IR35 and corporation tax

[expat]

expat

You are not reclassifying last years profits as salary really.

What you could do is restate the accounts to reduce the profits by the costs of the gross deemed payment and employers ni. the practical applicationof this would depend on the year end date(s) affected.

<snip much explanation and detailed example>

Phil

Thanks for the careful explanation. I just couldn't see how it would work, but "restating the accounts" would do it, if that is allowed.

Mind you, I think there's a job for you in Orwell's Ministry of Truth if you can say with a straight face that to "restate the accounts" is "not reclassifying last years profits as salary really"

But thanks again.

[PhilAtBFCA]

Mind you, I think there's a job for you in Orwell's Ministry of Truth if you can say with a straight face that to "restate the accounts" is "not reclassifying last years profits as salary really"

Yes I can see what you mean !

Phil

[rocsen]

Yes I can see what you mean !

Phil

Thanks for all the info. Certainly is a lot to take in.

I sent a reply yesterday morning but it still hasn't gone through. There appears to be a massive delay, so appologies for any duplicate posts.

The contract here is worth roughly £37000 / year. Accounting is not my strong point, but according to a few calculations on i35calc, being caught by IR35 would mean the person would be just slightly worse off than if they were to be on a PAYE umbrella scheme. Is this possible?

[PhilAtBFCA]

rocsen

Hi, I cannot see how you could be worse off under a Ltd Co Inside IR35 unless you dont compare like for like.

using this spreadsheet without expenses and assuming your vat registered the Ltd co is better by £1800 a year net, about 5%.

Its not just about the money though !! A Limited Co is OK for people who really want to run their own business, if you dont I would think very carefully before doing it.

Phil

[rocsen]

rocsen

Hi, I cannot see how you could be worse off under a Ltd Co Inside IR35 unless you dont compare like for like.

using this spreadsheet without expenses and assuming your vat registered the Ltd co is better by £1800 a year net, about 5%.

Its not just about the money though !! A Limited Co is OK for people who really want to run their own business, if you dont I would think very carefully before doing it.

Phil

The company has been running for a few years already. There's a chance that HMRC might not be entirely convinced that the current contract is outside IR35. So there are two options: Stay on the LTD co and face a possible bill if getting caught. Or switch to umbrella PAYE.

Can we safely say, even if the person got caught, he'd still be better off on the LTD co? According to your spreadsheet, inside IR35 is about 1% better off than Umbrella. But then we need to include penalties/interest fees as well.

Thanks again

[centurian]

Mind you, I think there's a job for you in Orwell's Ministry of Truth if you can say with a straight face that to "restate the accounts" is "not reclassifying last years profits as salary really"

Well of course it amounts to that - I don't think that's in doubt. The deemed payment is just a vehicle to effectively reclassify profits without actually doing so.

Either way it amounts to roughly the same amount (penalities/interest not withstanding), so I wouldn't get too hung on the exact terminology.

Of course the alternative is to pay the tax twice if you'd prefer

[rocsen]

rocsen

Hi, I cannot see how you could be worse off under a Ltd Co Inside IR35 unless you dont compare like for like.

using this spreadsheet without expenses and assuming your vat registered the Ltd co is better by £1800 a year net, about 5%.

Its not just about the money though !! A Limited Co is OK for people who really want to run their own business, if you dont I would think very carefully before doing it.

Phil

That spreadsheet is brilliant by the way!

Thanks for all your input everyone

[PhilAtBFCA]

The company has been running for a few years already. There's a chance that HMRC might not be entirely convinced that the current contract is outside IR35. So there are two options: Stay on the LTD co and face a possible bill if getting caught. Or switch to umbrella PAYE.

rocsen

Glad you like the spreadsheet :-)

Its not HMRc that have to be convinced at this point, its you. You may be convinced and taken reasonable care to form that opinion, they may agree or diasagree at some point, and thats when its important you have taken reasonable care and got all your proof.

But I dont think you have identified the best right options for you.....

Even if you went Umbrella and closed the company the issue will not go away, although it maybe reduced by the fact that the company is closed. Your personal liability as a director potentially doesnt ever go away even if the company is closed. See here

If you were considering closing company and going umbrella, what would be the difference in closing company and starting a new company ? Nothing really ! You still have the same risks.

To me your options are based on your position in regard to IR35 as follows:-

If you are not convinced you are outside IR35, prepare accounts inside ir35 and paying the tax is the best way forward, and has little risk attached.

If you are convinced, then keep your proof and account for outside ir35.

If you dont know if you are convinced or not, then best get some help or research the position thouroughly, a guide can be found here

Phil