Reply to: Contract Advice - Self Employed or Limited Company?

[Wanderer]

No i didnt mean 14% extra, i understand thsts what i need to return back to HMRC, the added extra would be the 6%

It's not quite as good as that.

You invoice for £100 + VAT = £120
You pay HMRC 14.5% of £120 = £17.40
Your net gain is £2.60 or 2.6% of your ex VAT income.

Still worth having but not quite the 6% you were hoping for.

[TheCyclingProgrammer]

Going back to do a pretty similar job to a former employer, who they have recently left.

Didn't read the OP properly. Having re-read, I agree with you. Even more reason to just do it through an umbrella.

OP: working through a LTD company only really has advantages if most of your contracts are going to be outside of IR35. Think of it this way: even inside IR35, as long as you're getting paid a significantly higher rate as a contractor, then you're still going to be better off than before, regardless of how you're taxed, right?

[TheFaQQer]

how do you know this?

Going back to do a pretty similar job to a former employer, who they have recently left.

No right of substitution.

Direction and control in what is done and how.

Unless there is a decent lack of MoO clause (which reflects the reality), I'd bet on it being inside IR35.

[TheCyclingProgrammer]

Hmm... Based on what you've said i have to agree that i'll be paying a crazy amount, seems its a much higher risk than i had thought

I'd rather avoid the hassle now and just stick with declaring inside ir35 to my accountant and he can sort out my PAYE.

If you could kindly advise on a seperate issue i have with opening a business bank account. I have been declined by Santandar, due to a low credit score unfortunately so i signed up with CashPlus instead and instantly had an account opened up. Ive checked and they seem to be regulated by FSA but how would you rate them from experience, if any?

If you know you're going to be inside IR35 (how do you know this?) then it would be far less hassle to just work through an umbrella at this stage. Less hassle, less paperwork, less stress.

[Clare@InTouch]

FTFY.

Isn't IR35 a personal tax, so HMRC could come after you personally rather than just the company?

IR35 is a company tax, but the director of a company can be pursued personally in cases of fraud.

[deeniguy]

If you work outside IR35 you draw dividends from the company which don't attract NI contributions and you pay corp tax on your profits and income tax on drawings over the 40% tax threshold. If you work inside IR35 you pay income tax on earnings over £9440 per year and you also pay employer's national insurance which is 13.8% of earnings over £148.00 per week and employee's national insurance of 12% on earnings over the same threshold. So if you got caught you would pay additional income tax, 25.8% of earnings each week over £148.00 plus potential penalties of up to 100% of what's owed and interest. Plus you may have to pay for legal representation.

If you know you are inside IR35 why take the risk????

Hmm... Based on what you've said i have to agree that i'll be paying a crazy amount, seems its a much higher risk than i had thought

I'd rather avoid the hassle now and just stick with declaring inside ir35 to my accountant and he can sort out my PAYE.

If you could kindly advise on a seperate issue i have with opening a business bank account. I have been declined by Santandar, due to a low credit score unfortunately so i signed up with CashPlus instead and instantly had an account opened up. Ive checked and they seem to be regulated by FSA but how would you rate them from experience, if any?

[TheFaQQer]

If you know you are inside IR35 why discuss committing fraud on an internet forum?

FTFY.

Isn't IR35 a personal tax, so HMRC could come after you personally rather than just the company?

[TheFaQQer]

I have spoken to my accountant and he has advised that the best option would be as you've stated, to setup via PAYE to avoid any potential investigation. However, he didn't completely rule out the possibility of continuing to pay as being outside ir35, but did warn that in the odd chance that that i am investigated down the line, i will end up paying the same tax/ni as my permie days in addition to the penalties which according to him, hmrc dont add as they are usually lenient if i am willing to cooperate with their investigation.

Ask him what basis he's making that statement on - how many of their clients have gone through an IR35 investigation? How many have won?

If HMRC think that you have been deliberately hiding the income, then the penalty is an additional 100% of the tax and NI due. Based on what you have said, I don't think you could say that it was an accident (30%), so you're looking at 70% to 100% penalty as what could be charged.

Ask your accountant to put in writing a guarantee that you won't be liable to pay the penalty, and then keep that guarantee safe.

I am registered with the FRS scheme @ 14% so the added extra into the business should alleviate the tax burden, if under an investigation by HMRC.

You might make a thousand pounds on FRS as a rough guess. Work out how much your potential liability is going to be, and see how that compares.

