Revenue publishes updated IR35 Deemed Payment guide

The Inland Revenue has published an updated version of its Supplying Services: How to calculate the deemed payment leaflet.

The leaflet explains:

How to work out the deemed payment, and

How to pay the Revenue the tax and NICs due on any deemed payment.

It also provides some answers to frequently asked questions.

The leaflet refers back to the IR175 'Supplying services through a limited company or partnership' guide which UKTECH reported on after it too was recently updated.

The leaflet, IR2003, reminds those supplying services through a limited company of some important dates:

• '5th April - Calculate your deemed payment.
  
• '19th April - Send us any tax and NICs due on the deemed payment, or a payment on account of any tax and NICs due.
  
• '19th May - Send your End of Year PAYE returns (forms P35 and P14) to us and include any deemed payment and tax and NICs due in it on these forms; if you have not yet finally calculated your deemed payment, then tell us in a covering letter that your figures are only provisional.
  
• '31st January - If you only sent us provisional figures on 19 May, then send us corrected form P35 and P14 figures now, and pay any balance of tax and NICs due at the same time. If necessary, issue a corrected P60 to your employee at the same time. If you do not do this, penalties may apply.'

The leaflet has been updated to include information about the 2001/2002 tax year as well as giving the new address for sending in contracts for a Revenue opinion.

Kevin Miller, PCG Director, provided an analysis of the leaflet.

He said: "Neither this document nor the pamphlet 'IR175 - Supplying services through a limited company or partnership' make any acknowledgment of the fact that IR35 can also apply to individuals, not just those who work through service companies or partnerships. While these circumstances are likely to be rare the very fact that they are hard to envisage probably makes the need for guidance greater so that no-one is inadvertently caught.

"Another area which the document does not really give any guidance on is that of company contributions to pension schemes. It would be helpful if the document clarified the issue of the basis on which allowable contributions could be calculated - that is as a percentage of the deemed salary after taking into account the level of such contributions.

"It is interesting to note that one of the common questions covers the issue of paying out the deemed salary as salary after the year end. The answer makes brief mention of the fact that this could result in the worker paying more tax than is necessary. However their only advice is, somewhat unhelpfully, to suggest that "You should seek advice from your professional adviser if you think this situation applies to you," without making any suggestions as to how the worker can best avoid the situation.

"This probably reflects the Revenue's embarrassment over the issue of double taxation under IR35 and the fact that often the best way to avoid the problem is not pay salary (as one might suspect given the whole thrust of IR35) but rather to continue to pay dividends and then reclaim the tax paid on the dividends against the tax due on the deemed payment."

The Inland Revenue also posted a new Frequently Asked Question to its IR35 page. The answer to 'What about the effect of IR35 on construction industry workers who are also within the Construction Industry Scheme (CIS)?' can be read here.

In other Revenue news, new interest rates for tax paid late and overpaid tax were announced today.

The rate of interest charged on income tax, national insurance contributions, capital gains tax, stamp duty and stamp duty reserve tax paid late and on tax charged by an assessment for the purpose of making good to the Crown a loss of tax wholly or partly attributable to failure or error by the taxpayer has decreased from 7.5 per cent to 6.5 per cent.

The rate of interest on overpaid income tax, national insurance contributions, capital gains tax, stamp duty and stamp duty reserve tax (repayment supplement) has decreased from 3.5 per cent to 2.5 per cent.

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Richard Powell, UKTECH