What Are Your Options for Your Limited Company if You’re Inside IR35?

IR35

The reform of the off-payroll rules in the private-sector is coming just a few short weeks away, and responsibility for your IR35 status will pass to your end clients, unless they are classed as a small private company. So, if they decide that you’re inside IR35, what are your options for your limited company?

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Your approach will depend on whether you expect to be inside IR35 for all your future contracts, or whether some of them will be outside IR35, and this largely depends on your future strategy. Will you target your CV, marketing and work-finding process to contracts that are outside IR35, or are you happy to continue working inside?

Working Inside IR35 through your limited company

If you continue to work through your limited company while you’re inside IR35, the “Fee Payer” (whoever pays your limited company – usually an agency) will have to deduct PAYE tax and NICs before making payment.

There are many reasons why you might want to keep your company open, but as you will be paying PAYE tax and NICs, receiving no employment rights and still incurring costs for running your company, we would not recommend this approach in the long term.

The other thing to consider is that this option relies on the Fee Payer being willing and able to make the appropriate deductions, and this includes accepting liability should they get it wrong. Some recruiters may insist that you find an alternative solution.

Switching between umbrella employment and your limited company

If some of your contracts will be inside IR35 and some will be outside, there’s a strong case to be made for using both umbrella employment and your limited company, and switching between them as appropriate.

This is potentially problematic, as you’ll have to manage both and you might end up incurring costs at both ends. If you’re in this position, we’d recommend using a combined service, like Orange Genie Complete, which allows our clients of Orange Genie Accountancy to use our umbrella company at no additional cost, and switch seamlessly between them as often as they need to.

Making your limited company dormant

If most or all of your clients have made a policy decision not to engage with PSCs after the reform, but you have a reasonable expectation that this situation will change when things settle down, you might want to consider making your company dormant. This will allow you to use your chosen PAYE solution for now, and your company will be ready and waiting when the market comes around, and you won’t incur costs for closing your company, only to incorporate again later.

There are some things to consider when looking at this option.  Firstly, your company can only remain dormant while there are no significant transactions, which effectively means your company cannot remain dormant if it spends or receives any money. Also, you will still have to file a confirmation statement and dormant company accounts.

To make an active company dormant, you’ll need to inform HMRC, preferably in writing, who will issue a notice for a company tax return. You’ll then have to file the return and pay any tax due before the company became dormant.

If you’re considering this option, we recommend you talk it over in detail with your accountant as they will be in the best position to advise on your specific situation.

Closing your limited Company

If you’re sure you’ll be working inside IR35 all the time, you may need to close your limited company. There are different rules to follow depending on the value of assets and cash to be distributed.

If the total value of cash and assets is less than £25,000

In this case it’s possible to close the company by way of a simple strike off. The amounts distributed are treated as a capital distribution and are subject to Capital Gains Tax, rather than income tax.

You, or your accountant, will need to prepare cessation accounts, and you’ll need to complete all final returns and deregister from all relevant taxes. The distribution of funds and assets will need to be reported on your self-assessment tax return, and the company struck off from the Companies House register.

If your company has assets and funds in excess of £25,000

In this case you’ll need to follow a more formal liquidation process, which will need to be overseen by an insolvency practitioner. Your accountant may be able to recommend a liquidator with whom they have an established relationship.

If you have any questions or if we can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com

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