Further details have been published recently on the launch of the IR35 and suggest there will be no delay as some contractors and businesses were hoping.
The review which was announced last December primarily now appears to be focusing on the implementation issues rather than investigating a delay or scrapping this altogether.
Here we remind you of the possible options open to contractors from the 6th April 2020.
OUTSIDE IR35 or END CLIENT MEETS SMALL CRITERIA
It is the end client’s responsibility to determine the status of the contractors and to communicate the outcome of their decision. Where they deem that the contract is outside of IR35 or they meet the criteria of “small” as defined by company house then contractors can carry on operating through their limited company and claim expenses as usual.
Your company will be ‘small’ if it has any 2 of the following:
- a turnover of £10.2 million or less
- £5.1 million or less on its balance sheet
- 50 employees or less
DEEMED TO BE CAUGHT BY IR35
Contractors should be informed of the outcome of the status review and have the opportunity to appeal on this determination.
On this basis, all earnings from 6th April will be subject to tax and NI (as if the contractor was employed but without any employment rights).
The end client or agency will be responsible for deducting tax and NI and paying this over to HMRC.
Some will do this using existing payroll systems set up and others will seek to outsource this to an umbrella company which will manage the deduction of tax and NI, pay the contractor and pay HMRC.
If you are told you are caught by IR35 you may be asked to make an arrangement with an umbrella company to set up your payroll from 6th April onwards.
We are working with a national market leader Danbro who provide this solution. More information on how an umbrella company works and how Danbro can ensure all payments are made on time to HMRC and efficiently can be found here www.danbro.co.uk/C&MAccountants
WHAT HAPPENS TO MY EXISTING LIMITED COMPANY ?
This is up to you and very much depends on what your plans are going forward.
If you are looking to source a contract in the future that falls outside of IR35 then you will want to keep your company open, keep the payroll and VAT schemes open and submit nil returns.
Alternatively, you may decide to close the company down. The shut down of a company needs to be managed very carefully to ensure tax efficient cash extraction. We offer a personalised review and recommendation as an additional service to our usual contractor support bundle. Contact us for more details.
Companies with reserves less than £25k are able to apply to Company House for a voluntary strike off. This involves the submission of a form DS01 and payment of £10.
Companies with large amounts of cash may need to use a Members Voluntary Liquidation (MVL) process. This involves appointing a liquidator and issuing a solvency statement to confirm the company is able to meet its debts. Up to date accounts will be needed for this to determine the amount that can be paid to shareholders as a Capital Distribution.
Provided certain conditions are met, this final distribution should qualify for entrepreneur relief of 10%.
The MVL enables funds to be extracted at 10% rather than the higher rates of dividend tax of 32.5% or even 38.1%.
There is of course a cost to adopting this course of action – in addition to getting final accounts prepared, you should allow £3k – £4k in liquidator fees plus disbursements.
Contractors should seek specific personalised advice once they are made aware they are caught by IR35 – contact us to discuss your options.