IR35 and Corporation Tax

[Herts47]

Hi

Apologies if I'm completely in the wrong place.

I've received a Corporation Tax return request for my company year which is 1 October 2018 to 30 September 2018. During the whole of this time I worked inside IR35 for an agency who PAYE'd me and sent my net earnings to my Limited Company bank account, and I then withdrew the money as salary (deemed). The VAT was also paid to my business account as part of my payslip earnings.

Obviously, I had nil tax returns on my company, and I paid the VAT returns as normal.

My question is what happens with Corporation Tax? Although I'm presuming I haven't earned anything through my company as it was all IR35, the payment to my limited company of my net earnings is confusing me. Does this mean I have a profit (even though it is deemed salary) and will be subject to Corp Tax?

I hope not as due to the wonders of IR35, I was hit for income tax and am due a refund on my self assessment return (also double checked this with HMRC). The confusing thing is that my payslip and salary (including VAT) was paid to me, but the invoice automatically generated by the agency says my limited company, so I don't know how this stands from company v individual earnings.

Any advice would be great.

[ladymuck]

What does your accountant say?

[northernladuk]

What does your accountant say?

This. There are some very fundamental misunderstandings in that and not seeing the detail we aren't going to be able to unpick it. Let your accountant do what you them for and get it sorted properly and quickly.

[northernladuk]

What is it about the Future of Contracting subsection that lead you to post it here by the way?

[Yorkie62]

Hi

Apologies if I'm completely in the wrong place.

I've received a Corporation Tax return request for my company year which is 1 October 2018 to 30 September 2018. During the whole of this time I worked inside IR35 for an agency who PAYE'd me and sent my net earnings to my Limited Company bank account, and I then withdrew the money as salary (deemed). The VAT was also paid to my business account as part of my payslip earnings.

Obviously, I had nil tax returns on my company, and I paid the VAT returns as normal.

My question is what happens with Corporation Tax? Although I'm presuming I haven't earned anything through my company as it was all IR35, the payment to my limited company of my net earnings is confusing me. Does this mean I have a profit (even though it is deemed salary) and will be subject to Corp Tax?

I hope not as due to the wonders of IR35, I was hit for income tax and am due a refund on my self assessment return (also double checked this with HMRC). The confusing thing is that my payslip and salary (including VAT) was paid to me, but the invoice automatically generated by the agency says my limited company, so I don't know how this stands from company v individual earnings.

Any advice would be great.

Ooops.
If you haven't already got one you need an accountant, and one that understands the contractor market.

[Alchemy Accountancy]

Hi

Apologies if I'm completely in the wrong place.

I've received a Corporation Tax return request for my company year which is 1 October 2018 to 30 September 2018. During the whole of this time I worked inside IR35 for an agency who PAYE'd me and sent my net earnings to my Limited Company bank account, and I then withdrew the money as salary (deemed). The VAT was also paid to my business account as part of my payslip earnings.

Obviously, I had nil tax returns on my company, and I paid the VAT returns as normal.

My question is what happens with Corporation Tax? Although I'm presuming I haven't earned anything through my company as it was all IR35, the payment to my limited company of my net earnings is confusing me. Does this mean I have a profit (even though it is deemed salary) and will be subject to Corp Tax?

I hope not as due to the wonders of IR35, I was hit for income tax and am due a refund on my self assessment return (also double checked this with HMRC). The confusing thing is that my payslip and salary (including VAT) was paid to me, but the invoice automatically generated by the agency says my limited company, so I don't know how this stands from company v individual earnings.

Any advice would be great.

Due IR35 being applied to your income, the company will have made no profit as all income will have been paid out as salary. In spite of this, you will still need to file accounts to HMRC and Companies House along with a Corporation Tax return - the good news is that there should not be a Corporation tax liability due to there being no profit.

The accounts will be quite straight forward, but I would still suggest getting an accountant to do them (if you haven't done so already).

