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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4094
Experience:  FCCA FCMA CGMA ACIS
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Could I get some advice on IR35 and Dividends/Payroll

Customer Question

Could I get some advice on IR35 and Dividends/Payroll please.
I have had to set up as a limited company to work for NHS Agencies. I am personally contracted to deliver the work (based upon my CV and an interview)
Submitted: 1 year ago.
Category: Tax
Expert:  Sam replied 1 year ago.

Hi

Thanks for your question - I am Sam and I am one of the UK tax experts here on Just Answer.

What advice do you need ? (although I can advise that you should not be a limited company - and you are in breach of the IR35 legislation, which states were it not for the fact you were a limited company would you in fact be an employee - and the answer to this is yes, you should be an employee of the agency.

So there is an issue if you have already proceeded down this route

Let me know what specific advise you needed

Thanks

Sam

Customer: replied 1 year ago.
Thanks Sam
The issue is I have had to register as a Limited Company because all Recruitment Agencies specialising in supplying Interims will not find you work unless you are.
I am the only person who can do the work as securing the contract is based upon the submission of my CV and an interview ie they are contracting me not the company. I agree I would not want to be limited.
On my spreadsheet for salary it shows:
Total Net Salary per month 24,600
Total Dividends £8,927
But the Payroll Summary shows 883.33 net salary per month
I'm not sure what this means
Customer: replied 1 year ago.
Sorry should have said end of year position
Expert:  Sam replied 1 year ago.

Hi

Thanks for your response

But it IS in breach of IR35 legislation so its important that you are aware of this - and the agency has made you complicit in this - yet it will be you that suffers the penalties when HMRC discover this.

And the fact you are taking dividends which should be taxed as salary - you also are then putting yourself in a further position of not paying sufficient tax or National Insurance.

But as it would appear that you already are aware of this (as you asked re the IR35 position) then how can I help with the figures you have provided.

Thanks

Sam

Customer: replied 1 year ago.
Basically I don't know what the figures mean and what I should be submitting. All Recruitment Agencies nationally operate in this way it is not an unusual arrangement. I wasn't aware that I was taking dividends
Expert:  Sam replied 1 year ago.

Hi

Its an illegal arrangement as the IR35 legislation clearly stipulates - under which this falls - you do not create clients nor suffer a loss as well as the benefit of making profits, you do not work the hours you want - with your own tools - you do not provide a substitute of you can manage to attend the client - you work in their premises - this also breaches the employment legislation and self employment legislation.

However - you at least now are aware you are in breach of the law by agreeing the contract in this way - and its up to you should you continue but at least you are aware of the penalties and reasons why HMRC would successfully challenge this.

But you need to speak with the agency as you must have agreed to be paid dividends but what this basically means is that you have received salary (less tax Employees and employers National Insurance ) plus dividends

So the £833 needs to be grossed up to find the figure pre Tax and National Insurance

Then add this to the dividends and this should come in at the agreed annual salary

So what is the annual salary? And what is your tax code and I can calculate this for you

Thanks

Sam

Customer: replied 1 year ago.
Annual Salary £24,600
Payable states £10,599
Cumulative difference £31,420I'm not sure what my tax code should be before I did this I was out of work for 6 months.
Expert:  Sam replied 1 year ago.

Hi

Then without a full history I can only estimate but I would then need to know whether this was just six months work so from October 2015 to March 016 (6 payments) is that right ?

Thanks

Sam

Customer: replied 1 year ago.
31st November 2015 - May 2016
Expert:  Sam replied 1 year ago.

Hi

So your first payment was 31st Dec is that right ? (April and May 2016 are in the new tax year)

I am getting very confused - I though you just wanted help with the tax year 2015/2016 for the year end?

So I need to know what you received from the date this employment began to 05/04/2016 -

Or are you needing this for something else - perhaps you could expand on what you need

Thanks

Sam

Customer: replied 1 year ago.
Apologies Sam I typed in the wrong years. October 2014 - May 2015. I started working 1st June 2015 under these arrangements
Expert:  Sam replied 1 year ago.

Hi

Thanks for your response

And what do you need the information for (completing a tax return for self assessment or just for your own information) and did you receive 9 payments for the tax year 2015/2016?

I need more information

Thanks

Sam

Customer: replied 1 year ago.
I did and it is for completion of the tax return which I think will be self assessment not sure as its all wrapped up in this limited company issue
Expert:  Sam replied 1 year ago.

Hi

And finally was £24600 the amount you received in total for the period 01/06/2015 to 05/04/2016 OR what your annual amount would be had you worked a full tax year?

Thanks

Sam

Customer: replied 1 year ago.
No that's a full year may to may which is the period I am told I have to report
Expert:  Sam replied 1 year ago.

May to May -

To whom are you reporting as the tax year runs 6th April to the following 5th April

And did you actually receive £24600 between June 2015 and 05/04/2016 or its what you would have received had you worked from April 2015 to 05/04/2016?

I really need you to provide the information asked for as we do not seem to be making any progress here - and I cannot calculate figures unless I have the full picture.

So please answer ALL the questions -

Would it be easier if I send you an additional services request for you to telephone me ? This would incur an additional charge but I feel it would progress matters in a more expedient fashion

Thanks

Sam

Customer: replied 1 year ago.
Hi Sam
Oct 14- May15 not in work - limited company set up in readiness for first contract through the recruitment agency in June
June 15 work commenced salary 24,600 received during the period June 16 up to and including May 2016.
I am told I have to submit company accounts during this period and this is a section within the report
Customer: replied 1 year ago.
Sorry should say "June 15 work commenced (salary 24,600) received during the period June 1st 2015 - May 31st 2016
Expert:  Sam replied 1 year ago.

Hi

Then this is not IR35 or salary - this is Corporation tax and your Company House and HMRC Corporation Tax return - I shall opt out

Expert:  bigduckontax replied 1 year ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. You have been advised correctly, see your penultimate post.

I see my colleague has opted out.

You should report this income on the company's Corporation Tax (CT) Return. The net surplus made in the relevant year will then be taxed under the CT regime at a flat rate of 20%. These returns must be filed on line. If the company subsequently makes payments to you, particularly if you are a director, these must be made under PAYE arrangements with appropriate Income Tax (IT) and National Insurance (NI) deductions made. Any wages paid by the company reduces the company's exposure to CT. Dividends do not enter into the CT computation at all although they do form part of the recipient's income for IT purpose.

I do hope that you have found my reply of assistance.