[LisaContractorUmbrella]

I have spoken to my accountant and he has advised that the best option would be as you've stated, to setup via PAYE to avoid any potential investigation. However, he didn't completely rule out the possibility of continuing to pay as being outside ir35, but did warn that in the odd chance that that i am investigated down the line, i will end up paying the same tax/ni as my permie days in addition to the penalties which according to him, hmrc dont add as they are usually lenient if i am willing to cooperate with their investigation.

So if as a permie i was paying around 30% tax/Ni, plus penalty of say 30% of that sum, added together should be approx 40% in total... Would that be a fair guess?

I am registered with the FRS scheme @ 14% so the added extra into the business should alleviate the tax burden, if under an investigation by HMRC.

If you work outside IR35 you draw dividends from the company which don't attract NI contributions and you pay corp tax on your profits and income tax on drawings over the 40% tax threshold. If you work inside IR35 you pay income tax on earnings over £9440 per year and you also pay employer's national insurance which is 13.8% of earnings over £148.00 per week and employee's national insurance of 12% on earnings over the same threshold. So if you got caught you would pay additional income tax, 25.8% of earnings each week over £148.00 plus potential penalties of up to 100% of what's owed and interest. Plus you may have to pay for legal representation.

If you know you are inside IR35 why take the risk????

[TheCyclingProgrammer]

No i didnt mean 14% extra, i understand thsts what i need to return back to HMRC, the added extra would be the 6%

As I just pointed out in another thread, your "added extra" would actually be the surplus, less any input VAT you've paid throughout the year on any expenses that you would have reclaimed if you were on the standard scheme. That's the whole point of the surplus - to cover input VAT you've paid over the year without claiming it back directly. It's also why the flat rate scheme only works for people with minimal VAT chargeable expenses (like us).

Probably still a profit, but less than you think.

[deeniguy]

14% extra? Think you need to read up on FRS, it's 14% VAT you collect of behalf of HMRC, and give it to them in the correct amount and on time. Otherwise it's more penalties and more fines.

No i didnt mean 14% extra, i understand thsts what i need to return back to HMRC, the added extra would be the 6%

[stek]

I have spoken to my accountant and he has advised that the best option would be as you've stated, to setup via PAYE to avoid any potential investigation. However, he didn't completely rule out the possibility of continuing to pay as being outside ir35, but did warn that in the odd chance that that i am investigated down the line, i will end up paying the same tax/ni as my permie days in addition to the penalties which according to him, hmrc dont add as they are usually lenient if i am willing to cooperate with their investigation.

So if as a permie i was paying around 30% tax/Ni, plus penalty of say 30% of that sum, added together should be approx 40% in total... Would that be a fair guess?

I am registered with the FRS scheme @ 14% so the added extra into the business should alleviate the situation, if under an investigation by HMRC.

14% extra? Think you need to read up on FRS, it's 14% VAT you collect of behalf of HMRC, and give it to them in the correct amount and on time. Otherwise it's more penalties and more fines.

[deeniguy]

Oh, and just a note OP: don't ask for advice a 3rd time because you didn't like what was offered on the previous 2 occasions.

If you want to ignore IR35 then ignore it, just don't expect the advice telling you that.

I understand, as that would be morally wrong :/

[deeniguy]

You can add all sorts of clauses to a contract but if your working practices put you inside IR35 then inside IR35 is where you will be. If you are caught you will have to pay tax owed plus employee's NI owing plus employer's NI plus up to 100% of the amount owing in penalties. You have only been working for 4 weeks so speak to your accountant who will set you up through PAYE and your problem is solved.

I have spoken to my accountant and he has advised that the best option would be as you've stated, to setup via PAYE to avoid any potential investigation. However, he didn't completely rule out the possibility of continuing to pay as being outside ir35, but did warn that in the odd chance that that i am investigated down the line, i will end up paying the same tax/ni as my permie days in addition to the penalties which according to him, hmrc dont add as they are usually lenient if i am willing to cooperate with their investigation.

So if as a permie i was paying around 30% tax/Ni, plus penalty of say 30% of that sum, added together should be approx 40% in total... Would that be a fair guess?

I am registered with the FRS scheme @ 14% so the added extra into the business should alleviate the tax burden, if under an investigation by HMRC.

[cojak]

Oh, and just a note OP: don't ask for advice a 3rd time because you didn't like what was offered on the previous 2 occasions.

If you want to ignore IR35 then ignore it, just don't expect the advice telling you that.