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

With the new regulations coming into force last April, you may be considering what this means for you and your company. There are thousands of people with companies that they simply do not need anymore. If you’re one of them then you need to consider the options available to you. 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 made as easy as possible. There are a few options for you to consider, and which one is most suitable will depend upon whether your company is solvent or insolvent.

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 limited 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.

In a Voluntary Liquidation, the following things are achieved:

  • All outstanding unsecured liabilities are written off, including HMRC, Bounce Back Loans, and trade suppliers (unless you have given a personal guarantee – if you have, talk to us immediately)
  • Demands from your creditors are handled by the insolvency practitioner
  • Any legal action against your company is ended
  • Your company is closed down completely, without delay
  • You can start to focus on your future

If you have been registered on the company payroll for over 2 years you should be entitled to director redundancy which in most cases will cover the cost of the insolvency practitioner’s fees. The average claim in the UK is valued at £9,000 , we can help you make sure you claim what you are entitled to.

Here are the criteria to make a claim for directors redundancy pay.

  • You will need to be both a director and an employee of the limited company, meaning that you work at the company as any other employee would, and you receive a monthly wage for hours and work that you have completed
  • You must have been working as an employee at the company for at least two years
  • You must have been working at the company for a minimum of 16 hours per week

How do I make a claim?

Provided that you meet the above criteria, then you may be able to claim for redundancy. Before you appoint a liquidator, we will pass your details to a redundancy claims specialist, who will assess the information and then provide us with recommendations. We will then be able to inform you whether you are eligible, and if so, how much you may be entitled to claim. We will also advise you on the best practice for obtaining your state entitlements. You may also be able to claim for unpaid wages and holiday pay.

All contractors need to be careful……. you must check if you have an overdrawn directors loan before you do anything [we can help you do this if you need]

Most contractors take a small amount of salary and top their earnings up with dividends. This is normally the most tax-efficient way to take your money.

Lots of contracts were cut shut or never materialized due to Covid and thousands of contractors were left with no work and dwindling funds. The furlough scheme didn’t really help contractors who took most of their earnings via dividends as your furlough amount was based on the money you took through PAYE.

Then Bounce Back Loans were made available and contractors took them not realizing how long it would be before the country and contractor got back to normal…… it still hasn’t 15 months later. Many contractors couldn’t survive on the £500 per month furlough and used their bounce-back loan to top up their earnings and here lies the problem.

Many personal service companies have not had any work this past year and haven’t made a profit. If at the end of the company financial year there are insufficient reserves to cover the money drawn the director will have an overdrawn directors loan account.

An overdrawn directors loan account is seen as an asset of the company and if that company then goes into liquidation and appoints an insolvency practitioner they have to ask for it back and will look to recover it.

What You Need To Do Next

Our experience shows time is of the essence. To get you and your business the best possible outcome, it’s important to get your questions answered and a strategy in place early on.

The sooner you get help, the better the outcome will be. 100% of our clients wished they had called us sooner!

If you have any doubts, concerns, or worries about your business, don’t think you’re wasting our time, we are happy to give you some free advice to put your mind at ease.

Please get in touch and we’ll come back to you without delay.

Call 0808 196 8600
Text 07737 574 361
Complete a Free Online Enquiry

Links for more information on IR35

Free Guide: Directors Guide to Liquidation The Easy Way

If you are a director and considering closing your company by liquidation or insolvency, you must read our free guide to discovering how to do it the right way. Simply click the button below and enter your details below to receive this free guide now: