Advice on IR35 deemed salary payment

[firework]

My husband is an IT contractor. His contract and working practices fall inside IR35.

Currently, I am paid £15k per annum as Company Secretary and Accountant. My husband is paid the remainder of the company’s income, which is approx £90k gross. All of our earnings are subject to PAYE and NICs. We do not draw a dividend from the company, which made no profit at the year-end as all its income was paid out as salary or expenses.

Deductions made before payment of salary are: pension contributions, childcare vouchers, travel expenses and other business expenses that he incurs.

My question is: does my husband have to submit a deemed payment calculation to the Inland Revenue? Or is this only required if we have drawn some or all of our income as dividends over the year?

Submitting a deemed payment calculation would, I believe, require us to pay more PAYE and NICs than we are currently doing because:
a) my salary would not be deductible in the deemed payment calculation, and would effectively mean we were taxed twice on this amount (me at source, and my husband in the taxation of the deemed payment)
b) childcare vouchers would not be allowable expenses in the calculation (I think!)

Thanks in advance for any help anyone is able to provide.

[WotNxt]

I am not a lawyer, accountant, etc.

It seems to me that IR35 was never designed to penalise those working in the way you and your husband - since no dividends are being taken there is no avoidance of tax or NI (tax) via that route.

I think you really need to get some proper professional advice on this, though, as if you want to "do it right" and avoid drawing attention from the taxman.

Any PCG affiliated accountant should know their onions on this:

http://www.pcg.org.uk/cms/index.php?...chqa&task=list

[NotAllThere]

...It seems to me that IR35 was never designed to penalise those working in the way you and your husband

It may not have been designed that way, but that's the way it works. Firework and her hubby would be better of if she worked for free. ( Or only took salary within the 5% allowance ).

[Lewis]

I am paid £15k per annum as Company Secretary and Accountant

I have been advised by both my accountants and insurers that even a salary of £5K is probably too high for this kind of role. You need to think about the number of hours worked (which is realistically going to only be a few hours a week) and use a reasonable hourly rate. £15K for, say 3hrs p/w, is £96 per hour. This would probably be considered excessive by HMRC.

[ASB]

Firework,

Consider the following questions:-

- Is hubby really caught?

- If he is are the arrangements caught by the legislation anyway ?

Even though all your income is Schedule E if you either hold or control shares in the company then it seems that you are caught because those shares give you the potential right to income - the fact that it doesn't actually happen is irrelevant.

If you are convinced hubby is caught you are doing yourself no favours. It would be most cost effective for you to work for free and just pay 95% of it to hubby as a salary.

[firework]

Firework,

Consider the following questions:-

- Is hubby really caught?

- If he is are the arrangements caught by the legislation anyway ?

Even though all your income is Schedule E if you either hold or control shares in the company then it seems that you are caught because those shares give you the potential right to income - the fact that it doesn't actually happen is irrelevant.

Thanks for all your replies. With regard to your reply, ASB, I don't quite understand the point about "being caught because those shares give you the potential right to income". Surely the whole point of the IR35 legislation is the nature of the contracting work that is being undertaken, rather than the share arrangements in the limited company?

I can't see how my husband's work could possibly be outside IR35 - he has worked on this particular contract for almost two years, he does not hire his own staff (nor is he allowed to), he works set hours, he usually works in the office, he is told what to do... etc etc.

I haven't followed these bulletin boards for very long, but from what I have read it seems that often people hope to be outside IR35 but then fear investigation by the Revenue. I don't really want to run that risk, and have to set aside tax savings "just in case" we are caught.

[ASB]

I don't quite understand the point about "being caught because those shares give you the potential right to income". Surely the whole point of the IR35 legislation is the nature of the contracting work that is being undertaken, rather than the share arrangements in the limited company?"

The point of the legislation is so that income which the government believe should be taxed as an individuals salary is. This, rightly or wrongly, equates to the fees an individual generates. The legislation contains the words "has rights entitling him, or which in any circumstances entitle him, to receive from the intermediary, directly or indirectly, any such payment or other benefit".

His holding shares satisfies this condition. If you held all the shares it would probably still be satisfied because there is an argument that he could indirectly benefit. The fact that the company doesn't make such payments is irrelevant, it is the fact that it could.

[SueEllen]

I can't see how my husband's work could possibly be outside IR35 - he has worked on this particular contract for almost two years, he does not hire his own staff (nor is he allowed to), he works set hours, he usually works in the office, he is told what to do... etc etc.

Actually it could it depends how the contract is worded and what you mean by phrases such as "he works set hours" and is "told what to do"

For example if you are providing a support service for a company as part of your service you need to be around when the customer is available to provide that service. There is no point of being starting work at 7am when the customer starts work at 9am, or ending at 3pm when your services are needed until 6pm. Larger companies that provide support for other companies also have to agree these service levels in their contracts.

The way lots of companies work means that the only way to ensure you have full access to the network to be able to do your work is to be onsite. Yesterday I was one of my client's sites but actually couldn't access the full network like I'm able to at home or on another client site.

In most places I've worked, contract and permanent, I've been asked if I would do something but it's up to me how I do it with the tools available to me, and have been told when the customer expects it. I could refuse to do it and actually have but I've needed a good reason for my refusal.

IR35 friendly contracts give you a right of subsitution but the end client nearly always has a right to refuse the subsitute.

Some contractors work on contracts for years just like companies like BT provide support for some companies for years it doesn't mean you fall under IR35.

[NotAllThere]

I can't see how my husband's work could possibly be outside IR35 - he has worked on this particular contract for almost two years, he does not hire his own staff (nor is he allowed to), he works set hours, he usually works in the office, he is told what to do... etc etc.

I haven't followed these bulletin boards for very long, but from what I have read it seems that often people hope to be outside IR35 but then fear investigation by the Revenue. I don't really want to run that risk, and have to set aside tax savings "just in case" we are caught.

The vast majority of contracting work can be covered by non-IR35 contracts. The length of the contract is immaterial. Working at client site is not really an issue. Set hours isn't a problem - you have to be in when the client is in, or the doors are locked! Even doing what you're told isn't necessarily and issue - you tell your plumber "fix this leak", but he isn't your employee. Not being able to substitute someone else isn't always an issue either. I'm not saying that your husband's contract is outside IR35 - it probably isn't, given what you've said - but with negotiation, you can usually get the contract modified sufficiently to significantly reduce the risk. Furthermore, you can protect yourself against the rest of the risk by taking out appropriate insurance, which will cost you less than the additional IR35 tax.

By and large, IR35 is a voluntary tax.

[firework]

Thanks once more for your additional replies - all the information is very useful and interesting.

Thanks for your clarification of your point regarding shares, ASB - I understand it now, and agree that it would appear we are caught as long as the contract is indeed IR35.

I disagree that IR35 is a voluntary tax, as presumably the actual working practices that are followed, as well as the contract wording, will mean that the contract falls either inside or outside IR35. If the working practices are such that the contract cannot be worded to fall outside IR35 (perhaps because the client will not agree to certain contract wording, hypothetically...), then surely it is not voluntary. I agree though that it does seem there are ways of rewording the contract and looking carefully at the working practices to make the actual work outside IR35 even though it was previously assumed to be inside.

I have heard of IR35 insurance. I thought it was to cover the legal costs of a potential investigation, rather than actually covering unpaid tax. Am I wrong?