Tax Guides

If you're sloppy or maverick about your expenses, you can end-up having to pay for business items from your own personal income. Expenses aren't difficult - just follow our three step guide;

1) Keep all receipts

2) Read our guide

3) ...Seriously, keep all receipts

Intermediaries Legislation, more commonly known as ‘IR35’, was originally introduced in 2000 and was intended to

• Stop artificial arrangements where employers reduce their workers’ tax and NI, paying them dividends via a separate company, rather than a direct salary i.e. ‘disguised employment’.
• Collect more tax from agency workers, who were often encouraged to form their own companies in order to be paid as dividend.

The rules require an employment status test to be undertaken for any worker paid via an ‘Intermediary’ – usually the intermediary would be a ‘Personal Service Company’ (PSC) controlled by the worker.

In these situations, the contract and working arrangements with the end client should be reviewed in order to establish whether the nature of the engagement might essentially be one of employment.

Where the person providing their services would have been considered an employee, had they been working directly with the end client, then Intermediaries Legislation (IR35) is deemed to apply. In practical terms this usually means the worker being paid salary by their PSC (i.e. subject to tax, and employee & employer national insurance) rather than dividends.

If the engagement is assessed as being ‘outside the scope’ of IR35 (i.e. IR35 does not apply), then certain travel expenses to temporary workplaces become allowable, and salary can often be reduced in favour of dividends (dividends attract tax, but not NI) - All of which increases the overall ‘take home’ of the worker.

In recent years Government has rebranded IR35 as ‘Off-payroll’ working, and different rules currently apply to the Private and Public Sectors.

Public Sector – the Public Authority (End-Client) is responsible for deciding whether off-payroll working rules apply. If they do, then tax and NI (Employees and Employers) are deducted in full before any amounts are paid to the worker’s company.

Private Sector – person providing the service (usually also the company director and shareholder) is responsible for deciding whether IR35 rules apply, and calculate appropriate salary levels where the rules do.

These pages run through the IR35 basics, summarise the contract review options and should help in forming an IR35 status opinion. 

Most people have a figure in mind of how much they need to pay into their household each month.

Before deciding on salary and dividend some basic forecasting will help estimate how much profit the business will have available. Be careful it’s very easy to overestimate income and underestimate costs. Things to think about include:

• Estimate likely turnover - build in any affects of holidays, sickness, time between projects, etc.
• What capital might need to be introduced? - Equipment to be purchased, office rent deposits, other upfront costs, slush fund to cover delays on sales invoice payments. When will you get this money back?
• What direct business costs might there be? - Travel costs, accommodation, subsistence, etc.
• How much are the business overheads? – Computer software, stationery, bank charges, our fees, rent, rates, phone bills, internet, etc.

We’ll help you with all this type stuff as part of getting to know you; it's usually a good starting point for getting to grips with the business finances and helps with decisions on salary and dividends.