Going PAYE only

[Mikeeelawson]

I have done all of the calculations, and I have decided that it is not worth the risk and will be going PAYE only with a very small dividend only at the end of the year. Been running as a Ltd, VAT registered company for 5 years now.

Does this therefore:

a). make me exempt from IR35 investigation?
b). at less risk of an IR35 investigation and less penalty if caught?
c). exactly the same risk and potential penalty if caught?

Looked through all of the posts but nothing seems to answer this specific question.

Mike

[BrilloPad]

I vote b

The greater your salary the less chance of investigation. And of course if you are caught the less you will pay.

[Gonzo]

I have done all of the calculations, and I have decided that it is not worth the risk and will be going PAYE only with a very small dividend only at the end of the year. Been running as a Ltd, VAT registered company for 5 years now.

Does this therefore:

a). make me exempt from IR35 investigation?
b). at less risk of an IR35 investigation and less penalty if caught?
c). exactly the same risk and potential penalty if caught?

Looked through all of the posts but nothing seems to answer this specific question.

Mike

Are you saying that you were wrong not to be paid PAYE only for the past five years and have therefore under-declared your tax?

Or are you saying that you were right not to be paid PAYE only and you just want to pay more tax for the sake of it?

That is the question you will have to give an answer to if an inspection does ever look into your affairs. At least you have the luxury of being able to ask first on an anonymous internet forum so that you don't have to alert HMRC to your real name.

I don't think anyone really knows what makes an IR35 investigation more or less likely, although I understand that sloppyness submitting paperwork in general will result in HMRC wanting to take a closer look.

[Mikeeelawson]

What I am saying

What I am saying is I do not want to take any further risk. I take your point re HMRC viewing previous risk.

Interestingly when you take into consideration Self Assesment, my calculations show that going dividend is not that beneficial, so why take the risk.

Mike

[Platypus]

Back of the envelope suggests that going the PAYE route costs (approx) 10% employers NI, 10% employees NI and 20% income tax = 40%.

Whereas low salary and divs costs 20% corporation tax.

Both assuming no high-rate tax to pay.

So the difference is quite a bit.

[mailric]

why dont you stick to the same route you have for the last five years but take less dividend, equal to what you woul dhave paid yourself NET down a PAYE route, thus leaving more in the business to do with what you like at a later date... given you pay more corp tax but overall you'd be better off I would think.

I agree with the point about suddenly changing your structure after 5 years, how on earth would you explain that?

[expat]

why dont you stick to the same route you have for the last five years but take less dividend, equal to what you woul dhave paid yourself NET down a PAYE route, thus leaving more in the business to do with what you like at a later date... given you pay more corp tax but overall you'd be better off I would think.

If IR35 is the question, that certainly is not the answer. If you are IR35-caught, then you pay tax and NICs on all income received by the Ltd Co (- expenses - 5%, roughly), even if you keep it in the company. Then if you take it out as salary in a later tax year, you pay tax and NICs on it again.

[BolshieBastard]

I have done all of the calculations, and I have decided that it is not worth the risk and will be going PAYE only with a very small dividend only at the end of the year. Been running as a Ltd, VAT registered company for 5 years now.

Does this therefore:

a). make me exempt from IR35 investigation?
b). at less risk of an IR35 investigation and less penalty if caught?
c). exactly the same risk and potential penalty if caught?

Looked through all of the posts but nothing seems to answer this specific question.

Mike

This is exactly what hmrc want, to scare you into paying IR35 taxes.

[centurian]

If IR35 is the question, that certainly is not the answer. If you are IR35-caught, then you pay tax and NICs on all income received by the Ltd Co (- expenses - 5%, roughly), even if you keep it in the company. Then if you take it out as salary in a later tax year, you pay tax and NICs on it again.

Yes, your situation isn't clear. If you were closing down your company and restarting another one paying full (or 95%) PAYE then you would be IR35 safe onwards for the new company. You can still be investigated, but that investigation would be a very quick one and you would get a pat on the back for being a good little taxpayer.

What seems unclear is that you now want to pay yourself PAYE from now on with your existing setup. If you are now looking to pay yourself PAYE on amounts that have already been subjected to corporation tax, you could be paying up to 60% tax in total (at higher rate) - much more than if you had done PAYE in the first place.

If the existing/old company is investigated, it all depends what they look at. Remember they can look at any period going back 6 years, so the fact you are currently paying up might not help you much.

You might get some credit from the inspector for "seeing the error of your ways", but equally they may see you as an easy target and slap interest and penalties on you for the previous x years. At 5 years, this basically means treble the amount that would have been originally owed.

[tim123]

Back of the envelope suggests that going the PAYE route costs (approx) 10% employers NI, 10% employees NI and 20% income tax = 40%.

Whereas low salary and divs costs 20% corporation tax.

Both assuming no high-rate tax to pay.

So the difference is quite a bit.

If you assume no HR tax, then the tax is 22%

HTH

tim