Since April 2021 HMRC introduced changes to IR35. This meant that all public sector clients and medium or large-sized clients outside the public sector became responsible for deciding on the worker’s employment status.
This meant that many contractors and freelancers who were IR35 now became employees with their client now being responsible for the worker’s Income Tax and National Insurance contributions.
In short, it is all about whether the person was a genuine ‘freelancer’ or ‘contractor’ or just a disguised ’employee’.
As with most changes to legislation like this, there are unintended consequences and it is too often a case of making the change then seeing what happens.
It is those unintended consequences that give rise to this post.
For many people now caught in the IR35 trap, limited companies were set up as the contracted party with invoices and profits going through the limited company.
There are no set statistics published around the number or percentage of limited companies set up for this purpose, suffice to say that the tax benefits in years gone by mean there are a lot of them.
What has now happened is that these companies are dormant, many of which are dormant with capital still within them and tax penalties for taking that cash out and moving it into the personal name.
Which begs the question; What do you do with it?
What many of the people in this situation don’t realise is that the capital, or cash, within the limited company can be used to purchase a buy to let. There are lenders who will advance to these companies on decent terms, meaning the capital that is sitting dormant can be used and invested without needing to move it into personal names and pay the tax that results.
In short. If you are in this position then it is not all bad news. There are some options here to better use that capital and make use of the limited company, that as a result of the IR35 changes, you can no longer invoice via.
Food for thought.
If you want any details about how this works and how it could benefit you then give me a bell.
By Dave Farmer