IR35 Help!

[Eirikur]

Money that sits in the LtdCo, so profits not taken as dividend or otherwise during the tax year, are they also taken added to the IR35 bill?

[northernladuk]

Money that sits in the LtdCo, so profits not taken as dividend or otherwise during the tax year, are they also taken added to the IR35 bill?

How can it. It hasn't been taxesd yet.

[Craig at Nixon Williams]

Money that sits in the LtdCo, so profits not taken as dividend or otherwise during the tax year, are they also taken added to the IR35 bill?

The liability to tax if you were caught by IR35 is based on the turnover from IR35 engagements (less certain 'qualifying expenses'), not on profit earned by the company (irrespective of whether it has been declared as a dividend).

Craig

[eek]

The liability to tax if you were caught by IR35 is based on the turnover from IR35 engagements (less certain 'qualifying expenses'), not on profit earned by the company (irrespective of whether it has been declared as a dividend).

Craig

and remember step 5

Step 5

Deduct any payments made by your company for your own personal benefit to an approved pension scheme.

As it really, really annoys HMRC.....

[Jessica@WhiteFieldTax]

Usually it's quite simple and it's a case of taking the cash received (not invoiced, but actually paid in the year) less pension contributions, motor and travel, expenses or assets purchased that would be allowed if you were an employee and a flat 5%. That's then the gross salary plus Employer's NI that you need to have.

Not disagreeing with Clare, however if clearly IR35 caught (rather than a retrospective deemed calculation) I think its sometimes better to calculate IR35 on invoiced, to align it with accounts, rather than cash received. It avoids taxes straddling years, and the risks of orphaned amounts of deemed IR35 that can't be offset to hard profits.

[Craig at Nixon Williams]

Not disagreeing with Clare, however if clearly IR35 caught (rather than a retrospective deemed calculation) I think its sometimes better to calculate IR35 on invoiced, to align it with accounts, rather than cash received. It avoids taxes straddling years, and the risks of orphaned amounts of deemed IR35 that can't be offset to hard profits.

Clare's original post is correct.

The legislation states that the salary should be calculated based on payments received, not amounts invoiced. It may be convenient to do it based on invoiced amounts but that method is incorrect.

Craig

[Jessica@WhiteFieldTax]

Clare's original post is correct.

The legislation states that the salary should be calculated based on payments received, not amounts invoiced. It may be convenient to do it based on invoiced amounts but that method is incorrect.

Craig

Yes, I agree Clare is correct - I didn't intentionally imply to the contrary.

I did some modelling in the early days of IR35 (remember those?) and in some circumstances cash basis caused orphaned offsets whereas invoiced basis didn't.

Its really going to be a case by case matter though.

[Craig at Nixon Williams]

Yes, I agree Clare is correct - I didn't intentionally imply to the contrary.

I did some modelling in the early days of IR35 (remember those?) and in some circumstances cash basis caused orphaned offsets whereas invoiced basis didn't.

Its really going to be a case by case matter though.

I was 14 when IR35 came in, tax isn't something that I paid much attention to back then...

I've never heard the expression 'orphaned offsets' before - can you clarify what you mean by this?

Craig

[Jessica@WhiteFieldTax]

I, alas, was considerably older.

Orphaned offsets.

Mainly a cessation year thing, take a client with monthly invoicing in arrears IR35 caught. In cessation year (say) 5 months accounting income but 6 months cash received hence 6 months IR35 deemed payment or payroll (same problem either way). Generates terminal loss to carry back, but all PYs have 12 months accounting income and 12 months IR35d payroll. By the time you get to a year where there is come CT profit to offset against you are outside of allowable carry back period.

I tend to look at IR35 three fold:

(a) set of (bad) rules to suggest if caught or not
(b) minimum payroll requirement if someone is
(c) default deemed payment if (b) not adhered to

If (a) applies then I think its easier to payroll 95% less expenses etc rather than make life overly complicated.

YMMV

[Craig at Nixon Williams]

If you include any unprocessed salary/NICs (calculated based on unpaid invoices) as an accrued expense in the accounts then the profit before tax will be 5% of turnover (less non qualifying expenses). This way there is no loss caused by excess salary in any year, the only way that a loss may be incurred is if non-qualifying expenses are higher than 5% of turnover.

That’s how we deal with it anyway and it’s never been an issue.

Craig