Staying in the same public sector contract after April 2017

[londonlad]

Vat is irrelevant here. It is collected on behalf of hmrc and the contractor will continue to collect it on behalf of hmrc even if declared inside. The example I used on the FAQ of someone on £300 a day still has them receiving £300 a week in vat but only £910 (from memory) after tax is withheld

Apologies, but don't agree with that. VAT is very much relevant here as If I stop working, then VAT income won't be generated for HMRC. Also if deemed inside IR35 why would someone work through limited company generating VAT for HMRC with no practical benefit. Moreover if someone is deemed inside then they are technically employee and employee don't charge VAT.

Would like to know your thought eek?

[BoredBloke]

People might very well continue to work via their limited company if they are pumping funds into their pension.

[eek]

Apologies, but don't agree with that. VAT is very much relevant here as If I stop working, then VAT income won't be generated for HMRC. Also if deemed inside IR35 why would someone work through limited company generating VAT for HMRC with no practical benefit. Moreover if someone is deemed inside then they are technically employee and employee don't charge VAT.

Would like to know your thought eek?

Lets look at an example:-

client sales £1m. Purchases from eek limited £0 Vat due from end client £200k total vat collected £200k
client sales £1m. Purchases from eek limited £100,000 Vat due to HMRC from end client (20% of £1m-£100k) = £180k. VAT due from eek limited £20k Total VAT due £200k

Unless you are selling to none VAT registered individuals* you aren't generating VAT you are merely collecting money that HMRC would receive anyway.

You're second point is equally invalid - you are not an employee. HMRC is merely stating that you should be taxed like one and is using the existing CIS rules to ensure you pay tax like one but even companies impacted by CIS collect VAT if their turnover is high enough.

* Banks, gambling and the public sector are different but the public sector is just a magic roundabout for VAT in most cases. Even with banking its an argument that I know results in HMRC going invalid argument and in the same way that I stopped subscribing to the Economist when they publish rubbish on a topic I knew about, HMRC stop reading from that point onwards.

[eek]

People might very well continue to work via their limited company if they are pumping funds into their pension.

Probably not the best plan as the Employers NI is paid for you rather than on your behalf so I suspect you won't be able to claim it back. That's one reason why an umbrella may be a good idea...

[londonlad]

Lets look at an example:-

client sales £1m. Purchases from eek limited £0 Vat due from end client £200k total vat collected £200k
client sales £1m. Purchases from eek limited £100,000 Vat due to HMRC from end client (20% of £1m-£100k) = £180k. VAT due from eek limited £20k Total VAT due £200k

Unless you are selling to none VAT registered individuals* you aren't generating VAT you are merely collecting money that HMRC would receive anyway.

You're second point is equally invalid - you are not an employee. HMRC is merely stating that you should be taxed like one and is using the existing CIS rules to ensure you pay tax like one but even companies impacted by CIS collect VAT if their turnover is high enough.

* Banks, gambling and the public sector are different but the public sector is just a magic roundabout for VAT in most cases. Even with banking its an argument that I know results in HMRC going invalid argument and in the same way that I stopped subscribing to the Economist when they publish rubbish on a topic I knew about, HMRC stop reading from that point onwards.

Your example seems other way round.

As a contractor in public sector, you are seller(your services) to the end client (public sector).

So as a contractor if you stop selling your service to end client (end consumer), VAT element won't be generated. Hence, hmrc will lose that additional VAT.

Care to provide revised calculation with above scenario?

[seeourbee]

Basically the person who you charge to will set it off. If you don't charge, there's no setting off so HMRC still get the original full amount.

[londonlad]

Basically the person who you charge to will set it off. If you don't charge, there's no setting off so HMRC still get the original full amount.

That's only if you sell your service.

Consider this, you sell your service £300 + 60 (vat) to end client.
What if you don't sell your service £0 + £0 (vat)

HMRC losing £60 in VAT, is that not right?

[eek]

Your example seems other way round.

As a contractor in public sector, you are seller(your services) to the end client (public sector).

So as a contractor if you stop selling your service to end client (end consumer), VAT element won't be generated. Hence, hmrc will lose that additional VAT.

Care to provide revised calculation with above scenario?

I would suggest you go and look in detail at how VAT works within the public sector....

As I said in my first reply VAT is just a magic roundabout. The local authority pays you £60 in VAT, they then claim that £60 back from HMRC...

And I will repeat this for the nth time, VAT is utterly irrelevant to these conversations - its just an annoyance that has to be dealt with.

[MrMarkyMark]

That's only if you sell your service.

Consider this, you sell your service £300 + 60 (vat) to end client.
What if you don't sell your service £0 + £0 (vat)

HMRC losing £60 in VAT, is that not right?

STREWTH

[londonlad]

I would suggest you go and look in detail at how VAT works within the public sector....

Well, I don't think that's necessary as the example given is realistic and practical.

It is similar to employee working in a company. HMRC will only get ENI, NI and Tax if person is working. No income for HMRC if someone is unemployed.