Reply to: Is IR35 irrelevant given no taxable profit?

[FarmerPalmer]

False - the contractor must use the income received from the inside-IR35 contract, minus 5% minus valid expenses as the basis for calculating the deemed income.

Company turnover is irrelevant. Profit is irrelevant.

WHS

[LisaContractorUmbrella]

Yes I get that. That is what HMRC are stating. What I am asking is weather the statement I original said is true or false. It's not my statement and I'm seeking a professional view on it. Take into account the the Ltd Co has no employees, pays not wages or expenses, just has 1 or more office holders, pays nothing, not even divs to any person. All the invoiced money for services provided by the company (not a named individual) go out. Lets say to a PMC or a TRUST (but not an EBT).

And then presumably you would, at some point, draw from the Trust?? If so you have just avoided paying tax on your earnings and should expect a visit from HMRC, if not then what's the point?

[TheFaQQer]

Does anyone have a view on this statement, do you believe it to be TRUE or FALSE? In this example, assume that there was no Ltd Co profit because all invoiced income went out as business expenses but not to any employees. Assume there are no employees, just 1 or more office holders.

If required to calculate IR35 a contractor must use the turnover of the Limited company (personal service company) through which they operate as deemed income.
PAYE and National Insurance is due on this amount less a flat 5% deduction for expenses.
Given the lack of taxable profit IR35 however becomes essentially irrelevant in the eyes of HMRC

False - the contractor must use the income received from the inside-IR35 contract, minus 5% minus valid expenses as the basis for calculating the deemed income.

Company turnover is irrelevant. Profit is irrelevant.

[SueEllen]

And why is this under "HMRC Scheme Enquiries" ?

The questioner seems to be mixing IR35 with a scheme. This is why I told them to consult a tax lawyer.

[ASB]

That statement is true. But it needs context. If the expenses associated equal income then ir35 is neutered. Simple example pay it all in pension contributions.

of course claiming other company related expenses, eg accountancy, is not reducing the taxable profit In ir35 terms. So in that context it is false.

[cojak]

And why is this under "HMRC Scheme Enquiries" ?

That was my thought as well. Other posters have joined in this thread to answer IR35 (thank you all, btw), but this is not the place for this question and so I've moved it.

Don't forget that this forum isn't all about HMRC Scheme Enquiries...

[DotasScandal]

And why is this under "HMRC Scheme Enquiries" ?

[Fred Bloggs]

But IR35 doesn't apply to selling tellys anyway. If you do a £500 contract and incur £500 expenses doing so, Hector would be very interested in applying IR35 to 95% of £500.

[BlasterBates]

The statement is true. If you run a business then HMRC are only interested in the profit.

But running a business which doesn't make a profit is pointless, you may as well sit at home and put your feet up, unless the business expense is your salary.

If your business after other expenses pays your salary then you'll obviously be paying NI.

If you have legitimate business expenses other than your salary, then the business is pointless. It won't be taxed because you haven't earnt anything.

eg you buy TV sets for 500 pounds and sell them for 500 pounds. This will result in no profit and no tax and hence IR35 is irrelevant.

If the idea is to somehow charge out expenses from some offshore entity and reduce your profit then HMRC will be down on you like a ton of bricks.

[SueEllen]

Yes I get that. That is what HMRC are stating. What I am asking is weather the statement I original said is true or false. It's not my statement and I'm seeking a professional view on it. Take into account the the Ltd Co has no employees, pays not wages or expenses, just has 1 or more office holders, pays nothing, not even divs to any person. All the invoiced money for services provided by the company (not a named individual) go out. Lets say to a PMC or a TRUST (but not an EBT).

Then pay for a qualified tax lawyer.

While we are random individuals on an internet forum we know enough that if you are trying to play games with HMRC over tax law you need to:
1. Talk to someone who spends their time fighting them in the court room including in Europe,
2. Have big pockets like companies like Amazon, Ford, United Biscuits....

[mudskipper]

If required to calculate IR35 a contractor must use the turnover of the Limited company (personal service company) through which they operate as deemed income.
PAYE and National Insurance is due on this amount less a flat 5% deduction for expenses.
Given the lack of taxable profit IR35 however becomes essentially irrelevant in the eyes of HMRC

Lots of things are wrong.

For example, you could have two concurrent contracts - one IR35 caught and one not. It is the income from the contract, not the turnover of the LtdCo that is deemed income.

If the IR35 income is less than salary, then there is no additional tax to pay, so unlikely to be a priority for HMRC. However - from 1st April, travel and subsistence for an IR35 caught contract will not be allowed, so it will not be 'essentially irrelevant'.

[northernladuk]

First thing this sounds like to me is you are pulling some sort of artificial avoidance technique which will, even though it's not an EBT will come back and bite you.

[Wibble1]

If you are within IR35 5% of the turnover is counted as expenses and the rest of the turnover is deemed as salary so the profit is £0.00.

Yes I get that. That is what HMRC are stating. What I am asking is weather the statement I original said is true or false. It's not my statement and I'm seeking a professional view on it. Take into account the the Ltd Co has no employees, pays not wages or expenses, just has 1 or more office holders, pays nothing, not even divs to any person. All the invoiced money for services provided by the company (not a named individual) go out. Lets say to a PMC or a TRUST (but not an EBT).

[SueEllen]

So you are saying the statement is True?

If you are within IR35 5% of the turnover is counted as expenses and the rest of the turnover is deemed as salary so the profit is £0.00.

[Wibble1]

Turnover does not equal Profit. Accounting 101. Fail.

So you are saying the statement is True?