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IR35

 
#1 IR35
21/04/2011 11:06

anon

If I keep on winding my limited company every 2 years, and one fine day I get an investigation for IR35...can HMRC question me for the companies I have already closed?? Can they ask me to pay a hefty bill for those companies which are already closed should they find that the contract done under those closed companies were supposed to fall under IR35?

regds

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#2 RE: IR35
21/04/2011 11:39

anon to anon (#1)

Yes and yes - there's nothing surer. If they smell something they'll be all over it like a dose of small pox.

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#3 RE: IR35
21/04/2011 12:53

winston to anon (#2)

Hope they do so you have to pay the same tax as the rest of us

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#4 RE: IR35
21/04/2011 13:57

gladstone to winston (#3)

don't think the rest of you also pay employer's NI as well as employee's NI - that's the real pi$$er about IR35 and what people justifiably try to avoid

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#5 RE: IR35
22/04/2011 14:41

Muskrat to gladstone (#4)

We pay it - it's just deducted at source and by convention it's excluded from the headline figure. Similarly, contractor rates are higher partly to account for the fact that it has to be paid from the headline figure; because the company isn't having to pay that tax themselves, they can afford higher per-hour rates to contractors.

Simples.

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#6 RE: IR35
27/04/2011 16:29

IR35 Man to Muskrat (#5)

Sometimes I doubt that some of the people on this forum really are MC’s or indeed have any basic maths logic. There really is a lot of old codswallop written about contractors not contributing to the UK tax burden – the reality is very different. Look at the examples below.

--------------------------------------------------

A contractor on £500 a day, working 20 days per month and billable 10 months of the year will generate £100,000 in revenue.

90% of contractors work through an agency that will then add a margin of about 10% (in fact normally more)

That total bill attracts VAT, which at 20% means a contribution to the UK tax purse of £22,000

The contractor deducts say £5,000 for expenses relating to running the company (it’s almost always only a one man company) and also takes a tax free salary of no more than £7475. On the remaining £87K he then pays Corporation Tax to the UK purse of £17,485

From the remaining £69,940, the contractor pays himself a “tax-free” £31,500 in dividends. To pay out the remaining dividends of 38.5K he has to pay Income tax at 25%, a final contribution to the UK tax purse of £9,610

The total VAT, CT and Income Tax contribution is therefore £49K

--------------------------------

An employee earning 100K will pay £5,381 in National Insurance, £30,010 in Income Tax and their employer will pay £12,824 in Employers NI.

The total contribution to the UK tax purse is therefore £48,215 – not much in it, is there!

-----------------------------

There are of course some additional benefits to being a contractor – travel to place of work is a legitimate business expense for a short period – BUT – most consultanst have long periods working away from a nominal home office where they expense their travel.

Some (not all) contractors make a fairly modest benefit by buying a company car rather than using personal funds – it’s not life changing!

The ONLY additional big benefit is for a married contractor whose spouse does not work – they can income shift to use the second set of allowances.

The bottom line is that contractors TAKE HOME more money because their client pays the VAT and a premium on the day rate in return for staff flexibility.

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#7 RE: IR35
27/04/2011 21:01

Keepey uppey to IR35 Man (#6)

Thanks for the breakdown IR35 Man

Doesnt the employing firm just claim back the VAT, given they charge it on their own services?

If so, doesnt that halve the tax take for a contractor vs an employee in your example?

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#8 RE: IR35
28/04/2011 08:23

IR35 Man to Keepey uppey (#7)

No – it’s a misnomer that companies can “claim back” their VAT – the true position is that VAT is Value ADDED Tax – the tax is due on the ADDED value of the transaction in question. Companies that buy a raw material or service at, for example, 100 quid pay 20% VAT on that figure (which is collected by the supplier and passed to HMRC). The buying company then does something to ADD VALUE and resells a product or service to their end-client (e.g. for 200 quid) and charges VAT on that higher figure. However HMRC would only expect VAT to be paid on the ADDED VALUE at each stage and would therefore allow each company in the chain to “off-set” the VAT due by the amount of VAT previously paid in the chain.

This means that the 20% VAT paid because of the work produced by the contractor is still valid as a contribution to the UK tax purse as a direct consequence of the contractors services – i.e. he did that bit of work in the chain.

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#9 RE: IR35
28/04/2011 09:14

Ruth the Truth to IR35 Man (#8)

"Sometimes I doubt that some of the people on this forum really are MC’s or indeed have any basic maths logic."

That's how you know they are MCs.

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#10 RE: IR35
28/04/2011 10:00

IR35 Man to Ruth the Truth (#9)

Ruth - you (sadly) do indeed speak the truth.

I can only assuem powerpoint has rotted the analytical ability of many consultants

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#11 RE: IR35
28/04/2011 15:16

Not the IR35 man to IR35 Man (#10)

Your right IR35 man, what all us MCs really want is a career in tax...

EQ will get you further in life than your calculator mate

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#12 RE: IR35
28/04/2011 16:28

IR35 man to Not the IR35 man (#11)

I wilt in awe of your worldy charm (while looking down at my shoes obviously).

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#13 RE: IR35
28/04/2011 17:58

Not the IR35 man to IR35 man (#12)

I can only assume world of warcraft has rotted the interpersonal ability of tax bods.. wilt in awe of them apples

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#14 RE: IR35
02/12/2016 03:10

tobimel to anon (#1)

Maybe you will find this website very helpful: IR 35 website (http://ir35-calculator.org.uk/). I am no expert or that knowledgeable re IR35, but I hope you will find your answer in that website.

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