Reply to: Dragonfly tax bill and corporation tax

[AZZIK]

Is this the "service companies" question of P4?

This is being discussed on this thread:

http://forums.contractoruk.com/accou...ax-return.html

By the way hmrc have worded it - we all have to complete this box??

[Hiram King Of Tyre]

Is this the "service companies" question of P4?

[BarneyOwl]

There is a whole bunch of stuff somewhere in the deemed calculation about this. This is to allow offsets of amounts effectively paid.

At the time of IR35 creation I made the following observation in my correspondence with my MP:-

Year 1 profit of 100k. Pay 20k corp tax and 80 dividends. As a result of the dividends about 10k of higher rate tax is actually paid.

Subsequently found in IR35 and as such a deemed salary of 95k is assessed on the individual. The individual is then assessed based on this salary. There is a deduction available (usually as far as I can work out) for the CT but NOT for the higher rate tax already paid by the individual.

I did get a reply via my MP from some bod at HMRC, however this didn't really address things and merely stated that there was no element of double taxation. I was not convinced.

It may have improved, there may be a way of restating the accounts or obtaining other relief against the income tax and NI - but I couldn't work out how.

Have a look at the Finance Act 2000:

http://www.opsi.gov.uk/acts/acts2000...17_en_39#sch12

Part 7 details the deemed calculation. It does not mention offsetting CT so I don't think this is included in the calculations.

Part 13 details "claims for relief". Note subsection (3):

"If on a claim being made the Inland Revenue are satisfied that relief should be given in order to avoid a double charge to tax, they shall give such relief by way of amending any assessment, by discharge or repayment of tax, or otherwise, as appears to them appropriate."

So from this, I beleive the 99k Dragonfly bill DOES NOT include any cliams on relief that may be made and so could be substantially less, if HMRC agree to the claim.

[Lewis]

Hmmm. So this means you'll build up funds in your company over time.

Can your company "store" funds in a Swiss bank account?

Unless you are "income shifting"

[ASB]

Hmmm. So this means you'll build up funds in your company over time.

Can your company "store" funds in a Swiss bank account?

Your company can bank where it likes. But that might not actually be answering the question.

[KentPhilip]

Interesting. Another reason to not go into higher rate bracket at any point.

Hmmm. So this means you'll build up funds in your company over time.

Can your company "store" funds in a Swiss bank account?

[Lewis]

There is a whole bunch of stuff somewhere in the deemed calculation about this. This is to allow offsets of amounts effectively paid.

At the time of IR35 creation I made the following observation in my correspondence with my MP:-

Year 1 profit of 100k. Pay 20k corp tax and 80 dividends. As a result of the dividends about 10k of higher rate tax is actually paid.

Subsequently found in IR35 and as such a deemed salary of 95k is assessed on the individual. The individual is then assessed based on this salary. There is a deduction available (usually as far as I can work out) for the CT but NOT for the higher rate tax already paid by the individual.

I did get a reply via my MP from some bod at HMRC, however this didn't really address things and merely stated that there was no element of double taxation. I was not convinced.

It may have improved, there may be a way of restating the accounts or obtaining other relief against the income tax and NI - but I couldn't work out how.

Interesting. Another reason to not go into higher rate bracket at any point.

[ASB]

Hi,

I've found the answer to my own question.

The £99k tax bill does not include any "claims on relief".

I believe that Mr Bessell could claim he's already paid 45k + in corp tax and 20k + in dividend income tax. So to avoid paying tax twice he could request that this be offset against his bill. Whether HMRC agree is another matter :-)

There is a whole bunch of stuff somewhere in the deemed calculation about this. This is to allow offsets of amounts effectively paid.

At the time of IR35 creation I made the following observation in my correspondence with my MP:-

Year 1 profit of 100k. Pay 20k corp tax and 80 dividends. As a result of the dividends about 10k of higher rate tax is actually paid.

Subsequently found in IR35 and as such a deemed salary of 95k is assessed on the individual. The individual is then assessed based on this salary. There is a deduction available (usually as far as I can work out) for the CT but NOT for the higher rate tax already paid by the individual.

I did get a reply via my MP from some bod at HMRC, however this didn't really address things and merely stated that there was no element of double taxation. I was not convinced.

It may have improved, there may be a way of restating the accounts or obtaining other relief against the income tax and NI - but I couldn't work out how.

