MVL Clarity

[jamesbrown]

For anyone interested, see page 80 of the PDF from volume 1 here.

Perhaps most relevant bit quoted below:

"6. New section 396B(4) sets out condition C: that the person who receives the distribution is, at any time in the two years following the receipt, involved with the carrying on of a trade or activity that is similar to that of the trade or activity carried on by the company wound up (or its subsidiary). For this purpose the individual may carry on the trade directly, through a partnership, through a company in which he or she has at least a 5% interest, or through a person with whom he or she is connected."

So by my reading, a permie job, or indeed umbrella would be safe. Not specifically excluded, but the final sentence which gives a lot of examples doesn't suggest any employed options (assuming you don't own >5% of the employer, or the employer is connected to you).

Thanks for that. FWIW (probably not much, because I'm not a lawyer or a specialist), I don't agree with your interpretation. The last sentence is qualifying the nature of a trade, specifically, as being self-employed, through an LLP or Ltd where the recipient is a >5% shareholder or working for a related person. There is no qualification of "activity" in that sentence, only trade. On the contrary, I think this sentence has an extremely broad interpretation:

involved with the carrying on of a trade or activity that is similar to that of the trade or activity carried on by the company wound up (or its subsidiary)

In my view, a permie who was conducting even a similar activity (e.g. a permie in a different area of IT to which they were contracting) would be caught, at least without further clarification of "activity".

[WordIsBond]

Thanks to both of you. FWIW, I'd agree with Maslins on this.

The "involved with" gave me pause, but the 5% threshold really only makes sense, in context, if it is intended to exclude normal permie jobs. HMRC might take a different view, but I'd guess if challenged in court on it they'd lose. The normal reading here is that if you are an employee but not a significant shareholder, you aren't carrying on the trade and so this doesn't apply. It allows for employee share plans (something I commented about on CUK in an earlier discussion) but not major ownership.

Maslins said in a prior comment that he'd questioned them on this, and I'm guessing this language is intended to address the issue he raised. I'm interpreting this sentence as revealing that Maslins has POWER and FRIENDS IN HIGH PLACES. I expect him to get them to fix IR35 now.

The ambiguity around "activity" (whilst well noted) is probably nothing more than the eleventy billionth example of these people being unable to ask themselves, "Could this be misinterpreted or have unintended consequences?" and using the answer to that question to draft clear legislation and guidelines.

[Maslins]

@jamesbrown your interpretation is at least as valid as mine, we're both attempting to read the mystical foreign language that is tax rules!

I believe "or activity" is added to ensure that things like property development, or investing businesses are included. These are still businesses, but some would say not "trade"s.

@Wordisbond re "involved with", is your concern that if someone works as an employee for (say) Microsoft, then they are involved with the trade of Microsoft? Hence if they were providing IT services via a one person contracting company before, it could be argued that if they went on to be employee of Microsof then they're still involved with a trade of IT services (via behemoth that is Microsoft), so at risk? I'd be very surprised.

Also, yes, my lobbying power is right up there with Rupert Murdoch.

[Iliketax]

@jamesbrown your interpretation is at least as valid as mine, we're both attempting to read the mystical foreign language that is tax rules!

I believe "or activity" is added to ensure that things like property development, or investing businesses are included. These are still businesses, but some would say not "trade"s.

@Wordisbond re "involved with", is your concern that if someone works as an employee for (say) Microsoft, then they are involved with the trade of Microsoft? Hence if they were providing IT services via a one person contracting company before, it could be argued that if they went on to be employee of Microsof then they're still involved with a trade of IT services (via behemoth that is Microsoft), so at risk? I'd be very surprised.

Also, yes, my lobbying power is right up there with Rupert Murdoch.

You need to look at the bill itself rather than the explanatory notes. Trade has a very clear meaning, there is a lot of case law on it that allows someone to take a view on whether something is a trade or not. Business (which is not used here) has a much wider meaning and that meaning is slightly different in different parts of the tax legislation. But none of these meanings (for trade or business) encompasses someone who is an employee. This new legislation uses "a trade or activity which is the same as, or similar to, that carried on by the company" the old one. The use of "activity" is unusual and, I would say, is designed to have a very different meaning to something like "business". By itself, I believe it would cover an employment. But it's not enough to have an "activity", the activity has to be the same as / similar to the one carried on by the company. That qualifies things a bit. And just to show activity can have a very different meaning, something in a very different context: work-related training "means a training course or other activity designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities".

