Pay tax twice on IR35 bill?

[RichG]

Hi,

For simplicity...

£100k turnover
£10 salary to director
£5 business purchases
£85 profit

£68,000 left after corporation tax.

Imagine the director taking that £68,000 as a dividend.

They'd pay dividend tax and the usual tax on it via self assessment.

They also pay a NIC based on their minimum wage.

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Now imagine they were found to be inside IR35 for that period. My understanding is they would say the person in employment would have a salary, and that would be tax'd. I believe the salary would be £68,000 - 5% business running costs or prehaps £85,000 - 5% business running costs.

Then the person would be tax'd...

But given that this individual has already paid tax via self assessment, given the money when in the business bank was already had 20% tax applied to it. How is the bill calculated? Do they work out the two figures and take one from the other?

Is it therefore not that much of a big deal if the contractor isn't leaving money in the business bank but taking most of the money as dividends leaving just enough to cover VAT returns and the like?

[RichG]

Sorry I've not been very clear...

Obviously if profit was £85,000 but the contractor only took £20,000 in dividends then got caught for IR35 and they need to work out a salary close to £85,000 and pay tax on it, then yes its a big deal, but for the contractor who is pretty much taking all money in the bank as dividends leaving just enough to keep the business running, then i'm not sure there is much of a penalty bsides the higher NIC payment on the whole amount rather than the basic minimum wage they took as a director?

[northernladuk]

What exactly is your question?

[Lance]

What exactly is your question?

'what's the point of IR35 when I pay a sh*t load of tax anyway as I take all the divis in the same year?'

I think.

[northernladuk]

'what's the point of IR35 when I pay a sh*t load of tax anyway as I take all the divis in the same year?'

I think.

I thought it was 'Can someone give me a penny by penny breakdown around accounting for inside and outside IR35'

I hope so. I love threads with lots of numbers in.

[Fred Bloggs]

I think that sound you can hear is pennies dropping. The contracting boat sailed a couple or more years ago. Life as a UK based contractor isn't what it was. It's going to take a while before that grass doesn't look quite so green any more over there. The message will get through eventually. The industry is terminally fu**ed up now. There's no way back.

[mudskipper]

Sorry I've not been very clear...

Obviously if profit was £85,000 but the contractor only took £20,000 in dividends then got caught for IR35 and they need to work out a salary close to £85,000 and pay tax on it, then yes its a big deal, but for the contractor who is pretty much taking all money in the bank as dividends leaving just enough to keep the business running, then i'm not sure there is much of a penalty bsides the higher NIC payment on the whole amount rather than the basic minimum wage they took as a director?

Yes, the vast majority of the difference is Employer's NI.

[RichG]

Yes, a breakdown of a hypothetical both in and out of IR35 would be nice...

And how they retrospectively apply IR35 to a year where you've already took dividends, been self assessed and the like.

That would be helpful if anyone cares to venture. I'm not sure of what is applied where as per my original question it would seem if they charged you on a hypothetical "calculated salary" you'd be paying tax on that, having already paid tax that year when self assessed believing you were outside IR35.

[northernladuk]

Yes, a breakdown of a hypothetical both in and out of IR35 would be nice...

And how they retrospectively apply IR35 to a year where you've already took dividends, been self assessed and the like.

That would be helpful if anyone cares to venture. I'm not sure of what is applied where as per my original question it would seem if they charged you on a hypothetical "calculated salary" you'd be paying tax on that, having already paid tax that year when self assessed believing you were outside IR35.

Not asking for much are you? Very simple question with very complex answer, particularly when you throw the retrospective question in which will be almost impossible to answer properly without numbers.

Why do you want this?

There are plenty of calculators out there that can give you a basic numbers and highlight what you are paying and why.

Don't forget you are asking a bunch of contractors here. You 'might' get a friendly accountant to post it but I very much doubt it.

[Lance]

Yes, a breakdown of a hypothetical both in and out of IR35 would be nice...

And how they retrospectively apply IR35 to a year where you've already took dividends, been self assessed and the like.

That would be helpful if anyone cares to venture. I'm not sure of what is applied where as per my original question it would seem if they charged you on a hypothetical "calculated salary" you'd be paying tax on that, having already paid tax that year when self assessed believing you were outside IR35.

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