Price and Company

Accountants & Tax Advisers

 

Price and Company - IR35

 

Background

 

IR35 has been introduced by HM Customs & Revenue to force contractors to draw salary on relevant contracts.  This means they will collect both employers and employees NIC - this can add around 25% to costs of remuneration packages.   In addition, taking advantage of a spouses allowances and lower rate tax bands is curtailed.  

 

The IR35 calculation is to quantify the minimum amount of salary you are required to draw within a tax year.  This has become commonly know as a deemed salary. In the tax year to the extent that the deemed salary exceeds the salary actually drawn you will incur the “IR35 liability” which is simply tax and NIC as if the balance of deemed salary had been paid by the tax year end.

 

One of the main problems is that the HM Customs & Revenue will not give a clearance as to whether or not IR35 applies.  They will indicate an opinion on a signed contract but this is not a 100% confirmation. 

 

Deadlines

Form P35 (the annual return for PAYE tax and National Insurance) must reach the Revenue by 19th May following the tax year and from 2010 must be filed online.  This form asks specifically whether there is IR35 income included.  It does allow for estimates for the deemed salary but a supplementary return, which includes the correct figures, must be submitted as soon as possible.  It is important to sort this out quickly as interest will be accruing on unpaid tax.

 

For a negligent or fraudulent PAYE return there is a maximum penalty of £3,000.  There would also be interest and possibly penalties on additional tax and National Insurance found to be payable.  It is possible for the PAYE Inspectors to go back to earlier years.  Please note that the Revenue have the power to collect either from the company or the worker. If you are liable, but ignore the requirements, your liability will accumulate.

 

For late submission of the P35 there is a penalty of £100 per month.

 

 IR35-Allowable Expenses

 

When you are looking at your expenses please be very careful with the payment dates.  An example would be a pension payment made on 6th April 2011, which would not be deductible for the IR35 calculation in 2010/11 whereas a payment on 4th April 2011 would.  Don’t forget to look at expenses in the period 1st April to 5th April 2011.  Also, be careful where you have a mixture of IR35/Non-IR35 income.

 

If you find all of this confusing then do consult us.  For clients we shall carry out calculations and keep them advised throughout.