Employed/self Employed Flashcards
What is it meant by being in/outside of IR35 rules (4)
-Outside will mean you are treated as self employed and can operate tax efficiently
-Invoice will be paid gross (no tax/nics deducted at source
-If inside, you’re treated as an employee and taxed/ni. You’ll receive income net
-Rules triggered if contract wording/working practices/control and direction
What was the aim of IR35?
To stop employees leaving and returning as disguised employees under limited company for example
4x Advantages/4x disadvantages of incorporation
Advantages
-Can take a mix of salary and dividends to reduce income tax bill
-Liability/debts are split from individual
-Can make pre-tax employer pension contributions lowering amount liable to corporation tax
-Can reduce your NIC bill by paying salary under the primary threshold
Disadvantages
-Have to submit self assessment to HMRC and companies house annually
-Borrowing capacity may be limited if salary taken is low
-Entitlement to state benefits may be impacted if low salary drawn
-Personal pension and relief is limited to 100% of salary drawn
-At mercy of legislation changes to corporation tax
Describe what is deemed as a business expense and what do they need to be (5)
Wholly and exclusively for every day running of business
No dual purpose
Offset before corp tax applied
Keep vat receipts snd expenses spreadsheet
Salary and employer nics allowable expenses
Pension contributions off before corp tax
11 benefits of limited company
Limited financial liability
Personal protection against damage claims for public liability
Company benefits eg pmi death in service
Lower ni/tax contributions
Flexible remu/mix of salary/divs driving tax efficiency
Can take dividends
Divs taxed at lower rate to salary no ni on divs
Emplyer pension contrib
Employer contributions lower corp tax
Can employ spouse/could be s ahreholder
Pension contribs for spouse/divs for spouse as shareholder
