How to process payment of IR35 contracts

[rawcane]

Hi
While I have found lots of information on ir35 rules I cannot find much on how to handle contracts inside ir35 through a limited company. In a nutshell does the company have to pay the extra NI/tax and still decide on salary/dividend split or does all the money earnt (or 95%) have to be declared as individual earnings?
Thanks
Mark

[northernladuk]

Just go with an umbrella? Ones like Contractor Umbrella offer a nice pension option where you can put as much as you want in to minimise your liability.

[TheFaQQer]

Hi
While I have found lots of information on ir35 rules I cannot find much on how to handle contracts inside ir35 through a limited company. In a nutshell does the company have to pay the extra NI/tax and still decide on salary/dividend split or does all the money earnt (or 95%) have to be declared as individual earnings?
Thanks
Mark

There's not going to be any dividends (unless you run the company empty) - you take 5% off the invoices as that's your allowance, then any allowed expenses outside the 5% (eg pension), then pay the rest as PAYE / NI.

If you have alternative income outside IR35 then you could pay the IR35-caught income into your pension and salary (at whatever level) to reduce the payments due.

[tarbera]

An example (we will ignore vat, as you pay it anyhoo)

You are on say £10k a month - a great amount in anyone's wallet

Let's say you work away from home in London and have £2.5K expenses

From your massive £10K you will pay approx 50% in taxes - leaving £5k to take your £2.5Kexpenses from

Or £16 a hour net to your bank account

HMRC pocket £32 an hour

The other £16 you spent in expenses

Sorted ?

[MartinWH]

Deemed Payment

I don't understand that last post at all.

Assuming all your contracts are inside IR35:

• Add up all your invoice amounts (ex VAT) received in the tax year (NB date of receipt not date of invoice)
• Subtract 5%
• Subtract allowable expenses such as pensions

Your are now left with a number like £100000

You must now calculate the 'Deemed Payment' (DP). The DP is just is how much the employee is paid when the employer makes a total payment of £100000:

£100000 = DP + ERNI

It's not a difficult calculation but I don't have the details with me. Let's say the DP is £86000. This is the salary payment to the employee (you) and you now pay income tax and EENI on the DP. There is a calculator on the HMRC website (https://www.gov.uk/guidance/how-to-c...oyment-payment) which you can use to check your calculation. You can only do this all this at the year end so you can pay yourself an estimated amount monthly in a standard PAYE scheme and deduct the tax and NI from the end of year figures.