Inside IR35 - no dividend payments at all?

[Whoknows]

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."

But this article then states:

"The 5% deduction is given at a flat rate on gross fees receivable and is not available to employees as an expense which they can draw from the company."

[mudskipper]

But this article then states:

"The 5% deduction is given at a flat rate on gross fees receivable and is not available to employees as an expense which they can draw from the company."

Edit:

Looks like you're right
http://www.contractoruk.com/ir35/wha...nder_ir35.html

Allowances for corporation tax

The 5% is in respect of the deemed salary calculation only and is not taken into account when preparing the company’s accounts and corporation tax computation.

The company accounts should take into account the actual expenses only, which may be higher or lower than the 5% allowance.

[Whoknows]

The 5% is in respect of the deemed salary calculation only and is not taken into account when preparing the company’s accounts and corporation tax computation.

The company accounts should take into account the actual expenses only, which may be higher or lower than the 5% allowance.

So you can claim the 5% as non-receipted expenses, but anything not spent shouldn't be accounted for as profit in the business?

[mudskipper]

So you can claim the 5% as non-receipted expenses, but anything not spent shouldn't be accounted for as profit in the business?

I think it's the opposite - anything not spent should be accounted for as profit - i.e. you will pay corp tax on it. Best get your accountant to run through it again - it's not intuitive!

[VectraMan]

I was referring to the principle I hadn't actually checked the numbers. Sorry if that was misleading. Yes, what ASB said.

So how do T&S work?

[VectraMan]

I think it's the opposite - anything not spent should be accounted for as profit - i.e. you will pay corp tax on it.

That.

[DallasDad]

Golly isn't this complicated!

Sue Ellen, point taken, the term PSC will surface no more, in future posts.

[WordIsBond]

Just to quickly note, pension contributions made by your company are in addition to the 5% and certainly are deducted from profit / corporation tax liability. So you can still gain some tax efficiency even within IR35 by using this.

[Whoknows]

I was referring to the principle

Take a look at this example I found. The 5% clearly rolls on to be available as a dividend, but the FRS gain doesn't. The gain is added in to the salary calculation....

They also base the 5% on the VAT exclusive turnover.

https://www.whitefieldtax.co.uk/web/...taxexample.pdf

[VectraMan]

Take a look at this example I found. The 5% clearly rolls on to be available as a dividend, but the FRS gain doesn't. The gain is added in to the salary calculation....

They also base the 5% on the VAT exclusive turnover.

https://www.whitefieldtax.co.uk/web/...taxexample.pdf

Yes that does seem to contradict the way I thought it worked. I'd like to see this detailed on an HMRC website somewhere because I haven't managed to find any clear information.

The starting point for working out the deemed payment is the amount received by the intermediary in the tax year in respect of engagements to which the legislation applies. From this amount a flat rate 5% is deducted, to cover other unspecified expenses, such as running costs of the intermediary (see ESM3160).

ESM3145 - How to calculate the deemed payment

The question is whether the FRS gain is "in respect of engagements to which the legislation applies". You could have a second outside IR35 contract, bank interest, or other income that's nothing to do with IR35 and so wouldn't be part of the deemed payment or 5% calculation. I would have interpreted the FRS gain being like that; it's essentially a bonus from HMRC for operating your whole company in a particular way, not specific to one income stream.