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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£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!
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.
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.