Retirement and IR35 contract Conundrum

[brian_H]

Hi everyone.

I am now 62 so nearing retirement from my permanent role and I have already started to reduce my hours down to 4 days with the intention of dropping to 3 days in January.

I will be 63 in April so I am contemplating taking my private pension then to subsidise my reduced earnings.

My employer is happy for me to reduce my hours further rather than just walk away. They have a new project coming in at the moment that requires my particular skill set. It is more of a developmental/research type role.

So, my employer has offered me the option to drop down to 2 days and work as a contractor for maybe another 2 years before I fully retire.

Due to the research/development nature of the role I am told it is outside of IR35 and indeed there are other contractors on site working under this premise.

My question is. Would it be worth the effort? I am just under the higher rate of Income tax and will stay at that level once my pension subsidises my reduced hours in April.

I reckon over 2 years on 2 days per week I would have around 50K in my business account. What tax would I pay in year 1 if I don't take any funds/dividends/expenses etc?

Taking into account my usual earnings what tax would I pay after 24 months if I closed the company. I understand Business Asset Disposal Rate is 14% but I would have to pay Capital Gains Tax too? Is that correct?

I have spent ages on Google and on ChatGPT but I am just getting confused. I have to give the company my decision before Christmas so I thought I would ask the question on here before I engage the services of a decent accountant.

I am sure I am missing something so just wondered if anyone else had done something similar.

Thanks

Brian

[simon_harris]

It is not that simple for the role to be outside of IR35, you should be able to work for them as a contractor but might be easier to do this through an umbrella company.

[Mr Pointy]

Do you have to work via a personal limited companyor could you work as a Sole Trader? The costs might be less, & you aren't going to have the tax advantages of making pension contributions if you are drawing your pension.

[omniflow]

I believe that when you close the company you can do something called MVL which allows you to take out the money and only pay 10% tax up to a much larger sum than you're talking about. This does restrict you from restarting a business in the same area for a couple of years but it doesn't sound like that's an issue.

You need to look into this in detail and talk to an accountant. I have an inkling that if you're sensible with your choice of year end date you could minimise your corporation tax liability perfectly legally but I am a long way from being intimately familiar with the rules

BTW - legitimate expenses are the one thing you should most definitely be withdrawing during the life of the company.

[esuuv]

isn't leaving a company and coming back straight away going to mean you're definitely inside IR35........part of the reason the legislation was put into place was to stop this sort of thing happening?

[MustangGT]

Why not just stay on payroll under a reduced hours contract, simplest way of proceeding.

[brian_H]

Thanks for the replies everyone.
I can't do Sole trader, not allowed.

My employer likes the contract route as they can turn me on or off at will without any issues.

I am a previous contractor a number of years ago so I am going to ask my old accountant for some advice before I pull the pin.

The inside/Outside IR35 is a different issue but because of the nature of the role, the breaks in working and not doing the same job I currently do means it can be classed as outside IR35. 2 people I work with do exactly this and both passed Outside IR35 compliance investigation so hopefully I am not on dodgy ground.

I am also led to believe it is different doing this as semi-retirement option rather than the old way we used to see in Aerospace of people leave a permy role on Friday, then rock up on Monday as a contractor and sit in the same desk kind of issue!

As for the MVL that is exactly what I am hoping for. I will seek some advice before I do anything.

Thanks once again

:-)