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Dealing with IR35 receipts into company

How are you dealing with "company" receipts when PAYE/NICs has been applied?

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With IR35 being the hottest topic of the day, how are you dealing with the accounting adjustments realting to IR35 receipts into clients' companies books?

If a client raises a sales invoice in the company's name and this is paid under IR35 with PAYE/NICs deducted in the director's personal name, how is this best treated in the company's books? Who has earned the fee, the director (as employee) or the company? 

 

As I understand it, any public sector contracts are not subject to corporation (is that right?) and otherwise HMRC would have a bite of the income tax and CT cherries. But what about the small clients' contracts? If these are subject to corporation tax (on the net pay), is that double taxation?

Many thanks in advance

Replies (9)

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Locutus of Borg
By Locutus
27th Feb 2020 13:30

If I remember correctly what was said on a recent course, in cases where PAYE/NI is being deducted from a personal service company contract: -

- The personal service company receives all of the income.

- Income received by the personal service company that is subject to PAYE/NI is exempt from corporation tax.

- The worker withdraws the taxed income from the personal service company as a tax-free salary or tax-free dividend.

- The P60 information goes onto the worker's personal tax return, but not the tax-free dividend or tax-free salary.

This currently applies to the public sector, but from 6 April 2020 will be extended to large end users in the private sector (such as banks).

For small or medium-sized private sector end users, the existing rules will apply, i.e. that the personal service company self assesses whether IR35 applies to them and acts accordingly.

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Replying to Locutus:
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By rockallj
27th Feb 2020 15:02

Perfectly succinct, thank you.

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By ireallyshouldknowthisbut
27th Feb 2020 14:16

I cant really see any merit in your client using the company in such a scenario.

Wouldn't it be better for your client to just be on the intermediary payroll as themselves and cut out all the faffing about in the middle?

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Replying to ireallyshouldknowthisbut:
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By rockallj
27th Feb 2020 15:01

Firstly, not sure it's possible for them to be on the payroll "properly". Givt department, ha ha!.

Secondly, there are other contracts, many that are not IR35 applicable, a real mixed bag!.

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RedFive
By RedFive
27th Feb 2020 16:33

Have a look at my reply here on 7th Feb at 12:18 and 9th Feb at 12:14. Ignore some of the others responses as they were talking rubbish.

https://www.accountingweb.co.uk/any-answers/off-payroll-worked-example

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Replying to RedFive:
Psycho
By Wilson Philips
29th Feb 2020 11:06

Except that your post of 12:14 deals only with the accounting entries, not the CT consequences

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By Eric T
29th Feb 2020 10:09

The full company income has to be shown for a number of accounting reasons - and, of course, VAT still needs to be levied on the invoices raised, irrespective as to whether some of those invoices will be paid by the "customer" under deduction of PAYE and NI.

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By dmmarler
31st Mar 2020 13:57

The invoice has not been paid. If I were the director I would return the payment and point out that there is an invoice outstanding and decline to do any further work under the contract on the grounds of non-payment. Depending on the amount, I would take them to the small claims court. If the end client still wanted the service, then they could negotiate an employment contract with the director in a personal capacity at which every aspect could be properly considered. This is what should have happened if the end client believed that the contract was one of employment.

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Replying to dmmarler:
By Duggimon
31st Mar 2020 14:10

Not only are you posting a full month after everyone else, you are also wrong and silly.

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