Contractor, IR35 Issues, Running Ltd Company

[johnywalker]

Hi Experts,

I have been contracting for one and a half years and wasn't aware of IR35 issues. Having read the various articles abour IR35 and looking at my contract in various companies, it looks like that I will come inside IR35.

I did go through an accountant to set everything up, but he wasn't aware of IR35 in depth, as it mostly applies to contractors. We have three in the company, two of us being the directors and one the secretary. It was setup with trading as an IT Reseller and we did take reseller accounts with all main distributors & did sell some stuff to companies (we still do that). But, as I moved to contracting, I started using the same company as my Ltd company. Anyway, I have been getting my salary from various companies which goes directly into my business account.

As my accountant wasn't aware of IR35 issues, he advised that I can take a portion of rent, electricity, council tax, car mileage apart from my salary so that I pay less tax and I have been doing that. I have been paying Employer NI, Employee NI and PAYE TAx on the salary that I have taken so far.

Is it correct that if I run my own ltd company for contracting and being inside IR35, I don't have to pay Employer's NI?

I have taken about 10% of the contracting income (for 1.5 years, as I extended my financial year to be 1.5 years) as rent, council tax, electricity, car mileage, internet etc and the rest I have taken as my salary and paid employer and employee NI and PAYE tax on that.

I have not been challenged by HMRC on IR35, but I would like to rectify my error. Along with the contracting income, I have generated a turn over of about 15K in the last one and a half year from IT reselling with a profit of maybe 2K. I did couple of weeked consulting jobs which I ran through the same company.

So, as I operate IT reselling services as well through the same company, can I say that I am taking out the expense (rent, council tax etc) and will that be valid?

My questions are:

1. What should I do to correct my finance to be inside IR 35 and not caught and then get penalities?
2. Should I leave this company for IT reselling alone and start a new company just for contracting?
3. What is that we should if we are inside IR35? Take 5% of your annual income as expense and take 95% as salary and pay only employee NI and paye tax (and noe employer NI)?

I just want to correct my business scenario so that I am not caught by IR35 and still do reselling. Should I start a new company or correct issues in the present company and do both through the same company.

I know it is a bit lengthy, but any help would be greatly appreciated. I am going through different websites to know more about IR35 issues.

Thanks in advance,
Johny.

[Hex]

I would suggest that the first thing you do is to get your contract reviewed to see if it falls inside or outside IR35. There are a few companies who specialise in this and they typically turn it round in a few days. Search on this board for contract review.

I would also suggest you consider using a different accountant who understands IR35 and its procedures etc. It sounds like you are currently running the risk of either not paying all the taxes you owe because of ignorance or maybe paying too much tax because of ignorance. In either case you need to remove the ignorance in order to make your situation certain. Getting an accountant who specialises in this will help. Alternatively, read up on it yourself and become an expert - but this will be harder and time consuming.

Employer's NI is payable by your limited company on any payments it makes through PAYE (salary, bonuses etc)

[johnywalker]

I would suggest that the first thing you do is to get your contract reviewed to see if it falls inside or outside IR35. There are a few companies who specialise in this and they typically turn it round in a few days. Search on this board for contract review.

I would also suggest you consider using a different accountant who understands IR35 and its procedures etc. It sounds like you are currently running the risk of either not paying all the taxes you owe because of ignorance or maybe paying too much tax because of ignorance. In either case you need to remove the ignorance in order to make your situation certain. Getting an accountant who specialises in this will help. Alternatively, read up on it yourself and become an expert - but this will be harder and time consuming.

Employer's NI is payable by your limited company on any payments it makes through PAYE (salary, bonuses etc)

Thanks for the prompt response. But, with the guidelines for checking whether the contract falls within IR35, I am pretty sure mine faills in, as I work in client's place, with their equipment, they tell me what to do, i have fixed hours, I can't take holidays/decide my working hours without my manager's consent (You know, typical IT Contractor Scenario). I can't get a subcontractor to fill for me, it is not possible and is not in contract as well.

