IR35 keeping the liability in the company

[djped]

Hi,

Been contracting at the same place for over 2 years, and think it will continue.

Initially had my contract reviewed by QDOS, made sure it was outside IR35. Now after 2 years want the QDOS TLC35 insurance and due to the questions being asked by them and the investigations into upstream contracts and my actual working practices I now believe there's a good chance that I'd be foind inside IR35 should it come down to it.

I currently operate as if outside IR35, and take a reasonable salary (enough to survive on) & dividends for the rest.

I've looked at a few IR35 calculators, and I think that the liability I could be risking each year is about 7-8% of total revenue.

If I just leave this amount in the company, building a company warchest, if day comes that I am found liable can I just use that money to pay the liability? (Assuming no fines) I'm assuming the liability is a company one and not a personal one... is that right?

Also, lets say I have 6 months on the bench for whatever reason, and I use that money to pay myself my salary during those 6 months, would that help my position because I'd be paying PAYE and employers NI etc, just during months AFTER the actual dates of the contract.

[Saddo]

Speaking to other contractors who have been put thru the IR35 mill (and won), I understand the process can take 3-4 years in all. So whilst building the capital up within the company might sound like a sensible idea, keeping it tethered in the company earning no interest for several years wouldn't seem like a great game plan to me.

I would suggest you consider keeping the float in the company fairly small (enough to pay 6 months of unemployment for example) and take the rest out as divvies - then invest a portion of those divvies in your war chest in case IR35 comes along. That war chest can be put into an ISA or something. After all, you might as well get government to pay for you holding onto money which they think they are entitled to.

[djped]

Okay good point, however I'm currently trying to avoid the 40% tax bracket by not earning that much (including dividends) which I am able to do at the moment and that fits with keeping a decent warchest in the company. If the warchest ever gets to big I was intending to pay the excess into a pension (via the company).

If I take it out, I'll pay an extra 20% tax on it (in the 40% earnings bracket) which would mean the sum I could put in an ISA would be 20% less than the sum the company could put into some sort of 3 year company bond or something. I suppose I need to do some more figures, but I just like the idea of the tax bill having to come from the 'company' coffers rather than money I think of as my own...

[SallyPlanIT]

Bear in mind; that, if HMRC did deem you inside IR35 AND can prove that you didn't take due care and responsibility for finding out your IR35 status, then they can apply up 100% in penalties of the outstanding liability under there 'penalty for errors' regime.

...double your "just in case" fund.