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IR35 and PAYE

IR35 and PAYE

I have been asked to advise an IT contractor who is providing services throgh a company.

I explained that this may have IR35 implications and I am not qualified to help in this area and would refer her on. (I made a decision to avoid potential IR35 cases)

However, she says she is quite happy to be paid through the company entirely through PAYE and not take any dividends. Does this take her entirely away from IR35 by sticking to the payoll, in the normal way?

My poor January mind is is struggling at the moment and help would be appreciated

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25th Jan 2013 09:25

Not quite

If the work she does for her company's client falls under the IR35 rules, the company must pay out 95% of its income (excluding any VAT) from the client to her by way of personal expenses, pension contributions for her and her salary and Er's NIC.

It is not enough that she takes no dividends if she is only taking a comparatively small salary and leaving the profits to accumulate in the company.

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25th Jan 2013 13:33

Thanks, thats very helpful

Thanks Euan, thats very helpful. But could I ask one more question?

To pay for the company's overheads - accounts, payroll, office costs etc, over and above the 5% thats left, would it be okay for her to lend the company the cash to cover these costs?

Thanks again

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25th Jan 2013 13:44

Office costs?

IR35 only applies if she is working for the company's client effectively as their employee - almost inevitably at their premises.  As soon as you mention that she has office costs, it suggests that she is working independently as a consultant and would not be subject to IR35.

Most IR35 companies only have accountancy fees and the £13 Companies House annual return fee to come out of the 5% of the company's turnover, so unless you charge particularly high fees, they break even or make a small profit.

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