Tax situation after April 2020

**Maslins** · 30 April 2019, 10:49

Originally posted by JohntheBike View Post

As we all know, from April 2020 for those contractors who are deemed inside the new IR35 regulations, tax and NI will be deducted at source. However, do we know exactly how those deductions will work in relation to the corporation tax bill for the contractor's company? Do we have any specific examples for anyone working in the public sector? Apart from the NI issue, the corporation tax rate from April 2020 will be 18%, whilst the persona tax rate will still be 20%. So there would be a discrepancy there which I guess would affect the corporation tax calculation. The NI issue would also introduce another issue in relation to the corporation tax position. Anybody got any actual facts and figures yet?

Oversimplifying a bit, but if the client treats you as inside IR35, your company makes no profit, so there's no CT to pay.

Turnover £50k
Salary (£50k)
Profit £nil
CT 18% of £nil = £nil

The company effectively becomes an irrelevant middleman, with money just passing through it.

When it comes to personal tax, I think the end client should give the (human) contractor a P60, which is then treated as if it were salary.

**northernladuk** · 30 April 2019, 10:54

I'm sure you'll find exactly the same question asked multiple times in the Public Sector IR35 forums from when that hit.

**JohntheBike** · 30 April 2019, 12:29

Originally posted by Maslins View Post

Oversimplifying a bit, but if the client treats you as inside IR35, your company makes no profit, so there's no CT to pay.

Turnover £50k
Salary (£50k)
Profit £nil
CT 18% of £nil = £nil

The company effectively becomes an irrelevant middleman, with money just passing through it.

When it comes to personal tax, I think the end client should give the (human) contractor a P60, which is then treated as if it were salary.

yes, on the face of it, but are there any actual details yet to support this? I'm thinking that using your example, there would be company running costs, which would effectively put the company into a loss, given that the 5% allowance is now being removed.

**JohntheBike** · 30 April 2019, 12:31

Originally posted by northernladuk View Post

I'm sure you'll find exactly the same question asked multiple times in the Public Sector IR35 forums from when that hit.

OK, but do we yet have any actual examples of how it has worked in the PS, especially in relation to company running costs, which are now not allowed?

**northernladuk** · 30 April 2019, 12:46

Originally posted by JohntheBike View Post

OK, but do we yet have any actual examples of how it has worked in the PS, especially in relation to company running costs, which are now not allowed?

Haven't looked in detail but does this thread help.

https://www.contractoruk.com/forums/...bout-ir35.html

Also loom in the IR35 reform part of the forums. What may happen in 2020 already did in the PS so I'm sure someone has crunched the numbers in there as it's already happened.

**Maslins** · 30 April 2019, 12:56

Originally posted by JohntheBike View Post

yes, on the face of it, but are there any actual details yet to support this? I'm thinking that using your example, there would be company running costs, which would effectively put the company into a loss, given that the 5% allowance is now being removed.

If someone contracts inside IR35 (new rules) long term, then my understanding is their company will consistently make a small loss (admin expenses like you suggest). They won't be able to get any tax relief for this. Remember the company and the individual behind it are two separate legal entities. A company's loss can't be offset against an individual's income. Realistically people in this situation will likely look for options other than Ltd Co (umbrella/PAYE).

If they're dipping inside/outside IR35 then it's different. Potentially messy, but at least for the outside stuff the company will be able to make a profit, offsetting any modest losses on the inside stuff. It may well be that those people in this situation (sometimes inside sometimes outside) will do the inside stuff via an umbrella anyway.

**northernladuk** · 30 April 2019, 12:59

Originally posted by Maslins View Post

If someone contracts inside IR35 (new rules) long term, then my understanding is their company will consistently make a small loss (admin expenses like you suggest). They won't be able to get any tax relief for this. Remember the company and the individual behind it are two separate legal entities. A company's loss can't be offset against an individual's income. Realistically people in this situation will likely look for options other than Ltd Co (umbrella/PAYE).

If they're dipping inside/outside IR35 then it's different. Potentially messy, but at least for the outside stuff the company will be able to make a profit, offsetting any modest losses on the inside stuff. It may well be that those people in this situation (sometimes inside sometimes outside) will do the inside stuff via an umbrella anyway.

I think the OP is missing the fundamentals of this just like everyone did when the PS changes hit.

**JohntheBike** · 30 April 2019, 13:28

Originally posted by Maslins View Post

If someone contracts inside IR35 (new rules) long term, then my understanding is their company will consistently make a small loss (admin expenses like you suggest). They won't be able to get any tax relief for this. Remember the company and the individual behind it are two separate legal entities. A company's loss can't be offset against an individual's income. Realistically people in this situation will likely look for options other than Ltd Co (umbrella/PAYE).

If they're dipping inside/outside IR35 then it's different. Potentially messy, but at least for the outside stuff the company will be able to make a profit, offsetting any modest losses on the inside stuff. It may well be that those people in this situation (sometimes inside sometimes outside) will do the inside stuff via an umbrella anyway.

The problem as I see it is, that those who are deemed inside will still have to run their company, and at a loss, as the contract will be between the contractor's company and the client. So all payments would have to be made into the bank account of the contractor's company. I haven't seen this issue discussed anywhere. So would the situation where a company continued to post a loss determine that the company was insolvent based on the Companies Act? My accountant has advised me that if there are insufficient funds in the company on the first day of the company's new trading year to cover the corporation tax liability for the previous year, then that company is technically insolvent. Is this actually the case?

Has anyone caught by the new rules been able to persuade the client to pay the monies directly into their personal account and not the company account? I can't see it, but it would be good to know.

**northernladuk** · 30 April 2019, 13:41

Originally posted by JohntheBike View Post

The problem as I see it is, that those who are deemed inside will still have to run their company, and at a loss, as the contract will be between the contractor's company and the client. So all payments would have to be made into the bank account of the contractor's company. I haven't seen this issue discussed anywhere. So would the situation where a company continued to post a loss determine that the company was insolvent based on the Companies Act? My accountant has advised me that if there are insufficient funds in the company on the first day of the company's new trading year to cover the corporation tax liability for the previous year, then that company is technically insolvent. Is this actually the case?

Has anyone caught by the new rules been able to persuade the client to pay the monies directly into their personal account and not the company account? I can't see it, but it would be good to know.

As I say.. basic misunderstanding. Maslins has already given what will probably happen in the last line of his post.

Also mentioned a number of times in this post which you were a contributor.
https://www.contractoruk.com/forums/...ules-ir35.html

Please read the Reforms to IR35 threads.

Tax situation after April 2020