Thousands of company directors and contractors began this year by looking to advance the closure of their companies through utilising a Members’ Voluntary Liquidation.
This was due in large part to the upcoming changes to the ways in which contractors are paid (IR35) which were due to come into effect in April 2020. Due to the unprecedented circumstances of the COVID-19 pandemic, the Government announced a delay in this measure, with IR35 tax reforms put back 12 months.
This development has many more company directors wondering, should an MVL now be contemplated in advance of this new deadline?
What is IR35?
IR35 is a measure that is being introduced in relation to what is commonly referred to as ‘off-payroll’ working. This refers to any worker who provides services via a limited company, or through another intermediary.
Traditionally, the advantage of this process is that it allowed these workers to be taxed at a lower rate, as they could use their limited company, or intermediary, rather than being a direct employee on their client’s payroll.
In essence, where this new IR35 measure will impact is that these workers will now effectively pay the same tax rates and national insurance contributions as those staff who are directly employed by the client/employer themselves.
What tax changes were proposed?
This new legislation had proposed to put these new tax measures into effect from April 6th 2020.
If a worker provided services to a client through an intermediary, the rules would apply, but they would be deemed an employee were they to be directly contracted. Due to these alterations, we saw many more directors using an MVL to close their companies in advance of these changes.
How did COVID-19 delay the IR35 changes?
As part of a range of support measures put in place to help companies deal with the financial impacts of COVID-19, the Government announced, only a week before the IR35 changes were set to come into effect, that they would be put back until April of next year.
Alterations to Entrepreneurs Relief for the spring budget
The first major act of Chancellor Rishi Sunak’s tenure was to announce a pivotal budget in March 2020. One notable factor was the decision that Entrepreneurs’ Tax Relief would continue; although the lifetime limit of gains subject to relief decreased significantly, from £10m to £1m.
This obviously decreases the amount of benefit offered to many entrepreneurs, but given the many billions the Government is spending to support UK companies through COVID-19 lockdown, the Treasury is understandably looking to recoup funds elsewhere. With this in mind, it is possible that we could see further changes to Entrepreneurs Relief in months and years to come.
How do I get more advice on IR35 and an MVL?
Given that we saw a rise in the number of MVLs being pursued early this year, we would expect to see a continued increase as many directors look to safeguard their position.
April 2021 is really not that far away and given fears of a possible second wave of COVID-19, the business landscape remains uncertain for many. It is likely that many solvent companies will consider the merits of an MVL in order to protect cash reserves for their shareholders.
If this is something you are considering, you would benefit from the guidance of a licensed insolvency practitioner as soon as possible.
The Insolvency Experts are here to help. Please get in touch with our Business Recovery today team by emailing firstname.lastname@example.org or calling 0300 303 8284. Our team will be able to assist with an initial free consultation and a range of expert advice.