Disorganised first time contractor seeks help...

[redrabbit]

So: I started work as a contractor in the finance sector in January, and have been so preoccupied with other stuff that I failed to notice the upcoming tax year end. Long story short, I'm working through a limited company but have not set up PAYE to pay myself a salary yet. Assuming it's too late to do that before April 5, I have the option of paying myself (and my wife)around £30k in dividends from post-tax profits.

I have had no other source of income in 2015/16, so anything I take in dividends will be my only earnings this tax year. I believe my contract puts me outside IR35 (there's stuff in there about 'right of substitution'). My wife is a 50% shareholder along with myself, and earns around £20,000.

If the company pays me and her around £15k each, I assume that would be pretty close to zero tax: will that be a problem for either of us?

I know I should have paid more attention,so please go easy on me: and yes, I will be talking to my accountant first thing tomorrow, but thought I'd see if anyone here has any informal advice to offer..

[malks222]

redrabbit said:

So: I started work as a contractor in the finance sector in January, and have been so preoccupied with other stuff that I failed to notice the upcoming tax year end. Long story short, I'm working through a limited company but have not set up PAYE to pay myself a salary yet. Assuming it's too late to do that before April 5, I have the option of paying myself (and my wife)around £30k in dividends from post-tax profits.

I have had no other source of income in 2015/16, so anything I take in dividends will be my only earnings this tax year. I believe my contract puts me outside IR35 (there's stuff in there about 'right of substitution'). My wife is a 50% shareholder along with myself, and earns around £20,000.

If the company pays me and her around £15k each, I assume that would be pretty close to zero tax: will that be a problem for either of us?

I know I should have paid more attention,so please go easy on me: and yes, I will be talking to my accountant first thing tomorrow, but thought I'd see if anyone here has any informal advice to offer..

quick bit of advice would be try and speak to an accountant very quickly, today/ tomorrow if possible! dont know ow quickly the can sort out the PAYE thing, my accountant firm runs my pay roll and its pretty easy.

but as for the dividend thing- yes you (and anyone) can take up to £32k dividend payments, tax free for tax year 15/16 (changes for 16/17 though, bare this in mind for next year). but again I think an accountant would be best for preparing your year end accounts and helping sort out your self assessment to keep you right.

things you are missing out- you've made no NI contributions for this year, so remember this may have an effect come retirement age that you may not have full contributions meaning reduced state pension (might not be an issue, but worth remembering)

I'm sure proper accountants will be along with much better advice, but I would definitely have had an accountant on board from the start, they may cost money, but save you so much more, they keep you right, answer any questions you have and will probably save you more than they cost you.

[Eric Mc]

The fact that so many people who are operating as limited companies in this manner post their queries in the "Jobs and Employment" forum always indicates to me that they don't quite TRULY understand what their "status" truly is.

I hope that you are fully up to speed on IR35 and its ramifications.

I would suggest that it is too late to get a PAYE scheme set up for tax year 2015/16. However, that does not preclude the allocation of SOME salary through the limited company.

Also, I would highly recommend that you talk to an accountant without delay - before the end of this week if possible.

[TIGA84]

Zoon said:

You can earn 10,600 tax free salary and the 5k in dividends wouldn't be taxable assuming you are on basic rate tax.

11k now.

[Eric Mc]

TIGA84 said:

Has anyone actually ever been prosecuted or taken to task under IR35, it just seems like an HMRC scaremongering tactic to me. I've hired hundreds (and yes that is correct) of contractors over the last few years and have never, ever heard of anyone getting stick for it.

It's not a "prosecution" matter. It's an "underpayment of tax and NI matter" which is rectified, in HMRC's mind, when the correct PAYE and NI is paid over - with interest and penalties of course.

And the answer to your question is, yes, there have been a number of IR35 cases where tax and NI has been recovered by HMRC - although the number is small. This does not mean that those who HAVEN'T had to pay up are actually outside the scope of IR35. It just means they've been lucky.

Edited by Eric Mc on Thursday 31st March 13:38

[Eric Mc]

Zoon said:

redrabbit said:

If the company pays me and her around £15k each, I assume that would be pretty close to zero tax: will that be a problem for either of us?

You can earn 10,600 tax free salary and the 5k in dividends wouldn't be taxable assuming you are on basic rate tax.

Don't forget that NI kicks in at a much lower threshold.

[TIGA84]

Eric Mc said:

The fact that so many people who are operating as limited companies in this manner post their queries in the "Jobs and Employment" forum always indicates to me that they don't quite TRULY understand what their "status" truly is.

I hope that you are fully up to speed on IR35 and its ramifications.

I would suggest that it is too late to get a PAYE scheme set up for tax year 2015/16. However, that does not preclude the allocation of SOME salary through the limited company.

Also, I would highly recommend that you talk to an accountant without delay - before the end of this week if possible.

Has anyone actually ever been prosecuted or taken to task under IR35, it just seems like an HMRC scaremongering tactic to me. I've hired hundreds (and yes that is correct) of contractors over the last few years and have never, ever heard of anyone getting stick for it.

[Zoon]

redrabbit said:

If the company pays me and her around £15k each, I assume that would be pretty close to zero tax: will that be a problem for either of us?

You can earn 10,600 tax free salary and the 5k in dividends wouldn't be taxable assuming you are on basic rate tax.