I am contracting for a large bank via an agency. As with most I'm bracing myself for the new rules in April 2020 and trying to understand any potential impact as best I can. I don't hold much confidence in the client and agency being particularly contractor friendly, especially given another bank's recent position on the matter (HSBC), so am bracing myself for a worst case scenario Inside IR35 decision
At the moment, the model is well understood. From an invoice, we take off business expenses such as salary, pension contributions, accountancy fees etc. What's left is the gross profit. 20% of that goes to corporation tax, leaving net profit which can be paid as dividend. Easy.
As I understand it, if caught by IR35 we get a 5% business expenses allowance, and the rest is assumed to be personal income and will be taxed as such by the agency. So 95% of my invoice will be treated as if it is personal income and will be taxed at source. That's OK if your limited co only employs you (well, it's not, but that's another argument), but what happens if you have staff costs other than your own?
In my case I employ a part time office administrator on a 1 day a week basis. I pay her a small salary and pension contributions.
In the Inside IR35 model, my need for an office admin doesn't change, so I still need to employ her and pay her. But the company income that I would be paying her from would already have been taxed on the incorrect assumption that all of that income is mine.
Are there provisions in the Inside IR35 rules to cover staff costs like this? How is it meant to work?
At the moment, the model is well understood. From an invoice, we take off business expenses such as salary, pension contributions, accountancy fees etc. What's left is the gross profit. 20% of that goes to corporation tax, leaving net profit which can be paid as dividend. Easy.
As I understand it, if caught by IR35 we get a 5% business expenses allowance, and the rest is assumed to be personal income and will be taxed as such by the agency. So 95% of my invoice will be treated as if it is personal income and will be taxed at source. That's OK if your limited co only employs you (well, it's not, but that's another argument), but what happens if you have staff costs other than your own?
In my case I employ a part time office administrator on a 1 day a week basis. I pay her a small salary and pension contributions.
In the Inside IR35 model, my need for an office admin doesn't change, so I still need to employ her and pay her. But the company income that I would be paying her from would already have been taxed on the incorrect assumption that all of that income is mine.
Are there provisions in the Inside IR35 rules to cover staff costs like this? How is it meant to work?
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