Self-employed can set mortgage costs against tax, says HMRC

[expat]

I was not intending to say it is an IR35 get out. In terms of any retained income then Expat Ltd is almost certainly a relevant intermediary, and this could then become a deemed payment to Mr Expat.

Neither was I. But if there is any advantage to being self-employed, then being self-employed contracting to Expat Ltd would get around the usualk problem of ClientCo refusing to take on an SE. Theye wouldn't even know.

[THEPUMA]

OK then, to clarify.

It is possible for someone to have a self-employed relationship with a company they control. In these circumstances, HMRC could have 2 grounds on which to challenge.

Firstly, it may be the case that the individual in question should have been employed by their own company. Indeed, we had a case of exactly these circumstances. Against our advice, the client treated himself as self-employed. HMRC challenged and eventually conceded.

Secondly, the individual may be deemed to be an employee of the end client company via the IR35 legislation. The fact that the individual is self-employed rather than employed by his company is irrelevant here.

Going back to the context of the original point, it is unlikely that someone would choose to be self-employed rather than employed by their own company, unless they were able to use the more generous expenses regime available to self-employeds to bring their self-employed profits down below the NI thresholds.

Otherwise, they will be paying a big chunk of class 4 NI at 8% which would probably outweigh the tax saving.

PUMA

[ASB]

OK then, to clarify.

It is possible for someone to have a self-employed relationship with a company they control. In these circumstances, HMRC could have 2 grounds on which to challenge.

Firstly, it may be the case that the individual in question should have been employed by their own company. Indeed, we had a case of exactly these circumstances. Against our advice, the client treated himself as self-employed. HMRC challenged and eventually conceded.

Secondly, the individual may be deemed to be an employee of the end client company via the IR35 legislation. The fact that the individual is self-employed rather than employed by his company is irrelevant here.

Going back to the context of the original point, it is unlikely that someone would choose to be self-employed rather than employed by their own company, unless they were able to use the more generous expenses regime available to self-employeds to bring their self-employed profits down below the NI thresholds.

Otherwise, they will be paying a big chunk of class 4 NI at 8% which would probably outweigh the tax saving.

PUMA

Hi PUMA,

Ok, so hypothetical:-

Mr ASB is s/e with ASB Ltd and I bill them 10k
ASB ltd bills client co 50k and the 40k happens to be retained (but I hold all the shares etc so it is a potential intermediary).

Along comes HMIT and they decide that IR35 applies. They haven't done a status enquiry (and even if they did let's assume I'd pass because of the actual arrangements between me and ASB Ltd).

Now, the time comes to work out the deemed payment.

Is it based on 95% of 50k less the PAYE and NI personally paid by ASB (which would seem possibly extraordinarily unfair given I am genuinely self employed in terms of the 10k)

Is it based on 95% of 40k (which would seem reasonable given that is the potential non paye income I personally could receive as a result of my shareholding)

Or is it something else entirely. ?

[THEPUMA]

I think in all likelihood it would be 95% of £50K. The only deductions that can be made from the £50K other than the 5% are those that could have been claimed by an employee providing the services (typically travel, pension, PII).

I don't know of any employees who have successfully claimed the expense of paying a self-employed subcontractor to do their work for them. The expense would have to be wholly (probably OK), exclusivley (probably OK) and necessarily (no chance) incurred in the course of your duties.