Courting disaster?

11 March 2003

Issue: 3898 / Categories: Forum & Feedback , IR35

Our client, A, and his girlfriend, B, are directors and shareholders of a company, whose total turnover is caught by the IR35 provisions. However, only A provides the services caught by the provisions. A reasonable salary is paid to B to assist in funding pension contributions.

A minimum salary and dividend using a basis year election for pension purposes appears to be blocked by the IR35 rules even if a dividend waiver is considered for the 'working' director A. We feel that given the intermediaries rules and Ramsay the case would be lost anyway.

When computing the deemed payment for IR35 clearly B's salary is not deductible as section 198 Taxes Act 1988 would deny any relief. Two problems have therefore arisen.

First B's salary is correctly subjected to pay-as-you-earn and National Insurance through the normal payroll but it is also subject to PAYE and National Insurance through IR35. This a clear element of double taxation.

Secondly our latest computation for IR35 has been done. The income tax and National Insurance on the deemed payment has been provided for in the company accounts and the...

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