My understanding was that there was no need to pay "dividends", i.e. no need to work it out based on 79% of the profit, fill out the minutes form etc. Rather whatever is left in the company account after VAT and PAYE or anything else is your money and you can help yourself to it. You then have to personally pay a big tax bill down the road.
If you were particularly short of cash you could almost be better off in the short term acting as if inside IR35, because the tax bill wouldn't come for a while. But obviously worse off in the long run.
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Reply to: Caught by IR35 - How Do I Pay Myself?
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Previously on "Caught by IR35 - How Do I Pay Myself?"
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Originally posted by Wanderer View PostNo, not an over simplification, that's pretty much how it works. There is a lot of boring admin stuff calculating your PAYE/VAT and getting it paid on time which your accountant will sort out for you.
As with Moscow Mule, dividends are paid out of profits and the IR35 caught company makes no profit so I would have thought that you should put dividends out of your mind. Even if you did take dividends, you have to keep the tax money in your company account so there is no benefit to you personally and you aren't going to get much interest.
Other than that, it sounds like you've got it pretty straight so go ahead and speak to your accountant who will sort out the finer points for you.
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Originally posted by Tomsk View PostI'm sure you know better than me but are you oversimplifying...? I thought that you could pay dividends, however, when the end of the year comes the deemed salary calculation means that they actually get treated as salary. If I'm right then can I do as I suggested and just pay dividends and get the accountant to square it all at the end of the year?
As with Moscow Mule, dividends are paid out of profits and the IR35 caught company makes no profit so I would have thought that you should put dividends out of your mind. Even if you did take dividends, you have to keep the tax money in your company account so there is no benefit to you personally and you aren't going to get much interest.
Other than that, it sounds like you've got it pretty straight so go ahead and speak to your accountant who will sort out the finer points for you.
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Dividends are paid out of profit.
If you're IR35 caught, there shouldn't be any profit left in the company.
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Originally posted by Tomsk View PostI thought that you could pay dividends, however, when the end of the year comes the deemed salary calculation means that they actually get treated as salary.
There was a justification for making PAYE payments throughout the year, which is why so many do it that way, but I'm struggling to find the evidence for it - I think it had something to do with HMRC being able to charge interest for each monthly PAYE payment as well.
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Many thanks, Wanderer. I know about the 5% rule and the 2 year rule (I live 5 mins from the site so no great shakes). I'm already on the VAT flat rate scheme. I've seen the IR35 calculators - always seem to come at it from the angle of avoidance.
I'm sure you know better than me but are you oversimplifying...? I thought that you could pay dividends, however, when the end of the year comes the deemed salary calculation means that they actually get treated as salary. If I'm right then can I do as I suggested and just pay dividends and get the accountant to square it all at the end of the year?
If I'm wrong - so unlikely ;-) - then do I have to do PAYE or can it be payed retrospectively at the end of the year?
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Originally posted by Tomsk View PostFeel free to say I should talk to my accountant about this - but I like to understand the rules and he isn't an explainer.
IR35 caught means that you can't pay dividends for company income on this contract. You have to pay out all the money as a salary. You will then pay Employers NI, Employees NI and PAYE on the income. There are calculators on the net, google IR35 calculator and you can get an idea of how much you will receive out of your gross.
You can claim 5% of the contract value as expenses under the 5% rule. Note that you don't have to justify (or even spend) the 5% on expenses - it's a concession.
You can claim other things, primarily accountancy, computer equipment, travel and subsistence (meals) for up to 2 years, read about and understand the 2 Year Rule if you know you will work at the same location for 2 years.
Consider signing up for the VAT Flat Rate Scheme if you aren't going to be buying and selling equipment.
Good luck!
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Caught by IR35 - How Do I Pay Myself?
Hi everyone,
Newbie here I'm afraid.
I've found lots of information about how to avoid being subject to IR35, however, for various reasons I am unable to avoid it. I have taken expert advice from a specialist legal service and they tell me it is not worth pursuing on my current contract. I expect to move to another contract where IR35 might not apply in a few months.
So putting aside the issue of how to avoid IR35, can someone give me some advice on how to pay myself? I have earnt around £10k this tax year whilst in a permie job so was taxed PAYE etc. I have left that and now have revenue coming into my new limited company. It seems the easiest way to pay myself a salary is by monthly dividend which will eventually be deemed to be income. If I stick to paying out about 40% of revenue then it should leave me sufficient to cover any tax/NI bill and then a final dividend at the end of the year. Is this approach acceptable given that until the end of the year HMRC will receive VAT but no income tax?
Feel free to say I should talk to my accountant about this - but I like to understand the rules and he isn't an explainer.
Thanks in advance,
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