• Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
  • Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!

MVL ER then permie, due to visa - risks?

Collapse
X
  •  
  • Filter
  • Time
  • Show
Clear All
new posts

    MVL ER then permie, due to visa - risks?

    Hi all,

    I have been working as a contractor in the UK since 2017, under a Tier 5 Youth Mobility visa. This visa runs for a maximum of 2 years and allows the holder (among other things) to run a Limited Company and work as a contractor.

    Thus, I ran my Limited Company for 2 years, after which, just last month, I initiated liquidation via MVL with ER.

    So far, not a peep from HMRC.

    (Also, in the prior two years, I had drawn very little in dividends, on the advice of my advisor.)

    In the last few weeks, I have decided I wanted to pursue a permanent position in the UK.

    Due to my prior Tier 5 visa having expired, the rules no longer permit me to run a limited company and work as a contractor in the UK.

    What concerns me is the rather wide umbrella cast by the wording of ITTOIA05/404A conditions C and D.

    Condition C:
    "the individual receiving the distribution continues to carry on, or be involved with, the same trade or a trade similar to that of the wound up company at any time within two years from the date of the distribution"

    It would seem that I would be doing the same kind of work in my new permanent employee role as I was when running my Limited Company, so it would appear that I satisfy Condition C.

    However, I wonder to what extent I would or would not satisfy Condition D:
    "it is reasonable to assume that the main purpose, or one of the main purposes of the winding up is the avoidance or reduction of a charge to Income Tax."

    While I definitely chose the ER route over any other winding-up route due to its tax efficiency, I also feel that it would be unreasonable to suggest that this was also the main reason for closing the business.

    The main reason for closing the business, from my point of view, was that my prior UK visa had expired, and thus I was no longer permitted to operate a business in the UK.

    I can't say for sure whether I would have continued to operate a business in the UK had the visa rules been different. That seems a hypothetical question. I might have or I might have not.

    What do you's think?

    Would you say that I could be reasonably confident in proceeding with the MVL and ER, on the basis that it's impossible to do business any longer in the UK under the visa rules, and thus, my intention was to close the company for that reason, and not to gain a tax advantage?

    Or would the fact that I am now pursuing permanent employment in the UK suggest that I satisfy Condition D, i.e., that I am closing the business for the tax advantage and that in some kind of alternate universe where visa rules don't apply, I would have continued to run the business?
    Last edited by jconway; 26 September 2019, 05:54.

    #2
    Originally posted by jconway View Post
    What concerns me is the rather wide umbrella cast by the wording of ITTOIA05/404A conditions C and D.

    Condition C:
    "the individual receiving the distribution continues to carry on, or be involved with, the same trade or a trade similar to that of the wound up company at any time within two years from the date of the distribution"
    If you are working for someone else, and don't have a significant interest in the company, then you're not carrying out a trade.

    However, I wonder to what extent I would or would not satisfy Condition D:
    "it is reasonable to assume that the main purpose, or one of the main purposes of the winding up is the avoidance or reduction of a charge to Income Tax."

    While I definitely chose the ER route over any other winding-up route due to its tax efficiency, I also feel that it would be unreasonable to suggest that this was also the main reason for closing the business.
    It would be unreasonable. It's clear you're not closing the company and taking ER to avoid tax.

    I think you're overthinking it and worrying too much. I am not an accountant or lawyer.
    Down with racism. Long live miscegenation!

    Comment


      #3
      Yep, possibly my worst fears won't eventuate.

      Chris Maslin's blog offers some consolation...
      UPDATE 9 AUGUST 2016
      Whilst still not much is set in stone, it seems HMRC have been sending out a standard response to anyone requesting clearance (ie conformation in advance that their situation wouldn’t be caught) regarding this. See the below PDF:

      Distributions in a winding up_Clearance requests

      Most significant bit to my mind is last sentence of 1st para on 2nd page:
      “Condition C will not be met where the individual is employed by an unconnected third party.”
      So situation some people were concerned about is Joe Bloggs does IT development work on a contract basis through Joe Bloggs Ltd. He then liquidates (with a tidy cash balance) to become an employee doing IT development work for big corp. Seems crystal clear HMRC are saying they will NOT attack this situation.

      Fingers crossed I guess!

      Comment


        #4
        Yeah, from what I understand your situation should be safe from a tax perspective. Caveat that I assume the potential new employer will be entirely independent of you...ie doesn't happen to be a company controlled by your sibling/parent/whatever.

        No idea re the Visa side of things.

        Comment


          #5
          Originally posted by Maslins View Post
          Yeah, from what I understand your situation should be safe from a tax perspective. Caveat that I assume the potential new employer will be entirely independent of you...ie doesn't happen to be a company controlled by your sibling/parent/whatever.

          No idea re the Visa side of things.
          Wow Mr Maslin himself!

          Can't thank you enough for that blog post!

          Yes, regarding that caveat, there couldn't be any less of a connection if I tried - two completely unrelated companies, industries, locations and (to my knowledge) people. The only common thing is my skill-set.

          I guess the risk, if any, is reasonably minimal (though I suppose nothing is guaranteed).

          Comment


            #6
            Re: Condition D : "it is reasonable to assume that the main purpose, or one of the main purposes of the winding up is the avoidance or reduction of a charge to Income Tax."


            Just for the interest of discussion, what do you guys make of it?

            Isn't it nigh-on impossible to escape this clause if you are making a claim for ER, seeing as one of the main purposes of ER is the tax situation.

            Comment


              #7
              Originally posted by ChimpMaster View Post
              Re: Condition D : "it is reasonable to assume that the main purpose, or one of the main purposes of the winding up is the avoidance or reduction of a charge to Income Tax."


              Just for the interest of discussion, what do you guys make of it?

              Isn't it nigh-on impossible to escape this clause if you are making a claim for ER, seeing as one of the main purposes of ER is the tax situation.
              The clause itself is quite vaguely written but in my opinion provided you have a good reason for closing the company (retired, permie etc.) then this clause won't bite and you should be fine receiving a capital distribution not dividend.

              ER is irrelevant as that is a separate piece of legislation that only applies if a capital distribution is made from the liquidation to reduce the amount of tax paid at that point provided you meet the ER criteria.

              HTH

              Martin
              Contratax Ltd

              Comment


                #8
                Just to add to Martin's comments, remember you need to meet all the criteria to be caught.

                Ie if you don't restart a similar trade within 2 years, it doesn't matter whether (one of) your main motivation(s) was tax reduction, you can benefit for the positive tax treatment.

                It's only if you do restart within 2 years, then the onus is on you to demonstrate minimising tax wasn't a main motivator. I agree this could be tricky. Even if there's some other valid reason to close the company, you could always have taken a huge dividend then got it struck off.

                Comment

                Working...
                X