IR35 and tax liability on money kept in the company?

[Bumfluff]

Ooo. I understand the question fully now.

Unfortunately, it would be the £80K turnover less 5%, less travel, less pension, less insurance = X

The sum of the above (X) would be the amount that will be declared to HMRC and treated as a salary. Dividends would be ignored unless there was a small profit left over after the above (usually quite small).

So in answer to your question, the amount left in the account would be taxed, because the IR35 calculation (that I stated above) would have a very high tax liability with NIC too.

If money was left in the account, it would be quite small, and the event it was large and tax was up to date. It is probably your salary that you are owed.

Is it correct that you couldnt use a CTD to try and reduce the interest charges during the time you were investigated and were found to fail IR35, reason being that CTD's cannot be used for PAYE ?

[Nathan SJD Accountancy]

Is it correct that you couldnt use a CTD to try and reduce the interest charges during the time you were investigated and were found to fail IR35, reason being that CTD's cannot be used for PAYE ?

Yes you are correct. It cannot be used for PAYE. Only other taxes for individuals such as Capital Gains Tax, Inheritance tax etc.

[mickael28]

I see, so I think my understanding was not correct, thank you.

Before the question I was thinking that you 'only' had to pay taxes that you owned due to salary and dividends that you had taken out; ie, if you still have some money in the company then technically you had not taken that money out, so I was thinking that amount was not involved in any calculation.

So now, I'm understanding that if they decide that you're inside IR35, then you have to take whatever is left in the company (or ~95% of the total turnover, let's say almost all the £40k that are still left in this case) and then you'll have to pay PAYE/NI on that amount as well. Let's hope that doesn't happen then.

PS: thanks for the links, I'll have a read later on...

[NotAllThere]

If a contract is in IR35, then employers and employees NIC and PAYE must be paid on 95% of the value of the contract. It is ONLY the money on the IR35 contract that must be so treated.

The tax is a personal tax, so the debt is on the individual not the company.

[centurian]

The tax is a personal tax, so the debt is on the individual not the company.

Are you sure about that - I was pretty convinced that deemed payment liability (which occurs when you pay yourself dividends when working as a disguised employee) is a company liability.

IR35 doesn't force you to pay yourself via PAYE - it just levies a charge on the company that is equivalent to the same amount as if you had paid yourself PAYE.

However HMRC can transfer company debt to an individual if the company is unable to pay and the director has been naughty (like paying yourself a dividend the day after a tribunal decision).

[Wanderer]

Just to add some reading material to this you could read up on the JLJvHMRC case where John Spencer got charged a £141K personal liability after 7 years of his work was initially judged to be inside IR35. Court summary here
JLJ Services Ltd v Revenue & Customs [2011] UKFTT 766 (TC) (28 November 2011)

It was an interesting case but I wonder how you come to the conclusion bolded above. Read your link, there are a couple of interesting points.

The first is that the judgement states that "tax already paid by the Appellant in Corporation Tax would be refundable". I read this to mean that any CT paid would be offset against the liability for PAYE/NI if found to be IR35 caught which is reassuring.

The second is that "the net liability, for which the Appellant alone would have been
directly liable was roughly £141,000". Take note that the Appellant in this case is JLJ Services Limited (not Mr Spencer personally) and the judgement goes on to note that the retained funds in the company were in the order of £2,000.

Make of that what you will......

[northernladuk]

It was an interesting case but I wonder how you come to the conclusion bolded above. Read your link, there are a couple of interesting points.

The first is that the judgement states that "tax already paid by the Appellant in Corporation Tax would be refundable". I read this to mean that any CT paid would be offset against the liability for PAYE/NI if found to be IR35 caught which is reassuring.

The second is that "the net liability, for which the Appellant alone would have been
directly liable was roughly £141,000". Take note that the Appellant in this case is JLJ Services Limited (not Mr Spencer personally) and the judgement goes on to note that the retained funds in the company were in the order of £2,000.

Make of that what you will......

I thought that was the case but in my quick scan I couldn't find it so a quick and dirty (and incorrect) summary was all I could muster.

[Wanderer]

I thought that was the case but in my quick scan I couldn't find it so a quick and dirty (and incorrect) summary was all I could muster.

Are you sure you don't work for HMRC?

[centurian]

and the judgement goes on to note that the retained funds in the company were in the order of £2,000.

Make of that what you will......

Yeah, I read that as being that the tribunal believed that HMRC wouldn't get their hands on the cash anyway, but they felt it was important to try and render a judgement anyway.

However that doesn't mean that HMRC will get the message - they could still try and pursue Spencer personally

[Coolshot]

Yeah, I read that as being that the tribunal believed that HMRC wouldn't get their hands on the cash anyway, but they felt it was important to try and render a judgement anyway.

However that doesn't mean that HMRC will get the message - they could still try and pursue Spencer personally

Ok. Are there any examples of cases where HMRC won an IR35 case but there were insufficent company funds to cover the deemed payment & then HMRC subsequently took the director on personally?