IR35 Deemed Payment
If a contract you’re working on is considered to be Inside IR35 you must pay full Income Tax and Class 1 National Insurance deductions (Employers and Employees) on salary payments made throughout the year.
At the end of the tax year you need to make sure that any tax deductions made to the HM Revenue and Customs are correct and also calculate any further income to be drawn from the company, this is known as the ‘deemed payment’.
Are you a highly skilled expat Contractor? Would you like to maximise your contract income and work towards a visa extension or visa transfer? If so Commonwealth Contractors can help!
To discuss your situation with an experienced advisor call Commonwealth Contractors now on 0330 390 9021 or Submit your Details and we will get right back to you!
If a contract you’re working on is caught by IR35 not only will you be unable to take contract income in the form of dividends but the amount of claimable business related expenses may be reduced.
If caught by IR35 you can claim 5% of the gross fees received by the company in the form of an expense allowance. The good news is that the HM Revenue and Customs allow you to claim this 5% allowance without the need to provide any receipts to back up a claim.
On top of this allowance you may continue to claim;
- Valid standard site based expenses incurred further to a particular assignment. Expenses include:
- Site Based Travel
- Site Based Subsistence
- Valid non-site based essential business costs
- Subscriptions to Trade Journals
- Professional memberships (e.g. the British Computer Society, or Institute of Directors)
- Postage and Stationary
- Professional Insurance Cover (Including Professional Indemnity)
Calculating the IR35 Deemed Payment
To calculate an IR35 Deemed Payment you should follow the steps below:
- Calculate the total amount of contract income received by the limited company in the tax year relating to assignments considered to be inside IR35
- Deduct the 5% flat rate expense allowance (as detailed above)
- Add the value of any benefits received during the tax year
- Deduct the total value of any allowable expenses paid during the tax year (includes site based travel, site based subsistence etc)
- Deduct the total amount of Class 1 Employers National Insurance paid by the limited company in the tax year in respect of any salaried income
- Deduct the total value of any salaried income paid during the tax year
- The figure that you are left with after steps 1 to 6 is known as the deemed payment. If a positive value remains you must pay further income tax and national insurance on the amount
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