Q. Dear Doctor, I have been contracting for last 7 years via my limited company. By law, a company must keep records for at least 6 years from the end of the last company financial year. Does it mean that HMRC cannot investigate my IR35 status of my first year contract if I have lost all the contracts and documents; as I am not obligated to keep those documents. Does it also imply that it is better to leave the company in trading for at least another 6 years if I decide to go back to permanent job this year?
A. You are correct that companies are required, under Self Assessment, to retain all records for 6 years from the end of the relevant accounting period.
In the cases of PAYE & Corporation Tax, HMRC can go back 4 years. These time limits are extended to 6 years & 20 years where there has been a loss of tax due to the taxpayer’s careless or deliberate actions, respectively. Unless you have deliberately misled HMRC about your company’s IR35 status, then HMRC will not go back 20 years. Ordinarily, any IR35 enquiry will focus on the previous tax year or accounting period. Occasionally they may select a couple of years for enquiry. Only if they make a discovery about a potential loss of tax about previous years will they seek to extend their enquiries further.
If you keep your company ‘live’ when you are not actively trading through it will result in you having to extract any remaining monies, probably via dividends, when you could dissolve the company & have the final distribution treated as capital & subject to 10% Capital Gains Tax upon claiming Entrepreneurs’ Relief & after deducting the tax-free annual exemption of £11,100.
Leave a Reply