Would they not just get this right? PAYE vs LTD Co.

[Great Pretender]

pilchardthecat said:

They don't enforce the IR35 rules.

It's very easy to run a Ltd company, pay yourself £5k/year PAYE and take everything else as dividends at corp tax rate.

Not quite as easy as that I'm afraid.

[TinyCappo]

I'm currently going through the discussion with the OH at the moment as im a contractor under an umbrella at the moment but I'm not sure if I earn enough or frequently enough (2-3 months with no work sometimes) to warrant going limited? Would appreciate some advice from the PH Ltd collective

[Eric Mc]

robmlufc said:

Best thing about Ltd Company is taking the misses away for your AGM

Any accountant worth his weight knows about getting round IR35, Ltd is the way to go as a contractor.

Edited by robmlufc on Tuesday 13th March 12:50

Sorry, accountants can't turn a genuine IR35 situation into a non-IR35 situation.

[Eric Mc]

TinyCappo said:

I'm currently going through the discussion with the OH at the moment as im a contractor under an umbrella at the moment but I'm not sure if I earn enough or frequently enough (2-3 months with no work sometimes) to warrant going limited? Would appreciate some advice from the PH Ltd collective

If you are a potentially Higher Rate Taxpayer, then having your own limited company may be worth considering. HOWEVER, always be aware of IR35 and how it may pertain to your particular circumstances.

[TeamD]

cazzer said:

TeamD said:

You can split it with anyone you choose to employ....hmmmm....maybe I should employ a personal slave and exploit their tax benefits


Doh! Already do, that's what Cazzer is for

Ahem...you don't "employ" me gitbag.

Did, then don't since you are a director now You're just no fun sometimes

ETA: What are you doing on PH at work? Get some bloody work done

Also ETA: Ah yes, I know, it's all running smoothly so there is eff all to do apart from goldfish

Edited by TeamD on Tuesday 13th March 15:39

[mattnunn]

pilchardthecat said:

They don't enforce the IR35 rules.

It's very easy to run a Ltd company, pay yourself £5k/year PAYE and take everything else as dividends at corp tax rate.

only up to about 30k over that your into higher rate tax on yer dividends.

There is an astonishing misdirection of angst onto small ltd companies, of which i am a director. Over the past few years i've taken home only aboy 10% more than i would as a permie, from whcih i've got to sort out my own pension, insurances, accountancy, holiday pay, sickness cover, not to mention collecting vat for the bosses. On top of that i have no job security and travel all over the place. It's really not as lucrative as it was.

[Du1point8]

mattnunn said:

pilchardthecat said:

They don't enforce the IR35 rules.

It's very easy to run a Ltd company, pay yourself £5k/year PAYE and take everything else as dividends at corp tax rate.

only up to about 30k over that your into higher rate tax on yer dividends.

There is an astonishing misdirection of angst onto small ltd companies, of which i am a director. Over the past few years i've taken home only aboy 10% more than i would as a permie, from whcih i've got to sort out my own pension, insurances, accountancy, holiday pay, sickness cover, not to mention collecting vat for the bosses. On top of that i have no job security and travel all over the place. It's really not as lucrative as it was.

I suppose it depends on the industry... most of the contractors I know get double or more on what you can earn as an employee on take home pay per month... However once the rest of the package that you create yourself is taken care of that drops to around 50-60% more and that is the security payment as we call it, so for the first 6 months of a contract we just save the money for a just in case scenario... after the 6 months we spend a little more as you have the buffer that is needed.

[Deva Link]

TeamD said:

.... and don't get me started of Employers NI.

What employers (and employees, for that matter) NI?

The NI savings by being paid largely through dividends are very substantial.

The real con in all things personal tax related is people don't seem to regard NI as simply tax.

[TeamD]

Deva Link said:

TeamD said:

.... and don't get me started of Employers NI.

What employers (and employees, for that matter) NI?

The NI savings by being paid largely through dividends are very substantial.

The real con in all things personal tax related is people don't seem to regard NI as simply tax.

Last line, agree. But you assume that everyone is only paying themselves through dividends which normally isn't the case because sensible people pay themselves a dividend as a kind of bonus when they have made a decent profit, no point in changing your salary monthly to reflect what you have or haven't earnt is there?

