The Practical Guide to Limited Company Tax
If you have chosen to operate your business as a limited com...
By Chris Martins D'Almeida on 18th March 2016
First, a bit of background…
If HMRC believe that your contract(s) are “disguised employment” then you may fall under IR35. This is a piece of tax legislation designed to tax these kinds of contract at a similar rate to regular employment. If you are working under an IR35 contract then you’ll have to pay tax and national insurance on the difference between the IR35 sales income that your Limited Company receives (less certain allowable expenses) and the amount of salary that you have been paid.
To avoid this, your company can pay you the difference as additional salary so that HMRC collects the correct amount of tax due. This is known as a deemed payment.
For more information from HMRC on IR35, see here. Up until now, we’ve managed this process for you outside of the Boox app, but we have now significantly enhanced the process so that management of deemed payment operates seamlessly within your pay breakdowns.
How Boox identifies IR35 In-App
To identify any IR35 sales income, you need to mark your customer as having ‘Contracts fall under IR35’ under Invoices > Customers > Invoice Settings:
Some expenses can reduce the deemed payment (above the standard 5% allowance). Any expenses that are specifically allowable for deduction can be marked as so when adding the expense:
When your pay breakdowns are generated we’ll calculate the current deemed payment based on the IR35 income to date, and will advise you to take this amount as salary.
That’s it! Just follow our guidance and you’ll take the correct amount of salary during the year, making sure there’s no deemed payment or additional liability at the end of the year.
We’ve also provided a Deemed Payments report under the Accounting > Reports Menu that gives the current calculation and how it’s made up. Normally, the deemed payment will be 0.00 (as long as you have been following our guidance) but If there’s any unprocessed income, then you can see the latest calculation together with a breakdown of how that will be distributed as salary and employer’s national insurance. This is what will normally appear in your next pay breakdown, but you can add this as a manual salary expense if you need to make the payment outside of the regular breakdown for any reason (perhaps because you have added income after your last breakdown of the tax year and you need to ensure this is accounted for as your final end of year payment).
If you have any questions about this or any other part of Boox, please feel free to contact your personal accountant for a chat!
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