Private Sector and IR35 -Grrrrr

[Jenme]

If I could sigh out loud on a computer I would! Please note I have also spoken to an accountant to try and resolve this.

So, I thought I had this thing Ltd company/IR35 thing cracked. I've unfortunately just finished a call with the IR35 HMRC team who 'believe' that I 'might' have been given the wrong advice by them last week regarding employing a spouse (me) and so I'm now desperate for someone who knows the right answer to help me out.

We have set up a Ltd company with two shareholders. DH is an IT consultant in the private sector, lives away from home and is inside IR35. We have no problem with that, it is what it is. We were going to split the income to the business 80/20 for the first few months of being established and then splitting it 90/10 going forward once everything was set up and running (I'm doing the running of the company) so I was naturally taking the lower %.

We are using the Basic Tools software and will be paying all taxes and NI (employer and employee contributions) monthly under PAYE.

Shouldn't be complicated, should it? I was told last week that my husband COULD employ me to do the books, they then rang me back the next day (off the back of another query I had), to apologise but under the Employment Manual rules, I COULDN'T be employed, as I was his spouse.

When I tried to explain, I was advised that everything I was doing as a role fell under the 5% allowable expenses and so I couldn't draw a salary and could not be an employee as I was his spouse and it was tax avoidance. As the decision seemed final, I removed myself from the payroll and just paid my husband.

I rang them today as I suddenly thought, the company now probably couldn't have the Employment Allowance as I was no longer an employee and when I asked why I wasn't (and obviously explained), I was advised that this wasn't the case and I could be an employee!

With this in mind, I called an accountant who bizarrely told me that I probably new more about the rules than he did and so I am throwing myself open to all comments and critic's here with the view of trying to get the right answer as to whether I can be an employee.

I'm on the verge of giving up - I've rung two local tax accountancy firms (one can see me in two weeks time), the other couldn't help and so you knowledgeable people are now my last hope.

Please be kind

[northernladuk]

You are paid a salary so there is no profit to pay the spouse.

[gables]

Surely if you are inside all your income is taxed and paid as salary so there is no profit to distribute as dividend?

Beat me to it, although there is the 5% for expenses, but I don't think they're aimed at being used for a salary, or maybe that's just me as 5% of turnover wouldn't be enough for a salary.

[northernladuk]

P. S. The work you do for the company has absolutely nothing to do with shares. I own shares in a company and don't do any work for them at all.

You need to get an accountant...

[SuperLooper]

Is it not the case that the 95% salary requirement for IR35 could still be paid as salary to both people, e.g. 45% each? Or does the legislation specify that it can only be paid to one person?

[Jenme]

Thank you for this - felling like I'm slowly going mad. I'll read the link in detail.

I was told that we wouldn't need to use the deemed payment calculator as we're paying all taxes each month via PAYE? Not sure how I can account for the 5% it gives though.

[Jenme]

P. S. The work you do for the company has absolutely nothing to do with shares. I own shares in a company and don't do any work for them at all.

You need to get an accountant...

I know it's nothing to do with the shares - we were just splitting the income based on the proportion of work being carried out by each of us.

[northernladuk]

I know it's nothing to do with the shares - we were just splitting the income based on the proportion of work being carried out by each of us.

But shares have nothing to so with the amount of work.

[Jenme]

Is it not the case that the 95% salary requirement for IR35 could still be paid as salary to both people, e.g. 45% each? Or does the legislation specify that it can only be paid to one person?

It would be seen as tax avoidance in this case as I am performing the role of accountant. Logically, we wouldn't spend half of the income on employing an accountant.

That's the question though, does the rule specify that only one person can be paid

[northernladuk]

Is it not the case that the 95% salary requirement for IR35 could still be paid as salary to both people, e.g. 45% each? Or does the legislation specify that it can only be paid to one person?

The person is being taxed as an employee (singular). If you split it you are gaining an unfair tax advantage using both your lower rates when her husband is doing a job like an employee.