Paying director salary instead dividends & ir35

[anddrew]

Hello!

I am currently contracting via my limited company.
So I receive a minimal salary and the rest pay myself as dividends.

As I understand, HMRC can claim I am breaching the ir35 and I can be in serious trouble.

I am wondering: can I just instead of paying myself dividends pay all of them as salary.
Of course, this way I will pay much more tax and also national insurance, as dividend tax is 20% and salary up to 40% + NI. But still the contract rates in the financial IT market are much higher than rates for employees.

But if I do this, I will be absolutely safe from HMRC.

Is this correct?

Why do people actually choose umbrela companies instead of working in own limited company and paying yourself salary without dividends?

[NotAllThere]

The correct approach is to get some insurance against investigation and have your contracts (and working practices) vetted to ensure they are not under the scope of IR35.

Then take dividends.

As to why people choose to go through a brolly - I guess it's less admin? I wouldn't do on the basis that they're controlling my money.

[Sockpuppet]

Hello!

I am currently contracting via my limited company.
So I receive a minimal salary and the rest pay myself as dividends.

As I understand, HMRC can claim I am breaching the ir35 and I can be in serious trouble.

I am wondering: can I just instead of paying myself dividends pay all of them as salary.
Of course, this way I will pay much more tax and also national insurance, as dividend tax is 20% and salary up to 40% + NI. But still the contract rates in the financial IT market are much higher than rates for employees.

But if I do this, I will be absolutely safe from HMRC.

Is this correct?

Why do people actually choose umbrela companies instead of working in own limited company and paying yourself salary without dividends?

Yes you can do this, yes you would be safe from HMRC with regards to IR35 as long as you pay at leat 95% of your income as salary paying full paye + NI.

People choose Umbrellas because of your situation above, its easier than running your own company.

[Clare@InTouch]

People chose a brolly because it's easy - they don't want the trouble of running a limited company, or they don't earn enough to make it worthwhile, or they won't be contracting for very long. Many times they could still get a slightly better takehome running their own limited company even paying everything out as salary because they could benefit from flat rate VAT and save professional fees.

IR35 depends on what you do on a daily basis, nothing to do with how you then go on to pay yourself. If you're subject to IR35 then, in simple terms, 95% of your income has to be paid as salary. So yes, paying yourself 100% salary would keep you safe from IR35. But so would a good contract, good advice and strong working conditions - and then you'd have more money too

[Craig@Clarity]

Hi anddrew,

If the contract is thought to be caught by IR35, you'd effectively be treating as caught by paying all the profit as a salary so "if" HMRC were to investigate your company, they have nothing to gain since you've done what they're after anyway.

Yes it is less tax efficient treating all your profit as salary compared to salary + dividends but if you are effectively deemed to be an employee of the end client, than it makes sense all the profit under that contract should be subject to PAYE (give or take 5%).

There are a number of factors as to why people choose brolly over a limited company e.g. administration, easy life, low day rate and less liability to name a few.

[ASB]

Hello!

I am currently contracting via my limited company.
So I receive a minimal salary and the rest pay myself as dividends.

As I understand, HMRC can claim I am breaching the ir35 and I can be in serious trouble.

I am wondering: can I just instead of paying myself dividends pay all of them as salary.
Of course, this way I will pay much more tax and also national insurance, as dividend tax is 20% and salary up to 40% + NI. But still the contract rates in the financial IT market are much higher than rates for employees.

But if I do this, I will be absolutely safe from HMRC.

Is this correct?

Why do people actually choose umbrela companies instead of working in own limited company and paying yourself salary without dividends?

Yes, you can do that if you wish.

If you use an umbrella it reduces your admin, it reduces your accountancy costs. Both positives. I am sure some people value their time highly enough to believe it is a worthwhile option.

Some umbreallas may be a little charitable in their expenses policies (complete with potential associated risks). Some chare more than other.

Also with an umbrella you will lose the 5% expense allowance IR35 gives (which will only actually cost you the tax on it of course). There is also potentially the profit you might conceivably make from the vat flat rate scheme if you use it.

Also with an umbrella it may be difficult to arrange company pension contributions, which can potentially be a big saver since these can be paid out of gross corporate income.

In summary people use umbrella because it suits their own personal circumstances. It's a simple value judgement. A lot of people I think find dealing with vat etc a pain and are happy to pay a little to avoid it.

[Craig@Clarity]

Echo echo echo..........

[northernladuk]

Why do people actually choose umbrela companies instead of working in own limited company and paying yourself salary without dividends?

http://forums.contractoruk.com/umbre...composite.html

[lithium147]

I think ppl choose an umbrella cos they dont know what they are doing, so its the simplest option. Anyone who has done the limited route before, would almost always choose to do that again.
There are other options like self employed and LLP which you could also consider.

[captainham]

There are other options like self employed and LLP which you could also consider.

Except no agent will touch a sole trader for reasons of liability, and almost none will touch an LLP as they don't understand that the first two letters still stand for Limited Liability.