IR35 – Company Closure
IR35-Company Closure. Contractors use an MVL (Members Voluntary Liquidation) as a tax-efficient solution to close down their limited company. Therefore, allowing distributions to shareholders and tax savings through “Entrepreneur’s Relief”.
The benefits of an “MVL” for liquidating a “contractor” limited company.
- Use an MVL to return surplus funds to the shareholder(s) in a tax-efficient manner when more than £25,000 is to be paid to shareholders.
- Entrepreneurs’ relief, if eligible, can release funds at just 10% tax.
- Appropriate and straightforward, low-cost procedure.
- Take the MVL route that so many contractors have decided upon as the most secure way forward.
Steps involved in an MVL
- Contact us, By phone or form, to discuss whether an MVL offers the best solution with our simple checklist.
- Provide you with a low-cost option to close your company and distribute funds.
- Appoint us as Licensed Insolvency Practitioners for your MVL.
- Statutory filing with companies house and advertising in the London Gazette to allow creditors, including HMRC, to make any claims.
- Company funds transferred to the Liquidators holding account, ensure all creditors, if any, are paid.
- Distribution of final funds to the shareholder(s) bank account.
- Formal closure of the limited company with Companies House.
IR35 Company Closure – CEST employment tool?
Firstly, check out ‘check for employment status’ (CEST) tool to determine whether employed or self-employed.
If inside IR35 or outside IR35.
The decision based on the nature of each of your contracts including responsibilities. Therefore, in the event of any changes, you need to review your employment status.
Following IR35 reform in the public sector, employers are o required to use the CEST tool failure which use an independent IR35 tool to determine the IR35 liability of contractors.
However, essential to realise, that IR35 public sector and IR35 private sector rules modify following recent changes declared by the HMRC.
Moreover, this change in IR35 rules can affect the way contractors operate. Therefore, an alternative arrangement may indicate a better take-home pay following the enforcement of the public sector reform in 2021.
IR35 – Entrepreneurs Relief
When you sell your business, you can pay fewer Capital Gains Tax via Entrepreneurs Relief.
Entrepreneurs Relief allows you to pay tax at 10% on qualifying assets, instead of 18% or 28%
additionally, Entrepreneurs’ tax relief remains available up to £10 million lifetime gains, so your tax-saving of £1,800,000.
IR35 – How are you Eligible?
Further entrepreneurs’ tax relief available on the disposal of all or part of a business that an individual has owned, for a minimum of one year, before the date of disposal.
The disposal must be assets comprising the company, and not just of assets used in the business.
To claim relief, you must perform several conditions within the qualifying time, depending on the type of business disposal you made.
IR35 – Budget 2018
For disposals of businesses made on or after 6 April 2019, individuals are required to meet the qualifying conditions for two years in order to qualify for the relief, up from the current 12 months. You may view these conditions on the gov.uk website.
We advise that you speak with your tax advisor, but bear in mind, the following requirements: –
- Material disposal of business assets
- Disposal associated with a material disposal
- Trust business assets disposal
To qualify, dispose of the following:
- All or part of your business in which you traded as a Sole Trader or as a – Including the business’s assets after closure. The business had to have been owned by you, for at least one year.
- You owned at least 5% shares in the company and voting rights, but you owned the business for one year minimum before the date you sell or close it.
- Assets you loaned your business or personal company while you traded before its closure.
If you sell all or part of your business, all the following must apply:
- Were a sole trader or a partner in the firm.
- Owned the business for a minimum of one year before the date of sale.
- You must sell or dispose of your assets that belonged to the business, within three years after selling or closing the business.
- Minimum of 5% of shares and voting rights in the company
- Employee or director of a company
- Company’s activities remain to trade (rather than non-trading activities.)
When selling assets, you loaned to the business, all the following needs to apply:
- Your part of the business partnership or your shares in a personal company has been sold and paid.
- The assets you owned personally. You did though lend your business partnership or a private company, the use of them for a minimum of one year to the date you sold your business or shares
IR35 – Company Closure – Company insolvencies and Tax mistreatment
To deal with the mistreatment of InsolvencyInsolvency in the UK, when linked to reducing companies Tax liabilities. The Finance Bill introduces a new administration granting HMRC ability to secure directors and others associated, then are jointly and severally liable for the avoidance, or the phoenix debts of a Limited Company.
The intended proposition applies to tax periods ending after the Finance Bill 2019 passed.
HMRC can issue a liability notice jointly to individuals in:
- Repeated Insolvency, along with cases where there had been no payment.
- When a penalty has been issued, for evasion or avoidance:
- Tax avoidance and evasion:
The UK government knows that most insolvencies result from financial difficulties and that this change targets those set out to default on TAX payments by design. Measures adopted, increase pressure and focus directors on paying tax, on directors responsible for trading companies while in financial difficulty.
Further information relating to Entrepreneurs relief follow:
- Entrepreneurs Relief Eligibility
- Draft Finance Bill 2016 – Corporation Tax, Income Tax and Capital Gains Tax: Company Distributions
IR35 – Company ClosureAn MVL is a Positive Step
If your company retains cash and want to reduce your tax liability legally, MVL’s remain the most tax-efficient way forward.
For more on how an MVL can help, get in touch with HBG Advisory.
Call us on 0800 612 5448