So, since I have gone beyond the limit of 5% expense, how can I make up and pay the relevant taxes and NI that I owe? Is it enough that I pay the tax and NI on the extra money that I have taken, along with current month's salary taxes and NI?

I took car mileage as well, does it come under travel expense? I do drive to my work place!

Any help is much appreciated.

Thanks,
JOhny.

[pmeswani]

Thanks for the prompt response. But, with the guidelines for checking whether the contract falls within IR35, I am pretty sure mine faills in, as I work in client's place, with their equipment, they tell me what to do, i have fixed hours, I can't take holidays/decide my working hours without my manager's consent (You know, typical IT Contractor Scenario). I can't get a subcontractor to fill for me, it is not possible and is not in contract as well.

So, since I have gone beyond the limit of 5% expense, how can I make up and pay the relevant taxes and NI that I owe? Is it enough that I pay the tax and NI on the extra money that I have taken, along with current month's salary taxes and NI?

I took car mileage as well, does it come under travel expense? I do drive to my work place!

Any help is much appreciated.

Thanks,
JOhny.

It looks like you need more help than what this board should cater for. You need to find an accountant that specialises in IT Contractors. A few of them hang around this board, some of them advertise on this site. There are useful notes on the First Timers link on the home page. Read that... find an accountant that deals with IT Contractors (umbrellasupermarket.com or something like that would be a good starting point).... set an agreed salary, dividend payment and dispensation and put in a claim based on that. Always look at claiming as little as necessary so that you can draw a salary / dividend when you are not working.

Assume you can't claim anything, but keep all your receipts / milage info that you obtain as a result of your work (petrol receipts, milage information, food receipts) and speak to an accountant that can advise what your dispensation should be.

[Hex]

You should be able to treat some of the money you've taken out as salary and then pay PAYE taxes on it before then end of April next year (presuming these are payments from this personal tax year - not last).

I may be wrong with this as I'm not an expert on deemed salary. As we've said, you really needs an accountant or adviser who specialises in this sort of thing at least for some advice on how to get yourself out of the hole.

If you don't want to get a new accountant then it would probably be worth paying for some advice from someone who is a specialist in these areas.

Other things worth considering are putting a post on shout99 where some experts hang out and answer questions, or contact HMRC and ask them. They may be very helpful as you're offering to pay them more money. Before you take this route though, be absolutely certain that you want to pay tax under IR35 as you will be walking into the Lion's den!

[NotAllThere]

Anyway, I have been getting my salary from various companies which goes directly into my business account.

Learn the difference between SALARY and FEES.

[pmeswani]

Learn the difference between SALARY and FEES.

You mean there's a difference?

I always considered the monies into the business as revenue.

[VectraMan]

Is it correct that if I run my own ltd company for contracting and being inside IR35, I don't have to pay Employer's NI?

No, that's not correct. Employer's NI is the biggest saving you make by being outside IR35.

As you're effectively running two businesses through one company, you're going to have to try to seperate one from the other, and as for expenses that sounds something of a nightmare. If you're going to continue with this, you're probably going to be better off starting a new company for contracting (or if you're determined to be inside IR35, just sign up with an umbrella instead).

[johnywalker]

No, that's not correct. Employer's NI is the biggest saving you make by being outside IR35.

As you're effectively running two businesses through one company, you're going to have to try to seperate one from the other, and as for expenses that sounds something of a nightmare. If you're going to continue with this, you're probably going to be better off starting a new company for contracting (or if you're determined to be inside IR35, just sign up with an umbrella instead).

Thanks. But won't umbrellas take 100% as salary without giving the (5% expense when you use ltd company)?
ANd regarding the 5% expense, can I just take it into my account without any receipts? Is it like that, just take, no questions asked? Or should we run the company expenses through the company and be within that 5%?

Thanks,
Johny.

[Alan @ BroomeAffinity]

You need to enlist the services of a specialist accountant. If, on the face of it, your contract falls inside but that can be worked on. Its complicated in any event keeping it inside the existing company. Either set up yuor own ltd co for the contracting side only - even if IR35 caught - there are advantages or sign up with a brolly.