Reply to: Minimum Salary

[Novice Contractor]

To be clear, the company has to pay corporation tax first. You then get the first £35K per shareholder tax free and 10% on the balance. There is no further tax to pay. Easiest to illustrate by way of example:-

Let's say you earn £100K after expenses (inc salary say £5K) but before taxes over each of the next 5 years. You therefore earn £500K over 5 years.

The company pays 19% corporation tax on this leaving £405K in the company coffers before dividends. You draw out £30K pa by way of dividend as this is tax free. This leaves the company with £255K to distribute.

You pay this equally to yourself and your wife (assuming you are male and married) by way of capital distribution. The first £70K is tax-free so you pay £185K @ 10% = £18,500.

Everyone's a winner.

Now I am really confused, my accountant has not told me any of this. I was not aware that IR35 insurance existed. Regarding "real business or tax evader". I was made redundant (for the fourth time) from a senior and well paid management position. I was fed up with the crap that line management brings and wanted simply to be able to use my expertise to earn a living . Contracting seemed like a good way of doing this. In my field assignments are usually found through agencies (Hays. Michael Page etc) why? because most of my contracting roles have been public sector and many large public sector organisations only hire contractors from agencies who are on framework agreements. Many assignments are let by the agency on the proviso that the contractor is Ltd. Therefore, if I want to work, I have to be Ltd. So do I need IR35 insurance? is it expensive? Can anyone recommend a pro-active accountant who will advise me properly?

[shoes]

That's why you are really, and should be inside IR35, according to Gordo. You obviously don't want to run a business, do you. You are too busy being your own employee than being your own Director which is why Gordo wants to tax you as if you are an employee.

I must say, when I read comments like yours, I start to think that maybe IR35 isn't such a bad thing after all and that it's people like you who are giving every 'real owner managed business' that operates as such a bad reputation for tax dodging.

..blah blah..

I just hope he leaves people like me alone when he does it and let us get on with paying ourselves salary and divis as we deserve.

Being anal about tax investigation possibilities and repeating your mantra of 'Im a proper business, Im a proper business' is not the same as being a 'real owner managed business'. People in other fields who I know that you would probably class as 'real businesses' don't spend their lives going on about this, they just get on with bringing in the dough leaving the maximising of after tax income to their accountants. You demonstrate a bizarre snobbery about 'deserving' dividend payments because of your artificial 'real business' pi55ing about, ironic when you think about it. It sounds like the only real difference between you and other contractors you look down your nose at is that you have way too much spare time on your hands.

[ASB]

That might suit me down to the ground as I'm hoping to retire to France and I'm looking to buy a house there well before I stop work. My company also owns property in the UK (as do I) which I may or may not sell (and have a CGT bill) so there's a lot of interesting stuff there - top post, thanks.

If your company owns property in the UK you have to be *VERY* careful. I can't remember the exact details but broadly:-

You become non resident and manage the company from abroad.
Your new residency has some interest (potentially) in the country.
The company may now be domiciled in your new country.
The taxman slaps you with a CT bill based upon the asset valuation.

http://www.hmrc.gov.uk/manuals/cg2manual/CG42440.htm

It sounds to me that some proper advice now related to your positions, assets and company owned assets might enable to ensure you are not headed into trouble.

[css_jay99]

Just a quick query.

how easy is it to insist that the client/agency include the clauses that puts you outside of IR35 in your contract. I cant remember seeing rigtht of substitutuion in my contract but i certainly dont get free lunch at my client's site like the permie. and my manger told me that they cancelled all that so that govt does not see contractors as employees.

to be honest i never read the contract, I just signed happy to have money comming in and then wait till the first 3mths is up before asking for more money as promised. I will go throught the contract tonight to sees whats in it

css_jay99

[Lockhouse]

If you happen to be either totally loaded or have property abroad then this strategy can be useful, even if you retain and use property in the UK. Since days of travel don't currently count towards the residency days count it is possible to live in say Monaco and spend 4 days a week in the UK without being resident.

That might suit me down to the ground as I'm hoping to retire to France and I'm looking to buy a house there well before I stop work. My company also owns property in the UK (as do I) which I may or may not sell (and have a CGT bill) so there's a lot of interesting stuff there - top post, thanks.

[THEPUMA]

Denny

Have B&C or Qdos specifically told you that people who operate differently to you will not be covered by their insurance? If so, that would be most interesting I am sure to the vast majority of their clients who do not operate like you and have been sold an insurance policy on the basis that they are covered.

