More time to wind down private contracts
Following widespread calls to delay the legislation, the Chancellor yesterday announced further COVID-19 measures which included a delay to the previously announced IR35 reform – delayed to April 2021.
The reforms enable HMRC to collect income tax and National Insurance Contributions (NIC) from contractors if they operate via an intermediary such as a limited company.
Previously, contractors who had a limited company were able to be exempt from these taxes, because it enabled them to be an employee of another business in all but name for tax purposes.
However, HMRC’s move to extend IR35 to the private sector means that contractors with a limited company will now be taxed the same as normal employees, and may, therefore, find that having a limited company is no longer a tax-efficient way of operating from April 2021 onwards.
If this applies to you, you may still want to consider using a Members’ Voluntary Liquidation (MVL) as a cost-efficient method of winding down your solvent company.
An MVL is a very tax-efficient method for closing a solvent business that has reserves over £25,000. The funds distributed via an MVL are subject to Capital Gains rather than Income Tax (which is a lower liability for tax), and additionally, those who qualify for Entrepreneur’s Relief are able to benefit from a 10% marginal rate on the first £1m* lifetime allowance during distribution, which would benefit the shareholder(s).
If you are a contractor with a limited company and have any questions in relation to IR35, please contact the team of expert insolvency professionals at BBR who can assist and advise you.
*NB The £10m lifetime allowance to entrepreneur’s relief was reduced to £1m in Budget 2020 effective 11 March 2020. See details of the Budget 2020
For advice, contact Bretts Business Recovery – freephone 0808 168 7540 | email enquiries@brettsbr.co.uk or use the form below.