IR35 Changes Postponed Until April 2021 but Should Members’ Voluntary Liquidation (“MVL”) be Considered in Advance
At the beginning of the year thousands of directors and contractors advanced the closure of their companies via an MVL, due to the impending changes to how contractors are paid (IR35) which were set to go ahead in April.
The pandemic then caused the Government to do a turnaround announcing that any IR35 tax reforms would be pushed back for 12 months. Which now begs the question, should MVL’s be considered in advance of this date?
What is IR35?
IR35 is being introduced in relation to ‘off-payroll’ working. This is where a worker provides their services via a limited company or another type of intermediary. Historically, the benefit of this is that the worker can benefit from lower tax rates by using their limited company or intermediary in comparison to being directly employed by the client on its payroll.
The proposed IR35 change means that these workers will broadly pay the same rates of tax and national insurance contributions as they would do if they were directly employed by the client/employer.
What was proposed?
The Government had passed legislation to bring the tax changes into effect as of 6th April 2020. The rules will apply if a worker provides their services to a client via an intermediary but would be classed as an employee if they were contracted directly.
As a result of this, we saw an increase in directors closing their businesses by using MVL prior to the proposed changes.
Covid-19 and a delay
Due to the Covid-19 pandemic, the week before the IR35 changes were due to be implemented, the Government announced that it was delaying the changes until April 2021. This is part of the wider support issued by the Government to help businesses and individuals deal with the economic impact of Covid-19.
Changes to Entrepreneurs Relief in the spring budget
In the budget, issued by the Chancellor Rishi Sunak in March 2020, he announced that
Entrepreneurs Tax Relief would remain in place; however, the lifetime limit of gains subject to relief would decrease from £10m to £1m. This reduced the benefits of Entrepreneurs Relief and due to the billions being spent by the Government to support businesses in response to Covid-19 and the period of ‘lockdown’, the Treasury will no doubt be looking to further recoup funds. They may therefore seek to make more changes to Entrepreneurs Relief in the coming months.
After the increased number of MVL’s earlier in the year, we predict that we will see a further rise, as directors look to protect their position. April 2021 will be here before we know it and with fears of a second wave, we don’t know what is around the corner. Solvent companies may look to take advantage of an MVL soon to protect cash reserves for shareholders.
Our advice would be to seek assistance from a licensed insolvency practitioner as soon you can
We are here to help. If you have any questions, please do not hesitate to contact Nick or a member of our Business Recovery team, who will be able to assist with an initial free consultation.
The information was correct at time of publishing but may now be out of date.