The way I understand these insurance policies to work generally is that you provide a copy of your contract, complete a questionnaire and based on this information, cover is either offered or declined. Unless a contractor is operating outside the terms of their contract or answering the questionnaire incorrectly, I see no basis on which the insurers can refuse to pay out.

I have no doubt that, in the event of an investigation, you would be able to defend yourself successfully and there is every possibility that you would not be investigated as you have a robust business operation.

What I am saying is that other contractors who are the target of IR35 are not as susceptible to HMRC challenge as you make out.

The legislation is appallingly badly written and therefore the people who you and I and HMRC all may think are disguised employees are not caught by it.

You say "this is tax evasion, pure and simple if the criteria for operating as a real business (as laid down by the IR) is being ignored. Again this is incorrect and misleading. The caselaw tells us that if either the right of substitution or lack of MOO or lack of control exists, then all other factors are irrelevant. So you could have a bloke that has every feature of employment other than he has an unfettered right of substitution and he will be self-employed.

You don't have to have a business plan and a website and some business cards and company letterhead and PII insurance and regular board meetings etc to be self-employed. You simply have to EITHER have the right of substitution OR control over the way the services are performed OR a lack of MOO. And 99% of contractors have one of these which is why HMRC have been singularly unsuccessful in enforcing IR35.

[THEPUMA]

It is unlikely that the company would be considered an investment company. HMRC have confirmed several times that clients of ours with substantial bank balances are trading companies for this purpose.

The only other issue may be if there are substantial periods of non-trading in which case it can become quite complicated and you should seek the services of a reputable accountant!

[ASB]

This leaves the company with £255K to distribute.

You pay this equally to yourself and your wife (assuming you are male and married) by way of capital distribution. The first £70K is tax-free so you pay £185K @ 10% = £18,500.

Everyone's a winner.

Surely: 255k less 75% relief = 63.75 chargeable to CGT. Less 17.6k allowance = 46.15k @ 40% = £18.5k (same result obviously).

Just that on those numbers I wonder if HMRC would still grant trading relief - perhaps thay would consider it an investment company so it would become

255k less 0% relief = 255k chargeable to CGT. Less 17.6k allowance = 237.4k @ 40% = £94.96k.

Assumes that other income/gains using the lower rate tax bands is available.

[ASB]

That's interesting as I'm retiring in 5-6 years. So if there's 200K in the company and I played the capital redistribution card would I have to pay personal tax on top of the 10% when it took me flying through the 40% barrier or would the 10% be it?

Another point if you can afford it. Retain the funds. Get non resident, liquidate. There is then no CGT.

Obviously being resident somewhere which doesn't want to tax you on the proceeds would be a good idea. But there are a couple of pitfalls:-

1) You need to ensure the company does not lose its UK residency otherwise you'll get stuffed with the CT exit charge. I don't expect this is likely to be a pproblem but the sequence things happen in would be important.

2) The rules on CGT when regaining residency changed in recent years. This means you can pay CGT on disposals made whilst outside the UK if you become a UK resident within 5(?) years.

If you happen to be either totally loaded or have property abroad then this strategy can be useful, even if you retain and use property in the UK. Since days of travel don't currently count towards the residency days count it is possible to live in say Monaco and spend 4 days a week in the UK without being resident.

[THEPUMA]

Denny

You are confused between what you want the law to say and what it actually says.

The fact is that many "bums on seats" contractors as you call them are not caught by IR35, whether you like it or not.

[THEPUMA]

The rules are complicated if you are not a director but if you are, broadly NIC is charged at these rates on all salary above £5,044 pa.

[Hiram King Of Tyre]

OK, I didn'r realise that NIC was so steep. it is all paid on gross salary? On the full salary?

[THEPUMA]

No. Not once you take account of the 11% employee's NIC and the 12.8% employer's NIC.

[Hiram King Of Tyre]

Why only take salary up to the top of the 0% band? Surely 10% plus NIC is cheaper than 19% Corporation tax?

[THEPUMA]

To be clear, the company has to pay corporation tax first. You then get the first £35K per shareholder tax free and 10% on the balance. There is no further tax to pay. Easiest to illustrate by way of example:-

Let's say you earn £100K after expenses (inc salary say £5K) but before taxes over each of the next 5 years. You therefore earn £500K over 5 years.

The company pays 19% corporation tax on this leaving £405K in the company coffers before dividends. You draw out £30K pa by way of dividend as this is tax free. This leaves the company with £255K to distribute.

You pay this equally to yourself and your wife (assuming you are male and married) by way of capital distribution. The first £70K is tax-free so you pay £185K @ 10% = £18,500.

Everyone's a winner.