being charged because I don't want to be 'tax efficient'

[metageek]

so why would they recommend such a low salary?

In that case, surely most of my accountant's clients are laying themselves wide open to an investigation by folloiwng the accountant's recommendation

Paying yourself a 'reasonable salary' wont make you immune to an IR35 investigation. I'd say the only way you'd 'remove yourself' is by paying your whole contract rate as PAYE not, £10k, £12k, £15k or whatever.

IR35 is effectively designed to make you pay full tax on your whole rate not pay a little more tax because you are effectively declaring say, £15,000 out of a turnover of £80,000 - £90,000.

[Martin at NixonWilliams]

If the OP is paying a reasonable salary (say £40k as a thought) then if they are IR35 caught, then there is less for HMRC to go after.

Whatever the salary, and the thinking behind it, if the OP wants to do that, then they need to either pay the accountants the charges they are asking or move to another accountant.

I agree. If he was paying a salary of £40k and the deemed salary worked out to be, say, £45k, it wouldn't make sense to challenge it in my opinion as it would probably cost them more in the time spent investigating it than the maximum tax they could recover!

Having said that, there have been employment cases challenged by HMRC in the past with incredibly weak arguments. I read that in one case the judge gave HMRC the chance to consider whether they wished to continue before their case had even been heard, due to their claim being so weak. I'm not sure what their selection process is in terms of what cases should be taken to the courts or a tribunal, but some challenges do seem to lack common sense..

I hope this helps.

Martin

[cojak]

No one here has asked why??

I'll bet it's because of the new RTI changes http://forums.contractoruk.com/accou...l-changes.html - they're passing their admin costs onto you.

Ask them is they'll drop the charge if you take your salary annually. If you don't like that method of payment then find another accountant.

[TheFaQQer]

In that case, surely most of my accountant's clients are laying themselves wide open to an investigation by folloiwng the accountant's recommendation

Salary is not an indicator of IR35 status. You could pay £0 salary if you wanted to and it wouldn't make a difference as far as IR35 status is concerned - but you'd be daft to do that.

[TheFaQQer]

I'll bet it's because of the new RTI changes http://forums.contractoruk.com/accou...l-changes.html - they're passing their admin costs onto you.

I suspected that was the case, but the clause is in the contract. I guess it depends on when they wrote that contract - they may have just been always trying this kind of thing.

[BlasterBates]

I agree it´ll make you less of a target. HMRC have limited resources. Given a contractor who would yield 100,000 or a contractor who would yield 10,000 they´ll go after the 100,000. Tax inspectors are not policeman after scalps they´re maximising the tax take.

If I was going to work in the UK that is exactly what I would do, i.e. save a bit of tax, and if I get caught it´s an annoying pin prick rather than being mutilated with a machete. One particularly sees this where contractors have decided if they´re going down the tax avoidance route they might as well go the whole hog and go into an offshore scheme.

We don´t know the criteria by which HMRC select targets, but given the very limited information available to them in a computer search on tax records, targeting directors of Ltd companies with salaries below 8 grand year would be a very simple "search and destroy" tactic.

[SueEllen]

I agree it´ll make you less of a target. HMRC have limited resources. Given a contractor who would yield 100,000 or a contractor who would yield 10,000 they´ll go after the 100,000. Tax inspectors are not policeman after scalps they´re maximising the tax take.

Really?

If they wanted to maximise tax take they would go after larger companies.

If I was going to work in the UK that is exactly what I would do, i.e. save a bit of tax, and if I get caught it´s an annoying pin prick rather than being mutilated with a machete. One particularly sees this where contractors have decided if they´re going down the tax avoidance route they might as well go the whole hog and go into an offshore scheme.

We don´t know the criteria by which HMRC select targets, but given the very limited information available to them in a computer search on tax records, targeting directors of Ltd companies with salaries below 8 grand year would be a very simple "search and destroy" tactic.

They would become unstuck.

Simply because there are people who get seriously ill, pregnant etc and so have legit reasons for not working a full year on a higher salary.

I'm sure the broadsheets would love a story of a small business person who is terminally ill being chased by HRMC.

[BlasterBates]

Really?

If they wanted to maximise tax take they would go after larger companies.

If you are a tax inspector in an IR35 avoidance group (which is how they´re organising themselves) then you are targeting IR35 avoidance. That obviously excludes large companies. But there are other groups that target large companies, and I think it´s safe to assume that HMRC does indeed audit large companies regularly. It´s the small companies where HMRC doesn´t have sufficient resources.

They would become unstuck.

Simply because there are people who get seriously ill, pregnant etc and so have legit reasons for not working a full year on a higher salary.

I'm sure the broadsheets would love a story of a small business person who is terminally ill being chased by HRMC.

That wouldn´t be a problem. You can terminate your own employment, adjust your own salary. You don´t get taxed on income you don´t have. HMRC do not demand tax for salary that wasn´t paid.

In any case if you are doing this you would pay yourself less than the turnover so you can continue to pay your salary when there´s no work, but this would just make the admin easier rather than putting your salary up and down which you can legitimately do provided you can mutually agree it with yourself.

For most real small Ltd companies, actually directors pay themselves a normal salary, so by suggesting this isn´t feasible just kind of emphasises the Ltd as a tax avoidance vehicle for IT contractors.

[Jessica@WhiteFieldTax]

We don´t know the criteria by which HMRC select targets, but given the very limited information available to them in a computer search on tax records, targeting directors of Ltd companies with salaries below 8 grand year would be a very simple "search and destroy" tactic.

I'd disagree. There are as many companies where IR35 is miles away, eg builders and hairdressers, where there are low salary hi divi arrangements.

The real easy way would be a information request to one or two of the large agencies:

~ names of limited companies you've paid
~ amounts

Its a source of amazement to me this hasn't been done...

To make that more sophisticated, cross reference to the accountant they use and "mystery shop" to find out how much IR35 advice they give at the outset and how they advise clients - theres one big player, who don't post on here, who effectively advise (or were) their clients to ignore IR35.

Then go cherry picking... weak agency contract, equals weak notional contract, accountant who hasn't got their clients doing due diligence - ouch.

[jamesbrown]

We don´t know the criteria by which HMRC select targets, but given the very limited information available to them in a computer search on tax records, targeting directors of Ltd companies with salaries below 8 grand year would be a very simple "search and destroy" tactic.

I completely disagree with this because: 1) it is going to be a useless predictor of whether one or more contracts are caught; and 2) it is only a weak discriminator of potential liability. There are better ways to estimate liability.