IR35 and tax liability on money kept in the company?

[mickael28]

Hello,

I was reading about IR35 and contractors' tax liability and I've understood that if you are ever investigated then you might need to pay taxes back from the salary and dividends that you've taken out of the company.

My doubt is, if you leave part of the money in the company, would you need to pay any tax on that amount?

Cheers!

[NotAllThere]

As I understand it, any corp tax paid will be offset against the IR35 tax due. There is, I seem to recall, one scenario where you do end up getting doubly taxed - i.e. corp tax and NI.

[northernladuk]

As I understand it, any corp tax paid will be offset against the IR35 tax due. There is, I seem to recall, one scenario where you do end up getting doubly taxed - i.e. corp tax and NI.

I think the user is asking a much more basic question than that. I read his last line as the question i.e. will he get taxed on money left in the company. I don't even think basic accounting courses would cover this question. Speak to you accountant for an overview of how it works IMO.

[Hex]

Hello,

I was reading about IR35 and contractors' tax liability and I've understood that if you are ever investigated then you might need to pay taxes back from the salary and dividends that you've taken out of the company.

My doubt is, if you leave part of the money in the company, would you need to pay any tax on that amount?

Cheers!

IR35 doesn't give you this option. If you are inside IR35 your company HAS to pay you most of the income (95%) as Salary and so it is then automatically subject to Income Tax and NI. You can only leave in the company coffers the 5% they let you put aside for admin expenses.

[ASB]

IR35 doesn't give you this option. If you are inside IR35 your company HAS to pay you most of the income (95%) as Salary and so it is then automatically subject to Income Tax and NI. You can only leave in the company coffers the 5% they let you put aside for admin expenses.

No it doesn't. It doesn't HAVE to pay a penny. What it does HAVE to do is make a deemed salary calculation and pay tax and NI on that.

[northernladuk]

Again I am not sure this is what the OP is asking.

My take is he is claiming outside IR35 but keeping the money in his account in case he gets investigated and pays up but in the meantime does the money he is saving in his account get taxed i.e. if he leaves 20k in the account for 3 years does that 20k get taxed every year.

If the OP could clarify it would help enormously.....

[mickael28]

Thank you. I was thinking along the lines of:

* A contractor is working outside the IR35, in theory. Let's say he gets £80k/per year
* He pays himself £10k as salary and £30k as dividends, keeping £40k (after CT) in the company.
* He pays PAYE/NI on the £10k salary.

If in the future he gets investigated and caught inside the IR35 rules, I understand (but I'm not sure) that then he should pay PAYE/NI on the £30k money he took as dividends, but what about the £40k that are still in the company? Can you still leave that amount there (like for a pension in the future) or does HMRC force you to take it out and pay PAYE/NI on that amount as well?

[psychocandy]

I think the OP is a bit confused but I've always wondered if, OK, you go 5 years paying yourself £7K salary and the rest in the dividends.

Then HMRC rule you as inside IR35 and want you to cough up all the NI, tax etc. Hell of a mess to sort out surely in terms of CT already paid, personal tax that should have been paid, employers NI, employees NI.

[northernladuk]

I think the OP is a bit confused but I've always wondered if, OK, you go 5 years paying yourself £7K salary and the rest in the dividends.

Then HMRC rule you as inside IR35 and want you to cough up all the NI, tax etc. Hell of a mess to sort out surely in terms of CT already paid, personal tax that should have been paid, employers NI, employees NI.

Shouldn't be too hard, they work out what you should have paid, take away what you have paid and hey presto, everything you own is required back as payment

[Coolshot]

I think the OP is a bit confused but I've always wondered if, OK, you go 5 years paying yourself £7K salary and the rest in the dividends.

Then HMRC rule you as inside IR35 and want you to cough up all the NI, tax etc. Hell of a mess to sort out surely in terms of CT already paid, personal tax that should have been paid, employers NI, employees NI.

If this happens can HMRC only go for money left in the company account or can they go after the directors personal assets?