Ltd to umbrella - ER implications?

[Amanensia]

Hi,

I’m currently contracting at a large bank that’s recently announced that they will no longer deal with LtdCos (no prizes for guessing who...) While I’m strongly tempted to walk, I’m thinking that this could give me an opportunity to empty my LtdCo of retained funds by a MVL/ER; remain with the client for now via an umbrella; and restart a LtdCo two years after liquidation if it seems appropriate at that point.

The one question in my mind to which I can’t find a definitive answer is whether moving to an umbrella - at the same client - would scupper the ER claim, counting as a “similar trade or activity.” My gut feel is no, as I won’t be a business owner at all, but it’s not 100% obvious from the ER wording.

Any opinions - especially from people that went through a similar process in the public sector a couple of years ago?

[BABABlackSheep]

It’s a bugger about Lloyds yes.

Personally, I think it’s a sound strategy, especially if you’re worried about retrospective HMRC action if you’ve been at the client a long time, and you want to stay there even longer.

However, others here argue differently and say you should leave the client as it’s a red flag to HMRC that you were inside IR35 all along. What they fail to say is how HMRC would come after you considering your company would be closed??

MVL, you’re safe. If you went permie you would do the same, absolutely no reason why you can’t do what you say imho.

[Manic]

It’s a bugger about Lloyds yes.

Personally, I think it’s a sound strategy, especially if you’re worried about retrospective HMRC action if you’ve been at the client a long time, and you want to stay there even longer.

However, others here argue differently and say you should leave the client as it’s a red flag to HMRC that you were inside IR35 all along. What they fail to say is how HMRC would come after you considering your company would be closed??

MVL, you’re safe. If you went permie you would do the same, absolutely no reason why you can’t do what you say imho.

The argument is where the contract is subsequently deemed inside IR35. Where the client is not making a judgement is likely to be further down the list of potential investigations, and as you say a moot point following approved MVL.

[Amanensia]

Yes, I'm not massively concerned about retrospective investigation due to staying at the client - obviously that's a risk whatever happens, but as the Lloyds approach is a policy decision that explicitly doesn't say anything about whether prior contracts were inside or outside, I'm sure there will be tens of thousands of "more obvious" cases to look at first - not that I actually believe I'm caught even so. In any case I've been contracting for 20 years at a dozen different clients so I'm fairly relaxed.

Actually having slept on it I think I've got an even better way forward. My wife is a 50% shareholder in the LtdCo, and has no other souces of income. Presumably I could just give my shares to her when starting with the umbrella, and she could bleed out dividends at £50k per year, paying only 7.5% dividend tax rather than 10% CGT under ER. The tax rate is slightly lower and as there's no ER or capital distribution involved I'm free to move back into "proper" contracting at any point via a new LtdCo. Am I missing anything?

[Paralytic]

Actually having slept on it I think I've got an even better way forward. My wife is a 50% shareholder in the LtdCo, and has no other souces of income. Presumably I could just give my shares to her when starting with the umbrella, and she could bleed out dividends at £50k per year, paying only 7.5% dividend tax rather than 10% CGT under ER. The tax rate is slightly lower and as there's no ER or capital distribution involved I'm free to move back into "proper" contracting at any point via a new LtdCo. Am I missing anything?

Two things to consider

• Tax implications of gifting shares worth £10s/100sK, even to a spouse
• With the company still open, if you do get on HMRCs radar, there's money for them to chase and they are likely to block any attempt to MVL at that time

Although the chance of the second point happening is seen as low, all it takes is for HMRC to ask for the names of people contracting via a PSC before April 2020 and the names of those engaged through an umbrella after April 2020. You'd be on both lists if HMRC did not restrict the second request to only "previously determined inside IR35" roles post April 2020.

[Amanensia]

Two things to consider

• Tax implications of gifting shares worth £10s/100sK, even to a spouse
• With the company still open, if you do get on HMRCs radar, there's money for them to chase and they are likely to block any attempt to MVL at that time

Are there any tax implications regarding a spousal gift? I thought Arctic Systems had largely killed that concern? The shares are all ordinary shares with full voting and dividend rights.

[mikedarv]

It says in the Lloyds comms that "The new reform will not be retrospective. HMRC confirmed that they will not conduct targeted
campaigns into previous years’ tax payments for those whose IR35 status will change as a result
of end clients’ assessments."

[Amanensia]

Well, yes. But I'd need a whole quarry full of salt to take with that.

And in any case the IR35 status is not changing. There's is no IR35 status for Umbrella/PAYE engagements - it just doesn't apply.

[webberg]

The proposal to shift shares to your spouse and allow them to take divs etc will be seen by HMRC as an attempt to shift income that is rightly yours to another (connected) person.

The sort of rules used in Arctic Systems still exist and have been "improved" and I would say that you risk a higher profile for enquiry if you do this and another set of anti avoidance laws to deal with.

Go and get some advice.

[Amanensia]

The proposal to shift shares to your spouse and allow them to take divs etc will be seen by HMRC as an attempt to shift income that is rightly yours to another (connected) person.

The sort of rules used in Arctic Systems still exist and have been "improved" and I would say that you risk a higher profile for enquiry if you do this and another set of anti avoidance laws to deal with.

Go and get some advice.

Yes, I shall do that, thanks. It's probably just easier and less heads-above-the-parapet to take the MVL route. I'll chat to my accountant - just thinking things over a bit first to get my ducks in a row!