Deemed Payments and Dividends

[PhoneDev]

Hello,

I was hoping someone could help. I'm inside IR35 and a bit confused about deemed payments.

My understanding is that the deemed payment forces me to pay Employers NIC on 95% of my invoiced sales. Give or take some allowable expenses.

This is making me think that I could actually pay myself through a loan across the year and then at the end of the year write the loan off with one big dividend payment. I would then face a big Employers NIC bill but I wouldn't have to pay any Employees NIC. Is this correct or am I missing something?

Any help would be really appreciated.

Thanks

[malvolio]

Hello,

I was hoping someone could help. I'm inside IR35 and a bit confused about deemed payments.

My understanding is that the deemed payment forces me to pay Employers NIC on 95% of my invoiced sales. Give or take some allowable expenses.

This is making me think that I could actually pay myself through a loan across the year and then at the end of the year write the loan off with one big dividend payment. I would then face a big Employers NIC bill but I wouldn't have to pay any Employees NIC. Is this correct or am I missing something?

Any help would be really appreciated.

Thanks

No. Not even close.

The Ramsay principle would apply (that says that if an arranegemnt is clearly artifical, it will be ignored) and all you'd acheive would be to pay PAYE/NICs on all your income instead of 95% of it. Plus how do you propose generating a dividend that is equal to your gross income when dividends can only be paid out of net profits?

But if that's your level of understanding of accounting, I suggest you either talk to an accountant or do a bit more reading. For example, why do you believe you are caught by it in the first place?

[Clare@InTouch]

Hello,

I was hoping someone could help. I'm inside IR35 and a bit confused about deemed payments.

My understanding is that the deemed payment forces me to pay Employers NIC on 95% of my invoiced sales. Give or take some allowable expenses.

This is making me think that I could actually pay myself through a loan across the year and then at the end of the year write the loan off with one big dividend payment. I would then face a big Employers NIC bill but I wouldn't have to pay any Employees NIC. Is this correct or am I missing something?

Any help would be really appreciated.

Thanks

You're missing something I'm afraid. IR35 forces you to pay 95% of your money received as wages (being wages plus Er NI), with deductions for allowable travel and pension (plus a few allowable expenses). You can't loan yourself anything to get around the rules.

The 95% wage means there will be very little left to pay as a dividend.

[simondolan]

Also worth asking the question why you consider yourself inside IR35? Doesn't sound like you have an accountant acting for you so maybe you aren't?

Hello,

I was hoping someone could help. I'm inside IR35 and a bit confused about deemed payments.

My understanding is that the deemed payment forces me to pay Employers NIC on 95% of my invoiced sales. Give or take some allowable expenses.

This is making me think that I could actually pay myself through a loan across the year and then at the end of the year write the loan off with one big dividend payment. I would then face a big Employers NIC bill but I wouldn't have to pay any Employees NIC. Is this correct or am I missing something?

Any help would be really appreciated.

Thanks

[PhoneDev]

Thanks

Thanks for the answers (and insults about my accounting knowledge). I suspected it wouldn't work (otherwise why wouldn't everyone be doing it).

I've been IR35 for a long time and even though I don't think I would get caught if starting now I think it would look a bit off if I suddenly changed on the same contract. For avoidance of doubt I definitely am. Use all their equipment, do whatever they tell me to do day to day, can't send a substitute etc.

btw. I wasn't thinking the loan would help me get round anything I only mentioned it as a way to get cash out until I had done the deemed payment calc.

The bit that got me thinking it might work was this bit from the HMRC website, combined with the HMRC IR35 calculator only coming out with an Employers NIC payment at the end of it, I still don't think it was that stupid a thought:

Q. What happens if my company does not pay me any salary?

A. If your company is treated as making an IR35 deemed payment to you, but actually uses the money to pay dividends to you (or others), then the rules ensure that those dividends can be paid without further tax becoming due. The dividends can be paid during the same tax year as the IR35 deemed payment or in a subsequent year.

Your company should write and tell us about any dividends it has paid which it wants to be exempted under this rule. We will need the following information.

