Why IR35 is causing more issues for contractors when they go to close their companies…
The last 15 months the contractor market has taken a huge battering and the pain has been felt in every sector across the contractor market.
As if the looming threat of IR35 wasn’t enough there has been a global pandemic that has significantly reduced the number of contracts that were available.
But for some contractors the pain is still far from over.
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-19 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 companies financial year there is 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.
This week I’ve had an enquiry of a contractor who appointed an insolvency practitioner and he thought the £3,500 fee he was paying would cover everything. He has just had a demand for £69,752 land on his doorstep for an overdrawn directors loan account that he never knew he had.
If you are a contractor who needs to close their ltd company it’s important you get advice early and make sure that you understand your position in full BEFORE you make a decision.
If you would like some help in understanding your options, get in touch or register for my next webinar, the details are in the comments section below.
The webinar is going to be around company closure for contractors.
All the best,