@#%$ for IR35

[chrisev]

I agree the best method is to try and avoid the radar and thought it would be wise to have the cash in a separate account so the Ltd company could pay up if needed.

BUT, what if I take reasonable steps to be outside IR35 (contract review etc), I took all money out of the company as salary & dividends so the company didn't have the money to pay the IR when they decided it should have been inside IR35 ?

So the company goes bust, the IR doesn't get paid and I could start another ltd company couldn't I ? Providing the company has been properly run and I took steps to see that I was outside IR35 even if I was wrong.

There must be a simple answer to this method as I've never seen this mentioned anywhere.

What am I missing ?

[planetit]

"As I understand it" if a company has failed to pay the correct amount of PAYE tax, and doesn't have the money to make that good, the director can be held personally responsible and pursued for the money.

[IR35 Avoider]

I don't think they could hold you responsible in your capacity as a director, unless they were able to prove that your judgement about not being IR35 caught was so bad as to be negligent.

They don't need to go down that route though. Under IR35 the "deemed payment" is treated as your salary. You are personally liable for the tax and employees NI you owe on your salary, it's just for the administrative convenience of Hector that it is usually deducted and handed over by your employer. If your employer (your company) doesn't hand it over, then you have to.

I think there are some circumstances where the tax bill cannot be passed from employer to employee, but I don't think they help in this case. I think the limitations are that the bill can only be passed to you if (a) you and your employer knew the correct tax had not been deducted or (b) your employer made an honest mistake in deducting to little tax. I'm not sure about this though.

If your company has gone bust and you weren't negligent, I suppose you could escape paying the employers NI. On the other hand, you will be worse off overall because your company will not have used the deemed payment to reduce its corporation tax bill.