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MVL and Entrepreneurs Relief

MVL and Entrepreneurs Relief

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Hi there

I am a sole practitioner of a part time practice working around my children and looking for a bit of advice.

So I have an IT contractor (100% shareholder) whose contract was ended due to the new IR35  rules that into place recently.  This is the only reason he stopped trading.  He is now working under an umbrella company but for the same end user client.  He has in excess of £25k in cash and wants to distribute this after an MVL and claim Entrepreneurs Relief.  

Given the TAAR's, distributions may be treated as income in the following circumstances:

1. If the company is a close company. Anwer = it is

2. If the shareholder is involved with a similar trade or activity within 2 year. Answer = As an employee 

3. If the intention of the winding-up is to obtain a tax advantage. Answer = Only winding up because his contracts were pulled.

On the above basis can I still claim ER relief for him?  

Thanks for your help with this.

 

Replies (5)

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By Wanderer
22nd Apr 2021 16:50

Have a google of
entrepreneurs relief excess funds

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Psycho
By Wilson Philips
22nd Apr 2021 17:31

Your answer to 3 probably clears the way. But for completeness you might want to look at question 2 again and consider what the legislation actually says. (ie you probably don't even need to ask question 3.)

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By Chris Maslin
22nd Apr 2021 17:38

HMRC have confirmed working as an employee in a similar field is fine. Ie they're not breaching your Q2. Perhaps remind the client this applies for 2 years though, so if in (say) 12 months they got offered an outside IR35 contract, and left their employed role to set up a new Ltd Co to do the contract, they potentially would be at risk.

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By The Dullard
22nd Apr 2021 18:29

Entrepeneurs' Relief doesn't exist anymore.

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Replying to The Dullard:
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By Hugo Fair
22nd Apr 2021 18:58

Yeah ... BADR (Business Asset Disposal Relief) replaced ER in 2020 Budget.
The changes are mostly in the nature of the emperor's new clothes, but OP should find it worth looking up the correct legislation if contemplating advice for client.

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