Inside IR35 - no dividend payments at all?

[Whoknows]

Accountant is coming back to me on Monday, was escalated to his boss and even she wasn't certain

If anyone here would just clarify the points below I'd really appreciate it:

1. The 5% expenses inside IR35 is based on gross revenue

2. The 5% can be used for certain business expenses (accountancy for example). If you don't 'spend' the whole 5%, anything left is retained in the business as profit. This can therefore be withdrawn as a dividend, subject to CT.

3. The deemed payment calculation starts with the total turnover (VAT Exclusive) so this will leave the gain from the 13.5% FRS in the company account too. E.g

Gross turnover = £130,000
Net 20% VAT = £104,000 (this is used for deemed calc)
VAT to HMRC = 13.5% = £17,550

FRS Gain = 6.5% = £8,450
5% expenses = £6,500

So......£8,450 + £6,500 = £14,950 (this is the money my accountant right now can't explain to me what happens!)

[DallasDad]

Ah this is an interesting and timely thread, I am wondering the same thing but I don't yet have an accountant to ask.

I am about to make the jump from Brolly to PSC
I am sure I will be in the same boat as you OP over this.

[SueEllen]

Just to clarify for you both there is no legally recognised definition of a PSC or personal service company.

It is a term dreamt up by HMRC in an attempt to distinguish contractors from other closed companies. The term used on these boards is limited company or Ltd company.

The reason I'm pointing this out to you is at some point you may have one or more other directors plus employees who bring additional beneficial skills to the table that increases the company's revenue.

HMRC cannot get it's head round the fact that small closed companies like those who employ 50+ employees also expand and shrink.

[northernladuk]

Accountant is coming back to me on Monday, was escalated to his boss and even she wasn't certain

So wait until Monday, see what they say and then ask us (us being fellow contractors not accountants) and see if our random advice ties up with your professional advice.

[Whoknows]

I was hoping someone could comment on my points so that when the accountant does come back to me, I'll be armed with some more information to speed up this process.

I tried to ask them clearly so as not to annoy too many folk!

I appreciate most people in here are not accountants, and thank those that have already given their opinions.

[VectraMan]

Accountant is coming back to me on Monday, was escalated to his boss and even she wasn't certain

If anyone here would just clarify the points below I'd really appreciate it:

1. The 5% expenses inside IR35 is based on gross revenue

2. The 5% can be used for certain business expenses (accountancy for example). If you don't 'spend' the whole 5%, anything left is retained in the business as profit. This can therefore be withdrawn as a dividend, subject to CT.

3. The deemed payment calculation starts with the total turnover (VAT Exclusive) so this will leave the gain from the 13.5% FRS in the company account too. E.g

Gross turnover = £130,000
Net 20% VAT = £104,000 (this is used for deemed calc)
VAT to HMRC = 13.5% = £17,550

FRS Gain = 6.5% = £8,450
5% expenses = £6,500

So......£8,450 + £6,500 = £14,950 (this is the money my accountant right now can't explain to me what happens!)

That's exactly right according to my understanding. All I do in practice is make sure that pension + employer's NI + salary = 95% of the invoice (excluding VAT) every month, and then everything else works itself out in the balance sheet for calculating CT and dividends exactly the same as if you were outside IR35. I don't have any T&S expenses so I'm not entirely clear how that factors in.

[ASB]

That's exactly right according to my understanding. All I do in practice is make sure that pension + employer's NI + salary = 95% of the invoice (excluding VAT) every month, and then everything else works itself out in the balance sheet for calculating CT and dividends exactly the same as if you were outside IR35. I don't have any T&S expenses so I'm not entirely clear how that factors in.

No it isnt right. The gross to net is quite clearly wrong.

Unless vat was increased to 25% without publicity of course.

Assuming the net amount iscorrect the profit on the frs is a more reasonable

104 x .2 = 20.8 vat charged
124.8x .135= 16.848 vat to pay

Also the effect of this makes all the other thing a bit out too.

Surely the deemed salary will simply be 98.800. Leaving 26.000. Less vat andother running costs of zero = 9,152 gross profit. Less ct = 7321 net which could be used for dividend if required.

edit: quoted vm by mistake. Not op.

[mudskipper]

See here

The IR35 5% expenses rule

The 5% is a flat allowance.

"In granting the 5% allowance, HMRC do not require proof of expenditure and the full 5% is granted, even if there is no actual expenditure whatsoever."

[Whoknows]

Thanks VectraMan, glad to hear I'm hopefully on the right track at least.

[Whoknows]

No it isnt right. The gross to net is quite clearly wrong

Yep my mistake on the numbers!