Questions and Answers
IR35: How to take money out of a company
I have recently started contracting and set up my own limited company. It looks like all of the income I earn is caught by IR35. How do I go about taking money out of the company?
I've assumed you're not working for the public sector as new rules have been introduced which will treat these 'IR35 public sector' arrangements differently to non-public sector contracts.
The IR35 rules are designed to prevent you inserting a personal service company between your client and you. Gross payments are made to your company, which you then withdraw from the company as dividends; therefore saving income tax and National Insurance.
If it wasn't for the existence of the PSC, you would be an employee of the clients. The rules essentially ensure income from your client is taxed as salary; rather than dividends.
Income from IR35 engagements that exceed actual salary paid out and various other deductions, is deemed to be a salary received on 5th April. One of the most important deductions you can take out of the deemed salary is an automatic 5% deduction. This 5% deduction is fixed and designed to compensate you for running your company. PAYE and NIC will be due on this deemed salary. You may also be able to offset the tax paid on any deemed salary payments, to avoid being taxed twice.
In summary, it may make sense to extract money with a mix of dividends and salary because the 5% deduction from the notional deemed salary will be available. If all remuneration is taken as salary, the 5% allowance won’t be available.
Date published 5 Oct 2017
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.Choose the right accounting firm for you
Running your own business can be challenging so why not let TaxAssist Accountants manage your tax, accounting, bookkeeping and payroll needs? If you are not receiving the service you deserve from your accountant, then perhaps it’s time to make the switch?
Local business focus
We specialise in supporting independent businesses and work with 100,000 clients. Each TaxAssist Accountant runs their own business, and are passionate about supporting you.
Come and meet us
We enjoy talking to business owners and self-employed professionals who are looking to get the most out of their accountant. You can visit us at any of our 409 locations, meet with us online through video call software, or talk to us by telephone.
Switching is simple
Changing accountants is easier than you might think. There are no tax implications and you can switch at any time in the year and our team will guide you through the process for a smooth transition.