TLDR; I’m another statistic – IR35 and the Covid-19 outbreak have forced me into a position where I have to close down my contracting company and seek alternative employment. Image Copyright of Warner Brothers

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Well, that’s that! Today I instructed my accountant to ‘Pull the Pin’ on my company and start the process of winding it up. A sad but somehow inevitable day for me – I’ve seen it coming for a month or so but it’s not easy being here now.

I’ve been contracting through my limited company for the last 9 years and in the time I have worked on numerous projects across numerous sectors – an experience that has, I believe, left me a better developer that I would otherwise had been. I have no regrets – none!

But a combination of unfair an tax legislation and a worldwide pandemic have left me in an untenable situation – while the company might (just might) survive the Covid-19 Lockdown the specter of IR35 looms large on the horizon and I’d rather take a different fork in the road instead of heading into more uncertainty.

So how did I get this this point? Well it wasn’t just one thing but a combination which left me in an untenable situation.

Strike One:

At the end of 2019 and the beginning of 2020, the contracting market was significantly impacted by the planned roll-out of changes to the IR35, aka Off Payroll, tax legislation.

I won’t bore you with the details of IR35 or the changes but the impact was that many clients either banned the use of contractors altogether while others made the decision that all roles were ‘Inside IR35’ (which basically means that contractors will have additional, and not insignificant, taxes deducted from their day rate before it is paid to their limited company).

This is apparently in the interests of fairness – the Government line is that “people doing the same job should be taxed in the same way“. So contractors are to be taxed as employees but are to receive none of the benefits that employees receive for such taxation, e.g. statutory sick pay. Apparently that’s fair!

While it is true that operating in the way we do does bring with it some modest tax advantages (Contractor Calculator has an excellent article on this if you’re interested) it is NOT true that we are tax avoiders or pay NO tax. We take on significant financial risks operating in the way we do (as this post may or may not highlight) and do not receive the same benefits as regular employees.

For many this made ‘Inside IR35’ roles non-viable or unattractive and they either terminated their contracts if the role was reclassified when they were in it or they wouldn’t engage on that basis.

This was a lose-lose situation for both contractors and clients – with the former losing income and the latter losing valuable resources that were required to get their projects completed on time.

Strike Two:

The Coronavirus has had an impact worldwide and it is not my intention to be all ‘oh, woe is me’ about it. I’ve been very lucky in many respects; I nor any of my family have been infected and while I have friends that have been they have all recovered without hospital intervention.

My heart goes out to those who have lost loved ones and I know that so far, I’ve been lucky.

But the fact remains that the virus has had a catestrophic impact on the worldwide economy and the UK has been hit hard.

My contract was terminated early due to the Coronavirus outbreak and at the time of writing nothing has come along to replace it.

I used to receive 2-3 calls a week (sometimes more) from recruiters with roles that might interest me but since March I’ve received none – the market has imploded.

The UK Government has introduced Support Schemes to help keep businesses afloat and able to retain their staff (with the taxpayer essentially paying salaries etc). I know many have taken advantage of these schemes, including members of my extended family and they have been a godsend to them.

But, as a limited company director who takes a token salary and tops this up with dividends should the company make a profit, the level of support I would receive was minimal – 80% of that minimal salary.

The fact is that this wasn’t catestrophic news – in some ways it could be construed as a lifeline.

The fact that limited company directors were treated (I won’t say excluded because we weren’t) it was hoped that the case against the now delayed IR35 changes would be strengthened as this clearly demonstrated that we were not ‘disguised employees’ as the legislation claims.

On top of this, my company had enough reserves to continue paying me at a reasonable level – not comfortable, but reasonable – and could continue to do so for a few months yet.

I was able to take the ‘time off’ to decorate the house, sort out the garden and spend time brushing up my skills with some online training.

Strike Three:

So, if my company can still pay me for a few more months, why am I closing the business down now?

Well the answer is twofold:

  1. The funds in the company account won’t last forever and there is a tipping point where you just have to call it a day. I don’t want to get to the point where the company is not able to meet it’s tax obligations – I see others reporting on LinkedIn that they are dipping into the funds set aside for VAT and Corporation Tax payments. I don’t want to be in that position and want to walk away clear of any owed taxes – maybe with some money in my pocket to see me through the rest of the lock-down.

  2. IR35 hasn’t gone away and despite the House of Lords heavily criticising it as being unfair and not fit for purpose the Government is stubbornly pushing ahead with it. Finance Minister Jesse Norman denies seeing any evidence of clients banning the use of contractors or making blanket determinations. He has made no comment on the House of Lords report.

Despite the Covid-19 Support Schemes appearing to confirm that contractors are not ‘disguised employees’ of the end-client the Government seem to want it both ways and are going to use IR35 to squeeze them further at a time when they can least afford it.

Even if I was able to keep the company going until the end of lock-down, the specter of IR35 looming on the horizon means there is no guarantee that the contracting market would recover sufficiently before I had to ‘pull the pin’ anyway.

So, what next?

As luck would have it, in the absence of contract opportunities, I have been contacted about a handful of permanent roles. While I wasn’t a good fit for a couple of these, at the time of writing I have a couple of irons in the fire that are very interesting and I’m hoping to secure something soon.

As an aside, this website will revert to being a ‘mere’ blog where I will continue to post (hopefully) interesting articles and experiences and all the existing content will be retained – only the company is going away.