I have a question regarding VAT and a limited company.
A director of a limited company has taken on another job to help him through a downturn.
The directors limited company is registered for VAT.
Now the director won't invoice his new employer and they would just pay him a wage (without tax deductions) straight into his Limited Company.
I was wondering if he would have to pay VAT on the new wage coming into his company?
Thanks for your help.
Replies (5)
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Services
If providing services through Limited Company, then company should invoice 'new employer' for services + vat and there would be no income tax deductions.
If employed direct by employer then obviously will be subject to income tax but no vat.
If through company, should be aware of ir35.
As you say the words ' new employer' this implicates employment and therefore wages should be paid direct to him and not through company.
As pauld said, the first thing to do is check whether or not he falls under IR35.
If he does, he will have to account for a deemed employment payment. See s.54 ITEPA 2003.
If he does not fall foul of IR35 then he must account for receipts from his taxable supplied services as being inclusive of VAT. Therefore he should remit 20/120 of his gross receipts from his 'employer' to HMRC as VAT.
Director's Loan Account?
I agree with Pauld, but would add that it is the responsibility of the new employer to determine the employment status of your client. If they decide he is an employee, they should operate PAYE in the usual way. If they decide that he is self-employed (not how you explain it, but suggested by the failure to operate PAYE), your client will have to register as self-employed and submit the details on a SA tax return. Either way, payment into the company would merely be a loan by your client to his company.
Neither your client nor the "new employer" can escape the tax consequences of paying him for his services by paying directly into the company. If they are doing that, it suggests, as Pauld says, that it is in respect of a contract with the company and VAT must be added.