Working in the public sector? An FAQ about IR35

[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]

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

[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.

[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

[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]

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]

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]

What happens when my invoice to the end client includes 20% VAT? Is VAT still paid? By whom? Is it included in the total "deemed payment" to work out NI and income tax?

Thanks

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

[Confounded]

What about my contract?

I'm inside now, and the client says I'm inside. What should I do?

Because the client / agency has to deduct tax and NI from your invoice before paying you net.

What happens when my invoice to the end client includes 20% VAT? Is VAT still paid? By whom? Is it included in the total "deemed payment" to work out NI and income tax?

Thanks

[TonyF]

I have never worked an IR35 contract however it does now look likely that I will. One question i have that I have not been able to find an answer to is.

If my contract is IR35 do i still need an accountant and if so what for?

If HMRC get the sums wrong and you end up paying more NICs or tax than you should do (because your tax code is based on a full year income and you only work 7 months) then who will sort the mess out for you?