PAYE and VAT

[VectraMan]

I was thinking (hoping) that being PAYE we wouldn't be VAT registered but could maintain invoice value to client as previous. i.e. charge the client the full £12k in this example. This would then all get treated as PAYE with no VAT element at all to pass on to HMRC.

wishful thinking?

You mean the client happily gives you a 20% rate rise?

If you're on the client's payroll you won't be invoicing at all. You probably won't be VAT registered or even operating your own company either.

If you're doing PAYE yourself, just like if inside IR35, then the VAT works exactly as it does now.

[OrangeSquash]

I was thinking (hoping) that being PAYE we wouldn't be VAT registered but could maintain invoice value to client as previous. i.e. charge the client the full £12k in this example. This would then all get treated as PAYE with no VAT element at all to pass on to HMRC.

wishful thinking?

[pjt]

It's an interesting one.

VAT is charged by businesses on the services/goods they sell.

If for income tax purposes, you are regarded as not being in business, then will the VAT side of HMRC accept that you should not be charging VAT?

Or we will get the worst of all worlds where you're treated as receiving £12,000 of employment income, having charged £2,000 of VAT? You net is then £12,000 less £2,000 less income tax on £12,000 (at least £2,400).

Tricky.

Would the VAT not be charged and then paid to HMRC by the agency then we would be paid as an employee of the agency? If that's the case the VAT would still make its way to HMRC surely?

[webberg]

From the very limited and unconfirmed detail, you would become the client's (or agent's?) employee - not operate PAYE yourself.

It's an interesting one.

VAT is charged by businesses on the services/goods they sell.

If for income tax purposes, you are regarded as not being in business, then will the VAT side of HMRC accept that you should not be charging VAT?

Or we will get the worst of all worlds where you're treated as receiving £12,000 of employment income, having charged £2,000 of VAT? You net is then £12,000 less £2,000 less income tax on £12,000 (at least £2,400).

Tricky.

[mudskipper]

With the recent pieces about contractors being forced to go PAYE after 1 month etc I was looking to see how this might impact me financially. This prompted a thought on how this would work with respect to VAT and invoicing amount:

Today
Invoice 20 days at 500p/d = £10,000
Add VAT makes cost to clientco £12,000

If PAYE comes in
Should I expect to maintain the same cost to clientco i.e. invoice them £12,000 which i then handle as PAYE within myco or will client co expect to see an invoice for £10,000 only?

From the very limited and unconfirmed detail, you would become the client's (or agent's?) employee - not operate PAYE yourself.

[Underbase]

Should I expect to maintain the same cost to clientco i.e. invoice them £12,000 which i then handle as PAYE within myco or will client co expect to see an invoice for £10,000 only?

I would say depends on clientcos business. If you are working for say a oil company they will pay VAT and therefore they dont care about the VAT they pay you because they deduct it. Financial firms might be different as they dont charge VAT on the services they provide (most). So if your VAT spent is higher than collected do the finance companies get a rebate? If not then maybe they will still pay plus VAT otherwise they wont.

To put it simply if you VAT registered Ltd could buy a laptop for 2400 incl VAT or for 2400 with no VAT which leaves you with the most money in the coffers

[GB9]

No profit from fixed rate VAT. Knock that off the income too.

[vwdan]

I don't think it's that simple. The only time VAT has any particular bearing on us is when it comes to business expenses (including accountancy etc, not just T&S). If you have no expenses then the VAT may aswell never hit your bank account as you'll be handing it all over to HMRC.

By way of comparison, however, I just checked my return for 01 Feb to 30 Apr - I was staying away in hotels during that period and I reclaimed £1000 in VAT.

So, to break even in pure VAT terms I'd need to invoice an extra £1250 for that period / ~£100 per week.

The real problem is how you're taxed on that £100 per week, and how you deal with the costs etc.

[OrangeSquash]

With the recent pieces about contractors being forced to go PAYE after 1 month etc I was looking to see how this might impact me financially. This prompted a thought on how this would work with respect to VAT and invoicing amount:

Today
Invoice 20 days at 500p/d = £10,000
Add VAT makes cost to clientco £12,000

If PAYE comes in
Should I expect to maintain the same cost to clientco i.e. invoice them £12,000 which i then handle as PAYE within myco or will client co expect to see an invoice for £10,000 only?