Question about moving to majority PAYE and IR35 - reduces risk?

[jamesbrown]

I'm not into this for massive tax savings really. If it's only costing me a few thousand a year more to be PAYE, but it means I'm in a more predictable situation, then I'm fine with that. Really I'm only interested in the PAYE/IR35 risk question to be honest.

Then go ahead and operate full PAYE or a deemed payment in full.

You may end up being investigated in a cursory fashion, but it won't go anywhere if there's no risk to the Exchequer. However, you have old contracts where you didn't operate full PAYE. Anything other than full PAYE or a deemed payment represents a potential loss to the Exchequer. I assume you can read between the lines about how that will impact your exposure for contracts in the past, the immediate future, and, say, 6 years into the future, when earlier contracts are out of scope, assuming you've acted responsibly. In terms of the risk of investigation (which is different from your exposure), did you imagine that we had some inside info. about how companies and contractors are chosen? We don't, beyond the obvious (e.g. mistakes on returns) and some speculation (e.g. very large dividend payments).

[WordIsBond]

From what I've read, some IR35 investigations are chosen randomly. What you propose won't help with that. If your name comes up, it comes up. Others are based on certain criteria, one of which is ratio of income to expenses. Nobody knows exactly what those criteria are, though. But if that really is one of the criteria, what you propose would reduce the risk of a targeted investigation.

It wouldn't help if you are investigated. They will still look at the contract and the working practices.

You COULD fully operate inside IR35. But you won't be taking £5K in dividends, then. You'll get your expenses and your pension contributions, but basically everything else goes on PAYE.

If you have a war chest, you could operate inside IR35 and draw down your warchest with £5K of dividends a year, I suppose.

[Gumbo Robot]

I'm thinking of my strategy next year for approaching renumeration. Previously I've done the standard mix of salary/dividend, but with all the changes making it less attractive to do so I'm thinking of just biting the bullet, flipping it on it's head, and paying myself just using standard PAYE, keeping the salary modest and making up in the good times using bonuses, and paying my 5000 tax free dividend allowance at year end. To be honest, I think the tax savings paying a majority dividend aren't huge now from what I'm reading and calculating, so this way should just be simpler all round. If sticking dividend majority only saves me a couple of grand a year then it's not work the hassle to be honest.

My question is, does this reduce the chance of being hit by IR35? My understanding is that if you are investigated under IR35 and found to be non-compliant, then you're hit with a bill for PAYE. It seems to me that if you've already been paying yourself under PAYE there would be little point in HMRC ever investigating you since there would be little to recoup? Is my understanding correct? Because if so, it seems like an additional tick in the "good idea" column for going majority PAYE to me...

I wouldn't mind betting that a sudden change in the way you remunerate yourself after years of doing x,y,z will, in itself, have you metaphorically raising your head over the parapet.

[davethehedgehog]

First, I'd dispute your premise that operating full PAYE will leave you in substantially the same position. It won't. Also, we haven't seen the legislation yet. Second, unless you're fully operating PAYE or a deemed payment on all income - so that the Exchequer has zero exposure - there is a risk of being investigated, a dispute raised, and successfully prosecuted (a risk that is very small indeed, I might add).

I guess your view of substantially might differ from mine I suppose! On the second bit you mentioned. I'm not sure what you're saying. I think you're saying that if I am fully operating PAYE, which I would be, then there is no risk of being investigated?

I'm not into this for massive tax savings really. If it's only costing me a few thousand a year more to be PAYE, but it means I'm in a more predictable situation, then I'm fine with that. Really I'm only interested in the PAYE/IR35 risk question to be honest.

[jamesbrown]

I'm thinking of my strategy next year for approaching renumeration. Previously I've done the standard mix of salary/dividend, but with all the changes making it less attractive to do so I'm thinking of just biting the bullet, flipping it on it's head, and paying myself just using standard PAYE, keeping the salary modest and making up in the good times using bonuses, and paying my 5000 tax free dividend allowance at year end. To be honest, I think the tax savings paying a majority dividend aren't huge now from what I'm reading and calculating, so this way should just be simpler all round. If sticking dividend majority only saves me a couple of grand a year then it's not work the hassle to be honest.

My question is, does this reduce the chance of being hit by IR35? My understanding is that if you are investigated under IR35 and found to be non-compliant, then you're hit with a bill for PAYE. It seems to me that if you've already been paying yourself under PAYE there would be little point in HMRC ever investigating you since there would be little to recoup? Is my understanding correct? Because if so, it seems like an additional tick in the "good idea" column for going majority PAYE to me...

First, I'd dispute your premise that operating full PAYE will leave you in substantially the same position. It won't. Also, we haven't seen the legislation yet. Second, unless you're fully operating PAYE or a deemed payment on all income - so that the Exchequer has zero exposure - there is a risk of being investigated, a dispute raised, and successfully prosecuted (a risk that is very small indeed, I might add).

[davethehedgehog]

I'm thinking of my strategy next year for approaching renumeration. Previously I've done the standard mix of salary/dividend, but with all the changes making it less attractive to do so I'm thinking of just biting the bullet, flipping it on it's head, and paying myself just using standard PAYE, keeping the salary modest and making up in the good times using bonuses, and paying my 5000 tax free dividend allowance at year end. To be honest, I think the tax savings paying a majority dividend aren't huge now from what I'm reading and calculating, so this way should just be simpler all round. If sticking dividend majority only saves me a couple of grand a year then it's not work the hassle to be honest.

My question is, does this reduce the chance of being hit by IR35? My understanding is that if you are investigated under IR35 and found to be non-compliant, then you're hit with a bill for PAYE. It seems to me that if you've already been paying yourself under PAYE there would be little point in HMRC ever investigating you since there would be little to recoup? Is my understanding correct? Because if so, it seems like an additional tick in the "good idea" column for going majority PAYE to me...