1. I wanted to know if it’s worth registering as a company in light of current changes or better to register as a sole trader?
The decision on how to trade will depend on whether your client needs to apply the Off-Payroll Working Rules. If your intended client is in the private sector and is classified as small they will not need to apply the Off-Payroll Working Rules and are unlikely to have reservations about trading with a limited company. Financially and from a liability perspective, the limited company should be the better option.
However, if the Off-Payroll Working Rules are applied and you are deemed to “fail” trading through a limited company will financially be the least favorable option. If you disagree with the decision you will be better off financially trading as a Sole Trader. You should remember you need to apply the IR35 rules to your situation if you are a sole trader.
You can decide which contracts you wish to work through your company and which you want to work as a Sole Trader changing how you work throughout a tax year.
Before setting up either business we recommend taking professional advice to assess which trading structure would best suit your circumstances, even where the Off-Payroll Working Rules would not apply.
2. Can I earn some of my income out of IR35 and pay it as dividends and some self-employed as a source?
You do not have to take a salary from your company if you do not want to and there may be circumstances where this is appropriate. We recommend taking a salary to ensure that the tax year is a qualifying one for your state pension. If you have sufficient qualifying years, salary from elsewhere, or are past retirement age you may not wish to take a salary.
As a shareholder you can take dividends from your company provided there are sufficient retained funds within the company. If your contract ‘fails’ IR35 and the Off-Payroll Working Rules are applied all of the company income is taxed by your client under PAYE and NI. This means that will be no retained funds available to pay as dividends as all receipts have already been taxed as your personal income.
You can work as self-employed and as an employee during the tax year. Each contract you undertake can be paid in a different way dependent on how the IR35 rules apply.
3. Can I just pay dividends on my income from my limited company?
You can pay just dividends from your limited company provided there are sufficient available retained funds. There is no requirement to pay yourself a salary.
Remember there will be no available funds if your client pays you under the Off-Payroll Working Rules. All the income your limited company will receive under that particular contract will be treated as having been fully taxed on you as an individual.
4. Some pharmacies are forcing locums to change their bank details to personal accounts, consequently forcing the hand of the locum to change from ltd to sole trader. Is this normal?
We have not come across the practice of forcing locums to use personal bank accounts rather than the limited company bank account. The bank account that the payment is made to is irrelevant if you then transfer those funds directly to your limited company and issue the invoices in your limited company’s name.
The only reason we can believe the pharmacy might be trying to pay a personal bank account is so that they do not have to make an Off-Payroll Working decision as you are not working through an intermediary. They are, therefore, putting the onus on you as self-employed to apply the IR35 rules to your circumstances.
We recommend seeking clarification from the pharmacy as to how they anticipate trading with you. Ideally, your trading arrangements should be confirmed by agreement from both parties and reflected in your invoicing and working practices.
5. Can I offset the student loan against my ltd company?
Your student loan should be repaid to the Student Loan Company by deduction from your income. HMRC collects the student loan repayments through either your payroll income and/or through your self-assessment tax return. The tax return repayment assesses how much you should repay for the tax year based on your income and reduces the amount by any payments made in the year.
The student loan is a personal liability. If you were to pay it back from your limited company the repayment would be treated either as a loan from the company to you or as taxable income from the company to you.
6. Can some contracts be as a sole trader and others as Ltd?
Put simply the answer is yes.
You can choose how you wish to trade and decide which contracts you wish to work on your own behalf as self-employed and which contracts you would prefer to work through your limited company. The only limiting factor may be if your client is willing to contract with you in a particular way.
7. Do you believe Locums will fall outside IR35 for large companies such as Well, Boots etc, and do we have support from our accountant on how to challenge that?
Large companies are required to look at each individual contract and working practices to assess if the individual is effectively an employee. Some Locums will, therefore, fall outside the rules and some will be caught by the rules.
You should be able to appeal a decision you believe is incorrect and your accountant should be able to support you in that appeal. If your accountant does not have the necessary expertise they should be able to help you to access an IR35 specialist. The IR35 specialist should be able to assess the contract and working practices and suggest how the contract can be phrased to reflect that actual situation.
8. Is IR35 applicable to those who earn less than 1000 pounds as a locum during a financial year, please?
The Off-Payroll Working Rules are applicable to all contracts regardless of value where the deemed employer is in the Public Sector or a medium or large business in the Private Sector.
You can have a gross trading income of up to £1,000 in any one tax year and claim the Trading Allowance against that income. The income is your self-employed trading income and the Off-Payroll Working Rules do not apply to self-employed income if you are not working through an intermediary.
9. Does it apply to Hospital bank staff?
The Off-Payroll Working Rules will apply to Hospital Bank Staff where they are working through an intermediary. There is no minimum size of Public Sector organisations.
10. If we don't work up to our tax allowance will we still get a tax cut?
The Deemed Employer, if the Off-Payroll Working Rules are applied, should calculate any tax deductions using the PAYE rules on either a weekly or monthly basis depending on how your contract says you should be paid. You may have tax deducted during the tax year dependent on the tax code that the deemed employer is applying.
You will need to complete a self-assessment tax return at the end of the tax year. If you have earned less than your personal allowance (2021/22 £12,570) then you should be refunded any overpaid tax. Your tax will be corrected, therefore, through your self-assessment but obviously, there may be a timing issue with cash flow.
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