Small Hampshire IT Consultancy Company Hit By IR35 Issues

The Challenge

A director of a small service company in Hampshire faced significant financial problems stemming from the complex nature of a consultant’s employment under IR35 regulations. The director had built up substantial liabilities for Corporation Tax, VAT, and PAYE, likely due to drawing too much cash from the company without properly accounting for tax obligations. In this scenario, the company was treated as a contractor, but HMRC could view the director as a direct employee of the client, complicating tax matters. Additionally, the director had accrued serious personal credit card debts, and the threat of the “veil of incorporation” being lifted and personal liability for the company’s tax debts loomed. The director was in a precarious position, with both corporate and personal financial problems that required a coordinated solution.

The Solution

The company engaged RMT KSA, and the firm devised a two-pronged solution to address both the company’s and the director’s financial problems. For the company, the solution was a Creditors Voluntary Liquidation (CVL). This process would legally wind up the company and “kill off” its tax debts. The client, recognizing the director’s value, agreed to employ him directly, which provided a clear stream of future earnings. For the director’s personal debts, We proposed an Individual Voluntary Arrangement (IVA). The IVA would bind all of his tax and credit card debts into a single, manageable plan. This solution allowed the director to leverage his new, secure employment to convince his personal creditors to support a deal that would be a better return than a personal bankruptcy.

The Results

The CVL was successfully implemented, which brought an end to the company’s tax debts. The director was able to move forward with his career, now employed directly by his client. The IVA was also successfully approved, providing the director with a path to deal with his personal financial problems. The solution addressed the complexities of both the corporate and personal financial issues, and while it involved the liquidation of the company, it was the best possible outcome under the circumstances. This case demonstrates that even when a company cannot be saved, a professional and holistic approach can still provide a successful outcome for the individuals involved, allowing them to escape a cycle of debt and move forward with their lives.