5% Expenses

[rcsltd]

Like at lot of people I've invoiced my client as an off payroll employee for the first time this month.

I thought the procedure was
1. Take off the VAT
2. Take off 5% for expenses
3. The remaining figure would be the gross pay (I've also heard it called the deemed payment)
4. Calculate the NI and Tax on the gross pay and leaving me with the net pay
5. The client pays the NI and Tax via RTI to HRMC
6. The client pays me the net pay + the VAT + the 5% expense amount

But the client is saying they won't take the 5% expenses off before calculating the tax & NI. When I queried the client regarding the 5% expenses their response was "Any questions regarding how the PSC or the contractor should calculated their own tax affairs must be directed to your own accountant and not our payroll department".

I don't know if it an issue or not.

Can the "missing" 5% be address when my self assessment is done?

[eek]

That was the old world - in the new world (where the 5% rule no longer applies because the payment work is now done by the agency not by yourself)

1. The FULL figure is the gross pay (it's called the deemed payment)
2. Calculate the NI and Tax on the gross pay and leaving me with the net pay
3. The client pays the Employer and Employee NI (and Apprenticeship levy if appropriate) to HMRC reporting via RTI
4. The client pays the Income Tax to HRMC on behalf of your company again reporting via RTI.
5. The client pays your company the net pay + the VAT (for the full amount)
6. You transfer the net pay out of your company to your personal bank account

There is a reason why we've spent the last 3 years saying if you have an inside IR35 contract there is zero point being paid via your PSC.

[rcsltd]

I work directly with the client so no agency involved. I don't know if that makes a difference.

So are you saying that the 5% expenses allowance just doesn't exist anymore?

This is from the HMRC website and it says they first thing you do to calculate the deemed payment is to take off the 5%
https://www.gov.uk/guidance/how-to-c...oyment-payment

[malvolio]

I work directly with the client so no agency involved. I don't know if that makes a difference.

So are you saying that the 5% expenses allowance just doesn't exist anymore?

This is from the HMRC website and it says they first thing you do to calculate the deemed payment is to take off the 5%
https://www.gov.uk/guidance/how-to-c...oyment-payment

It depends which bit of IR35 is in effect, Chapter 8 or Chapter 10.

Chapter 8 is the old one, where you make the determination and get 5% relief for admin costs and sort out your own taxation. It still applies if the client is a "small company", for another year at least.

Chapter 10 is where the client makes the determination and you are paid net of taxes. That's been around in the public sector for three years now and everywhere else since April.

You need to determine which applies in your case. Whether there is an agency or not makes no difference; if all else fails YourCo becomes the fee payer, or your client deals with it and you get the net payment for your personal account.

All this has been mentioned once or twice...

[jamesbrown]

Correct, it simply doesn’t exist anymore unless you are responsible for determining your own status, as would be the case with a small client or fully overseas supply chain (you are not, as clarified in the OP). No more 5%.

[rcsltd]

That's cleared that up then.

Thanks for the replies and clarification.

Take care.