Does IR35 affect company closure?
Yes, but indirectly. IR35 affects the tax treatment of your contracts, so before you close a contractor company you need to make sure any PAYE, NIC, corporation tax, VAT and payroll issues have been dealt with.
If those liabilities are still outstanding, HMRC may object to a strike-off or pursue the company before it is dissolved.
For many IT contractors, the closure question comes down to two things: whether the company is solvent, and whether there are retained profits left in the company bank account.
That is what usually determines whether strike-off or MVL is the better route.
Inside IR35 before you close
If one or more engagements were inside IR35, the company may owe a deemed employment payment and related payroll taxes for the relevant tax year.
That should be reviewed and settled before applying to close the company, because unresolved PAYE or NIC is one of the most common reasons HMRC objects to strike-off.
This is especially important where you have already taken drawings or dividends from the company.
You should check whether any part of the final year needs adjusting before the company is closed, rather than assuming the tax position is finished just because the contract has ended.
Strike-off or MVL?
If your company is solvent, the two main closure routes are strike-off and Members’ Voluntary Liquidation (MVL).
Strike-off is usually the cheapest route, but it is only suitable where the company can pay its debts, has no unresolved tax position, and is no longer trading.
MVL is often considered where a contractor company has significant retained profits, typically above £25,000.
It is more formal, but it can be the better option when there is more cash to distribute and you want the closure process handled cleanly through a licensed insolvency practitioner.
What to do before closing
Before you apply to close the company, make sure the basics are complete.
That normally means filing final accounts and tax returns, settling corporation tax, VAT and payroll obligations, closing the business bank account, and dealing with any company assets or balances.
You should also keep the paperwork that shows how the company traded and how IR35 was handled.
That includes contracts, extensions, Status Determination Statements where relevant, invoices, timesheets, correspondence and any IR35 advice you relied on.
How long to keep records
Keep your business and tax records for at least six years after the end of the relevant tax year.
That is the safest practical approach for contractor companies, especially where IR35 status could ever be questioned.
Do not assume that dissolving the company removes the need to keep records.
HMRC can still review historical tax matters within the relevant statutory windows, and dissolution does not erase a past tax exposure.
Can HMRC still look into IR35 after closure?
Yes. Dissolution does not give immunity from HMRC enquiries.
HMRC can still act within its statutory time limits, and in more serious cases those time limits can extend beyond the usual four-year window.
That is why it is sensible to resolve any likely IR35 issue before you file for closure.
If there is any doubt about a contract being inside IR35, it is better to review it properly first than to hope the issue disappears once the company is struck off.
When to speak to an insolvency practitioner
If the company is insolvent, strike-off is usually not the right route.
In that situation, the normal options are creditors’ voluntary liquidation or another formal insolvency process, depending on the facts.
You should also get specialist advice if there is any unresolved IR35 liability, missing payroll reporting, or a significant amount of cash to distribute.
For contractor companies, the interaction between IR35, retained profits and closure method is often where the biggest mistakes happen.
Final checklist for contractors
- Confirm the company is solvent and has no unpaid debts.
- Review every contract that may have been inside IR35.
- Settle any PAYE, NIC, corporation tax and VAT liabilities.
- Prepare final accounts and final tax filings.
- Close the company bank account only after the balances have been dealt with.
- Keep copies of contracts, determinations and supporting records for at least six years.
- Choose strike-off or MVL based on profits, debts and tax exposure.
Closing point
For IT contractors, IR35 does not make company closure impossible, but it does make correct sequencing important.
Clear the tax position first, choose the right closure route for the company’s financial position, and keep your records in order before you apply to dissolve or liquidate.