IR35, Deemed payment and RTI submissions

IR35, Deemed payment and RTI submissions

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Has anyone spotted this issue:
Say you have made £40k into a company and under IR35 rules, you then use the HMRC IR35 Deemed payment calculator and it tells you that your deemed payment is £34376 (step 8, n) and your employer NIC you need to pay is £3624 (step 8, m)

You go to put the £34376 into an accounting software and it calculates your Employee NIC, Employer NIC and the income tax due on that figure and ... here’s the key bit...  it takes the total of all those three deductions away from the same £34376 deemed payment figure you entered, because that’s how PAYE and RTI normally works, and it says:
Pay:
Employer NIC: £3624.43
Employee NIC: £3157.92
INCOME tax: £4673.37
Total deductions: £11455.72
from the deemed payment (note: it wants you to take out the Employer NIC from the deemed payment figure)
So you go ahead and pay that £11455.72 from the £34376 deemed payment and you are left with £22920.28 to pay to yourself.

What happens to the difference between the £38,000, above, and the deemed payment of £34376 ?

Can anyone see the flaw? And that accounting software doesn’t allow you to take the employers NIC from the £38,000 ?

What is everyone doing about this?

Replies (6)

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By GR
28th Mar 2017 20:54

£38,000 - £3,624.38 = £34,375.62 which is gross wages.

If you put £34,375.62 into any payroll system as gross wages you should get £3,624.38 as employer's ni.

Tip of the day: Don't over complicate things!

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Replying to GR:
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By Cinder
29th Mar 2017 17:48

Yes, do.

but its not about that basic calculation.

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By SteveHa
29th Mar 2017 10:06

Quote:
You go to put the £34376 into an accounting software and it calculates your Employee NIC, Employer NIC and the income tax due on that figure and ... here’s the key bit... it takes the total of all those three deductions away from the same £34376 deemed payment figure you entered, because that’s how PAYE and RTI normally works,

No, it isn't. Employer's NI is not deducted from an employees salary. Only the tax and employee NI are deducted (£8,297.80) and the employer's NI of £3,624.43 is paid from the retained bit over and above the deemed payment.

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Euan's picture
By Euan MacLennan
29th Mar 2017 17:35

Does a bit of double entry help?

DR £34,376.00 to P&L Gross Pay
DR £3,624.43 to P&L Employer's NIC
CR £11,455.72 to B/S Due to HMRC
CR £26,544.71 to B/S Bank or DLA, being the net pay due

You are left with £26,544.71 to pay to yourself, not £22,920.28.

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Replying to Euan MacLennan:
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By Cinder
29th Mar 2017 17:55

Yup, it helps

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By Cinder
29th Mar 2017 17:54

Resolved, with 5 days of calls to HMRC.

HMRC basic tools was my issue. I needed to look closer as it was not doing what I thought it was doing.

I thought it was taking away the employers NIC from the deemed payment figure I had entered to process as pay, but it wasn't at all, the confusion comes in when you go to the page called "Calculate amount due to HMRC" it mentions the Employee NIC there and it appears to ne that it wants me minus it from the £34375, but it doesn't.

I understood how to calculate it manually , but thought the software was doing something dodgy. I get it now.

Thanks all.

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