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?
- Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
- Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!
Tax situation after April 2020
Collapse
X
-
-
Originally posted by JohntheBike View PostAs 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?
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. -
I'm sure you'll find exactly the same question asked multiple times in the Public Sector IR35 forums from when that hit.'CUK forum personality of 2011 - Winner - Yes really!!!!Comment
-
Originally posted by Maslins View PostOversimplifying 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.Comment
-
Originally posted by northernladuk View PostI'm sure you'll find exactly the same question asked multiple times in the Public Sector IR35 forums from when that hit.Comment
-
Originally posted by JohntheBike View PostOK, 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?
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.'CUK forum personality of 2011 - Winner - Yes really!!!!Comment
-
Originally posted by JohntheBike View Postyes, 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 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.Comment
-
Originally posted by Maslins View PostIf 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.'CUK forum personality of 2011 - Winner - Yes really!!!!Comment
-
Originally posted by Maslins View PostIf 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.
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.Comment
-
Originally posted by JohntheBike View PostThe 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.
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.Last edited by northernladuk; 30 April 2019, 13:44.'CUK forum personality of 2011 - Winner - Yes really!!!!Comment
- Home
- News & Features
- First Timers
- IR35 / S660 / BN66
- Employee Benefit Trusts
- Agency Workers Regulations
- MSC Legislation
- Limited Companies
- Dividends
- Umbrella Company
- VAT / Flat Rate VAT
- Job News & Guides
- Money News & Guides
- Guide to Contracts
- Successful Contracting
- Contracting Overseas
- Contractor Calculators
- MVL
- Contractor Expenses
Advertisers
Contractor Services
CUK News
- Streamline Your Retirement with iSIPP: A Solution for Contractor Pensions Sep 1 09:13
- Making the most of pension lump sums: overview for contractors Sep 1 08:36
- Umbrella company tribunal cases are opening up; are your wages subject to unlawful deductions, too? Aug 31 08:38
- Contractors, relabelling 'labour' as 'services' to appear 'fully contracted out' won't dupe IR35 inspectors Aug 31 08:30
- How often does HMRC check tax returns? Aug 30 08:27
- Work-life balance as an IT contractor: 5 top tips from a tech recruiter Aug 30 08:20
- Autumn Statement 2023 tipped to prioritise mental health, in a boost for UK workplaces Aug 29 08:33
- Final reminder for contractors to respond to the umbrella consultation (closing today) Aug 29 08:09
- Top 5 most in demand cyber security contract roles Aug 25 08:38
- Changes to the right to request flexible working are incoming, but how will contractors be affected? Aug 24 08:25
Comment