VAT and employers NI

[workinghard11]

Hi..
Can anyone advise here please about an issue..

My employer charges VAT to the client on my monthly rates.
And then deducts 12.8% NI on monthly rate (excluding the VAT).

Example:
(i)monthly invoice 3000
VAT 510
(ii)Total charged 3510

While paying me
12.8% ni deducted from 3000, left 2616
From 2616 tax and ni is deducted..and i get the rest.

my question is..Should 12.8% be deducted from (i) or (ii). shouldn't it be (ii).
Thanks
W

[TykeMerc]

Hi..
Can anyone advise here please about an issue..

My employer charges VAT to the client on my monthly rates.
And then deducts 12.8% NI on monthly rate (excluding the VAT).

Example:
(i)monthly invoice 3000
VAT 510
(ii)Total charged 3510

While paying me
12.8% ni deducted from 3000, left 2616
From 2616 tax and ni is deducted..and i get the rest.

my question is..Should 12.8% be deducted from (i) or (ii). shouldn't it be (ii).
Thanks
W

(i)

[ASB]

Neither.

The question is what salary do I need to add 12.8% NI to get to the gross 3000. The salary should therefore be 3000 - (3000 * .128 /1.128) = 2659.58.

Whether the question you actually ask is the one you mean I don't know.

[expat]

Hi..
Can anyone advise here please about an issue..

My employer charges VAT to the client on my monthly rates.
And then deducts 12.8% NI on monthly rate (excluding the VAT).

Example:
(i)monthly invoice 3000
VAT 510
(ii)Total charged 3510

While paying me
12.8% ni deducted from 3000, left 2616
From 2616 tax and ni is deducted..and i get the rest.

my question is..Should 12.8% be deducted from (i) or (ii). shouldn't it be (ii).
Thanks
W

Wouldn't you know it, the answer is NEITHER.

1. your employer bills the client 3000 net, and on top of that your employer collects VAT at 17.5% from the client and passes it on to the government. So the client pays your employer 3525, your employer hands over the VAT to the government (which is really none of your business, and doesn't affect your calculations).

2. Now your employer is going to pay you a salary. The salary will be quoted as "gross salary", which will then have employee's NI and PAYE deducted from it before you get it. How much "gross salary" will your employer pay? Not 3000, because we haven't calculated employer's NI yet.

Employer's NI is 12.8% of the "gross salary", it is paid on top of the gross salary.

So that 3000 is equal to "gross salary" plus employer's NI. That is, 3000 is 112.8% of gross salary. Therefore gross salary is 2659.74 (and employer's NI is 340.26).

From that 2659.74, employee's NI and PAYE are deducted, and you get the rest.

(calculations simplified, taking no account of NI earnings thresholds, reclaimable expenses etc etc)

Edit: as ASB said