"Just fold the company"

[pippin]

Hi there,

I'm a few weeks into my first contracting job, currently PAYE through an umbrella company. The financial benefits of starting a Ltd company seem pretty big, but looking into IR35 I'm holding off taking the plunge, not least if I'm being honest with myself, if I did get investigated, I think the work I do would leave me falling foul of IR35.

I've asked a colleague if they're worried about IR35, and they say they've been told by their accountant if he was to fall foul of it, all he'd have to do is fold his company and he'd be able to walk away scott free. Surely this isn't true? Would seem far too easy to me?

[pmeswani]

Hi there,

I'm a few weeks into my first contracting job, currently PAYE through an umbrella company. The financial benefits of starting a Ltd company seem pretty big, but looking into IR35 I'm holding off taking the plunge, not least if I'm being honest with myself, if I did get investigated, I think the work I do would leave me falling foul of IR35.

I've asked a colleague if they're worried about IR35, and they say they've been told by their accountant if he was to fall foul of it, all he'd have to do is fold his company and he'd be able to walk away scott free. Surely this isn't true? Would seem far too easy to me?

You as the director of the company (regardless of whether it has been folded or not) are liable for all taxes for the company. So if the company doesn't exist, HMRC will come after you as the Director. I would suggest telling your friend to find another Accountant or at the very least, tell him to stop telling you bulltulip.

[v8gaz]

IR35 is a personal tax and you are liable to pay any outstanding tax personally. The Ltd company is not limited in this respect, and won't help.

[Alan @ BroomeAffinity]

You as the director of the company (regardless of whether it has been folded or not) are liable for all taxes for the company. So if the company doesn't exist, HMRC will come after you as the Director. I would suggest telling your friend to find another Accountant or at the very least, tell him to stop telling you bulltulip.

In terms of IR35 you've got a point - inasmuch as HMRC can establish that it was tax whihce shuold have been deducted from the director and therefore transfer of debt provisions can apply - but as for your understanding that a director is liable for all taxes of the company, I am afraid that is just plain wrong.

[Greg@CapitalCity]

I've asked a colleague if they're worried about IR35, and they say they've been told by their accountant if he was to fall foul of it, all he'd have to do is fold his company and he'd be able to walk away scott free. Surely this isn't true? Would seem far too easy to me?

If they feel so inclined, the HMRC can block the dissolution of the company until they collect all outstanding taxes due. While your colleagues solution may work, yes, is does sound far too easy and you know what they say about things that sound too good to be true. Its not a good strategy, and won't help you sleep at night.

[NotAllThere]

In terms of IR35 you've got a point - inasmuch as HMRC can establish that it was tax whihce shuold have been deducted from the director and therefore transfer of debt provisions can apply - but as for your understanding that a director is liable for all taxes of the company, I am afraid that is just plain wrong.

How about the Director is duty bound to ensure that all taxes are paid. And under certain circumstances, the corporate veil can be lifted and the director pursued personally.?

[philip@wellwoodhoyle]

I believe HMRC may have special powers/rules where the unpaid tax relates to the directors' own payroll, so that also applies to IR35, where they can do directly to the director for recovery.

BUT otherwise the general rule is that HMRC can't directly go after the directors for other company taxes. Only the liquidator/receiver can instigate claims/actions against the director. So, yes, in theory, HMRC may be able to get the money out of the director, but will have to rely on the liquidator/receiver to do it. This poses another problem, because the receiver/liquidator won't want to start proceedings where there is doubt their costs and other fees won't be covered. So they have to balance up the amounts involved against chances of successful recovery. This is more pertinent for VAT and corporation tax.

[craig1]

If there's a sole director and sole shareholder and the company is shut down quickly to evade taxation then HMRC won't even break stride in coming after that sole director/shareholder for every bean, including criminal evasion charges if they're not in a particularly charitable mood. It's only if there's a clear stand-off relationship that it becomes a bit more difficult for HMRC to get their money back.

[philip@wellwoodhoyle]

OK, found it - HMRC can issued personal liability notices in cases of fraud or neglect by the director, as per their manual.

INS44251 - What to investigate and how: Recovery of National Insurance Contributions from directors or other officers (Personal Liability Notices): What is a Personal Liability Notice?

So, if the director hasn't properly considered IR35 and either hasn't taken advice or has ignored advice, then it is entirely possible that HMRC can serve a personal liability notice on the director if HMRC decides IR35 applies but the director didn't pay PAYE under the IR35 rules.

As for VAT and Corporation tax, it's a different matter, where HMRC can only challenge illegal dividends or try to recover overdrawn loan accounts, both via the liquidator/receiver.

So, to the OP, unless the director has properly considered IR35 and has a cast iron case as to why they thought it didn't apply, so that they can argue against neglect, it seems that whether the co is struck off or not, that HMRC can indeed get monies from the director by issuing a personal liability notice! Time for that friend to get another accountant pronto!

[craig1]

OK, found it - HMRC can issued personal liability notices in cases of fraud or neglect by the director, as per their manual.

INS44251 - What to investigate and how: Recovery of National Insurance Contributions from directors or other officers (Personal Liability Notices): What is a Personal Liability Notice?

So, if the director hasn't properly considered IR35 and either hasn't taken advice or has ignored advice, then it is entirely possible that HMRC can serve a personal liability notice on the director if HMRC decides IR35 applies but the director didn't pay PAYE under the IR35 rules.

As for VAT and Corporation tax, it's a different matter, where HMRC can only challenge illegal dividends or try to recover overdrawn loan accounts, both via the liquidator/receiver.

So, to the OP, unless the director has properly considered IR35 and has a cast iron case as to why they thought it didn't apply, so that they can argue against neglect, it seems that whether the co is struck off or not, that HMRC can indeed get monies from the director by issuing a personal liability notice! Time for that friend to get another accountant pronto!

For VAT and Corp Tax, they're far more likely to go for criminal proceedings against directors if they can't get their money!