Planning for penalties

[Ardesco]

No we didn't. That's the marginal rate that you pay on the slice above the Higher Rate.

You will pay a less on the lower rate, and nothing at all on the first 5.5K, the 5% deduction and all of your allowable expenses.

Saving more than 40% of total billing is silly. Edit - of course you don't put away 20% because the first 20% will be paid in CT, so you save up the 20% difference - silly me.

Go to ir35calc and try out some figures

tim

Yes you do pay less on lower rate but assuming a company income of £100,000 a year if you were IR35 caught those figures are correct. If you aren't at least bringing in £60,000~ you won't need to be VAT registered anyway so it's a fairly valid assumption.

That 60% will cover the following:

VAT
Employer's NI
Employee's NI
Tax (22% and 40%)
Savings for Interest/Fines if you are caught.

It is not an exact number, but a reasonable estimate.

[boxman]

Interesting comments from the panel. In my book it's a game.

Taking a small salary and large dividends is perfectly fine but you have to remember that HMRC's crusade against contractors is based on the assumption that contractors don't run proper businesses and could pay a lot more tax (if HMRC can prove they are inside IR35).

Think of it in terms of a burglar. There are five houses in a street. Four of them have burglar alarms and one doesn't. Which house is most likely to be burgled?

There aren't enough tax inspectors to investigate every person or business and just like the rest of us HMRC has tax take targets for its inspectors. So they are going to go for the quick win easy pickings.

Take a low salary and the rest in dividends is fine and will certainly increase your take home pay. No argument there. But my contention is that you decrease the risk of an investigation if you take a "sensible" salary and preferably make yourco actually operate like a business. Don't ask me what sensible means in this context but a benchmark might be from Qdos who won't offer IR35 insurance where your salary is below £15k p.a.

Agreed, taking salary is effectively paying IR35 it doesn't have to apply to anything like 95% of your turnover. There is a large area of middle ground out there!

[BrilloPad]

Regarding taking Divis..

Personally I take one out every 3 months, meanwhile I use 0% credit cards to take the hit in between. I presume a lot of other people operate this way too.

Are there any 0% credit cards left? I thought those offers had all dried up?

[Qdos Contractor]

Take a low salary and the rest in dividends is fine and will certainly increase your take home pay. No argument there. But my contention is that you decrease the risk of an investigation if you take a "sensible" salary and preferably make yourco actually operate like a business. Don't ask me what sensible means in this context but a benchmark might be from Qdos who won't offer IR35 insurance where your salary is below £15k p.a.

£15k is the optimum level. The minimum is actually £9.5k.