35 Dragonfly : The fallout

[GreenerGrass]

My accountant positively advises this as a course of action. He did say however that this could flag up the company for HMRC investigation but at the end of the day, its a numbers game.

Im thinking this over because when you start a new co, you lose all your financial history if wanting to take out loans etc and I dont really want to do that.

I guess sorting out a lifetime tracker offset mortgage would be a good idea to mitigate against that.

Taking out maximum possible divis all the time seems to be a good idea as well. Why live like a pauper to keep under the high rate threshold and build up huge company reserves if it makes it easier to get clobbered?
So you pay more tax, but at least your future exposure (at worst) will just be the NI amounts.

[BolshieBastard]

So if he had wound up the company before being investigated, he would have been in the clear? If this is the case (sorry if it's been discussed before) then the frequent winding up of a company and starting afresh with a new one would be advisable to contractors?

My accountant positively advises this as a course of action. He did say however that this could flag up the company for HMRC investigation but at the end of the day, its a numbers game.

Im thinking this over because when you start a new co, you lose all your financial history if wanting to take out loans etc and I dont really want to do that.

[Qdos Contractor]

I thought that the taxman has to prove beyond reasonable doubt that you made the dividend payments whilst knowing that you would fall inside IR35 before he could come after you personally.

I'm guessing the worst that could therefore happen is you would be disqualified from being a director for 'x' amount of years

A direction under Regulation 81(4) Income Tax (PAYE) Regulations 2003 may be used where an employer cannot pay the tax debt, e.g because of insolvency, and an under-deduction or a failure to account relates to a particular employee or director. HMRC may then consider relieving the employer of the liability & effectively transferring it to the employee or director if the regulatory tests are met. One of those tests is that HMRC are of the opinion that the employee knew that the employer had wilfully failed to deduct tax that should have been deducted.

I would care to suggest that if there was a material amount of tax at stake & the director had the funds, HMRC would have a stab at making such a direction.

[dezze]

No, invariably where a company is undergoing an IR35 enquiry HMRC are vigilent enough to object to any winding up.

The query did state 'So if he had wound up the company before being investigated'

Not every company is investigated every year, so if the company is closed at year end and no investigation is initiated by HMRC, is the contractor in the clear and can start up a fresh company and do the same thing next year end?

[Qdos Contractor]

So if he had wound up the company before being investigated, he would have been in the clear? If this is the case (sorry if it's been discussed before) then the frequent winding up of a company and starting afresh with a new one would be advisable to contractors?

No, invariably where a company is undergoing an IR35 enquiry HMRC are vigilent enough to object to any winding up.

[Weltchy]

Whilst the company has funds in it, HMRC would extract what they could. In very rare instances the Revenue do have powers to raise assessments on directors to collect unpaid tax, so if the tax was substantial enough they could consider taking this route.

I thought that the taxman has to prove beyond reasonable doubt that you made the dividend payments whilst knowing that you would fall inside IR35 before he could come after you personally.

I'm guessing the worst that could therefore happen is you would be disqualified from being a director for 'x' amount of years

[Alan @ BroomeAffinity]

A while back, I had a client who was a director of a company that went into liquidation owing thousands in PAYE. A fair portion of this paye was for the deductions made from my client's salary. When the company went into liquidation, they went after the individuals for the deductions made from their own individual salaries. This process was appealed on the basis that the debt was the company's but it failed because it was within the Revenue's powers.

I can't remember what legislation gave them the power and it was about 10 years back so it might have changed anyway but it is something that is worth thinking about.

[Qdos Contractor]

So what would happen in the case the company doesn't have enough funds to pay and the worked decides to no longer work for that company such that the company never has enough to pay the bill?

Whilst the company has funds in it, HMRC would extract what they could. In very rare instances the Revenue do have powers to raise assessments on directors to collect unpaid tax, so if the tax was substantial enough they could consider taking this route.

[dezze]

The tax debt lies with the limited company. HMRC would object to any winding up of the company whilst the debt remains outstanding so winding up is not an option. The impact of the debt would be offset, to a degree, by the corporation tax relief due to the deemed payment, i.e potential corporation tax repayments.

So if he had wound up the company before being investigated, he would have been in the clear? If this is the case (sorry if it's been discussed before) then the frequent winding up of a company and starting afresh with a new one would be advisable to contractors?

[Lewis]

The tax debt lies with the limited company. HMRC would object to any winding up of the company whilst the debt remains outstanding so winding up is not an option. The impact of the debt would be offset, to a degree, by the corporation tax relief due to the deemed payment, i.e potential corporation tax repayments.

So what would happen in the case the company doesn't have enough funds to pay and the worked decides to no longer work for that company such that the company never has enough to pay the bill?

[Qdos Contractor]

The tax debt lies with the limited company. HMRC would object to any winding up of the company whilst the debt remains outstanding so winding up is not an option. The impact of the debt would be offset, to a degree, by the corporation tax relief due to the deemed payment, i.e potential corporation tax repayments.

[Turion]

The company owes the money. He just needs to liquidate the company to absolve that debt.

Problem is in this case is - IR would only have started the investigation, having seen a big stash of cash already in it's accounts. There will have been enough in there for them to grab, and after the start of the investigation he could not take that money without a big risk of having personal liability to pay it back as Director.

Trick is to close the company to prevent large build up of cash if you are worried about IR35. You can remove excess cash by divi's or entrepreneurs relief.

[deckster]

Doesn't matter if your liability is limited etc. If you are the director of the company they can come after you.

Only if you have been negligent in carrying out your duties. If you can show that you have been diligent in eg getting contracts professionally reviewed and complying with current accepted practices to put yourself outside IR35 then negligence will be hard to prove.

However that real question is whether IR35 is a personal or a corporate tax. As income tax and Ee's NI are personal taxes, and you personally are ultimately responsible for ensuring that you pay the correct amount, HMRC would I suspect argue that you are liable irrespective of any of the above. Er's NI might well be different as the company is liable for that.

IANAA

[FSM with Cheddar]

Doesn't matter if your liability is limited etc. If you are the director of the company they can come after you.

[QwertyBerty]

I've not read anywhere exactly what that 99k is made up of... could be sum of taxes (PAYE) over the 3 years (some of which he would have already paid as CT) plus fines/penalties.

He would be able to pay it off by instalments I would have thought.

QB.