Normal company + contracting

[VectraMan]

Hyperthectical one here...

Say I wanted to get a "normal" company going, but to get it started I'd do some contracting using the same company, and use all that money to cover the initial costs of the business and not pay myself anything, at least to start with. Assuming the contract completely fails to stand up to IR35, will I still be personally liable for the tax as if I'd paid myself all of it, or will the fact that I've personally not received any and the business hasn't made any profit mean there's no tax to pay?

Hope that makes sense. It sounds like the latter ought to be true, but IR35 might mean the money is technically still earnt by me even though I haven't got any of it, so there's still tax to pay. Clearly if I can invest the money my company receives via contracting before tax, rather than my own personal money after tax, then the company is substantially better off.

Thanks.

[Mordac]

If it's only hypothetical, why ask?
Since you did, IR35 is all about deemed payments, e.g. the whole income of the contract (less 5% and allowed expenses) is deemed to be your salary, so the tax payable is the full income tax and NI (both employers and employees) on that amount.
You need to speak to a proper contractor accountant (remember, any advice on here is worth what you paid for it), but if you are IR35 caught all the usual dodges are off limits.

[malvolio]

Agreed. If IR35 applies, there is not the option to spend the money on anything else other than salary. Well, actually you can, but you will still have to pay your personal tax on 95% of the gross earnings. So you get a tax bill with no income to pay it with. Not smart...

[fagin] I think I better think it out again...[/fagin]

[VectraMan]

Couldn't decide if it was hypo or hyper.

Okay it's not entirely hypothetical, more of a long term possible plan that might have worked out sooner and better this way than me using my own money further down the line. Obviously I'd talk to an accountant before making definite plans, and getting around IR35 is a different issue.

Thanks for the replies.