Then I am confused. I thought the IR35 rules only penalise people who set up companies to employ themselves. That isn't what I mean by a sole trader.
Even purely self-employed sole traders who do not use the company-director method of drawing their income from a business?
The Inlannd Revenue has always tried to make this stick, even for purely self employed sole traders. It bullies companies into insisting on deducting PAYE and NI from the fees they pay to self-employed contractors. So far I have managed to avoid working for such companies.
Yes, true and if NI was included, I think these contributions would be treated as 'not paid' for the period.
I was thinking shorter term massaging for temporary benefit, like I said it will all come out in the wash over a longer period. Also there is no need for the knowledge that the companies are linked to be common knowedge, one company could be in wife's name with different directors - this would also be the part of the 'massaging' Ie Assume Company B's accounting period ends 3 months after Company A. In month before year-end, A receives and pays rent bill for £10,000 lowering potential tax-bill due. In the next three months Company A issues A with an invoice for £10,000 for 'property maintenance- (it has contracted to repaint the property for the landlord)' which B pays. B will have no tax bill to pay as income=outgoings.
At the end of the year A will of course have to pay the tax on the £10,000 (unless they spin it on again) , but they will have had the use of the tax to aid cashflow for a year, and as long as the amounts and methods are not too extreme, fairly un-noticable to the taxman.
Same principle applies to VAT between 'separate' companies, cross-invoicing can be used to 'borrow' funds from HMCE.
I don't know if this loophole has been closed since I used it but I 'borrowed' £17,500 from them by invoicing for £100,000 between Company A (on cash-accounting) and Company B (standard vat accounting) - and NOT paying the invoice. A did not have to account for the vat (as they had not been paid), B was able to reclaim £17,500 that quarter on the invoice received. I had a senior inspecter round to check the paperwork (and both sets of books in detail!) but they had to give me the money in the end. The inspecter's face was a picture!
Yes, true and if NI was included, I think these contributions would be treated as 'not paid' for the period.
I was thinking shorter term massaging for temporary benefit, like I said it will all come out in the wash over a longer period. Also there is no need for the knowledge that the companies are linked to be common knowedge, one company could be in wife's name with different directors - this would also be the part of the 'massaging' Ie Assume Company B's accounting period ends 3 months after Company A. In month before year-end, A receives and pays rent bill for £10,000 lowering potential tax-bill due. In the next three months Company A issues A with an invoice for £10,000 for 'property maintenance- (it has contracted to repaint the property for the landlord)' which B pays. B will have no tax bill to pay as income=outgoings.
At the end of the year A will of course have to pay the tax on the £10,000 (unless they spin it on again) , but they will have had the use of the tax to aid cashflow for a year, and as long as the amounts and methods are not too extreme, fairly un-noticable to the taxman.
Same principle applies to VAT between 'separate' companies, cross-invoicing can be used to 'borrow' funds from HMCE.
I don't know if this loophole has been closed since I used it but I 'borrowed' £17,500 from them by invoicing for £100,000 between Company A (on cash-accounting) and Company B (standard vat accounting) - and NOT paying the invoice. A did not have to account for the vat (as they had not been paid), B was able to reclaim £17,500 that quarter on the invoice received. I had a senior inspecter round to check the paperwork (and both sets of books in detail!) but they had to give me the money in the end. The inspecter's face was a picture!
No, IR35 applies to all irrespective of status as sole trader, partner or director of a Ltd. For the sole trader and partner all it really means is that the Inland Revenue will whack you for employer's NI retrospectively if they decide that your working relationships are IR35able. But this coudl include something as straightforward as a tradesman undertaking to do the same job for someone on a regular basis. Gardening, pool cleaning, home help, handyman all seem to fall foul of IR35.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here.
All logos and trade names are the property of their respective owners.