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Steps for volunterily moving to 'Inside' IR35

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    #11
    Originally posted by Hobosapien View Post
    That's where reality, certainly in my case, made a difference. I was able to only need divis up to basic tax threshold so never paid the higher tax rate in a tax year, and back then there were divi tax credits as the basic rate had already been paid in the corp tax so no additional tax to pay if drawn in future years, until the new divi tax came in to address that to an extent.

    Been a while since I've had to think about divis and tax efficiency so my recollection may be wrong!
    And what happened to the money in the PSC that you did not need to draw upon?

    Presumably at some point it was remitted to you?
    Best Forum Adviser & Forum Personality of the Year 2018.

    (No, me neither).

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      #12
      Originally posted by webberg View Post
      As a div he pays 7.5% on say £35,000 and 32.1% on £36,750 = £14,420 (ish)

      snip

      This assumes that all the money is removed from the company in a year. It is possible that this will not happen and the money will stay. Eventually however the money will leave and it will be taxed.
      The difference being that the money that you've got as being taxed at higher div tax rate will likely leave in one of two cases -- next year when he is on the bench, or when the company is wound up.

      In the latter case, that £36,750 at the higher rate will be taxed at 10% using ER, for a savings of £8K. In the former, he'll take about £8.5K as salary at no personal tax at all, reclaim £2K of Corporation tax as a result, and take a £30K dividend at 7.5% tax, meaning there will almost be nil net tax on it (the CT reclaimed will effectively cancel the dividend tax). So you've likely overstated the contractor's tax by £8-12K with your assumption.

      Not to mention other assumptions....

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        #13
        Originally posted by WordIsBond View Post
        The difference being ..
        Yep, understand that my model was crude and more to demonstrate a principle rather than arithmetic accuracy.

        I absolutely understand that a better model might be one over say 3 years in which there were periods of no contract meaning no accummulation of funds in the company.

        I also assumed that the contractor and the employee would require pretty much all of their net funds in order to pay the grocery bills. If both employee and contractor were able to not draw the full salary/fee, then the employee could use a number of "approved" schemes to reduce the tax bill.

        Perhaps we should put up an example of say a 3 or 5 year cycle for both?
        Best Forum Adviser & Forum Personality of the Year 2018.

        (No, me neither).

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          #14
          I don't understand why being inside IR35 means you need to operate under an umbrella company? Why not just continue with your Ltd company and pay the extra tax?

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            #15
            Originally posted by pauldee View Post
            I don't understand why being inside IR35 means you need to operate under an umbrella company? Why not just continue with your Ltd company and pay the extra tax?
            Because the agents will be on the hook if you don't and it's a risk to them. Goiny PAYE or brolly removes that risk.
            'CUK forum personality of 2011 - Winner - Yes really!!!!

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              #16
              Originally posted by northernladuk View Post
              Because the agents will be on the hook if you don't and it's a risk to them. Goiny PAYE or brolly removes that risk.
              Why would the agents be on the hook, it's the end client that makes the decision? And what's the risk if you are being declared inside IR35 anyway?

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                #17
                Originally posted by pauldee View Post
                Why would the agents be on the hook, it's the end client that makes the decision? And what's the risk if you are being declared inside IR35 anyway?
                If you don't pay the PAYE tax, empty the company bank account and move abroad, who is then liable for the tax?

                There's also the question as to why you'd want to go via your PSC if inside IR35. You're being taxed as an employee but have all the overheads of running a Ltd Company.

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                  #18
                  Originally posted by northernladuk View Post
                  Because the agents will be on the hook if you don't and it's a risk to them. Goiny PAYE or brolly removes that risk.
                  Thanks for this, I was wondering why, pretty obvious really!

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                    #19
                    Originally posted by webberg View Post
                    And what happened to the money in the PSC that you did not need to draw upon?

                    Presumably at some point it was remitted to you?

                    Yep. Declared as divi to max basic tax threshold each tax year then in some cases withdrawn immediately or left in Ltd as a director loan (back to company) for other purposes.

                    Point being that prior to the 'new' divi tax once the profit for a tax year was declared and corp tax paid there was no additional personal tax to pay up to basic tax threshold as the tax credit applied at self-assessment cancelled the personal liability out.

                    Now there's the additional divi tax (and a tax free allowance of £2k instead of tax credit) which makes that approach less of an advantage, which is your original point. All's good.
                    Maybe tomorrow, I'll want to settle down. Until tomorrow, I'll just keep moving on.

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                      #20
                      Originally posted by Hobosapien View Post
                      Yep. Declared as divi to max basic tax threshold each tax year then in some cases withdrawn immediately or left in Ltd as a director loan (back to company) for other purposes.

                      Point being that prior to the 'new' divi tax once the profit for a tax year was declared and corp tax paid there was no additional personal tax to pay up to basic tax threshold as the tax credit applied at self-assessment cancelled the personal liability out.

                      Now there's the additional divi tax (and a tax free allowance of £2k instead of tax credit) which makes that approach less of an advantage, which is your original point. All's good.
                      Agree!!! His example was terrible and pretty sure 99% of contractors with ltd won't do anything close to that!
                      "The boy who cried Sheep"

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