Private Sector and IR35 -Grrrrr

[Jenme]

What kind of IT? Project based?

Admittedly having to sign that form is problematic... Is this commonplace nowadays?

Yes, project based and the form wasn't an option. Not sure if it's common placed but it seems logical from the clients and agents point of view.

I remember when I worked in Belgium, I had to sign something very similar and that was almost five years ago.

[Jenme]

Is he through an agent? Have they offered him PAYE or an umbrella option?

He did find the role through an agent and the option of PAYE or an umbrella was not on the table. He submits a timesheet via their system which picks up all of our Ltd company details and that automatically raises an invoice for payment.

[Jessica@WhiteFieldTax]

Legally there is nothing to stop a spouse being employed by contractor co.

In this case as 95% of the company turnover has to go to main contractor as salary, the practical restriction is that the remaining 5% has to cover the spouse salary and other expenses.

If the spouse salary isn't within 5%, then between you you end up paying tax on more than 100% if turnover and racking up potentially unreliable tax losses (which is an anathema to a accountant).

Regarding the employment allowance, you need to have two people on the payroll where there is an obligation to pay Employers NI. Because of the practicalities of the figures above, it isn't going to work for you.

Not surprised HMRC were giving mixed messages; in these days of call centre based service, the skill set isn't good. Whistfully I remember the days of local tax offices and knksn staff you could talk to. Progress.

A lot of accountants are scared by this type of work, it seems anything to do with IR35 creates fear, hence the firms who speclaise in this area which, if you approach it logically, isn't rocket science.

[Jenme]

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

I know

[northernladyuk]

Legally there is nothing to stop a spouse being employed by contractor co.

In this case as 95% of the company turnover has to go to main contractor as salary, the practical restriction is that the remaining 5% has to cover the spouse salary and other expenses.

If the spouse salary isn't within 5%, then between you you end up paying tax on more than 100% if turnover and racking up potentially unreliable tax losses (which is an anathema to a accountant).

Regarding the employment allowance, you need to have two people on the payroll where there is an obligation to pay Employers NI. Because of the practicalities of the figures above, it isn't going to work for you.

Not surprised HMRC were giving mixed messages; in these days of call centre based service, the skill set isn't good. Whistfully I remember the days of local tax offices and knksn staff you could talk to. Progress.

A lot of accountants are scared by this type of work, it seems anything to do with IR35 creates fear, hence the firms who speclaise in this area which, if you approach it logically, isn't rocket science.

Can the contractor loan the Ltd the money for the spouse salary and then the loan can be repaid when the contractor is outside ir35?

[Jessica@WhiteFieldTax]

Can the contractor loan the Ltd the money for the spouse salary and then the loan can be repaid when the contractor is outside ir35?

Yes it can be done, but at the expense of double taxation short term, and you'd have to be sure of the nin IR35 income.

HMRC could run a perverse argument that whilst inside IR35 there is not enough happening to justify a spouse salary of any meaningful amount, and disallow the spouse salary for Corporation Tax, whilst still taxing the spouse on it. That then becomes permanent double tax. I think it's unlikely, but it's a point to be cautious of.

[northernladyuk]

Yes it can be done, but I would struggle to think of a reason why anyone would want to do that. End up paying more tax on salaries than company profit, and racking up losses to carry forward.

E.g. Crudely suppose company turnover £100k. 95% of that £95k, and goes to main contractor. Could pay a £5k salary to spouse, ignoring other expenses, and off set it. Corporation Tax profits £nil.

But if you lent £10k to company and paid spouse £15k, you end up paying personal tax on £110k (I'm ignoring the gross down on main salary - it changes the figures but not the principle) and a £10k Corporation Tax loss carried forward which you will struggle to offset unless there is certainty of non IR35 contracting income in the future.

Most contractors would expect non IR35 work. When it does come, there is 10k which is simply repaid loan and CT is reduced.

[Jessica@WhiteFieldTax]

Most contractors would expect non IR35 work. When it does come, there is 10k which is simply repaid loan and CT is reduced.

Sorry, I re read your question and changed my reply, whilst you were tying...

[northernladuk]

I know

But you are going to Split them 90/10 to reflect the work you do aren't you?

[northernladuk]

HMRC could run a perverse argument that whilst inside IR35 there is not enough happening to justify a spouse salary of any meaningful amount.

Why is it perverse? If they made the same argument about a vast majority of people who are outside IR35 and paying their wives they would be right.