Reply to: Final Stance on IR35

[ASB]

All sorts of caveats, conditions, etc apply but this is very tax-efficient.

Essentially there are two ways of doing it. A cheap way and a not so cheap way. The cheap way being to apply for concession C16. This lets you simply distribute the funds as a captial distribtuion to the shareholders and is in the gift of the tax inspector. You get 75% relief on the capital distribution and also get to use your CGT allowance. In round terms you can get out 40k per shareholder with no further tax to pay.

You have to give certain undertakings but it is not an onerous process. The inspector will not normally refuse, however I wouldn't have any idea of what their opinion might be were you applying for a different company every couple of years.

If the inspector should decide not to grant the concession you are left with 2 choices. Pay the remaining funds as a dividend - in which case it is taxed as normal (but you would be no worse off) or go through formal liquidation. The latter being comparatively expensive.

The company buying in its own shares may also be useful in certain circumstances - although we were advised against this (and can't remember why now).

THEPUMA is spot on in describing this at the most tax efficient way. A single person company with 2 shareholders with gross profit of 100k a year can get away with paying only corporation tax (and 2k in cgt 2 years down the line).

We did it in our last year of trading, divis to top of lower rate band and retain the rest. This plust the retained profits we got out with no CGT. Paying it as a dividend would have cost about 20k in higher rate tax.

[THEPUMA]

NewBoy

The only point you may be missing is that if you pay every penny out to yourself as dividend (after salaries, expenses, corporation tax, etc), then that is not as tax efficient as leaving the surplus over £35K (per shareholder with no other income) in the company and eventually drawing it as a capital distribution on the liquidation of the company.

By way of example, let's say you generate surplus (as above after £35K of divis each) retained profits of £200K over a period exceeding 2 years. If you were to pay these out as dividends over the period, you would pay £50K in income tax whereas if you were to pay as a capital distribution at the end of the period, assuming there are 2 shareholders with no other capital disposals in the tax year in question, you would only pay £13K tax.

So the most tax efficient structure is to pay yourself £35K per shareholder per year, accumulate the balance in the company and distribute it as capital after 2 years.

All sorts of caveats, conditions, etc apply but this is very tax-efficient.

[pisces]

Does it matter if you work for below the minimum wage? You aren't about to take your employer (you) to court...

In my opinion, just take the risk. Do a Ltd co set up, pay min salary and the rest as divis. All government departments are ridiculously disorganised places with a staff of lazy numptys, the chances of an investigation are small. If they catch you then you'll just have to pay up plus a bit more, better that than actually volunteering to give these idiots your money in the first place. Chances are you'll get away with it.

As for the moral argument, my take on it is this : they will waste your money on making the country worse because the government are incompetent socialist idiots, the moral obligation is on you to give them as little money as possible to try and limit they damage they can do. It is better spent by you on goods and services supplied by other like minded people with an entrepreneurial spirit.

I like the cut of your jib

[shoes]

If you are full-time on £5,035, that would work out below the national minimum wage. The general advice is to pay yourself a director's salary of £10k.

IANAA etc...

Does it matter if you work for below the minimum wage? You aren't about to take your employer (you) to court...

In my opinion, just take the risk. Do a Ltd co set up, pay min salary and the rest as divis. All government departments are ridiculously disorganised places with a staff of lazy numptys, the chances of an investigation are small. If they catch you then you'll just have to pay up plus a bit more, better that than actually volunteering to give these idiots your money in the first place. Chances are you'll get away with it.

As for the moral argument, my take on it is this : they will waste your money on making the country worse because the government are incompetent socialist idiots, the moral obligation is on you to give them as little money as possible to try and limit they damage they can do. It is better spent by you on goods and services supplied by other like minded people with an entrepreneurial spirit.

[Flubster]

If what The Puma is saying is correct...then why would anyone pay themselves more that the obligitory £5,035 salary?

If you are full-time on £5,035, that would work out below the national minimum wage. The general advice is to pay yourself a director's salary of £10k.

IANAA etc...

[NewBoy]

A quick point. Back in Business said "PCG "Insurance" doesn't cover you tax bill, only covers your legal costs as part of an IR35 investigation. If you loose the case you'll need to pay up. It's good practise to keeps some funds in YourCo for this eventuality.".

This is completely wrong. If the company has paid the money out to you via salary or dividend and has no residual funds other than to pay its taxes, HMRC can only recover monies from you personally if they can show that your company "wilfully failed to deduct" the correct amount of tax before paying you.

This is a very onerous burden of proof and particularly hard to prove with legislation which is as ambiguous as IR35 (it can be easy to prove you are not caught but very difficult to prove you are due to the fact that case law is so favourable for the taxpayer). Unless you have had a contract review that confirms categorically that you are caught, I doubt HMRC would bother to pursue any taxes from you personally (again, assuming you have a decent accountant).

This is the main reason for the new legislation targetting MSC's as HMRC have never been able to recover taxes from MSC's when they have investigated them and found them to be caught by IR35 as they usually strip out all residual profits on a regular basis.

If what The Puma is saying is correct...then why would anyone pay themselves more that the obligitory £5,035 salary? I know this question has been asked repeatedly but that was without the benefit of the information from The Puma...it seems to me that if you pay yourself a £5,035 salary, quarterly dividends and spend a few pounds on insurance against an investigation then you are pretty safe?

There is of course the moral question, but everyone on this board is earning good money so unless you are paying yourself a salary of c.£50k then whichever way you look at it you are trying to reduce your tax bill...so you may as well reduce it as much as possible?

