Reply to: Overpayment from old contract

[WordIsBond]

Another day, another thread on CUK where we jump to all kinds of assumptions about what someone is doing, and why, get it wrong, spout a lot of stuff, and finally figure it out. And in this case, we also have the highlight of completely getting away from the original question. LOL.

I hope we've disposed of the idea that there is anything wrong with closing down his company and opening another. He's not taking any tax advantage, so there's nothing wrong with it.

It does have the advantage of closing the door on later IR35 investigations -- if HMRC never objected to the company closing, they'd have a hard time reopening an investigation. So it draws a line under matters earlier than the six years. HMRC would have to prove that he should have been inside IR35, that he closed the company just to beat the rap, and they may also have to prove that they were not negligent in failing to object to the closure of the company.

Back to the original question. OP, do you use cash basis or traditional accounting?
https://www.gov.uk/simpler-income-ta...use-cash-basis

I don't see how this happens if you are using traditional accounting and your record-keeping / accounts reconciliation even approaches competence. Invoices accrue as taxable income on the date they are billed. You should have booked income for the amount of the invoice, even if you didn't actually issue on invoice, on the date it became due. And the funds received should not have matched the amount of income you had booked, so this should have been screaming at you long ago.

And really, even if you are using cash accounting, you should be booking how much is due and when it comes in. If someone underpays you, do you even know it?

If you are just a disguised employee, a hired hand, fine, you can act like one, and I hope you are within IR35 in that case. But if you are running a business, you should be running a business. That means you should KNOW if invoices (whether you raised them or not) are being paid, underpaid, or overpaid.

I guess what I'm saying is I don't think you are as innocent in this as you think you are. It's their fault that they overpaid you, yes. But it is YOUR fault that you didn't catch it before paying taxes, etc. There's really little excuse for that.

You should:
1. Repay them the full amount.
2. Instruct your accountant to reclaim the overpaid taxes, you'll get most of it back, at least, though it may take some time, HMRC is notorious.
3. Learn to pay attention to your records, or hire someone to sort it out and handle it for you.

First rule of business -- treat others the way you want to be treated.
Second rule of business -- pay attention to your money and your record-keeping, or pay someone trustworthy to do it for you.

[MrMarkyMark]

Without being funny, its kind of tricky reading posts that have been deleted. But I get the drift. I will be doing that in June, but for the right reasons from what I can see.

Apologies if I've been moody. Thanks for the responses.

I had gone into an ER relief diatribe, which you then posted wasn't going to be relevant to you.

No probs. Good Luck

[SaltyLevels]

Which is why I said read the rest of the post.

I deleted my post concerning it, after you said you weren't claiming ER.
Point is I know of people who do close them on a regular basis and claim ER.

Without being funny, its kind of tricky reading posts that have been deleted. But I get the drift. I will be doing that in June, but for the right reasons from what I can see.

Apologies if I've been moody. Thanks for the responses.

[MrMarkyMark]

Without wanting to stir a pot, your post never mentioned ER, Northern lads one did. It's also not sharp practice then, if you have a significant period between shutting down .

Which is why I said read the rest of the post.

I deleted my post concerning it, after you said you weren't claiming ER.
Point is I know of people who do close them on a regular basis and claim ER.

Removed post, as it was irrelevant given this response.

[SaltyLevels]

Utter fail, please read the rest of the post, before shooting off unfounded comments .

I meant it was sharp practice if he was claiming ER.

Which it is.

Without wanting to stir a pot, your post never mentioned ER, Northern lads one did. It's also not sharp practice then, if you have a significant period between shutting down and starting again, which 6 months could be construed as.

Anyway, it's moot, that's the advice I was given, advice I took up with HMRC who seemed not to have any issues.

Some of my companies have been me trading alone, some with my wife, so there's always a difference, even if it's not been intended to be so.

As long as you're operating, trading properly, I genuinely can't see the issue here.

But next time, I will be taking ER as I'll be off for 6 months.

[MrMarkyMark]

Utter bollocks. Its not a 'sharp practice.' Go see a qualified accountant before shoot off unfounded comments.
Then again, Im not trying to claim ER to get money out of the company or any other 'dodge.'

Utter fail, please read the rest of the post, before shooting off unfounded comments .

I meant it was sharp practice if he was claiming ER.

Which it is.

[TheFaQQer]

I could be wrong (wouldn't be the first time) so wait and see what either some of our other experience posters say or hopefully some of our resident accountants before getting worried. It's just not something I would personally do so wait for some more advice before worrying.

I would suggest looking round for another accountant through, a lot has changed recently and there are some great tools out there. Maybe someone with a portal like Freeagent or even the SJD spreadsheets. I think you need to take a bit more control of your finances and these tools are great for that.

