IR35 question for you contractor types
14 March 2003, 02:30 PM
#1
A friend of mine has suggested a way that he thinks will get us round IR35 and I’d value any insights from those of you who can prove or disprove it.
His idea is that I have a Ltd. company – of which I’m the MD - and he has the same setup with another Ltd. Company.
He thinks that if we go for work under each other’s company details we get round the ‘having a controlling interest’ part of the regulations as I would work for his company and he’d work for mine.
Obviously it means trusting that he’d pay me and vice versa, but that’s not an issue.
What do you reckon?
Cheers,
Steve
His idea is that I have a Ltd. company – of which I’m the MD - and he has the same setup with another Ltd. Company.
He thinks that if we go for work under each other’s company details we get round the ‘having a controlling interest’ part of the regulations as I would work for his company and he’d work for mine.
Obviously it means trusting that he’d pay me and vice versa, but that’s not an issue.
What do you reckon?
Cheers,
Steve
14 March 2003, 02:48 PM
#2
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hmmmm . Don't know off the top of my head.
Mabey better off speaking to an accountant?
I'd think that if it was that simple, a lot of people would be doing it - you never know, though
Mabey better off speaking to an accountant?
I'd think that if it was that simple, a lot of people would be doing it - you never know, though
14 March 2003, 02:56 PM
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use MTM tax consultancy based in the IoM. I have 10-20 friends/associates using them.
you use them as another (or the only) agent and they pay you a salary (out of which you take your expenses). you operate as a sole trader through them. the rest of your earnings goes to trust funds in the IoM. the money is then taxed there (which on trusts in the IoM is 0%). working on the dual tax treaty theory, when the rest of your earnings get to you, they've been taxed already, so you're free to spend!
you pay sole trader NI (couple of quid a week), sole trader tax (1500pa) and to MTM 10%. you pay 4% and when you're self assesment goes through successfully you pay the other 6%.
(I don't work for them, have shares or deal with them at all, it's just loads of friends use them successfully)
I'll post more info, if anyone wants it.
you use them as another (or the only) agent and they pay you a salary (out of which you take your expenses). you operate as a sole trader through them. the rest of your earnings goes to trust funds in the IoM. the money is then taxed there (which on trusts in the IoM is 0%). working on the dual tax treaty theory, when the rest of your earnings get to you, they've been taxed already, so you're free to spend!
you pay sole trader NI (couple of quid a week), sole trader tax (1500pa) and to MTM 10%. you pay 4% and when you're self assesment goes through successfully you pay the other 6%.
(I don't work for them, have shares or deal with them at all, it's just loads of friends use them successfully)
I'll post more info, if anyone wants it.
14 March 2003, 03:00 PM
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14 March 2003, 04:29 PM
#7
Fosters - I don't doubt you may be right, but logically (as if dealing with the IR is logical!) they could say that to anyone who is an employee if they make the catchment wide enough!
As suggested, I might get an accountant to look over it to sort out whether it would be considered avoidance or evasion.
Cheers,
Steve
As suggested, I might get an accountant to look over it to sort out whether it would be considered avoidance or evasion.
Cheers,
Steve
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14 March 2003, 08:25 PM
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www.pcg.org.uk
They have a sort of insurance called 'Route35' which will pay for the costs of an IR35 investigation, all the way up to taking it to court.
And spider:
Believe me, once large amounts of money become involved it will become an issue. What happens if you get a contract at £40ph and he gets one at £30ph? What happens if you're out of work for a month and he's bringing income into your company, but you're not bringing any into his? You're obviously not going to pay out everything as salary (or why try to avoid IR35?) so how are you going to manage dividend distribution?
Consider the following: you earn his company £40,000, and take out £30,000 in salary leaving £10,000 to distribute as a dividend to your mate (yes, I know I've ignored all the expenses and taxes). You can't be a shareholder of his company, so he has to pay that to himself.
Meanwhile, he's only earnt your company £35,000 but has also taken £30,000 in salary. Now your company has got only £5,000 to give you as a dividend. So you've earnt more, but you've got less. He can't just give you the difference, as the IR will be able to ignore that because it's an artificial instrument created for the purposes of avoidance of tax.
I'm completely unconvinced by any of this offshore business either. If you are deemed within IR35 it is your responsibility to pay the tax -- it's a personal tax not a company tax. And having your tax return accepted is no indicator that the IR have accepted your position -- remember they can investigate back six years in normal circumstances, and up to 20 years in exceptional circumstances. If they believe they have sufficient reason, for the purposes of a tax investigation they can re-awaken companies which have been made dormant or been struck off.
[Edited by carl - 3/14/2003 8:34:04 PM]
They have a sort of insurance called 'Route35' which will pay for the costs of an IR35 investigation, all the way up to taking it to court.
And spider:
Obviously it means trusting that he’d pay me and vice versa, but that’s not an issue.
Consider the following: you earn his company £40,000, and take out £30,000 in salary leaving £10,000 to distribute as a dividend to your mate (yes, I know I've ignored all the expenses and taxes). You can't be a shareholder of his company, so he has to pay that to himself.
Meanwhile, he's only earnt your company £35,000 but has also taken £30,000 in salary. Now your company has got only £5,000 to give you as a dividend. So you've earnt more, but you've got less. He can't just give you the difference, as the IR will be able to ignore that because it's an artificial instrument created for the purposes of avoidance of tax.
I'm completely unconvinced by any of this offshore business either. If you are deemed within IR35 it is your responsibility to pay the tax -- it's a personal tax not a company tax. And having your tax return accepted is no indicator that the IR have accepted your position -- remember they can investigate back six years in normal circumstances, and up to 20 years in exceptional circumstances. If they believe they have sufficient reason, for the purposes of a tax investigation they can re-awaken companies which have been made dormant or been struck off.
[Edited by carl - 3/14/2003 8:34:04 PM]
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