Reply to: Choices for non-dodgers.

[ASB]

Absolutely! That is exactly how I see myself.

That makes two of us. In principle I'd have been perfectly happy paying the s/e regime on my entrie income.

Since the political system denies me that ability I operate with the structure they demand. I choose to take advantage of it, you don't.

Of course you can actually be self employed....

Mr Expat sets up a contract for services with Expat Ltd.
Expat Ltd pays Mr Expat the entire fee. Less a small percentage for admin and profit. Mr Hector won't go after Expat Ltd because there is no money in it and the only recourse he has is to declare Mr Expat an employee of Expat ltd.

1) Your principles are intact
2) You get a better return on your money due to the different NI and expenses regime [No er's NI, Class 4 is only 8% not 11%]
3) Expat Ltd can pay you a small divi (which you won't mind because it has been built up out of capital]

A number of poeple I know who are self employed implemented this structure for agency work etc. How effective it would be in this post IR35 era I don't know but some used to talk about in on the PCG fora. If you do investigate this do let me know how it pans out.

[expat]

What you do show is that you are not a business, you are a self employed tradesman. Unfortunately the system does not let you behave as such. If it did you'd be happy I guess.

Absolutely! That is exactly how I see myself.

[ASB]

Not me!

But I do understand what a dividend is for, it's the reward to investors for risking their capital, and it comes from the profit, the making of which was only enabled by their capital. The principle is central to Capitalism.

I don't pay dividends because I haven't invested capital to earn them. If you like, not because I believe in giving the maximum possible to the IR, but because I believe in capitalism.

A principled approach. But capital is more than money. Unfortunately out tax code does not exactly follow capitalist principles, thus trying to marry the two to falls apart.

Who I am to critisise your approach though, it is perfectly valid. What you do show is that you are not a business, you are a self employed tradesman. Unfortunately the system does not let you behave as such. If it did you'd be happy I guess.

[ASB]

It's quite clear why as well - if you think you can be under IR35 and pay divis, I'm afraid you are badly wrong in your assumptions. If you are IR35 caught, you pay PAYE and NICs on all your gross less the 5%, so dividends are not an option.

I think you need to talk to an accountant before HMRC catches up with your rather inventive ideas of book-keeping. Right now you appear to commiting tax evasion...

Having an off day

You can of course pay divis when IR35 caught. Agreed it is probably pointless but in no way does it constitute any form of evasion. Need to be considered in the balancing calc is all.

The remainder of the 5% is (I think) tax free. That is where MrsGoof was sourcing one part of the divdends from - perfectly legitimitely.

The fees are also netted down from a vat point of view. Thus the profit on the flat rate scheme (if appropriate) is outside IR35 it is other income (I would conced that some accountants don't think this way). This is subject to CT in the usual manner and the remainder available for distribution as a dividend. I am suspicious of MrsGoof's 13% flat rate though. I didn't think there were any that low in this general line of business.

[expat]

so what (In Your Opinion) happens to any money left over from the 5%?

In my opinion (admittedly not Malvolio's) "the 5%" is a limit, not an allowance. So if the expenses that are allowed up to that limit do not reach the limit, what happens to the limit is that it is not reached. That is all.

[MrsGoof]

It's quite clear why as well - if you think you can be under IR35 and pay divis, I'm afraid you are badly wrong in your assumptions. If you are IR35 caught, you pay PAYE and NICs on all your gross less the 5%, so dividends are not an option.

so what (In Your Opinion) happens to any money left over from the 5%?

[expat]

I don't see why you need to ask the question as you are obviously a principled man. I think you would be better off using those principles to make your decision rather than get the likes of us to try and convince you otherwise...

I'm not asking to be convinced of anything, I'm just wondering if the only significant reason for working through your own Ltd Co is to avoid NICs on part of your income.

[ratewhore]

I don't see why you need to ask the question as you are obviously a principled man. I think you would be better off using those principles to make your decision rather than get the likes of us to try and convince you otherwise...

[expat]

...So now you can pay yourself a divi !

Nice one!

