All,
This is purely a theoretical question, but if anybody has any information that would be great.
Just for background purposes, I’m a fairly new business (Only trading 3 months!) but I am reasonably well versed re: IR35 and took all the necessary precautions when starting out. I expect to remain as a contracting business long term and do not see this as a short term option.
I consider myself outside IR35 and have had my contract reviewed and have adequate representation to defend my status, should it ever be needed. Although confident in this, like most people I am still wary of HMRC constantly moving the goalposts and know that there is always a possibility they could challenge my IR35 status, regardless.
Therefore, assuming the below theoretical contingency, I was wondering what the views are on this.
Assuming my income had been split between my wife and I (65%/35%) and both of us remained below the higher tax threshold, this would pose a large potential liability should this situation arise. I assume the dividend split would be void and the companies income (Let’s say 70k for 1st year) would be all attributed to myself, via a deemed payment less the usual 5% etc. Therefore I would be exposed to 40% tax, Employers NI & Employees NI. Due to the void dividend split this would push me into the 40% bracket etc so would have a significant impact.
I understand that pensions are a good way to offset IR35 risk, as assuming anything above the basic rate threshold will attract 40% tax, Employers NI and Employees NI.
However, as I am a long way off retirement (I’m only 30), I would not really want to plough 12k + a year into a pension to offset maybe half of the 11k IR35 liability that I could potentially be challenged for.
Therefore, my current contingency is to put aside the 10-11k potential tax/Ni liability that I could be challenged for if needed. I am aware of if I were to be caught inside then I would lose the tax benefits of the pension, but for the reasons stated above, my age is a factor to be taking into consideration when decided this.
Thus, my question is:-
Say that in a few years time, my status was successfully challenged by the HMRC and I had to pay backtaxes for several years. Could I, at this stage, then instead backdate pension contributions using the 3 year X 50k allowance (I think that is correct!) to plough a load of money in at this stage, to reduce the liability to HMRC, or can this only be done prior to investigation?
Example :-
Say HMRC challenged and successfully imposed £30k in backtaxes………….. Could I subsequently pay £40k into a company pension, direct from the Ltd. Which would reduce the Employers NI, 40% tax due and Employees NI on this amount, or this just wishful thinking as it could have only been done before the demand was made?
Any expert advice on this would be most appreciated.
Many thanks,
Baffle
This is purely a theoretical question, but if anybody has any information that would be great.
Just for background purposes, I’m a fairly new business (Only trading 3 months!) but I am reasonably well versed re: IR35 and took all the necessary precautions when starting out. I expect to remain as a contracting business long term and do not see this as a short term option.
I consider myself outside IR35 and have had my contract reviewed and have adequate representation to defend my status, should it ever be needed. Although confident in this, like most people I am still wary of HMRC constantly moving the goalposts and know that there is always a possibility they could challenge my IR35 status, regardless.
Therefore, assuming the below theoretical contingency, I was wondering what the views are on this.
Assuming my income had been split between my wife and I (65%/35%) and both of us remained below the higher tax threshold, this would pose a large potential liability should this situation arise. I assume the dividend split would be void and the companies income (Let’s say 70k for 1st year) would be all attributed to myself, via a deemed payment less the usual 5% etc. Therefore I would be exposed to 40% tax, Employers NI & Employees NI. Due to the void dividend split this would push me into the 40% bracket etc so would have a significant impact.
I understand that pensions are a good way to offset IR35 risk, as assuming anything above the basic rate threshold will attract 40% tax, Employers NI and Employees NI.
However, as I am a long way off retirement (I’m only 30), I would not really want to plough 12k + a year into a pension to offset maybe half of the 11k IR35 liability that I could potentially be challenged for.
Therefore, my current contingency is to put aside the 10-11k potential tax/Ni liability that I could be challenged for if needed. I am aware of if I were to be caught inside then I would lose the tax benefits of the pension, but for the reasons stated above, my age is a factor to be taking into consideration when decided this.
Thus, my question is:-
Say that in a few years time, my status was successfully challenged by the HMRC and I had to pay backtaxes for several years. Could I, at this stage, then instead backdate pension contributions using the 3 year X 50k allowance (I think that is correct!) to plough a load of money in at this stage, to reduce the liability to HMRC, or can this only be done prior to investigation?
Example :-
Say HMRC challenged and successfully imposed £30k in backtaxes………….. Could I subsequently pay £40k into a company pension, direct from the Ltd. Which would reduce the Employers NI, 40% tax due and Employees NI on this amount, or this just wishful thinking as it could have only been done before the demand was made?
Any expert advice on this would be most appreciated.
Many thanks,
Baffle
Let's not forget that the government deliberately set up tax breaks on pension contributions to encourage people to pay into them so why would they not allow it in this situation?
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