Am I missing something?

Does anybody dispute what The Puma is saying or have any evidence to prove or disprove his comments?

As for ThePuma...respect...

[Flat Eric]

Here's a capuchin monkey for your delectation

[XLMonkey]

I've just noticed your signature is wrong - they paid peanuts so what else were they going to get.... then your avatar to which is relates is a chimp not a monkey. Chimps are apes not monkeys and therefore your avatar doesn't relate to your signature, nor against your forum name either.

Shouldn't your avatar be a baboon or gibbon or else change your forum name to XLApe or XLChimp and change the signature as well?

I had quite a nice picture of a capucin monkey, but it didn't work too well when it was reduced to avatar size. I just keep the current one to see who can spot the deliberate error .

[freakydancer]

A quick point. Back in Business said "PCG "Insurance" doesn't cover you tax bill, only covers your legal costs as part of an IR35 investigation. If you loose the case you'll need to pay up. It's good practise to keeps some funds in YourCo for this eventuality.".

This is completely wrong. If the company has paid the money out to you via salary or dividend and has no residual funds other than to pay its taxes, HMRC can only recover monies from you personally if they can show that your company "wilfully failed to deduct" the correct amount of tax before paying you.

This is a very onerous burden of proof and particularly hard to prove with legislation which is as ambiguous as IR35 (it can be easy to prove you are not caught but very difficult to prove you are due to the fact that case law is so favourable for the taxpayer). Unless you have had a contract review that confirms categorically that you are caught, I doubt HMRC would bother to pursue any taxes from you personally (again, assuming you have a decent accountant).

This is the main reason for the new legislation targetting MSC's as HMRC have never been able to recover taxes from MSC's when they have investigated them and found them to be caught by IR35 as they usually strip out all residual profits on a regular basis.

So, if you pay yourself a salary and take dividends, leaving only enough money in the company account to pay the tax, NI etc that is required when outside IR35, you're saying that HMRC, if they deem you inside IR35, can't get any money back from you?

[THEPUMA]

A quick point. Back in Business said "PCG "Insurance" doesn't cover you tax bill, only covers your legal costs as part of an IR35 investigation. If you loose the case you'll need to pay up. It's good practise to keeps some funds in YourCo for this eventuality.".

This is completely wrong. If the company has paid the money out to you via salary or dividend and has no residual funds other than to pay its taxes, HMRC can only recover monies from you personally if they can show that your company "wilfully failed to deduct" the correct amount of tax before paying you.

This is a very onerous burden of proof and particularly hard to prove with legislation which is as ambiguous as IR35 (it can be easy to prove you are not caught but very difficult to prove you are due to the fact that case law is so favourable for the taxpayer). Unless you have had a contract review that confirms categorically that you are caught, I doubt HMRC would bother to pursue any taxes from you personally (again, assuming you have a decent accountant).

This is the main reason for the new legislation targetting MSC's as HMRC have never been able to recover taxes from MSC's when they have investigated them and found them to be caught by IR35 as they usually strip out all residual profits on a regular basis.

[Flat Eric]

Regarding joining the PCG and obtaining their insurance.

I'd wait until your company has issued it's first set of accounts as HRMC won't be aware of anything until then.

You should still get your contracts checked by a reputable lawyer, eg, SJD or Bauer and Cottrell (I'm not endorsing either and there are others you may/should consider)

I may, of course, be spouting drivel again...

[The Lone Gunman]

Hi Denny,

thanks for this reply. It was indeed very helpful. Im unsure of what todo now.

If I get the contract checked out to be outside IR35 (by the PCG or QDOS) and then pay a small salary and divis, where in lies the problem if I am then invesitagted for IR35? i.e, my contract etc was checked out before hand, would they (PCG) refuse to honour the insurance agreement?

Thanks for any help,
Kind regards
TM

If you had it checked by the PCG and had the PCG insurance and they said it was without IR35 then their insurance would stand.

[themistry]

NB: NO IR35 INSURANCE CO IS GOING TO HONOUR AN INVESTIGATION OR BACK TAX CLAIM IF YOU ARE NEGLIGENT IN TRYING TO PROPERLY AND THOROUGHLY NEGOTIATE OUTSIDE IR35 TERMS WITH THE CLIENT AS WELL AS THE EB.

All they will do is gratefully take your premiums.

Hi Denny,

thanks for this reply. It was indeed very helpful. Im unsure of what todo now.

If I get the contract checked out to be outside IR35 (by the PCG or QDOS) and then pay a small salary and divis, where in lies the problem if I am then invesitagted for IR35? i.e, my contract etc was checked out before hand, would they (PCG) refuse to honour the insurance agreement?

Thanks for any help,
Kind regards
TM

[themistry]

The PCG will not do the contract assessment for you (that's what people like QDOS do). However, they will offer IR35 investigation insurance, and the IR35 guide that they offer is comprehensive enough that you should be able to work out whether or not you are IR35 caught.

I was under the impression if you join the PCG they will review the contract too? Is this not the case?

TM

[XLMonkey]

Thanks for all the help guys,

Will join the PCG. Get them to asses the contract and pay myself accordingly. If they feel i fall within IR35, then happy days

TM

The PCG will not do the contract assessment for you (that's what people like QDOS do). However, they will offer IR35 investigation insurance, and the IR35 guide that they offer is comprehensive enough that you should be able to work out whether or not you are IR35 caught.