Many public sector workers who provide their services via limited companies will be wondering what the future holds after 1 April 2017 when proposed changes to IR35 for public sector workers come into effect.

The internet is full of commentary around the implications of this and the likely attitude of employers, agencies and the workers themselves.

The burden of applying IR35 will be removed from the worker and passed on to the end client or agency.

Some observers think HMRC are pushing workers into PAYE positions or umbrella solutions while others believe a limited company solution, if deemed IR35 compliant, will continue to work.

Inevitably there is going to be a fall out and workers who operate through a limited company may well be considering alternative options.

If that is the case then a Members Voluntary Liquidation may be the best solution to help deal with their company in a formal and definite manner with the added benefit of being tax efficient.

As a contractor, you have probably already arranged your tax affairs efficiently, perhaps by providing your services through a limited company. It therefore makes sense that when that company is no longer needed that you continue to apply tax efficient strategies to shut it down. Contractors moving into an employee position, who have retained capital in excess of £40,000 in their company, should consider using a Members Voluntary Liquidation (MVL) to extract the remaining capital. The UK Government has imposed a limit of £25,000 above which all distributions from a company would be treated as income, taxed at the shareholders’ marginal rate of tax, and introduced targeted anti-avoidance rules in certain circumstances to tax distributions as income. Subject to this, there may still be scope when using an MVL to benefit from your annual capital gains allowance

When using an MVL, you benefit from your annual capital gains allowance (£11,100 for 2016/17) and also the possibility of utilising Entrepreneur’s Relief. If you meet the criteria then you may only pay tax at the lower rate of 10%. Realistically, after considering the limited costs of an MVL, you will start to see benefits accruing in the form of tax savings if you have around £40,000 and above.

Got a question?

If you're a contractor working in the public sector and you'd like to find out more about how a members' voluntary liquidation could work for you, please get in touch with me at; Donald.McNaught@jcca.co.uk or on 0141 222 9180 for an initial, informal chat.