But I cleave to Adam Smith rather than Karl Marx. There are 3 main ways of making money: rent, profit, and wages. Dividends are (a share of) profit, what I take from contracting is wages.

[oraclesmith]

Not me!

But I do understand what a dividend is for, it's the reward to investors for risking their capital, and it comes from the profit, the making of which was only enabled by their capital. The principle is central to Capitalism.

I don't pay dividends because I haven't invested capital to earn them. If you like, not because I believe in giving the maximum possible to the IR, but because I believe in capitalism.

You probably have risked capital but don't consider it enough to warrant giving yourself a regular dividend. For example, if you went into business with, say, Bill Gates at the very beginning of Microsoft or whatever, you might have got yourself a tiny share of the company for next to no money. Years later it's worth millions, even though you personally hadn't felt any great risk or contributed much to the company.

Also, your company would still be worth something to a potential shareholder, especially if you sold them a controlling influence. Hence the problem with share allotment once you're up and running.

In Karl Marx's theory, your efforts for your company are called variable capital - in that it is possible for human labour to vary the output of the system. As you are a professional and not 'labour' as such, this theory of capitalism fits your circumstances well since the volume and quality of your outputs will vary considerably depending on human factors such as motivation - contrary to the classic definition which sets labour aside from capital. So now you can pay yourself a divi !

[expat]

Depends on you attitude to pensions. Better regime generally if your co.

I must admit to being slightly curious as to why you feel the apparent need to pay tha maximum possible to the IR. Still if that's what floats your boat....

BTW, the IR do actually accept donations. Some people give them...

Not me!

But I do understand what a dividend is for, it's the reward to investors for risking their capital, and it comes from the profit, the making of which was only enabled by their capital. The principle is central to Capitalism.

I don't pay dividends because I haven't invested capital to earn them. If you like, not because I believe in giving the maximum possible to the IR, but because I believe in capitalism.

[oraclesmith]

Yep, except as well as the 5% you can also allow some types of expenses, pension contribs etc. See here .....

http://www.hmrc.gov.uk/ir35/ir35.xlt

Or maybe .....

https://www.taxevasionhotline.co.uk/ !!!!

[malvolio]

if opperating under IR35 then you are allowed to use 5% of your incomne t pay bills accountatn etc..
so £50,000 income, gove you £2,500 to spend on stuff. If the only expense you have is accountant at £50pm that gives £2500 - £600 = £1900 you can pay a divi with.

No with Flat Rate VAT you chage £8,750 of VAT of which you pay £7630to HRMC and the remainde £1,120 is yours

so £1,120 (CREAMED OFF FROM vat) + £1,900 (left over from 5% allowance) = £3,020 left in your company bank account that you can pay dividends from.

Paper Work FFS I do most of my stuff myself and its 30 minutes a month, If an accountat does everthing then its 10minutes a month.

It's quite clear why as well - if you think you can be under IR35 and pay divis, I'm afraid you are badly wrong in your assumptions. If you are IR35 caught, you pay PAYE and NICs on all your gross less the 5%, so dividends are not an option.

I think you need to talk to an accountant before HMRC catches up with your rather inventive ideas of book-keeping. Right now you appear to commiting tax evasion...

[MrsGoof]

OK, lower fees I suppose, balanced by more paperwork to do.
No divis, that was my point.
What do you mean by "money left over from 5%"?
Flat rate scheme, good point: if HMRC reckon it's good for me and good for them, I have no opoosition to that.

if opperating under IR35 then you are allowed to use 5% of your incomne t pay bills accountatn etc..
so £50,000 income, gove you £2,500 to spend on stuff. If the only expense you have is accountant at £50pm that gives £2500 - £600 = £1900 you can pay a divi with.

No with Flat Rate VAT you chage £8,750 of VAT of which you pay £7630to HRMC and the remainde £1,120 is yours

so £1,120 (CREAMED OFF FROM vat) + £1,900 (left over from 5% allowance) = £3,020 left in your company bank account that you can pay dividends from.

Paper Work FFS I do most of my stuff myself and its 30 minutes a month, If an accountat does everthing then its 10minutes a month.

[TheMonkey]

My god, OTHER people with principles and logic!

Money isn't everything!