IR35 any additional taxes to those deducted at source?

[jamesbrown]

This is essentially a technical/accounting question about correct treatment in your company accounts and SATR, so you should speak to your accountant. However, I think you mainly care about the end result, which is that YourCo will receive the deemed payment plus VAT, where applicable, and then remit the VAT, where applicable, and you can withdraw the rest as salary or dividends without further tax. For example, I think you could pay everything in dividends without reporting them on your tax return. Again, the practical consequence is no further tax, regardless of the accounting treatment.

[northernladuk]

They are deducting taxes at source and paying net to his LTD and not him personally?

OP you do realise the risks of continuing to work inside with your client after working with them as outside and the amounts of money that they could claim for you. If its years you could be on the hook for 100s of K.

[jamesbrown]

Here's an example from one of the draft ESMs published and yanked earlier today:

EXAMPLE

John’s PSC receives a VAT exclusive payment, net of tax and Class 1 National Insurance of £5,800. £1,000 was deducted already by the deemed employer under PAYE for tax and Primary Class 1 National Insurance. Therefore, John does not need to pay tax or NICs again on the end of line remuneration of £5,800.

The PSC can pay John a salary of £5,800 via a non-taxable and non-NICable payment in payroll, to ensure no more tax or NICs are deducted.

Alternatively, John could take £5,800 as dividends from the PSC and these dividends would not be subject to dividend tax.

The amount that can be paid to John without deducting tax and NICs by his PSC is limited to £5,800 as this was the amount of the deemed direct payment net of income tax and Class 1 NICs.

See ESM10030 for further information about the worker drawing money from their intermediary.

[jamesbrown]

More yanked guidance.

DRAFT off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2020): basic principles: CT accounting
This is a draft and may be subject to change

HMRC will accept accounts that have been prepared under either a gross or net receipt basis since the tax result is the same. But preparers of the accounts will need to consider the most suitable approach to ensure the financial statements are prepared in accordance with UK GAAP. HMRC recommends recording the amounts gross for completeness.

Since the deemed payment amounts have already been subject to tax and NICs, no further tax is due on those amounts or this would be double taxation. This can be achieved in different ways depending on whether income from off-payroll working arrangements is recorded gross or net within the PSC’s accounts and whether the money is taken out of the PSC as salary or dividends.

ETC.

[pacontracting]

More yanked guidance.

This is all a bit of a mess TBH.

I thought being inside IR35 meant that you would be paid gross, you'd deduct your 5%, still be able to claim Section 190 expenses and you would pay HMRC the deemed payment on the caught contract income. Whatever is left could then be withdrawn however you want as it's already been taxed so the concept of 'salary' or 'dividend' is moot. The main difference is now the client determines your IR35 status at the start of the contract, so you, as the business, know you have to apply the rules up front.

Equally, if you go via an Umbrella or PAYE via an agency, you are no longer a PSC and so IR35 does not apply - you are a normal employee and taxed in a completely different way - as an employee would be.

What's changed?

[Beko]

They are deducting taxes at source and paying net to his LTD and not him personally?

OP you do realise the risks of continuing to work inside with your client after working with them as outside and the amounts of money that they could claim for you. If its years you could be on the hook for 100s of K.

Yep, I'm aware of that risk. It's one of the factors I'm taking into account when deciding what to do. A side issue- presumably the client is at risk too, if they've been using contractors like this for years, aren't they also opening themselves up to investigation for failure to pay employers NI for years?

At the moment, I'm just trying to assess the exact financial impact. I just don't understand how we can be so sure that no further taxes would be applied.

When I file my corporation tax return, will it make a difference that payment already had taxes deducted? On the My Company Ltd bank sheet, it will show as profit, even if it was less profit than I had before.

Similarly with dividends and salary payments. In my personal tax return, it will simply show that My Company Ltd paid My Name salary and dividends. The Ltd Company is an entirely separate entity, so surely the fact its now taken less money over the course of a business year is irrelevant to my personal tax return.

[SimonMac]

The complete picture - or as much information as I have is:

* I have worked for this client as one of a number of clients, outside IR35 for years
* This one client has decided all contractors will now be deemed inside IR35 and will only pay invoices minus NI and Income Tax
* They will only engage if I retain my Ltd company status, so I presume will continue to pay my now reduced payment into my company bank account.

My - much mocked - original question is how I can take this money out of my ltd company, as any method i can see (increasing the salary I pay myself as a director, drawing dividends as I usually would) incurs additional taxes.

Your client (and you) are in serious trouble when it comes to understanding post april.

Is there an agency involved or will the client be paying you direct (from your post I assume direct)?

Your client can't pay your company an invoice minus any personal taxes. You are not your company so why would they take payment minus any personal taxes. I think your client needs to speak to someone to get help.

[jamesbrown]

Your client (and you) are in serious trouble when it comes to understanding post april.

Is there an agency involved or will the client be paying you direct (from your post I assume direct)?

Your client can't pay your company an invoice minus any personal taxes. You are not your company so why would they take payment minus any personal taxes. I think your client needs to speak to someone to get help.

Actually, I think it’s you that misunderstands. They can do exactly that. It’s a deemed payment and the mechanics are described in the draft legislation. The deemed payment is made net of payroll taxes and the apprenticeship levy, where applicable, plus VAT, where applicable, and the rest is just accounting treatment, with no further tax due on payments to the worker.

[jamesbrown]

This is all a bit of a mess TBH.

I thought being inside IR35 meant that you would be paid gross, you'd deduct your 5%, still be able to claim Section 190 expenses and you would pay HMRC the deemed payment on the caught contract income. Whatever is left could then be withdrawn however you want as it's already been taxed so the concept of 'salary' or 'dividend' is moot. The main difference is now the client determines your IR35 status at the start of the contract, so you, as the business, know you have to apply the rules up front.

Equally, if you go via an Umbrella or PAYE via an agency, you are no longer a PSC and so IR35 does not apply - you are a normal employee and taxed in a completely different way - as an employee would be.

What's changed?

Nope. That’s the whole point of a Fee Payer. It’s their responsibility to apply payroll. Also, the 5% allowance has gone unless you’re working for a small client and still self-declaring your status (as inside).

[SimonMac]

Actually, I think it’s you that misunderstands. They can do exactly that. It’s a deemed payment and the mechanics are described in the draft legislation. The deemed payment is made net of payroll taxes and the apprenticeship levy, where applicable, plus VAT, where applicable, and the rest is just accounting treatment, with no further tax due on payments to the worker.

Every day is a school day!

But as this is only draft legislation, I assume it could change?