Reply to: IR35 Exposure Calculator

[meeko]

I've referred the calculation back to QDOS to see if they come up with similar numbers.

The TLC35 product can be purchased with either £50k, £75k or £100k of cover. The charges are fixed, and that is total cover for all contracts that pass their acceptance criteria and is retroactive. Thanks for all of your help, it's much appreciated.

[malvolio]

[QUOTE=meeko;2404640]

The problem is the "pay the taxes" cover gets more expensive as the amount covered increases. I want to ensure I have the correct level.

I'm just confused about the 45% - as I mentioned before, the HMRC examples do not include salary+benefits in kind already taxable as employment income in the deemed payment. Using this calculation I see a libility of around 36%, not the 43% of total turnover using your formula.

You don't get BIKs inside IR35, but hey...

OK, do your own sums. I was only trying to identify very roughly what your exposure was, but as has been said already it can only ever be an estimate. And I'm not aware that things like TLC35 and Survive35 - pointless as they are in reality - change their charges the longer the contract goes on or their cost is linked to a single contract value. Perhaps you're looking at the wrong providers, or one of us is totally missing the point.

[meeko]

[QUOTE=malvolio;2404486]

I've had my contracts and working practices reviewed, and the overall view was 'outside IR35' but this doesn't guarantee an 'outside' verdict from an enquiry. I've taken out insurance but I want to be sure the level of cover is sufficient for my liability hence trying to understand my exact liability.
QUOTE]

Hang on a mo...

Your liability is easy: when you lose a case you will know it, but until then you won't since it is a function of the gross income for that contract which obviously goes up over time. Worse case is the total value of the contract x 95% x (very roughly) 45%.

IPSE and similar cover is for the investigation. The "Pay the taxes" cover from various suppliers is insuring themselves against being wrong when they say you are outside IR35. There is probably a pool of money to cover this risk, but they do not insure you for a set amount. So I really don't quite see the problem...?

The problem is the "pay the taxes" cover gets more expensive as the amount covered increases. I want to ensure I have the correct level.

I'm just confused about the 45% - as I mentioned before, the HMRC examples do not include salary+benefits in kind already taxable as employment income in the deemed payment. Using this calculation I see a libility of around 36%, not the 43% of total turnover using your formula.

[SeededLoaf]

On the very morning of receiving a brown letter from HMRC, transfer all retained income into pension.

That's if you haven't used your last 3 years allowance.

[malvolio]

[QUOTE=meeko;2404465]I've had my contracts and working practices reviewed, and the overall view was 'outside IR35' but this doesn't guarantee an 'outside' verdict from an enquiry. I've taken out insurance but I want to be sure the level of cover is sufficient for my liability hence trying to understand my exact liability.
QUOTE]

Hang on a mo...

Your liability is easy: when you lose a case you will know it, but until then you won't since it is a function of the gross income for that contract which obviously goes up over time. Worse case is the total value of the contract x 95% x (very roughly) 45%.

IPSE and similar cover is for the investigation. The "Pay the taxes" cover from various suppliers is insuring themselves against being wrong when they say you are outside IR35. There is probably a pool of money to cover this risk, but they do not insure you for a set amount. So I really don't quite see the problem...?

[meeko]

You are aware HMRC don't have the contractors? So nothing on their website makes sense.

Get some IR35 insurance, get your contracts reviewed and stop worrying about it.

I've had my contracts and working practices reviewed, and the overall view was 'outside IR35' but this doesn't guarantee an 'outside' verdict from an enquiry. I've taken out insurance but I want to be sure the level of cover is sufficient for my liability hence trying to understand my exact liability.

"any amount received by the worker from the intermediary in respect of which the worker is already chargeable to income tax as employment income and subject to Class 1 and/or Class 1A NICs in the year" - the £8100 isn't chargeable to income tax as employment income and is not subject to Class 1 and / or Class 1A NICs though.

So are you saying it's not to be added to the deemed payment? It isn't in any of the examples HMRC give either, because it's taxed under normal rules for PAYE anyway?

[TheFaQQer]

What you say makes sense, but the guide on HMRC's website doesn't do this?

https://www.gov.uk/hmrc-internal-man...manual/esm3145

"any amount received by the worker from the intermediary in respect of which the worker is already chargeable to income tax as employment income and subject to Class 1 and/or Class 1A NICs in the year" - the £8100 isn't chargeable to income tax as employment income and is not subject to Class 1 and / or Class 1A NICs though.

[SueEllen]

What you say makes sense, but the guide on HMRC's website doesn't do this?

https://www.gov.uk/hmrc-internal-man...manual/esm3145

You are aware HMRC don't have the contractors? So nothing on their website makes sense.

Get some IR35 insurance, get your contracts reviewed and stop worrying about it.

[meeko]

What you say makes sense, but the guide on HMRC's website doesn't do this?

https://www.gov.uk/hmrc-internal-man...manual/esm3145

[TheFaQQer]

There isn't any EErs NI or PAYE due on the £8100 as it's within the tax free income limit for that year? Looking at the HMRC examples for their calculator, they don't add the salary taken back onto the deemed payment.

This is very confusing!

If your salary is only £8100 then there's no NI or PAYE to pay. But your salary isn't £8100 - it's £8100 plus the deemed payment. Therefore you need to pay tax and National Insurance on all of your salary, not just some of it.

[meeko]

There isn't any EErs NI or PAYE due on the £8100 as it's within the tax free income limit for that year? Looking at the HMRC examples for their calculator, they don't add the salary taken back onto the deemed payment.

This is very confusing!

[TheFaQQer]

So using the HMRC Deemed payment calc, the tax owed is the difference between tax already paid and ERs NI + PAYE/EEs NI on deemed payment?

In this case for 2016/2017:

£102000 - 5 % = £96900
- £8100 (salary) = £88800

Employers NI on above = £10768
Deemed Payment = £88800 - £10768 = £78032
PAYE/NI due on £78032 = £25306.24

Tax due = £25306.24 + £10768 = £36074.24

Not quite - that means that you haven't paid any tax or NI on the £8100 salary, so you need to add that back into the tax calculation.

Which takes you to about £43k plus your interest

[meeko]

So using the HMRC Deemed payment calc, the tax owed is the difference between tax already paid and ERs NI + PAYE/EEs NI on deemed payment?

In this case for 2016/2017:

£102000 - 5 % = £96900
- £8100 (salary) = £88800

Employers NI on above = £10768
Deemed Payment = £88800 - £10768 = £78032
PAYE/NI due on £78032 = £25306.24

Tax due = £25306.24 + £10768 = £36074.24

[Cirrus]

£45k - basically 45% liability per year seems high.

You need to separate out the employer's NI otherwise it looks like you personally are paying the whole 45% whereas it's actually a combination of personal and corporate tax.

With regard to expenses, I believe the essential approach is you can factor out of 'earnings' anything that a permie could get tax free. Travel is always tricky because it's likely a lot of it could be regarded as commuting.

[malvolio]

This is all hypothetical - of course I could draw it all as dividends now and then declare on my self assessment, but what would be the option post enquiry when it was deemed this money was earned inside IR35?

You would have a large tax bill...

IR35 is for the life of the contract that's been addressed, you can't break it down into smaller bits. All income for that contract, if found to be liable for IR35, will be deemed income.