Dividends

Impact of IR35 when paying yourself dividends

IR35 is a piece of tax legislation that is aimed at preventing what HRMC consider to be an employee from working via a limited company and receiving the tax benefits of paying themselves in dividends.

If you are caught by IR35 then you are required to take 95% of your companies income in the form of salary, which will incur income tax, employers national insurance and employees national insurance. This all adds up to a great deal of tax.

Who is caught by IR35?

Unfortunately there is no simple answer to this question. One of the reasons why IR35 is so unpopular is because it is so vague. Here are some warning signs though:

  • Your company has a single client and you are the only employee of your company
  • Your contract stipulates that you cannot send anyone else to do your work
  • You work from client offices 9 to 5 every day
  • Your work has to be completed at client offices and you get paid regardless of whether they have work for you to do or not

If any of these apply to you do not rush into setting up a limited company and paying yourself dividends. Get advice over your IR35 status first. It might save you a lot of tax later down the line.