Apologies for the essay -- this has been going on a while now.
I've been contracting for a few years, and I've been with the same accountant that whole time (one of the big contractor-specialist ones). I've also been with the same client, on a full-time basis, in a way which puts me well inside IR35.
The majority of that time, when a monthly invoice payment came in, I would tell my accountant, who would run a payroll such that all 4 outgoings (the net salary to me, the PAYE, plus the employee's and employer's NI) added to something close to that what had just been received. That made perfect sense, and meant that the end-of-year self-assessment process involved minimal payments either to or from HMRC. It also meant that the turnover and salary reported in the accounts matched very closely the turnover that had actually come in.
A while back however I got transferred to another named accountant within the firm (that's happened a few times as people have come and gone). This one however started creating payroll numbers that bore no resemblance to what was coming in through invoices. I would often get payroll calculations where the 4 outgoings summed to more than I even had in the company account. Whenever I queried this she would say "in that case just make the HMRC payments as specified and pay less net salary." As the PAYE/NI/NI numbers had been filed with HMRC I had to pay those in full (or HMRC would see failure to pay), but with my net salary being correspondingly lower I ended up effectively paying excessive tax for reduced take-home pay. I queried this with her, asking if payrolls later in the year would swing the other way, or if the end-of-year HMRC assessment would balance things up, but I never really got a clear answer.
Then when my end-of-year tax calculations and accounts were performed they continued to show unrepresentative numbers -- the total salary shown was way in excess of what my company had taken in, and was in fact the salary level that would correspond to the tax payments I'd been making all that time. So HMRC's picture of my year's salary was grossly inflated, removing any hope that their calculations would lead to a refund. The fact I'd taken a significantly lower net pay never got communicated to HMRC or anyone else.
I queried this with my accountant and got told "That's fine, it's correct for the accounts to show the calculated salary even if the net salary actually paid was lower -- your accounts are going to show a debt to the director in your favour." Which indeed they did, with a large number next to it.
However when I tried to pay myself that amount the next time funds came in (which would have left less for that month's IR35 salary), my accountant said "you can't do that -- under IR35, salary must be calculated based on invoiced amounts rather than a selected figure. All funds from invoicing have to go to deemed salary, so you can't divert funds to make other types of payments." While that makes sense in itself, the reason the director debt existed in the first place was because previous payrolls had already diverged from the incoming IR35 funds (overshooting them) so it seemed wrong that I couldn't make my company pay me the debt that was recorded - especially as that sum represented net salary that had effectively already been taxed.
So now my company owes me money that according to my accountant it can't legally pay me -- I could easily pay it to myself straight out, but that would also have to come from invoiced funds (my full-time client is the only income right now) which would leave me short of funds for the next invoice-derived payroll, and so on.
Then that accountant left the firm at short notice (I should say it's one of those firms where if your named accountant isn't in when you email, you get a response from someone else covering their messages, often someone you've never even heard of and don't hear from again, which can add to the confusion when trying to clarify things.) The one I'm with now is frequently absent, so I get replies to enquiries from a variety of people (none of whom can give firm answers) and often no reply at all (I had to actively chase down my last accounts and self-assessment with days to spare in each case, in the process emailing more senior figures in the company to get any action). Even requests for payrolls are going unanswered now -- I've actually had to make some of those directors' loan repayments to myself just to get an income, despite being urged not to -- it's possible I'm breaking the rules, but it was that or watch the mortgage bounce.
So my questions are - can anyone recommend an accountant who would be good for the kind of steady, regular IR35 work I have? Secondly, does anyone have any definitive answers on how payrolls and directors' debts should be handled when the numbers diverge from reality like this? (My accountant should be answering this, but the responses are pretty meagre these days and I've lost confidence in them, which is a shame because they were excellent when I first joined).
Thanks for any help - it's possible I'm showing my ignorance in a lot of this, but things worked in a very straightforward way for the first few years, and the situation now seems needlessly complex (and detrimental to me), on top of which the people who should be advising me aren't filling me with reassurance.
