Reply to: IR35 and Corporation Tax

[NotAllThere]

If the worker takes all the money and makes a loan to cover company liabilities, is that going to be viewed as a form of tax avoidance?

Ask a tax accountant. I've answered your original question. No follow ups.

[northernladuk]

If the worker takes all the money and makes a loan to cover company liabilities, is that going to be viewed as a form of tax avoidance?

Nothing wrong with a bit of tax avoidance. It's our god given right and moral duty to avoid as much tax as possible. Evasion however......

[WordIsBond]

If the worker takes all the money and makes a loan to cover company liabilities, is that going to be viewed as a form of tax avoidance?

Company has to pay tax based on a deemed payment. What the company does with the rest of the money is the company's business.

If the company chooses to pay the worker a higher salary than the deemed payment, whether out of a DL or out of retained funds, there will obviously be tax due (ERNI, EENI, IT) on that extra payment. Similarly if the company chooses to pay a dividend in excess of the deemed payment, there will be dividend tax due.

[elsergiovolador]

This is my reading of the example, and my understanding of HMRC's point of view:

The eeNic and Tax deductions made by the client are legally offsetable against the worker's tax and eeNIC liability. The erNic paid by the client is also legally offset against any salary payment the ltd co might make, related to this contract.

You seem to think because of this, it's the worker's money. That's wrong. The fee from the client is remitted to the ltdco, less the IR35 deductions. After that, any money paid by salary to the worker (from that company income) is paid gross.

I.e. company accounts look something like
Invoice £7200

Receive £5400
Account for the £1200 VAT
Book £1400 against tax (paid for your company by the nice client, but from accounting perspective it's not far of them remitting to your company and then passing it on to HMRC)
Book £800 against eeNic (paid for your company)

The company can now pay the worker salary of up to £4200 without making any further deductions, and without accruing any employer NI liability.

At no point (until the company makes a salary payment) does any of the money belong to the worker.

There may well be other legal and accounting issues with HMRC's interpretation the money not being the company's is not one of them.

If the worker takes all the money and makes a loan to cover company liabilities, is that going to be viewed as a form of tax avoidance?

[NotAllThere]

This is my reading of the example, and my understanding of HMRC's point of view:

The eeNic and Tax deductions made by the client are legally offsetable against the worker's tax and eeNIC liability. The erNic paid by the client is also legally offset against any salary payment the ltd co might make, related to this contract.

You seem to think because of this, it's the worker's money. That's wrong. The fee from the client is remitted to the ltdco, less the IR35 deductions. After that, any money paid by salary to the worker (from that company income) is paid gross.

I.e. company accounts look something like
Invoice £7200

Receive £5400
Account for the £1200 VAT
Book £1400 against tax (paid for your company by the nice client, but from accounting perspective it's not far of them remitting to your company and then passing it on to HMRC)
Book £800 against eeNic (paid for your company)

The company can now pay the worker salary of up to £4200 without making any further deductions, and without accruing any employer NI liability.

At no point (until the company makes a salary payment) does any of the money belong to the worker.

There may well be other legal and accounting issues with HMRC's interpretation the money not being the company's is not one of them.

[elsergiovolador]

of course it can. It's just down to how it's accounted for in the book-keeping. I'm no an accountant hence I used DLA as an example of accounting, but it could be a capital investment.

The fact it's in HMRC's example should tell you something. Surely???? No????

I see your point now. The problem is that their guidance is incomplete and often wrong, just like their understanding of the reality (look at sheer number of lost cases, most recently the MOO one).

[Lance]

I think the example is missing the fact that Rebecca's company is borrowing the remaining £1200 or something else that's why I posted my comment. I've been looking for quite some time and I can't find any legal text that would support the idea that LTD can grab any of this money without agreeing a loan with the director (except DLA). If a company has running costs and gets paid worker's salary, surely it cannot just take this money to cover its liabilities, but rather borrow it from the director and then pay it back from future profits?

of course it can. It's just down to how it's accounted for in the book-keeping. I'm no an accountant hence I used DLA as an example of accounting, but it could be a capital investment.

The fact it's in HMRC's example should tell you something. Surely???? No????

[elsergiovolador]

errrr..... cos that's the example you posted about.....


and the LTD does not need to make any tax deductions. But it may choose to not pay all of the money. That would be a bit daft IMO, but could be used to reduce a DLA for example.

I think the example is missing the fact that Rebecca's company is borrowing the remaining £1200 or something else that's why I posted my comment. I've been looking for quite some time and I can't find any legal text that would support the idea that LTD can grab any of this money without agreeing a loan with the director (except DLA). If a company has running costs and gets paid worker's salary, surely it cannot just take this money to cover its liabilities, but rather borrow it from the director and then pay it back from future profits?

[Lance]

LTD is just passing money through. I would think that LTD cannot make any deductions from secondary employment wage. Why do you think LTD can get hold of any of it?

errrr..... cos that's the example you posted about.....


and the LTD does not need to make any tax deductions. But it may choose to not pay all of the money. That would be a bit daft IMO, but could be used to reduce a DLA for example.

[elsergiovolador]

They're not necessarily personal funds. You are assuming they are, as tax has been deducted at source. But that's a poor assumption and incorrect.
It would be easier to take it personally rather that via the LTD. but that's an option not mandatory.

LTD is just passing money through. I would think that LTD cannot make any deductions from secondary employment wage. Why do you think LTD can get hold of any of it?

[Lance]

This example doesn't raise any eyebrows? Rebecca receives £4200 as her salary, but draws only £3000 from the company. Isn't she misusing company account to keep personal funds? All the money (except VAT) from caught service is worker's personal money, so company cannot touch it unless the worker gives a loan to the company. What I am missing or the guidance hides inconvenient facts?

They're not necessarily personal funds. You are assuming they are, as tax has been deducted at source. But that's a poor assumption and incorrect.
It would be easier to take it personally rather that via the LTD. but that's an option not mandatory.

[northernladuk]

What I am missing?

A permanent ban.

HTH

[elsergiovolador]

Hi Herts47

See here

Off-payroll working in the public sector: reform of the intermediaries legislation - technical note - GOV.UK

Particularly the 'Rebecca' example. Rebecca has been adding VAT and being paid to her ltd, which sounds like your situation.

This example doesn't raise any eyebrows? Rebecca receives £4200 as her salary, but draws only £3000 from the company. Isn't she misusing company account to keep personal funds? All the money (except VAT) from caught service is worker's personal money, so company cannot touch it unless the worker gives a loan to the company. What I am missing or the guidance hides inconvenient facts?

[cojak]

Moved to Accounting

[Herts47]

Hi Herts47

See here

Off-payroll working in the public sector: reform of the intermediaries legislation - technical note - GOV.UK

Particularly the 'Rebecca' example. Rebecca has been adding VAT and being paid to her ltd, which sounds like your situation.

Hi Mudskipper

Thank you for this link. Rebecca is exactly the same situation as me with the exception that I didn't earn anything outside of IR35 for the company year, and I went to permanent employment somewhere else in March. It looks like the agency have done this correctly then as they have generated the invoice with VAT, taken VAT off to calculate my PAYE due, then added back into my payment on my payslip that's then paid to my Ltd company. My accountant has calculated VAT due each quarter which I've paid as normal. As I haven't earned anything else outside of IR35 or paid employment, I would not expect to incur any corporation tax. My accountant will need to make it clear that I have already paid PAYE on all my earnings into my business account and am therefore not liable for any more tax. Hopefully! Really helpful information and thank you.