PAYE, IR35, CORP TAX & all thing in between.

dark_stranger

I have given up my perm job & got myself a rolling 6 month I.T. contract via an agency. I was given the option to either work under an umbrella company or set up my own limited company. I decided to set up my own limited company as this seemed to be the most beneficial method of increasing my salary & not paying my new pay increase in tax, etc. I have been advised to set myself up as a director, my girlfriend as the company secutary, & then myself again as an employee, of which I would then pay myself a minimal wage, then as my home is my registered office, I can claim expenses for heating, etc from the limited account. I have several questions though, I have read about IR35, if i can prove that i do not solely work for one employee would i be outside of IR35? I know as an employee I will have to pay PAYE, but who does corporation tax work? Also, my main concern is that if i am paying myself a small wage out of the business account (just enough to live), but this would then leave monies in the business account, but say i wanted to treat myself & buy a jetbike or clear a debt, can i use the monies from the business account? How does this work, justification for withdrawing out this money? would this then be taxed on top of my monthly wage. Its all so confusing.

loobs40

Try these two contractor sites. The first one I seem to remember was set up as a direct consequence of the IR35 legislation. Both have lots of useful information

http://www.pcg.org.uk/
http://www.shout99.com/contractors/

You should seek the advice of an accountant who has IT contractors on his books, in other words who has real experience of IR35. If you are not happy doing a lot of the stuff yourself, then an accountant can run a payroll scheme for you.

You will probably also have to be VAT registered. It worked out better for me to be on the Flat Rate Vat scheme, but if you are going to claim back VAT on lots of stuff, then its probably better that you don't

As far as taking money out, fine, but you always end up paying the tax and NI on it so make sure you account for it.

Chippy_Minton

dark_stranger wrote:

I have several questions though, I have read about IR35, if i can prove that i do not solely work for one employee would i be outside of IR35?

Not necessarily. For useful information see http://www.egos.co.uk/ir35.htm and, from the horse's mouth, HM Revenue and Customs IR35 index and Supplying services through a limited company or partnership – A general guide

nrsql

Just my opinion - check it out.
>> if i can prove that i do not solely work for one employee would i be outside of IR35?
No. There are a number of factors and no clear guidelines.
One of the problems is that the decision can be based on a theoretical contract constructed between yourself and the company for which you do the work. This can be based on the contract between the agency and company of which you will have no knowledge.
The IR seem to target people who have been in the same contract for over a year - and often they will say that you are caught by IR35 and see if you are willing to go to court. The process relies a lot on fear - tries to get people to pay tax whether or not they should.
It's why there has been a growth in offshore companies as a means of channeling payments - stopped a bit now by Mr. Brown saying that he will claim back tax to dec 2004 if he decides that you have not paid what he thinks you should.

Don't you have an accountant?
Corporation tax will be paid by the company on it's retained profits and you will probably be taking money out via dividends - which you will be taxed on (with benefit given for the cop tax already paid) but not pay NI which is where the saving comes.

Don't try making the girlfriend (or any other non fee earner) a shareholder and paying dividends to avoid tax as there's been a ruling that the dividends should reflect the earnings. The taxman will ignore the limited company when it suits him. Interesting to see how that would apply to investments.