[Deva Link]

TeamD said:

Last line, agree. But you assume that everyone is only paying themselves through dividends which normally isn't the case because sensible people pay themselves a dividend as a kind of bonus when they have made a decent profit, no point in changing your salary monthly to reflect what you have or haven't earnt is there?

My understanding, from our accountant and from a tax inspector friend, is that all small Ltd company shareholder directors pay themselves nominal salaries and the rest as dividends. Not sure if you're being ironic but there's no need for monthly income to fluctuate - you don't "earn" the dividend anyway.

If you're going to pay yourself a normal sort of salary so you end up paying higher rate tax on dividends then it becomes almost pointless as you'd pay more tax in total than if you took the money as salary. There's still an employers NI saving though, but it becomes less significant.

[slippery]

Eric Mc said:

robmlufc said:

Best thing about Ltd Company is taking the misses away for your AGM

Any accountant worth his weight knows about getting round IR35, Ltd is the way to go as a contractor.

Edited by robmlufc on Tuesday 13th March 12:50

Sorry, accountants can't turn a genuine IR35 situation into a non-IR35 situation.

So if a Ltd Co has been contracting to the same company for many years and HMRC call time on the arrangement, who is liable for the unpaid tax etc?

[mattnunn]

slippery said:

So if a Ltd Co has been contracting to the same company for many years and HMRC call time on the arrangement, who is liable for the unpaid tax etc?

ha ha, not the accountant that's for sue. Essentially the company and it's directors.
There are contractors out there in my industry who have fallen off permie jobs and are doing stop gap work, and a smaller number who are blagging it trying to do their own accounts and abusing the system, but in general most people using ltd companies who are in it from choice for the long term are well informed and responsible and operate as best they can.

[slippery]

mattnunn said:

slippery said:

So if a Ltd Co has been contracting to the same company for many years and HMRC call time on the arrangement, who is liable for the unpaid tax etc?

ha ha, not the accountant that's for sue. Essentially the company and it's directors.
There are contractors out there in my industry who have fallen off permie jobs and are doing stop gap work, and a smaller number who are blagging it trying to do their own accounts and abusing the system, but in general most people using ltd companies who are in it from choice for the long term are well informed and responsible and operate as best they can.

Which company, the one doing the hiring, or the one providing the service?

[RYH64E]

Another thing that people tend to forget is that company owners don't often get to pay themnselves all of their company profit as wages, most of the profit is retained within the business.

Last year I paid corporation tax on an amount about 6 times higher than my total pay (pay which is a combination of salary and dividends), my corporation tax bill is always higher than my gross pay. Also, I may not pay much NI on my personal salary but I pay more than my fair share as employers ni for the privilege of having staff.

[mattnunn]

slippery said:

mattnunn said:

slippery said:

So if a Ltd Co has been contracting to the same company for many years and HMRC call time on the arrangement, who is liable for the unpaid tax etc?

ha ha, not the accountant that's for sue. Essentially the company and it's directors.
There are contractors out there in my industry who have fallen off permie jobs and are doing stop gap work, and a smaller number who are blagging it trying to do their own accounts and abusing the system, but in general most people using ltd companies who are in it from choice for the long term are well informed and responsible and operate as best they can.

Which company, the one doing the hiring, or the one providing the service?

The service provider. Generally the end client will be isolated because there will also be a recruitment agency in the chain, either way the end client shouldn't be contractually obliged to have anything to do with the financial affairs of a service provider.

Which is essentially the nub of the fk up with IR35, it's a wholly inadequate and badly proposed piece of legislation that everyone hates, even the revenue, it's cost them a lot of money. It essentially interrogates the wording of a service contract and compares them to working practice, not an easy thing for the revenue people to do or make a judgment on, so they all end up in expensive and needless court cases where someone has to sit in judgment of the evidence, usually for sums of money far less than the process is going to cost. Sooner they rip it up the better. It's scare legislation, that doesn't scare anyone, it costs me £10 to have my contracts reviewed for IR35 compliance.

[Eric Mc]

slippery said:

Eric Mc said:

robmlufc said:

Best thing about Ltd Company is taking the misses away for your AGM

Any accountant worth his weight knows about getting round IR35, Ltd is the way to go as a contractor.

