IR35: Computation - Question 17

A worker engaged under IR35 terms and charged out at £100,000 but on an actual salary of £25,000 per year will have a deemed salary of £95,000. This fact may not have been declared to the worker and indeed the charge out may be information which the company may wish to treat as "commercial in confidence". If the employer went into receivership the IR35able worker would have an actual salary of £25,000 and a personal liability for deemed tax and NI far in excess of this salary - how could this be paid?

The IR35 legislation would only apply if the worker controlled at least 5 per cent of the company. In these circumstances the liability for any unpaid PAYE tax or NICs would rest with the company and the employee would be entitled to a credit for the PAYE tax and NICs which should have been paid in respect of the actual salary and the deemed salary. So there would be no personal liability on the worker unless, exceptionally, it was clear that the worker had been responsible for the failure to pay the tax and NICs to HMRC. If that was the case the worker would not be entitled to a credit.