So could it cover someone who had a PSC and then becoming an employee? Who knows. I'm guessing someone will ask the question towards the end of May / June at the committee stage of the bill and the minister will then say "yes, in the right circumstances it might well do". But that's just a guess.

[jamesbrown]

Yes, I agree with the above. The use of activity is very unusual and, it seems to me, intended as a deterrent to taking a narrow interpretation. The last sentence makes no mention of activity and only qualifies a trading arrangement. In other words, regardless of what they currently envisage by the use of activity, and whether they offer a view on employment as being caught (when similar), it amounts to constructive ambiguity, and it will be for future case law to argue about.

[WordIsBond]

@Wordisbond re "involved with", is your concern that if someone works as an employee for (say) Microsoft, then they are involved with the trade of Microsoft?

Yes, that was my concern, that it would be used in that way. As I said, I think the later wording provides some comfort against that interpretation.

Also, yes, my lobbying power is right up there with Rupert Murdoch.

Maslins is Murdoch? Don't you know you should never reveal your true identity on a forum like this? No, I guess you don't. But given this startling revelation, I'm surprised you aren't always active in the General forum on this site. Seems like it would be your favoured part of the site.

@JB, are you actually alleging that they would leave things intentionally unclear for their own purposes? I could buy that, except you attribute them with both malevolence and intelligence. The former might be believable, but the latter is probably a bridge too far.

[jamesbrown]

@JB, are you actually alleging that they would leave things intentionally unclear for their own purposes? I could buy that, except you attribute them with both malevolence and intelligence. The former might be believable, but the latter is probably a bridge too far.

Seriously, though, they aren't stupid, even if they frequently legislate unintended consequences. They have a long history of constructive ambiguity when legislating. My personal view is that they aren't specifically targeting a permie scenario, but I also doubt that they will legislate to avoid it. In other words, with a large liquidation, an unintended consequence is likely to be that the recipient would avoid work for two years, thereby reducing tax revenue for the Exchequer. HMRC will be aware of this scenario (so "unintended" in the loose sense), because they've been warned about it, but I think they prefer constructive ambiguity overall. That said, I agree with Iliketax that we should learn more as the legislation progresses through the various stages of Parliament from second reading onwards (but I still wouldn't expect complete clarity, unless they outright state that permies should be caught in some cases).

[Crack Addick]

Company Distribution Consultation - Summary of responses

More bed time reading

https://www.gov.uk/government/consul...-distributions

[Maslins]

More bed time reading

https://www.gov.uk/government/consul...-distributions

Hmmm...whilst we are mentioned at the bottom under the list of firms who commented, I've had a skim and can't really see anything of the stuff I queried (mainly revolving around --> permie role in similar field) being mentioned higher up. Having said that I'm very aware that these new rules inevitably have lots of possible implications of no relevance to contractors which other (bigger) firms will have concerns about.

If anyone wants a TLDR of the consultation responses and HMRC response, see this summary from ICAEW. However, don't think there's much of interest to posters here.

The consultation response does mention that whilst HMRC don't propose a clearance process, they do plan to release some example situations of things that will/won't be caught. Be interesting to see whether one of them closely links to the typical situation of interest to contractors.

[Maslins]

Looks like there's been some informal progress on this. I don't think I can attach a PDF to a thread, but if you click this link to an ICAEW page, then click the "standard letter" link within that page, it takes you to what is apparently a letter HMRC are sending out to anyone requesting clearance on this area.

Key bit I know many have been concerned about seems to be covered by the tail end of the first para on the second page. "Condition C will not be met where the individual is employed by an unconnected third party." So I think this means typical situation some people were concerned about where they close their IT contracting Ltd Co and get a PAYE job doing a similar thing for big corp shouldn't be a concern.

The examples are also interesting. I'm slightly surprised by their response to example 1...as whilst I imagine turnover will drop in that case, it seems reasonably clear it's a Ltd Co owner closing down then setting up again as a sole trader. I wonder where they'd draw the line between their example and one that would be caught.

Examples 2 & 3 both seem fair enough...though again perhaps 3 implies HMRC won't be trying to use this anti avoidance legislation as widely as some might have feared. Presumably the rule about being employed afterwards by connected parties is purely there for sham situations, eg Joe Bloggs is the director and shareholder of Joe Bloggs Ltd, but Jane Bloggs (who liquidated Jane Bloggs Ltd earlier) does all the work and the funds seem to filter through to Jane Bloggs.