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VAT/Payroll deduction query

Can anyone point me in the right direction for clarification on a payroll deduction question? 

We are going to supply a service to various individuals.  We will work out their estimated annual billing and send them a statement every 6 months.  They won't pay us directly but have a 1/12th deducted from their pay each month.  Their employer will pay us monthly with those payroll deductions.  If the original estimate is wildly "out" the payroll deduction will be adjusted accordingly.

Assuming the employer has a dispensation in place do you agree that there is no benefit and therefore it is not reportable under P11d?

 am going around in circles on the HMRC site and I have asked them directly but they have said it is salary sacrifice which I don't think it is.  The bill is not going to be sent to the employer.

I did look in to issuing a bill to the employer but it got very complicated as regards the VAT - would they charge vat to the employee etc.

All comments gratefully received!

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By neileg
21st Feb 2012 13:22

Not enough information

Is the deduction from gross pay or net? What is the nature of the service? Is your business VAT registered?

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21st Feb 2012 14:10

not enough information

Yes we are VAT registered.  The deduction would be from nett payroll.  The service is for a utility supply.

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By neileg
21st Feb 2012 14:37

Well then

If it's a net deduction, then it certainly isn't salary sacrifice. This seems to be just a payment mechanism and not a benefit at all. You will need to charge the relevant rate of VAT (presumably 5%) so that the payments made to you will be inclusive of VAT. You don't need a dispensation to be in place either.

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21st Feb 2012 14:52

Thanks

Thank you - this is my gut feeling too.

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21st Feb 2012 16:57

Disbursement?

neileg wrote:

If it's a net deduction, then it certainly isn't salary sacrifice. This seems to be just a payment mechanism and not a benefit at all. You will need to charge the relevant rate of VAT (presumably 5%) so that the payments made to you will be inclusive of VAT. You don't need a dispensation to be in place either.

 

Would this be a disbursement?

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By neileg
22nd Feb 2012 14:32

Not in the sense of the treatment of disbursements and VAT. The employer isn't incurring the cost, simply meeting the employees libility from their net pay. It's the same as having your union fees deducted or a savings scheme.

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