Edited by robmlufc on Tuesday 13th March 12:50

Sorry, accountants can't turn a genuine IR35 situation into a non-IR35 situation.

So if a Ltd Co has been contracting to the same company for many years and HMRC call time on the arrangement, who is liable for the unpaid tax etc?

HMRC cannot stop an individual from working through his own limited company. However, they may decide that the provisions of IR35 apply - which essentially means that the limited company used by the individual should have been calculating PAYE and NI (employee's and employer's) on the gross amounts billed to its customers(there are some allowances for certain classes of company expenditure - including pension contributions paid by the company. This might work out very expensive for the limited company, depending on how it has been accounting for its PAYE and NI up to the moment IR35 is deemed to be appropriate.

[Eric Mc]

mattnunn said:

The service provider. Generally the end client will be isolated because there will also be a recruitment agency in the chain, either way the end client shouldn't be contractually obliged to have anything to do with the financial affairs of a service provider.

Which is essentially the nub of the fk up with IR35, it's a wholly inadequate and badly proposed piece of legislation that everyone hates, even the revenue, it's cost them a lot of money. It essentially interrogates the wording of a service contract and compares them to working practice, not an easy thing for the revenue people to do or make a judgment on, so they all end up in expensive and needless court cases where someone has to sit in judgment of the evidence, usually for sums of money far less than the process is going to cost. Sooner they rip it up the better. It's scare legislation, that doesn't scare anyone, it costs me £10 to have my contracts reviewed for IR35 compliance.

The contract could be worded perfectly to suit IR35 avoidance and you could be still caugfht by IR35. Read up on the Dragonfly Ltd case.

[mattnunn]

Eric Mc said:

slippery said:

Eric Mc said:

robmlufc said:

Best thing about Ltd Company is taking the misses away for your AGM

Any accountant worth his weight knows about getting round IR35, Ltd is the way to go as a contractor.

Edited by robmlufc on Tuesday 13th March 12:50

Sorry, accountants can't turn a genuine IR35 situation into a non-IR35 situation.

So if a Ltd Co has been contracting to the same company for many years and HMRC call time on the arrangement, who is liable for the unpaid tax etc?

HMRC cannot stop an individual from working through his own limited company. However, they may decide that the provisions of IR35 apply - which essentially means that the limited company used by the individual should have been calculating PAYE and NI (employee's and employer's) on the gross amounts billed to its customers(there are some allowances for certain classes of company expenditure - including pension contributions paid by the company. This might work out very expensive for the limited company, depending on how it has been accounting for its PAYE and NI up to the moment IR35 is deemed to be appropriate.

The HMRC can try to bully people into accepting their view of reality, but their record is pretty poor.

Eric - as you seem to work in this area can you tell me in the event of HRMC win an IR35 case will the corp tax etc.. be refunded that should have been salary not profit turned to dividend? And while you're on can you tell us, definitavely, the higher rate threshold for dividends?

[Eric Mc]

The easy one first.

The higher Income Tax rate for dividends is 32.5% (mot 40%)

If you are a 50% tax payer, then the top dividend rate becomes 42.5%.

Regarding IR35, if HMRC decides that IR35 rules SHOULD have applied, they will recalculate all the Income Tax< Corporation Tax and NI liabilities arising under the IR35 rules and then deduct from that Corpotration Tax, PAYE and NI already paid - and ask for the difference - with interest.

I have heard of amounts of £90,000 being collected in this way.

[slippery]

Eric Mc said:

The easy one first.

The higher Income Tax rate for dividends is 32.5% (mot 40%)

If you are a 50% tax payer, then the top dividend rate becomes 42.5%.

Regarding IR35, if HMRC decides that IR35 rules SHOULD have applied, they will recalculate all the Income Tax< Corporation Tax and NI liabilities arising under the IR35 rules and then deduct from that Corpotration Tax, PAYE and NI already paid - and ask for the difference - with interest.

I have heard of amounts of £90,000 being collected in this way.

£90k! Doesn't exactly make people wnt to leave to much money in their Ltd Co account if they are really just a single contractor, because I'm sure HMRC would only chase the money hard if they knew the company could pay.