The name and tax reference of the company making the claim.
The name(s) and tax reference(s) of the person(s) who received the dividend(s).
The amount of the dividend paid to each person and the total amount paid.
The date (or dates) the dividend was paid.
The amount of the IR35 deemed payment and the date on which it was treated as paid.
The person who has received the dividend does not have to do anything to claim any relief.

[LisaContractorUmbrella]

Hello,

I was hoping someone could help. I'm inside IR35 and a bit confused about deemed payments.

My understanding is that the deemed payment forces me to pay Employers NIC on 95% of my invoiced sales. Give or take some allowable expenses.

This is making me think that I could actually pay myself through a loan across the year and then at the end of the year write the loan off with one big dividend payment. I would then face a big Employers NIC bill but I wouldn't have to pay any Employees NIC. Is this correct or am I missing something?

Any help would be really appreciated.

Thanks

Best advice I can give you after this post is to get yourself a good accountant

[PhoneDev]

Thanks

--- Sorry if this comes up twice. Not sure if the first attempt just went missing or is awaiting moderation ---

Thanks for the answers (and insults about my accounting knowledge). I suspected it wouldn't work (otherwise why wouldn't everyone be doing it).

I've been IR35 for a long time and even though I don't think I would get caught if starting now I think it would look a bit off if I suddenly changed on the same contract. For avoidance of doubt I definitely am. Use all their equipment, do whatever they tell me to do day to day, can't send a substitute etc.

btw. I wasn't thinking the loan would help me get round anything I only mentioned it as a way to get cash out until I had done the deemed payment calc.

The bit that got me thinking it might work was this bit from the HMRC website, combined with the HMRC IR35 calculator only coming out with an Employers NIC payment at the end of it, I still don't think it was that stupid a thought:

Q. What happens if my company does not pay me any salary?

A. If your company is treated as making an IR35 deemed payment to you, but actually uses the money to pay dividends to you (or others), then the rules ensure that those dividends can be paid without further tax becoming due. The dividends can be paid during the same tax year as the IR35 deemed payment or in a subsequent year.

Your company should write and tell us about any dividends it has paid which it wants to be exempted under this rule. We will need the following information.

The name and tax reference of the company making the claim.
The name(s) and tax reference(s) of the person(s) who received the dividend(s).
The amount of the dividend paid to each person and the total amount paid.
The date (or dates) the dividend was paid.
The amount of the IR35 deemed payment and the date on which it was treated as paid.
The person who has received the dividend does not have to do anything to claim any relief.

[malvolio]

--- Sorry if this comes up twice. Not sure if the first attempt just went missing or is awaiting moderation ---

Thanks for the answers (and insults about my accounting knowledge). I suspected it wouldn't work (otherwise why wouldn't everyone be doing it).

I've been IR35 for a long time and even though I don't think I would get caught if starting now I think it would look a bit off if I suddenly changed on the same contract. For avoidance of doubt I definitely am. Use all their equipment, do whatever they tell me to do day to day, can't send a substitute etc.

btw. I wasn't thinking the loan would help me get round anything I only mentioned it as a way to get cash out until I had done the deemed payment calc.

The bit that got me thinking it might work was this bit from the HMRC website, combined with the HMRC IR35 calculator only coming out with an Employers NIC payment at the end of it, I still don't think it was that stupid a thought:

Yubbut...

It doesn't say that anything other than the IR35 tax is due. How the money gets from YourCo to You doesn't matter, if you're caught, you pay full PAYE/NICs on 95% of your gross. So there's no point messing around, to be honest.

Of course if you had an accountant you would also have a payroll set up so you get a consistent income stream with all taxes paid. But hey, that would make life far too simple...

[Clare@InTouch]

You can take a higher salary through the year if it's a cashflow issue, there's no need to wait to calculate a large deemed payment at year end. Ask your accountant to review your sales each month and calculate your wages accordingly, it's not difficult. A reconciliation and full deemed calc is then done at year end.

The HMRC section you show above is somewhat misleading as it's about accounting treatment. If you're due salary under IR35 but don't pay it, it gets allocated to a directors loan account - the company then owes you that money. If you pay a 'dividend' to yourself it can instead be a repayment of that loan, therefore not taxable as a dividend (because it's not a dividend, it's a loan repayment).