Ltd Company PAYE question

[Ardesco]

Are you saying that as IR35 is on contract basis you could on one contract be paying full TAX and NI and then on the next contract taking home min sal and big divs.

On a contract classified as caught by IR35 you will have to pay the tax man a tax bill that assumes that all the momeny made on that contract has been paid to you through PAYE even if you don't take the momeny out of the company, as you are paying tax as if the money is taken out of the company as PAYE you may as well take it all out of your company as PAYE. The other contract(s) you don't need to pay any tax on unless you take the money out of your company, the amount of tax paid depends on how you take the money out of your company (via PAYE or Dividend).

Bear in mind that at the end of the year you will have to pay corporation tax on all the profit that you company has made, dividends can only be taken from profit (i.e. after corporation tax has been paid)

How would that work out in terms of recording it on accounts and assume you have to tell the accountant that the reason you have only taken divs for that certain period is because your contract is out of IR35

Your accountant will be able to work it out, he/she deals with this sort of thing every day, that is why you pay for his/her services. Just note down what has gone out as PAYE and what has gone out as dividends and tell your accountant which contracts are caught by IR35 and which ones aren't.

What do you mean by mostly dead ?

Very few people who have challenged IR35 ruling have lost, somthing like 2 out of 3000 or something similar. i'm sure Malvolio can supply all the figures and more information if needed.

[Euro-commuter]

Are you saying that as IR35 is on contract basis you could on one contract be paying full TAX and NI and then on the next contract taking home min sal and big divs. How would that work out in terms of recording it on accounts and assume you have to tell the accountant that the reason you have only taken divs for that certain period is because your contract is out of IR35

What do you mean by mostly dead ?

If your accountant is doing the accounts for a Ltd Co, he does not in general need to know anything about what one of the Co employees (you) did during periods of employment by other companies. Furthermore, the fact that you are employed by some other company at a particular moment does not stop you from receiving dividends from any company of which you are a shareholder, including a company that you own. It is only as a shareholder that you can receive dividends: it doesn't matter where you're employed at the time.

If the contract that you personally are currently on is caught by IR35, the company you have shares in can still pay you the shareholder dividends from the profit that it has made on non-IR35 contracts.

If I were HMRC I'd take you for a disguised employee: you do not seem to have any idea of the difference between employee and company, or employee, director, and shareholder. You are possibly caught by IR35, the Co is not. But it can only pay dividends out of profits.

[VectraMan]

Are you saying that as IR35 is on contract basis you could on one contract be paying full TAX and NI and then on the next contract taking home min sal and big divs. How would that work out in terms of recording it on accounts and assume you have to tell the accountant that the reason you have only taken divs for that certain period is because your contract is out of IR35

There'd be no point paying min salary on the second contract as you've already paid a much larger salary on the first contract. You'd just pay dividends.

If you are inside IR35, you don't even have to pay the full amount as salary, but you have to pay the tax as if you had. You could be using that money to fund some other business activity, yet you'll be taxed on money you've never earned. Good isn't it?

[Cooperinliverp00l]

Nope, IR35 is on a contract by contract basis. Having multiple contracts at the same time does not impact the IR35 status of any specific contract, each contract is assesed individually and on its own merits. This being said IR35 is mostly dead nowdays anyway....

Are you saying that as IR35 is on contract basis you could on one contract be paying full TAX and NI and then on the next contract taking home min sal and big divs. How would that work out in terms of recording it on accounts and assume you have to tell the accountant that the reason you have only taken divs for that certain period is because your contract is out of IR35

What do you mean by mostly dead ?

[Ardesco]

Although running concurrent contracts is in itself a pointer to being outside IR35 and in business as a legitimate co.

Nope, IR35 is on a contract by contract basis. Having multiple contracts at the same time does not impact the IR35 status of any specific contract, each contract is assesed individually and on its own merits. This being said IR35 is mostly dead nowdays anyway....

[DaveB]

IR35 is on a per contract basis. You could have 3 contracts running at the same time where 1 is caught by IR35 and 2 are not caught by IR35.

Although running concurrent contracts is in itself a pointer to being outside IR35 and in business as a legitimate co.

[Ardesco]

IR35 is on a per contract basis. You could have 3 contracts running at the same time where 1 is caught by IR35 and 2 are not caught by IR35.

[Cooperinliverp00l]

I have a questiosn then. Tax year April to April and Company Year end also April. If you are on a contract taking you up to say September which was outside of IR35 so you took min sal and max dividends come Sept you get given a contract that is caught by IR35 do you only then pay full TAX and NI on income recieved from the contract or from previous contract as well as it is within the same personal tax and company year.

[Ardesco]

I thought if I was putting my invoice 'all' thru PAYE then I would be paying the full NI quota and the tax man would be happy regardless of my contract.

Yes they will, but if you are not caught by IR35 you can just take a minimum wage and put the rest through as dividen which drastically reduces your tax bill meaning you get to take thousands more home at the end of the year.

If you are going to put all your cash through as PAYE don't worry about IR35 it won't affect you, but you are paying a lot more to the tax man than you need to.

I'm sure some of the esteemed members of the forums will be able to provide some figures.

[MrRobin]

If your contract 'passes' / is not caught by IR35 then you can do basically do what you want with regards to paying yourself all PAYE, minimum wage & dividends, half way house etc. If you don't 'pass' IR35 then you are obliged to take all the contract income as PAYE salary.

There is a school of thought that says paying yourself [above minimum wage] is a good move to avoid undue interest from HMRC but this is debated on a regular basis with no firm conclusions.

http://forums.contractoruk.com/thread18871.html

[a7awo]

I thought if I was putting my invoice 'all' thru PAYE then I would be paying the full NI quota and the tax man would be happy regardless of my contract.

Secondly, I am paying myself a directors PAYE wage at 'minimum wage' but I have heard others who run their own ltd are working on a 25% of their invoice as directors PAYE wage. Why do they do this?

[Ardesco]

No point in having a LTD if you aren't going to draw dividends. Taking it all as PAYE means you may as well be caught by IR35.

[a7awo]

Slight new to this game but have been running a Ltd co. for just over a year now and just wanted to know, when people on this forum talk about running their own Ltd co and having a IR35 compliant contract and this is the best way to be, etc. ... are they drawing a minimum PAYE (directors wage) and then drawing the rest as dividend or are they drawing the whole invoice as PAYE (except for expenses)?

Secondly if I did start to draw my invoice as PAYE (minus expenses) and so draw no dividend then does that mean it doesn't matter if I was IR35 compliant or not?