Hope this helps
Craig

[Guvernator]

If you are inside IR35, why has the agency been paying into your Ltd Company Account? If you are inside IR35 and getting paid via PAYE this should be going straight into your personal account and not your company account. This is personal earned income with tax and NI deducted at source and should have nothing to do with your Ltd company.

You or your accountant will probably need to call HMRC and inform them of this mistake, HMRC won't know you've been paying PAYE into your company account and will just assume this is company earned funds and will be presenting you with a Corp Tax bill at the end of the year and try to tax you twice.

Also when you say you've "handled the VAT" have you paid VAT on these earnings? If so that is also incorrect, you don't charge or pay VAT on PAYE earnings.

It sounds like you've got yourself in a bit of a pickle by not understanding how the IR35 rules actually work. You should be able to sort it out but look forward to spending hours on the phone with HMRC to do it.

[MonkeysUncle]

If you are inside IR35, why has the agency been paying into your Ltd Company Account? If you are inside IR35 and getting paid via PAYE this should be going straight into your personal account and not your company account. .

This is possible....if your accountant can set it up correctly. I had this for a short while.
The agency took out employers NI etc and paid me the 'PAYE' amount into my LTD.
I use inniaccounts who have their own portal to manage your LTD (rather than freeagent). You set it up as a Public Sector IR35 contract. This way when the payment comes in it knows its not the full amount (as tax has been taken out) and puts this directly into your PAYE.

Its a bit more hassle but you dont end up paying brolly fee's so bit of saving.

For Ref (from Inniaccounts Website)
Receiving payments when inside IR35
With a contract with a public authority that is deemed inside IR35, the fee payer (either your agent or public authority if you contract direct) will calculate and deduct Income Tax and National Insurance from your invoice payments. These deductions are then reported and paid to HMRC on your behalf by the fee payer.

When setting up a public authority contract in inniAccounts that’s inside IR35, you’ll be able to identify it as such. This tells the software that you won’t receive full payment of invoices for that contract and that your company has no further PAYE Income Tax or National Insurance to pay. When you receive payment into your Business Bank Account and record invoices as paid in your Bookkeeping, a simple step will allow you to transfer the net payment of your invoice straight to your next payslip ready for payment.

[Guvernator]

This is possible....if your accountant can set it up correctly. I had this for a short while.
The agency took out employers NI etc and paid me the 'PAYE' amount into my LTD.
I use inniaccounts who have their own portal to manage your LTD (rather than freeagent). You set it up as a Public Sector IR35 contract. This way when the payment comes in it knows its not the full amount (as tax has been taken out) and puts this directly into your PAYE.

Its a bit more hassle but you dont end up paying brolly fee's so bit of saving.

For Ref (from Inniaccounts Website)
Receiving payments when inside IR35
With a contract with a public authority that is deemed inside IR35, the fee payer (either your agent or public authority if you contract direct) will calculate and deduct Income Tax and National Insurance from your invoice payments. These deductions are then reported and paid to HMRC on your behalf by the fee payer.

When setting up a public authority contract in inniAccounts that’s inside IR35, you’ll be able to identify it as such. This tells the software that you won’t receive full payment of invoices for that contract and that your company has no further PAYE Income Tax or National Insurance to pay. When you receive payment into your Business Bank Account and record invoices as paid in your Bookkeeping, a simple step will allow you to transfer the net payment of your invoice straight to your next payslip ready for payment.

I still don't understand the point of doing it this way, this is PAYE income, why not cut out all the admin and pay it straight into your personal bank account? If you put it through your Ltd Co you or more likely your accountant will still have to account for it at the end of the company tax year. You can just tell HMRC "ignore all this money going into my company account".

[pscont]

A bit of a cluster fook really.
As been said all money from IR35 PAYE should have been paid to your personal bank account, not LTD.
Now your accountant must notify HMRC/fix the mess.

If not, you are looking at double taxation in either of:

1. Money to LTD, no salary = 20% corp tax.
2. Money to LTD, all salary to your LTD's PAYE = EE NIC+ER NIC+personal tax.