Shorten company year for IR35?

malc_b · 3 November 2019 at 10:17AM

Hi,

I wonder if I should (or can) have a short year to line up my current ltd co year, 1/10-30/9 to the tax year 1/4-31/3. This would be 1/10/18 to 31/3/19 so can I still do that?

My reason is that I have had a contract which I think would fall under IR35. I'm not going to argue that. I'm just going to pay myself and pay the tax, plus put a lot in my pension. This contract started in Oct 18 and is now finished. The straddling of 2 tax years I think makes this complex, especial this tax year. I've already used the income in 18-19 to pay salary+pension so that all balances. For 19-20 I plan to do the same so I have a sum of money still to pay as salary+pension for the rest of this tax year. But I don't think I can offset this amount for corporation tax can I? I think I would be charged CTax on this sum set aside, then I would pay salary+pension to myself, then next year make a loss which I would push back to this year's CTax. A right pain.

I guess if that is the only way and I'm too late to change my period now then next April I could do a short period and push the loss back then, before I actually have to pay money to HMRC.

Suggestions?

Thanks

UPDATE: Just checked and CT600 is 12mth after the end of period so if I shorten to this April that's ok. Payment is 9 mth so by 31 Dec 2019 which means I should put the CT600 in then too. So do-able.

Pennywise · 3 November 2019 at 1:15PM

IR35 works on the cash basis. Company accounts are on the accruals basis, so if there was any work done unpaid at any year end date, you'll have the complication of the different accounting methods to adjust for.

The tax year is 5 April, so if you want to try to get them to match, use that, not 31 March.

As at 5/4/19, your IR35/payroll will be based on IR35-caught income actually received in the 18/19 tax year, but the company accounts will also have to reflect work done up to 5/4/19 which isn't invoiced/paid until afterwards, so there'll be a mismatch unless you're paid for the work done in exactly the same period which is unlikely as I presume your customers pay you a few days/weeks after each week/month end?

malc_b · 4 November 2019 at 9:52AM

Good point. Payment was a few days after invoice was issued. I did avoid invoice/payment falling into different tax years because I wanted to balance payments with salary and pension. Hence I don't have a problem over the 31/3/19 to 5/4/19. Lining up the company year with a VAT quarter seems better I think as long as I keep 31/3 - 5/4 clear of invoices and payments. I used to do that with year end anyway to keep the accounts simple, that is try to get invoices paid before year end or not issue until new year started. VAT is done on cash accounting BTW too.

Pennywise · 4 November 2019 at 11:26AM

malc_b wrote: »

Good point. Payment was a few days after invoice was issued. I did avoid invoice/payment falling into different tax years because I wanted to balance payments with salary and pension. Hence I don't have a problem over the 31/3/19 to 5/4/19. Lining up the company year with a VAT quarter seems better I think as long as I keep 31/3 - 5/4 clear of invoices and payments. I used to do that with year end anyway to keep the accounts simple, that is try to get invoices paid before year end or not issue until new year started. VAT is done on cash accounting BTW too.

Just to clarify. You still have to accrue for work done in the year even if invoiced after the year end. For accounts, the date of invoice is pretty much irrelevant - you have to include the value of work done in each accounting period.

Ie you have to include the value of work done in March, even if you don't invoice until April, if your year end is 31 March.

malc_b · 5 November 2019 at 10:07AM

Thanks, I am aware of that. That's why I try to get invoices in before year end and on the IR35 contract in and paid before year end (as IR35 contact paid in a few days). OK I should assess the value of the work done for the few days difference, I have and in this uncertain climate there is a risk of not being paid so I assess the value as zero :-). Otherwise the whole thing gets over complex and it wouldn't affect the tax so I can't see anyone getting worked up about it.

Shorten company year for IR35?

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