Working in the public sector? An FAQ about IR35

[Confounded]

Why are you invoicing your client if you are inside IR35? Aren't you via PAYE or brolly?

Well, I am invoicing the agent, but still there is currently a VAT added on top. So, what will happen to this VAT if found to be inside IR35? Do I stop charging it? Is there a guidance from HMRC on this? If they still expect my company to charge VAT, how does it get treated for the process of working out NI and income?

[northernladuk]

Well, I am invoicing the agent, but still there is currently a VAT added on top. So, what will happen to this VAT if found to be inside IR35? Do I stop charging it? Is there a guidance from HMRC on this? If they still expect my company to charge VAT, how does it get treated for the process of working out NI and income?

But why aren't you going via agent PAYE or Umbrella. Was this a conscious decision of yours based on some financial model that suits you or something?

Are you doing this now or asking for if/when IR35 hits? Invoicing through your limited isn't a great choice and many agents won't accept it.

[Confounded]

But why aren't you going via agent PAYE or Umbrella.

Let's say that I want to manage several engagements, where some are "in" and other are "out" of IR35, though my company. So, once again, what happens to VAT in such cases? Is there guidance from HMRC?

And one more: how to treat money that is paid by the agency to my Ltd for accounting purposes? If I put it through all as "salary" from the company to me, then this would give rise to Employer NI, but this, presumably, would have already been deducted and paid by the agency. What is the guidance from HMRC and proper accounting treatment?

Thanks

[northernladuk]

Let's say that I want to manage several engagements, where some are "in" and other are "out" of IR35, though my company. So, once again, what happens to VAT in such cases? Is there guidance from HMRC?

And one more: how to treat money that is paid by the agency to my Ltd for accounting purposes? If I put it through all as "salary" from the company to me, then this would give rise to Employer NI, but this, presumably, would have already been deducted and paid by the agency. What is the guidance from HMRC and proper accounting treatment?

Thanks

I'm confused about your actual engagement here. I don't think agencies will accept LTD's going forward as there are no benefits so you would be through a different model which gives rise to a totally different explanation. I think you need to clarrify how you think you will be engaged via an agent in an inside IR35 gig. There is a lot more in the chain than just the LTD.

This post on this thread might help.

https://www.contractoruk.com/forums/...ml#post2394880

And this post
https://www.contractoruk.com/forums/...ml#post2468700

[Maslins]

Let's say that I want to manage several engagements, where some are "in" and other are "out" of IR35, though my company. So, once again, what happens to VAT in such cases? Is there guidance from HMRC?

And one more: how to treat money that is paid by the agency to my Ltd for accounting purposes? If I put it through all as "salary" from the company to me, then this would give rise to Employer NI, but this, presumably, would have already been deducted and paid by the agency. What is the guidance from HMRC and proper accounting treatment?

We're processing a handful of these (public sector, inside IR35, sticking with Ltd Co). Basically the inside IR35 income goes into the company bank account then straight back out to the director as salary already taxed. So the PSC itself doesn't suffer/deduct any PAYE/NICs. Ignoring possibility of some outside IR35 work also going through, it means the company inevitably makes a small loss (as salary = turnover, so admin expenses = loss), so no corporation tax to pay. Of course the company paying no tax isn't really a plus for the contractor, as it's only because they've basically been taxed on their whole company income as a salary for them individually.

Where you've got some inside and some outside IR35 work, I'd still question the logic of putting the inside stuff through your company. I don't see any benefits to the contractor of doing that over an umbrella, other than the (hopefully very small) risk that the umbrella company itself goes bust leaving you unpaid for some work. If I was a contractor with a mix of inside and outside IR35 work, I'd have a Ltd Co for the outside stuff, and use an umbrella for the inside stuff. Sure it's a bit of a faff paying for both, but to my mind it's the best option in that scenario.

[Confounded]

I don't think agencies will accept LTD's going forward as there are no benefits...

Agency charge the client a fee as long as my company is providing services through them, so they would want to keep me on their books or they loose out

[malvolio]

Previously, having to manage company income and IR35 taxable income simultaneously, I changed my company salary to equate to my IR35 gig and let the company payroll sort out the tax side of things. Obviously all work was invoiced with VAT added at gross.

That would no longer seem to be an approach of course.So, like pension management, a simple process blown away for no real reason and replaced with endless complications.

[Confounded]

We're processing a handful of these (public sector, inside IR35, sticking with Ltd Co).

And what about the VAT? Do we still charge it? Does the agency then deduct it from the total and pass it on to the Ltd before deducting income tax and NI from the rest? It seem that on one side Ltd is still being treated by one government department (C&E) as business and expected to charge VAT, while on the other (IR) treats it as an employee. WTF?

[northernladuk]

It seem that on one side Ltd is still being treated by one government department (C&E) as business and expected to charge VAT, while on the other (IR) treats it as an employee. WTF?

Only if you are engaged through a LTD which is not the way to go as has been mentioned a number of times. Having the LTD in a chain where it is not needed is going to give rises to these WTF scenarios. Don't use the LTD and use the better options available and that problem has gone.

[Maslins]

And what about the VAT? Do we still charge it? Does the agency then deduct it from the total and pass it on to the Ltd before deducting income tax and NI from the rest? It seem that on one side Ltd is still being treated by one government department (C&E) as business and expected to charge VAT, while on the other (IR) treats it as an employee. WTF?

Yeah you still charge VAT, client still pays it...but it's basically ignored from the payroll/IR35 side of things.

Eg invoice = £10k + £2k VAT = £12k
Let's say PAYE/NICs are £3k
Client pays your company £9k (being £10k + £2k - £3k)
You then pay £2k VAT over to HMRC as normal (FRS can still be used, but let's disregard this for now)
You're left with the £7k being invoice amount net of VAT and net of PAYE/NICs. That goes straight out to director.

Yes, it's daft. I think over time everyone will agree it's pointless, so we'll drift towards a world where inside IR35 contracts don't exist. You either have outside IR35 contractors, or you have umbrella (or of course permie) contracts.