IR35: Frequently Asked Questions - Computation
Each link below will take you to a question on a Computation topic.
- What tax and NICs liabilities
will arise?
- What about corporation tax liability?
- If a client makes a single payment
in respect of two or more workers, how will the income be split between
them?
- What happens if I can't calculate
the tax and NICs due on 5 April in time to pay it to HMRC by the normal
date of 19 April?
- Does the Personal Service Company
have to pay a salary on 5 April?
- Can any part of an IR35 deemed
payment, if made within nine months of the end of a company's accounting
period, be counted as a deduction in the calculation of the company's
corporation tax liability for that accounting period?
- A Personal Service Company, which
only has income from relevant engagements, has two employees A - the contractor
who receives a salary of £20k, and B the administrative assistant
(who is a relative), who receives a salary of £5k.
- Can A deduct B's income in calculating the tax and NICs he pays on earnings from contracts caught by IR35? - Can you also confirm that B's NI contribution records will be based on what has actually been paid by B while A's will be based on the total payments made less those attributable to B?
- Mr and Mrs B work as members
of a partnership, of which they are the two partners. They each carry
out relevant engagements during the year. 50% of the partnership income
arises from such engagements and 50% from other sources. Profits are split
equally. Each is provided with a car, both of which are held as partnership
assets. The private use proportion of the motoring expenses is 30%. How
will their income be affected by the IR35 rules?
- Should the deemed payment be
deducted in the Corporation Tax computation or in the accounts?
- How do I pay the IR35 deemed
payment at the end of the year? [Added 14/04/00]
- What is the position where,
in addition to making payments to the limited company/agency, a client
makes payments to or in respect of the consultant direct? For example
where the client reimburses travelling expenses to the consultant direct?
Could the client be held liable for PAYE? [Added
14/04/00]
- How do I record the IR35 deemed
payment on Form P45 and Form P60? When is the IR35 deemed payment recorded
on such forms? [Added 07/06/00]
- Will I be taxed twice if my
Personal Service Company does not pay me a salary until after the end
of the tax year? [Added 19/10/00]
- What if I stop working through
my Personal Service Company or partnership before the end of the year
(an in-year event)? [Added 19/10/00]
- Is the PSC acting illegally
if it does not pay the employee 95% of its income in salary, openly inviting
the employee potential recourse to sue the company? If the difference
in the deemed emolument and actual salary is withheld by the company is
such a sum considered as profit thus liable to Corporation Tax and effectively
"double taxation"? [Added 19/10/00]
- A "Contract of Employment"
may stipulate designated salary (which may even have been voted upon by
the company's directors). How does this dovetail withHMRC's decree of
95% deemed emoluments attributable to the employee as employment income?
[Added 19/10/00]
- A worker engaged under IR35
terms and charged out at £100,000 but on an actual salary of £25,000
per year will have a deemed salary of £95,000. This fact may not
have been declared to the worker and indeed the charge out may be information
which the company may wish to treat as "commercial in confidence".
If the employer went into receivership the IR35able worker would have
an actual salary of £25,000 and a personal liability for deemed
tax and NIC far in excess of this salary - how could this be paid?
[Added 19/10/00]
- Workers employed by intermediaries
may generate fees after leaving the employment of the intermediary for
example in royalties or with ongoing service/maintenance contracts. How
is this income to be treated under IR35? [Added
19/10/00]
- On what basis is the P45 completed
where a worker, affected by IR35, leaves employment of the intermediary?
[Added 19/10/00]
- The IR35 deemed payment may
result in the worker paying higher rate tax. Higher rate taxation would
preclude the worker from claiming HMRC initiatives such as Family Tax
Credit or Children's Tax Credit. The actual salary paid to the worker
may involve a considerable shortfall to the deemed emolument, therefore
the tax/NIC deductions will not be commensurate with actual income and
the worker may even more so require application of the new Tax Credits!
[Added 19/10/00]
- How would the company's existing
computerised payroll and accounting systems operate under IR35? (Page/Sage/Quicken/Quickbooks
have no plans at present to update software to cope with IR35.) Accounting
systems cannot process deemed emoluments, they always show the employee
being owed the remainder of the actual salary. How do you allow for this
in the Profit and Loss account, balance sheet figures and cash flow projections?
[Added 19/10/00]
- How does the company produce
a payslip that has deemed tax/NIC deducted when the actual salary paid
to the employee is less? Should the entry on the payslip be actual salary
or deemed emoluments with deemed tax/NIC deductions? [Added
19/10/00]
- How should "end of year"
returns (e.g. P14, P60 and P35) be completed? Should the P60 show deemed
emoluments or actual salary? (The P60 may enable the employee to obtain
a loan/mortgage at 3 x "salary", when of course this is actually
just "deemed" and not deemed "actual"!) . [Added
19/10/00]
- How does
the employee complete the HMRC Self-Assessment Return based upon deemed
emoluments rather than actual salary/income?[Added 19/10/00]
- What key dates do I need to
be aware of over the coming months? [Added 17/02/01]
- When calculating the IR35 deemed
payment, what do I do about SSP and SMP? [Added
17/09/01]
- HMRC’s IR35 Penalty Statement
says that no penalties will be sought for an incorrect return (P35) for
any deemed payment for 2000/2001, as long as certain conditions are met.
Has this arrangement now been withdrawn?[Added
06/02/02]
