Inside IR35 and not taking all profit as salary

[ASB]

I was told in the end by an accountant (still waiting for mine to get back to me ), that I can delare the bonus for my financial year just gone but not pay it till after the financial year, this is as long as the tax and NI are paid on the bonus within the 9 months after the end my ltd financial year, so it avoids me paying CT on the bonus, I just take the bonus minus a full hit of employer, employee NI and tax.

There are some specific rules about this. Essentially you declare the bonus but don't pay it. I beleive - but am not entirely sure - that you also need to declare a liability for the TAX and NI that is expected to be paid, thus you need to do the total sums. What I am unsure about is whether the [forward] tax and ni on the bonus can be accounted for as a deduction in the current year.

[malvolio]

D'oh! The result of doing three things at one - I'm mixing up two separate posters!! Hey, it's been a long day...

[NotAllThere]

Whoa, am I missing somehting here? If your company accounts are legitmately not subject to UK taxation law, why are you worried about IR35?

I have no worries about IR35.

You're missing the bit "Where I operate there is no tax relief on dividend income" I can take dividends, but I don't get a nice tax credit, so I'd end up paying corp tax, and tax on the dividends. So it isn't worth it.

[Bumfluff]

I was told in the end by an accountant (still waiting for mine to get back to me ), that I can delare the bonus for my financial year just gone but not pay it till after the financial year, this is as long as the tax and NI are paid on the bonus within the 9 months after the end my ltd financial year, so it avoids me paying CT on the bonus, I just take the bonus minus a full hit of employer, employee NI and tax.

[malvolio]

Where I operate there is no tax relief on dividend income, so all income comes out as salary (after expenses, naturally). My accountant calculates the bonus payment to miminize profit (and thus company tax). The bonus amount is recorded as a loan against my employment account, and reduced when I actually pay the bonus. ( Usually, for cash flow reasons, some six months later ).

This seems in accord with what people have said above.

So, this year, say I've 20'000 profit. That 20'000 is recorded as a loan from my employment account. The ee/ernic gets accounted for on 31.12.2008, paid by the company a few months later. The 20'000 (less eenic) will be paid in 2009, and clear the loan I've made to the company. The income tax, however, is not due until the bonus is actually paid to me.

UK law may well differ on when the ee/ernic and income tax are due, and to which year they apply.

Whoa, am I missing somehting here? If your company accounts are legitmately not subject to UK taxation law, why are you worried about IR35?

Otherwise what has been said above is broadly correct. If IR35 applies to one of your contracts only, you owe PAYE/NICs on 95% of that gross income. Nothing stops you offsetting that against your CT/ salary/dividends payments for the year based on your gross income for all your contracts, as long as that amount of tax is paid over to HMRC.

[NotAllThere]

Thanks VectraMan, the issue is for my last company year one 6 month gig was outside of IR35 the other was inside. First six months I paid myself salary and took 1 dividend, when I started the second gig I just took same salary and left the extra £ in the business account to take as bonus later, but I didnt take the bonus before the end of the company year. I don't want to pay both CT and full PAYE on the money

Can you not modify the accounts so that for the first gig, you paid yourself NO salary? I.e. pile all your salary payments against the IR35 contract?

[NotAllThere]

Where I operate there is no tax relief on dividend income, so all income comes out as salary (after expenses, naturally). My accountant calculates the bonus payment to miminize profit (and thus company tax). The bonus amount is recorded as a loan against my employment account, and reduced when I actually pay the bonus. ( Usually, for cash flow reasons, some six months later ).

This seems in accord with what people have said above.

So, this year, say I've 20'000 profit. That 20'000 is recorded as a loan from my employment account. The ee/ernic gets accounted for on 31.12.2008, paid by the company a few months later. The 20'000 (less eenic) will be paid in 2009, and clear the loan I've made to the company. The income tax, however, is not due until the bonus is actually paid to me.

UK law may well differ on when the ee/ernic and income tax are due, and to which year they apply.

[dmini]

ok - daft q but if you took 95% of your 2nd contract, then took off any travelling or allowable inside IR35 expenses from second contract is it less than the TOTAL amount incurred as paying you over the WHOLE YEAR- ie salary plus the NI part you've paid as employer. If so, youre in the clear, as far as I understand
However, an accountant should be able to confirm.

[Bumfluff]

As I understand it, all the money yourco has made (expenses aside) counts as salary whether you've paid it or not. Therefore your profit for the year is zero, so no CT. You also have to pay the income tax on the full amount, again even if you haven't paid it to yourself.

Effectively the money left over is a loan from you to the company, and there's no benefit to leaving it in the company.

You're making the mistake of thinking like a business.

Thanks VectraMan, the issue is for my last company year one 6 month gig was outside of IR35 the other was inside. First six months I paid myself salary and took 1 dividend, when I started the second gig I just took same salary and left the extra £ in the business account to take as bonus later, but I didnt take the bonus before the end of the company year. I don't want to pay both CT and full PAYE on the money

[VectraMan]

As I understand it, all the money yourco has made (expenses aside) counts as salary whether you've paid it or not. Therefore your profit for the year is zero, so no CT. You also have to pay the income tax on the full amount, again even if you haven't paid it to yourself.

Effectively the money left over is a loan from you to the company, and there's no benefit to leaving it in the company.

You're making the mistake of thinking like a business.

[Bumfluff]

Provided you haven't actually submitted your company return yet and paid the 20K (which I presume you haven't given the company year end has just passed), then I think you may be able to construct some board minutes saying that Bumfluff is to be paid a bonus and back date it to before the company year end.

Then you may be able to show it in the accounts as a debtor or an outstanding expense that hasn't been paid of some sort.

Best to ask an accountant I'm afraid, but I'd be surprised if there wasn't a way around it.

Cheers I havent submitted account yet and what you suggest does sound workable, waiting for accountant to confirm if I can ever get hold of them ...

[Hex]

Provided you haven't actually submitted your company return yet and paid the 20K (which I presume you haven't given the company year end has just passed), then I think you may be able to construct some board minutes saying that Bumfluff is to be paid a bonus and back date it to before the company year end.

Then you may be able to show it in the accounts as a debtor or an outstanding expense that hasn't been paid of some sort.

Best to ask an accountant I'm afraid, but I'd be surprised if there wasn't a way around it.

[Bumfluff]

few options:

• Buy IR35 insurance and take as divvy
• leave it in the company unless you need it
• I assume your bonus is effectively salary so full tax and NI on the lot? Why? If you do go down this option then, yes, you should have done it during the financial year to reduce CT.

I can think of worse problems to have though...

Cheers, yeah I want to take it up the glitter and pay full tax and NI long story.

My CT bill on the profit for that financial year is approx £20k, **** have I screwed myself out of £20k or will it even out based on the fact I will recieve less bonus as a result.

[ratewhore]

few options:

• Buy IR35 insurance and take as divvy
• leave it in the company unless you need it
• I assume your bonus is effectively salary so full tax and NI on the lot? Why? If you do go down this option then, yes, you should have done it during the financial year to reduce CT.

I can think of worse problems to have though...

[Bumfluff]

Hello,

For last 6 months I have just paid myself a reasonable salary and left the rest in the company, I now want to pay myself what I left in the company as a bonus not dividends as if I fail IR35.

Thing is my company year just ended and I had a fair amount of cash in the business account which would be seen as profit. Have I f8cked up in that I am going to end up paying CT on the profit and then tax again when I take it as a bonus ? If I had taken the bonus before the company year end would I have avoided the CT on it as it would not been ssen as a profit and I would have only been hit with the usual employee/r NI and tax when I took the bonus ?