Cheers,
T.
I've been contracting for a few years, and I've been with the same accountant that whole time (one of the big contractor-specialist ones). I've also been with the same client, on a full-time basis, in a way which puts me well inside IR35.
The majority of that time, when a monthly invoice payment came in, I would tell my accountant, who would run a payroll such that all 4 outgoings (the net salary to me, the PAYE, plus the employee's and employer's NI) added to something close to that what had just been received. That made perfect sense, and meant that the end-of-year self-assessment process involved minimal payments either to or from HMRC. It also meant that the turnover and salary reported in the accounts matched very closely the turnover that had actually come in.
A while back however I got transferred to another named accountant within the firm (that's happened a few times as people have come and gone). This one however started creating payroll numbers that bore no resemblance to what was coming in through invoices. I would often get payroll calculations where the 4 outgoings summed to more than I even had in the company account. Whenever I queried this she would say "in that case just make the HMRC payments as specified and pay less net salary." As the PAYE/NI/NI numbers had been filed with HMRC I had to pay those in full (or HMRC would see failure to pay), but with my net salary being correspondingly lower I ended up effectively paying excessive tax for reduced take-home pay. I queried this with her, asking if payrolls later in the year would swing the other way, or if the end-of-year HMRC assessment would balance things up, but I never really got a clear answer.
Then when my end-of-year tax calculations and accounts were performed they continued to show unrepresentative numbers -- the total salary shown was way in excess of what my company had taken in, and was in fact the salary level that would correspond to the tax payments I'd been making all that time. So HMRC's picture of my year's salary was grossly inflated, removing any hope that their calculations would lead to a refund. The fact I'd taken a significantly lower net pay never got communicated to HMRC or anyone else.
I queried this with my accountant and got told "That's fine, it's correct for the accounts to show the calculated salary even if the net salary actually paid was lower -- your accounts are going to show a debt to the director in your favour." Which indeed they did, with a large number next to it.
However when I tried to pay myself that amount the next time funds came in (which would have left less for that month's IR35 salary), my accountant said "you can't do that -- under IR35, salary must be calculated based on invoiced amounts rather than a selected figure. All funds from invoicing have to go to deemed salary, so you can't divert funds to make other types of payments." While that makes sense in itself, the reason the director debt existed in the first place was because previous payrolls had already diverged from the incoming IR35 funds (overshooting them) so it seemed wrong that I couldn't make my company pay me the debt that was recorded - especially as that sum represented net salary that had effectively already been taxed.
So now my company owes me money that according to my accountant it can't legally pay me -- I could easily pay it to myself straight out, but that would also have to come from invoiced funds (my full-time client is the only income right now) which would leave me short of funds for the next invoice-derived payroll, and so on.
Then that accountant left the firm at short notice (I should say it's one of those firms where if your named accountant isn't in when you email, you get a response from someone else covering their messages, often someone you've never even heard of and don't hear from again, which can add to the confusion when trying to clarify things.) The one I'm with now is frequently absent, so I get replies to enquiries from a variety of people (none of whom can give firm answers) and often no reply at all (I had to actively chase down my last accounts and self-assessment with days to spare in each case, in the process emailing more senior figures in the company to get any action). Even requests for payrolls are going unanswered now -- I've actually had to make some of those directors' loan repayments to myself just to get an income, despite being urged not to -- it's possible I'm breaking the rules, but it was that or watch the mortgage bounce.
So my questions are - can anyone recommend an accountant who would be good for the kind of steady, regular IR35 work I have? Secondly, does anyone have any definitive answers on how payrolls and directors' debts should be handled when the numbers diverge from reality like this? (My accountant should be answering this, but the responses are pretty meagre these days and I've lost confidence in them, which is a shame because they were excellent when I first joined).
Thanks for any help - it's possible I'm showing my ignorance in a lot of this, but things worked in a very straightforward way for the first few years, and the situation now seems needlessly complex (and detrimental to me), on top of which the people who should be advising me aren't filling me with reassurance.
Cheers,
T.
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