Closing an Insolvent IR35 Company

A typical Limited Company IR35 contractor may be a contract Engineer, IT contractor, Oil and Gas contractor, HGV driver, Freelance Creative professional, Public Sector contractor, Entertainment and Media freelancer or even a GP Locum, there are also many other industries where a contractor may carry out their work.

 

Whatever industry a Limited Company contractor may work, they have the peace of mind that they can trade their Company with the protection of Limited Liability. The majority of contactors are the sole Director and Shareholder of the Company.

 

HMRC are increasing the number of enquiries into such Companies, to ascertain whether they believe they are compliant with IR35.

If a Company fails the IR35 tests of HMRC this will result in a large tax bill.

If the Company does not have excess funds to meet the liability the Director then has the option to:

 

• Fight the decision (costly with little chance of success); or
• Invest personal funds in the Company to meet the liability; or
• Seek funding for the Company such as invoice finance or factoring (see also www.factoringandinvoicediscounting.co.uk); or
• Consider a Creditors Voluntary Liquidation.

If the Company is insolvent (i.e. it cannot pay its debts as and when they fall due) the Director should speak to an Insolvency Practitioner.  This could also be relevant once a lucrative contract has come to an end and cannot be replaced.


Closing a Company by way of Creditors Voluntary Liquidation need not be daunting or intimidating.


Following the appointment of a licensed Insolvency Practitioner the tax bill, together with any other creditors, rests with the Company.  If there are sufficient assets of the Company to enable payment to be made to creditors, HMRC will rank alongside ordinary creditors.  If the Company does not have sufficient assets to make a payment to creditors, the tax bill will not be paid.


There is no restriction on a contractor forming a new Limited Company and resuming work (subject to some restrictions on the use of similar names), with the experience that has come from learning the lessons of their failed IR35 test in the previous Company.

 

The number of Contractors we are advising is on a dramatic increase and we are here to HELP.