[oracleslave]

I'm already getting spam scaremongering emails from Sunday Solutions about dragonfly.

Me too. Got a letter from QDOS as well, advertising their insurance etc in light of the latest judgement. As DaveB I think pointed out, the industry/insurance folk around IR35 are surefire winners after this case result.

[THEPUMA]

If Dragonfly cannot or will not pay what it owes to HMRC then they can bankrupt the company. Once it is in bankruptcy the liquidators will seek recover any monies owed to the company. As stated in my earlier post it is highly likely that dividends paid to Mr Bessel by Dragonfly were illegal i.e. there was not enough profit to pay them. The liquidators can then pursue Mr Bessel as a shareholder for the illegally paid dividends. If he cannot or will not pay them back then they can bankrupt him.

David.

Rubbish.

The dividends were not illegal as they were based on accounts showing a profit and there was no reason to doubt their accuracy at the time. They can't go after him personally.

[Jubber]

If Dragonfly cannot or will not pay what it owes to HMRC then they can bankrupt the company. Once it is in bankruptcy the liquidators will seek recover any monies owed to the company. As stated in my earlier post it is highly likely that dividends paid to Mr Bessel by Dragonfly were illegal i.e. there was not enough profit to pay them. The liquidators can then pursue Mr Bessel as a shareholder for the illegally paid dividends. If he cannot or will not pay them back then they can bankrupt him.

David.

It all comes down to whether they can prove neglect. How could you possibly prove neglect if you are running your company outside of IR35 and have all the legal paperwork to prove it? What measures would the court see as 'reasonable'? A sound contract is very reasonable. A contract that has every clause known to man to avoid IR35 is also reasonable. Making sure you actually do work the way the contract states is also very reasonable.

My opinion is that the revenue would have a much harder task proving director neglect than they have had proving some 'hypothetical' contract of employment. If you have all the legal paperwork in place how could a judge ever say it was neglect? What reasonable steps does any company director take to do a piece of work?

IMHO - Keep your paperwork in order and get all the money out of the company.

I'm already getting spam scaremongering emails from Sunday Solutions about dragonfly. It also seems they they (and other umbrellas) may be posting here as well, along with all the other people who make a tidy living out of IR35 fear.

[Fred Bloggs]

Thank you ZC, at last, a post I am prepared to believe could be true about who pays!

[Zen Contracting]

If someone does not pay up or declare himself bankrupt , can they seize his assets/bank account?

If Dragonfly cannot or will not pay what it owes to HMRC then they can bankrupt the company. Once it is in bankruptcy the liquidators will seek recover any monies owed to the company. As stated in my earlier post it is highly likely that dividends paid to Mr Bessel by Dragonfly were illegal i.e. there was not enough profit to pay them. The liquidators can then pursue Mr Bessel as a shareholder for the illegally paid dividends. If he cannot or will not pay them back then they can bankrupt him.

David.

[Zen Contracting]

The liability to HMRC belongs to the company not the shareholder. However had IR35 been correctly accounted for then the company's profits would have been significantly lower and therefore I suspect that Dragonfly has paid out illegal dividends (paid dividends from profits that really did not exist). Dragonfly will need to recover these from the shareholders and use this cash to pay HMRC. Of course in this case Dragonfly and the shareholder are in reality one and the same person (though not legally of course) so ultimately the cash will have to come from Bessel.

The £99k hit will not be quite as bad as it first looks. As Dragonfly overstated its profits (by not correctly accounting for IR35) then it will have paid too much corporation tax. Dragonfly should be able to recover the overpaid tax from HMRC and use it towards the PAYE liability.

David.

[Fred Bloggs]

See above post by Diver ...

"Where a company fails to pay National Insurance Contributions in respect of its employees, and the failure is due to the fraud or neglect of a director or other officer, the unpaid NIC may be recovered from that director (Social Security Administration Act 1992, s.121C)"

The argument goes that if you have a contract review and you are told by a professional that you are outside IR35 then this isn't fraud or neglect. Therefore cost can't be passed on. The same applies to PAYE. I don't know if it will work but that is the theory that has been posted on here before.

It seems diver posted while I was typing. I carry out a risk assessment for each contract based on the criteria that QDOS send you when you take out their insurance. I hope that is enough to show I took reasonable care in my IR35 risk assessments.

We may be about to find out "who pays" depending on whether Mr Bessel has >£99k in his Ltd co account?