It has been common for many contractors to operate through private service companies whilst being perceived as under the control of one employer.
Overview: Contractor With No Need For My Company
The rules known as IR35 emanated from Section 49 of the Income Tax (Earnings and Pensions) Act 2003 and Regulation 6 of The Social Security Contributions (Intermediaries) Regulations 2000.
This concerned the off-payroll working of people who were supplying their services through their own personal company as opposed to going onto the employer’s payroll.
HMRC have tried to challenge these arrangements with varying results. One of the most well-known cases resulted in HMRC’s claim, in a nutshell, being rejected in the case of Albatel Ltd v Revenue & Customs (INCOME TAX/CORPORATION TAX : Personal service companies (IR 35))  UKFTT 195 (TC) when Lorraine Kelly was not deemed to be an employee.
Going Onto The Payroll So What Happens To My Company?
As a result of the anticipated new rules for IR35 that are coming into effect from 6 April 2021, employers and employees will need to make a ‘determination’ and document their decision accordingly as to the correct position for the employee / employer relationship.
If you are an employee contractor with no need for your company then as it is a separate legal person it will remain live until you take steps to close it down. The effect of the company being alive at Companies House means that you will still have to file annual accounts, confirmation statements and submit a corporation tax return.
How Do I Determine If I am An Employee?
If you are a contractor and you are not clear if your status would rank as an employee then you can seek to assess the position using a government HMRC Tool.
What Can You Do If You Are A Contractor With No Need For The Company?
If you are a contractor with no need for the company any longer that you were previously using, then you can consider a tax-efficient method of closing the company. One of the most popular tax-efficient ways of closing your contractor company down would be a Members Voluntary Liquidation.
If you have any assets or cash left in your contractor company then this can be distributed by the Liquidator. Typically subject to personal tax advice from your personal accountant, this is commonly treated as a capital distribution. This distribution will be a gain on your shares that can be treated in your personal tax return as a Capital Gain. You may well find it tax efficient to therefore liquidate your contractor company instead of taking the cash and other assets out of the company as an income distribution.
Indeed a particularly attractive feature is that you may qualify for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) and in the event that you do, you will pay 10% on the gain that is distributed to the shareholders by the Liquidator if the assets are qualifying assets.
How Do I Know If I Qualify For Business Asset Disposal Relief?
If you do not qualify for Business Asset Disposal Relief you may end up paying substantially more in capital gains tax so it is worth investigating carefully with your personal accountant.
To qualify for Business Asset Disposal Relief you need to have been trading for at least 2 years and it will need to be a personal trading company. In order to be a personal trading company, you must have been an employee or a Director with more than 5% of the ordinary shares and voting rights, which must include profits on a winding-up or disposal of the shares in the company, if it is sold.
The Liquidation must commence within 3 years of when you stopped trading through the contractor company that you have no need for any longer.
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Disclaimer: Contractor With No Need For My Company
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