Contractors' Questions: Any IR35 risk to winding up?

Contractor's Question: I am in the process of closing my company as I am no longer in the country. I understand I have to get HMRC agreement on winding the company up - is this at all likely to act as a trigger for them to take a look at my past contracts and possibly start an investigation?

Expert's Answer : Closing a company undoubtedly poses a risk of an IR35 challenge. Although many may think they are dealing with a different bit of HMRC the fact is that it is an automatic process to contact the local or relevant HMRC office to check for any open investigations and indeed any potential investigations.

Therefore a particular company could be in the "risk and research" stage (HMRC have not yet advised of their interest) of an investigation and, if it is considered that there is a potential tax loss at stake, agreement to closure would not be given.

I once dealt with an IR35 case where the local HMRC turned up at the "routine" meeting of creditors to the great surprise of the liquidator and this turned into a two-year full-blown IR35 investigation. The affairs of the company could not be finalized until the IR35 issue was agreed.

It is fair to say that the act of closing the company is like holding up a flag but if there is little or no money in the company the risk of investigation is reduced.

Answer by Kate Cottrell, founding partner of Bauer & Cottrell, an IR35 advisory.

Thursday 28th May 2009
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