IR35, deemed payment and VAT

[BillyPilgrim]

Looking for some advice on VAT and being inside IR35. So quick preamble. Been working as a contractor for 2 years, limited company, pay myself via PAYE and dividends, below the VAT threshold so didn't bother to voluntarily register for it, also do all my own accounts so has been a learning curve these last two years!!

My main source of contracting has been one contract, which is likely to be inside IR35 (awaiting SDS from company). Renegotiating my contract, which may put me above the 85k threshold, and instead of using an umbrella company, I am thinking of keeping my limited company, and pay myself via deemed payment through my existing payroll, so will be paying full whack on income tax and NI (and probably won't even use the full 5% for business expenses as my running costs are low).

If I do this, does that I mean I have to register for VAT? Or is it more advisable to go via Umbrella to avoid VAT? I know quite little about VAT from a contracting point of view - selling my services.

For example, say the contract is worth 100k. I've read that deemed payment, 5% is allowed for expenses, so that leaves 95k after bank account cost, insurance etc

Do I have to pay tax on the 95K, as well as pay income tax and NI? I know you have to submit each quarter, so if anyone can point to me any online documentation (that simplifies this), I would appreciate this!! Thanks in advanced

[jamesbrown]

There’s no 5% allowance. That is disappearing, except when the client is small, in which case YourCo makes the deemed payment. Likewise, unless the client is small, the Fee Payer will make any deemed payment to YourCo, not YourCo to you. You can then take PAYE or dividends tax free from the deemed payment. In other words, unless you have other contracts that are outside, there’s little point in maintaining YourCo. On VAT, this will be invoiced and added to your deemed payment by the Fee Payer and you will remit as normal (and VAT thresholds apply as normal).

[jamesbrown]

ESM10019 - Employment Status Manual - HMRC internal manual - GOV.UK

ESM10030 - Employment Status Manual - HMRC internal manual - GOV.UK

ESM10035 - Employment Status Manual - HMRC internal manual - GOV.UK

[BillyPilgrim]

There’s no 5% allowance. That is disappearing, except when the client is small, in which case YourCo makes the deemed payment. Likewise, unless the client is small, the Fee Payer will make any deemed payment to YourCo, not YourCo to you. You can then take PAYE or dividends tax free from the deemed payment. In other words, unless you have other contracts that are outside, there’s little point in maintaining YourCo. On VAT, this will be invoiced and added to your deemed payment by the Fee Payer and you will remit as normal (and VAT thresholds apply as normal).

Thanks for the reply. I won't pretend that it hasn't blown my mind a little bit. Think I will need to read this again, and will check out those links. Much appreciated, and thanks for your help.

[jayn200]

Just pay for an accountant if the contract comes back outside ir35 or pay for an umbrella if it comes back inside ir35.

It's really not that much money at all.

[jamesbrown]

Thanks for the reply. I won't pretend that it hasn't blown my mind a little bit. Think I will need to read this again, and will check out those links. Much appreciated, and thanks for your help.

No problem. If you have other questions after reading some more, I’m sure we’ll try to answer them...