Delaying payment till April 6th

[lucyclarityumbrella]

Hope this helps (with regards to a brolly anyway)...

Section 18 ITEPA 2003

With the exception of some foreign earnings (see EIM42210), money earnings are chargeable to tax in the year they are received (see EIM42201).

Money earnings are treated as received for assessment purposes, and paid for PAYE purposes, on the earliest of the following:

when a payment of earnings is actually made or when a payment on account of earnings is made (see EIM42270)
the time when a person becomes entitled to payment of earnings or a payment on account of earnings (see EIM42290)

[Fred Bloggs]

Correct

Yet again it seems Umbrellas are treated differently under the rules than consultancies, or seem to think they are. In large consultancies its fairly common to spread big payments, like bonus, or redundancy, over multiple tax years if it helps the employee. Especially in cases where they employee is planning to retire and will have a full tax allowance available next tax year, and so on, I have seen the bonus held over till then multiple times.

I dont know what the law actually says, but it seems the practice varies wildly.

I think you'll find the law doesn't say anything. You pay your tax in the year your income is received. It's just about one of the only remaining advantages of running a Ltd Co as a contractor. You never need pay higher rate tax.

[lucyclarityumbrella]

Sorry - probably could have made it clearer - as an employer we have to make payment once the funds have been received, so if the agency / end client makes payment to the brolly before the end of the tax year then the monies have to be taxed at the point they are made available. If the agency do not make payment, and funds are not received until the following tax year - then it can be processed for tax purposes in the year it is received.

Hope that makes sense.

[CoolCat]

My bold. I am surprised by this. As an employer, it is fairly common to defer pay to another tax year if it results in a tax advantage to the employee. Perhaps there is something I do not know about with brollies. But as an employer/employee relationship I know of nothing that mandates salary HAS to be paid in the same year it is earned.

Correct

Yet again it seems Umbrellas are treated differently under the rules than consultancies, or seem to think they are. In large consultancies its fairly common to spread big payments, like bonus, or redundancy, over multiple tax years if it helps the employee. Especially in cases where they employee is planning to retire and will have a full tax allowance available next tax year, and so on, I have seen the bonus held over till then multiple times.

I dont know what the law actually says, but it seems the practice varies wildly.

[Fred Bloggs]

No umbrella company can legally keep the funds and process it in the following tax year as mentioned the only way around this is with max pension and netting NMW. Let me know if you want any calculations

My bold. I am surprised by this. As an employer, it is fairly common to defer pay to another tax year if it results in a tax advantage to the employee. Perhaps there is something I do not know about with brollies. But as an employer/employee relationship I know of nothing that mandates salary HAS to be paid in the same year it is earned.

[SeanT]

Can you convert divi to DL? Although that just pushes them into the next tax year.

"found an Inside IR35 PS contract for next 4 months"...

[AJ1982]

Can you convert divi to DL? Although that just pushes them into the next tax year.

[lucyclarityumbrella]

Only way I think I can get around this is to find an Umbrella that will hold the weekly Agency payment then pay me in one go on April 6th but my current umbrella say they cant hold it it.

No umbrella company can legally keep the funds and process it in the following tax year, as mentioned the only way around this is with max pension and netting NMW. Let me know if you want any calculations

[Hobosapien]

Go with umbrella that allows you to pay max into pension to avoid too much higher rate tax, so only have minimum wage payment to worry about.

Look at reducing the dividend on record by converting some to director loan or other way of cancelling it for current tax year, so even though it appears on bank statement the official paperwork shows it wasn't a dividend, unless already submitted paperwork. Work out how much any potential alternative would save to see if worth the hassle.

[ladymuck]

Have you considered taking the salary and then repaying what you've drawn down from your company? Until you close out your year end, no-one knows what you've taken and you can just reverse the journal and shred the documentation. You pay tax on the umbrella earnings but shouldn't push you into a higher tax bracket if you cancel the dividend.

Or, just suck it up and pay the tax instead of using your LtdCo for tax planning and avoidance, just like HMG thinks all contractors do.

[northernladuk]

How can they do that? It's income in a set year. Holding it until the next year for tax advantage is aggressive avoidance at best and maybe pushing evasion. You don't want anything to do with a company that's going to do that surely?

What has your accountant suggested and at the worst why not just pay the tax for a few months?

[eldy]

Hi,

Unfortunately i've withdrawn maximum dividends this tax year and found an Inside IR35 PS contract for next 4 months.

It seems the income will push the dividends from 7.5% to 32.5% tax bracket

Only way I think I can get around this is to find an Umbrella that will hold the weekly Agency payment then pay me in one go on April 6th but my current umbrella say they cant hold it it.

Anyone know of an Umbrella that can ?