The IR35 reforms may well affect self-employed individuals who are working out of their own ‘personal limited companies’ when their relationship with a client is more akin to one between employee and employer. IR35 is tax legislation that was created to ensure that contractors who operate out of a limited company structure, pay the appropriate level of tax. The reforms were due to come into force for the private sector in April 2020, but due to the COVID-19 pandemic, have been postponed until the 6th April 2021.

Closing a limited company

How does IR35 affect my options when it comes to closing my company?

With the regulations soon coming into force, you may be considering what this means for you and your company. If you’re a contractor currently operating through a limited company and you feel that these changes may well impact you, then you may be thinking about closing it down. Closing a limited company is a big decision and you need to make sure you get good advice that is tailored to getting you the best outcome, and here at 1st Business Rescue, we will guide you through every stage of the process to ensure it’s the right option for you. There are a few options for you to consider, and which one is most suitable will depend upon whether your company is currently solvent or insolvent. If you would like to understand whether you business is solvent or insolvent take a look here.

Solvent businesses

If your company is solvent, then you can either choose to dissolve it or enter a Members’ Voluntary Liquidation (MVL). Dissolution can be a cost-effective method and is relatively straightforward to implement, especially if you have few assets, whilst an MVL would prove a more tax-efficient option for companies with over £25,000 of assets. An MVL requires the involvement of a licensed insolvency practitioner.

Insolvent businesses

If your company is insolvent, then it will need to be liquidated via a Creditors’ Voluntary Liquidation before the creditors apply for compulsory liquidation. Like an MVL, the CVL involves a licensed insolvency practitioner. Once the liquidation has taken place, all the company’s debts will die with it, including your bounce back loan, leaving the directors debt-free, apart from any assets that have been personally guaranteed.

Next steps

If you’re worried about the implications of IR35 and how it may affect your company, contact us for an informal discussion and some initial advice. Please be aware that we are not tax advisors and you should seek separate advice from an independent tax advisor.

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