I see little to no advantage of doing it - the OP and his wife must take everything out as dividends or salary if there is no tax advantage and they aren't claiming ER.

So, one presumes that the warchest is either held personally, or does not exist, which doesn't fit the way that I run my company - but each to their own.

The only benefit I can see is that it might save a couple of months of accountancy fees, but I'd have thought that the additional costs of start up and shut down would make that irrelevant. I can't see it making any impact on an IR35 investigation, because it would be fairly easy to argue that all the companies are just a tax avoidance measure (because they are attempting to avoid any investigation) - which just makes it harder and more complicated if HMRC ever do come calling.

On the assumption that ER still exists and is claimable by a one or two person close company, I'd have thought that it would be better to retain money in the company, build the war chest that way, then claim ER when shutting down for good (or at least long enough to avoid suspicion under TiS) and get the tax advantage that way.

But each to their own, and without knowing the figures, who knows whether one route is better than the other?

[BolshieBastard]

Why is it sharp practice?

Same business. HMRC don't seem to have an issue with it, as I have spoken to them about it. So, please, why do you?

Utter bollocks. Its not a 'sharp practice.' Go see a qualified accountant before shoot off unfounded comments.

If some people dont want to do it, fair enough but the large accountancy practice I use recommended it. Im going to query it again as being worthwhile in a month or so when I go in to see them and if they still recommend it, I'll do it.

If they no longer think it necessary then I wont.

I've never had an issue with HMRC either when past companies have applied to be struck off and new one started. Then again, Im not trying to claim ER to get money out of the company or any other 'dodge.'

[MrMarkyMark]

I do tend to take some time off to spend with my kids every couple of years, take the summer off and take off, so tend to use this as an opportunity to clear an old company, then start a new one on our return. I like to be able to put the accounts to bed and start afresh. I also do think it helps in the event of investigation. Again, this is under advice and with full vision of HMRC, whose returned letter is kept safe.

I have done similar things, taking up to a year off.

I have never closed the company down though.

[northernladuk]

I look forward to it; as you can tell, not one of my strongest areas. It was literally to compartmentalise the accounts. I'll wait for the advice mentioned, but your reaction has put me ill at ease, if I am being honest.

I could be wrong (wouldn't be the first time) so wait and see what either some of our other experience posters say or hopefully some of our resident accountants before getting worried. It's just not something I would personally do so wait for some more advice before worrying.

I would suggest looking round for another accountant through, a lot has changed recently and there are some great tools out there. Maybe someone with a portal like Freeagent or even the SJD spreadsheets. I think you need to take a bit more control of your finances and these tools are great for that.

[SaltyLevels]

I'm trying to work out the advantage of it, unless the OP feels it would shield him from a potential IR35 investigation.

I do tend to take some time off to spend with my kids every couple of years, take the summer off and take off, so tend to use this as an opportunity to clear an old company, then start a new one on our return. I like to be able to put the accounts to bed and start afresh. I also do think it helps in the event of investigation. Again, this is under advice and with full vision of HMRC, whose returned letter is kept safe.

[SaltyLevels]

Fair enough then.... I can't help feeling you are making yourself visible at HMRC for no advantage if you running the company properly. Your call. Not something I'm comfortable with at all but sounds like you've got all bases covered.

Hopefully one of our experience accountants that post on here will give their opinion.

I look forward to it; as you can tell, not one of my strongest areas. It was literally to compartmentalise the accounts. I'll wait for the advice mentioned, but your reaction has put me ill at ease, if I am being honest.

[MrMarkyMark]

Fair enough then.... I can't help feeling you are making yourself visible at HMRC for no advantage if you running the company properly. Your call. Not something I'm comfortable with at all but sounds like you've got all bases covered.

Hopefully one of our experience accountants that post on here will give their opinion.

I'm trying to work out the advantage of it, unless the OP feels it would shield him from a potential IR35 investigation.

[SaltyLevels]

It's the Transations In Securities rule you want to be worried about.

Transactions in securities | Liquidations | MVL Online®

Thanks for this. I am actually taking a 6 month sabbatical from June next year and this intimates I could get £25k out of the company tax free and then start up again 6 months later, as long as the names are different, I leave a good period between contracts and no assets are transferred. I geuinely didn't know this.

[northernladuk]

We get no tax, or financial, advantage from it, claim no capital gains on it. We ensure the company is properly paid up in all taxes and simply start another.

When I was initially advised about it, I put it to HMRC in writing and received a letter back outlining as long as there were no advantages taken from it, nor monies owed, it was ok.

Fair enough then.... I can't help feeling you are making yourself visible at HMRC for no advantage if you running the company properly. Your call. Not something I'm comfortable with at all but sounds like you've got all bases covered.

Hopefully one of our experience accountants that post on here will give their opinion.