I have a potential client, who is self employed, employed also during 09/10 tax year and about to take on a contract that they believe falls under IR35.
Am I correct that this would mean that their nic and tax would be paid through paye and calculated at the end of the tax year?
Would they still need to file a self assessment tax return?
Sorry if this sounds obvious but this is my first IR35 type client.
If they fall into this category they will be treated as an employee and pay normal tax and NI. If they have also had a period of self employment during the tax year (09/10) then they will be required to complete an S/A tax return, with self employment supplement.
thank you for your help! So what i understand is if it is done through ir35 then they will just be taxed through paye like an employee would. No self assessment needed unless they carry out self employed work also.
i think that i confused matters by thinking that they had to be self employed, the client is employed and taking on a separate contract but whats confusing they are thinking bout going ltd, perhaps if they gain several contracts then this could be possible any thoughts on this welcome i am slighty confused
i think that i confused matters by thinking that they had to be self employed, the client is employed and taking on a separate contract but whats confusing they are thinking bout going ltd, perhaps if they gain several contracts then this could be possible any thoughts on this welcome i am slighty confused
If they want to incorporate, at the end of the day it is their decision. They will have to ensure that their contract(s) do not contravene IR35, that they are not tied to one company and restricted from working elsewhere, that they have the right to substitution ( if they are not able to attend, they can substitute someone else who they are responsible for paying), they provide their own equipment and/or rent specialist equipment and they are responsible for correcting mistakes(they made) at their own expense. It is also beneficial to agree on a price per contract as opposed to an hourly/daily rate. There are a lot more "If's" & "Maybe's" so if you want to PM me or ring me, we can go through it in more detail.
I know of nobody hit by IR35 that isn't incorporated so the entirety of my answer relates to your client being a limited company.
IR35 does take into account that limited companies have overheads and allows 5% of turnover for the general running of the company.
The 5% includes all accountancy / bookkeeping fee's but does not include pension contributions paid through the company into a company (not private) pension scheme.
Essential traveling and subsistence expenses are also above and beyond the 5% rule.
For travel ensure that all journeys are properly recorded and that they are performed wholly and necessarily on company business.
Also for travel the two year rule applies. The revenue definition of this keeps changing so you may need to investigate further the current rules. For certain, once your client knows that he will be employed at the client site for more than two years (even if that is on the first day of his contract and then the contract on lasts 23 months!) then travel cannot be claimed.
If the client is to be at a single site for more than six months I believe that also means that travel is a non allowable expense.
If any of the 5% remains then this may be taken as a dividend but the rest of the money after deducting Pension, travel and subsistence costs is as you state subject to Tax and NI.
Note that stationary, books, training materials, courses, etc. all come within the 5% of turnover rule.
The client still needs to file a self assessment return. On the return it asks if he was a director of a closed company then assumes that IR35 applies and asks how much he paid in dividends. Filing of the self assessment return applies regardless of incorporation.
This is a complex area around a relatively simple idea. If you take on this client and he decides to use dividends as a form of income (to be discouraged) then be prepared to spend time arguing the merits of your clients case to the revenue.
Fingers crossed, in a few months time IR35 will disappear with the party that introduced it.
The above is meant only as general guidance for further investigation.
Hope that this reply helps. Have a happy and prosperous new year,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
