For Step 6 of the Deemed Payment calculator do you reflect NIC paid before or after EA has been claimed?

For Step 6 of the Deemed Payment calculator do...

Didn't find your answer?

Hi all

I have looked through various threads and can't find a definitive answer to this.

My question relates to Step 6 of the Deemed Payment calculator for contractors within IR35.  

It appears from HMRC guidance pasted below that I have to deduct the amount of the Employment Allowance claimed on NICs paid through the payroll from the Step 6 value of NIC paid in the year.  So when it says Employer NIC paid in the year, it really does mean PAID and not just calculated. 

The net effect is that 13.8/113.8 of the Employment Allowance is payable as further Employer NIC, and a deemed payment will arise (or increase) unless the amount put through the payroll is adjusted accordingly.

Can others confirm (or correct) my understanding?

From HMRC website:

 If you use the HMRC calculator to work out the deemed employment payment, you must only enter the employer Class 1 NICs actually paid on salary at Step 6 of the calculation.

For example, if a business was liable to pay £2500 employer Class 1 NICs on salary, but claimed the full £2000 Employment Allowance, then only the balance of £500 would actually be paid to HMRC. Therefore, only £500 should be entered at Step 6 of the deemed payment calculation.

Replies (6)

Please login or register to join the discussion.

By Steve Kesby
20th Jul 2015 11:29

Link please

I disagree with the HMRC guidance.

NICA 2014, s 4 makes it clear that the employment allowance is an amount that is received by the employer by offset against amounts that the employer is required to pay to HMRC.

It follows that when that offset is made, the employer has both made a payment and received their employment allowance. Accordingly, the amount to be deducted at Step 6 is the amount before that offset, in my view.

Essentially, the employment allowance is not a reduction in the amount of employer's national insurance that is due for payment, but an allowance that is receivable by the employer, with the method of receipt being a deduction from the employer's liabilities, which are extinguished (ie paid) to the extent that such a deduction is made.

HMRC's approach is nonsensical, in my opinion.

Thanks (0)
avatar
By DCA
20th Jul 2015 11:54

Thanks Steve

 

The text was taken from the calculator paragraph of the below

https://www.gov.uk/ir35-what-to-do-if-it-applies

 

Glad you are puzzled too.  

Thanks (0)
By Steve Kesby
20th Jul 2015 12:42

Apologies

I'd intended to remove the "Link please" title, because I had googled the extract that you had posted and had found it. Nonetheless, I still disagree with it.

I'd calculate the deemed payment using the 'ers NIC before deduction of the employment allowance the effect for HMRC is that they will only be losing, at most, £426 (£2,000/113.8% x 47% - £2,000 x 20%) for any company that does so.

The national coffers will gain as much as £426 for each company that follows the guidance without question. I think that is dishonest, and is where the dishonesty lies.

Thanks (0)
avatar
By girlofwight
20th Jul 2015 13:45

Curiouser and curiouser
Elsewhere on the esteemable .gov website we are told that Employment Allowance can't be claimed where the only Ers arises from a deemed payment

https://www.gov.uk/claim-employment-allowance

Although there is a route through this whereby the company has other employees as well as a deemed payment applying, you do have to ask whether HMRC are helping understanding or hindering in referring to EA in the context of deemed payments.

Thanks (0)
Euan's picture
By Euan MacLennan
20th Jul 2015 14:00

Disallowance of EA

I agree with Steve (I wouldn't dare do otherwise!) about ignoring the subsequent set off by EA when calculating the deemed payment and I would add that the exception in s.2(4) NICA 2014 refers only to whatever deemed payment may be left after deducting the amounts actually paid as salary.  In other words, service companies can claim the EA in the same way as other employers in respect of Er's NIC due on salaries actually paid - it is just the Er's NIC on the additional notional deemed payment on which the EA cannot be claimed.

Thanks (0)
avatar
By DCA
20th Jul 2015 15:24

Thanks - that's enough for me

Thanks again Steve and Euan.

I agree that to follow the guidance as stated implies the company is obliged to treat the Employment Allowance as a compulsory 'bonus' attracting all the usual payroll taxes when from a brief look at the referenced legislation tells a completely different story.

I've a feeling the example quoted is a recent addition to the website; I'm sure I've followed that link before and I would have spotted it before now.  Maybe it will just as mysteriously disappear...

I will carry on as I'd planned to; armed with your responses as irrefutable proof of my treatment being correct!

Thanks (0)