Q. If an IR35 investigation resulted in a tax liability for PAYE and NI am I correct to assume that the resultant bill for tax would represent the difference to the overpaid corporation tax that would already have been paid and likewise allowance made for the personal dividend tax paid that would otherwise have been icons subject to PAYE ? I ask because online calculators suggest the marginal benefit of being outside of iR35 is often shown as c10%.
A. The overall net tax liability will indeed be the resultant IR35 PAYE & NIC less any overpaid corporation tax as a result of relief given to the deemed employment payment (including employers Class 1 NIC) plus any personal tax paid on dividends.
It is important to remember however that corporation tax relief to the deemed payment is given in the accounting period in which the payment falls. For example, if a company had a year end of 31st January & the deemed payment fell on 5th April 2016, then corporation tax relief can only be claimed in the accounts year ended 31st January 2017.
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