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IR35 & Public Sector

IR35 company income taxed

Company client year-end 31 March 2017, worked via an agency within the public sector. An invoice was raised on 31 March 2017 for the months work that was paid to the company bank account post 5 April 2017, after deduction of PAYE tax & NI. An April 2017 payslip for the net monies has been issued to the director. Help is needed in terms of how this income is declared in the company accounts and the effect on the CT payable and also the directors personal tax for 2017/18?

Thanks

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07th Nov 2017 11:32

What have you found out so far? This will help respondents gauge the depth and detail of answer you need. Nothing worse for someone than to give a long answer and then be told, 'I already knew that.'

Well, actually, there are plenty of worse things . . .

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By SE
07th Nov 2017 13:34

Hi Andy - thoughts
Credit sales with invoice say £6,000. Debit debtors £6,000. Debit wages/salaries £6,000. Credit PAYE creditor say £2,500 and then credit DLA/wages payable £3,500? The actual taxed payslip being shown as personal income on their tax return?

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By Ruddles
to SE
07th Nov 2017 14:02

But that's not what the half-baked legislation, drafted by some Treasury junior, says - or at least it didn't the last time that I looked.

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By brumsub
08th Nov 2017 13:42

There is a worked example on HMRC website which will help you answer your question. The link is:
https://www.gov.uk/government/publications/off-payroll-working-in-the-pu...

Essentially, the PSC company will reduce it's turnover by the PAYE/NICee deducted for CT purposes and deal with the net amount received in payroll under rti tax free, unless a dividend is paid in which case the company will get a tax deduction for the deemed salary. Hope that helps.

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By Ruddles
to brumsub
08th Nov 2017 13:53

"This included an amount of VAT (£1200) therefore the corporate accounts would reflect the VAT exclusive amount of £4129 in the calculation of turnover for Corporation Tax purposes."

Mince. Absolute mince.

Not just a Treasury junior but a Treasury junior in the India office.

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By cfield
to brumsub
09th Nov 2017 11:29

brumsub wrote:

Essentially, the PSC company will reduce it's turnover by the PAYE/NICee deducted for CT purposes and deal with the net amount received in payroll under rti tax free, unless a dividend is paid in which case the company will get a tax deduction for the deemed salary. Hope that helps.

As Ruddles has said, that guidance is pants. Turnover is measured in accordance with accounting standards, not by what some half-wit in the Treasury says. Basically, as per the invoice.

What you should do is take the tax and NI to a temporary debtors account (call it IR35 Deductions) until the client decides what to do about it. Unless he wants to argue the toss with either the client or HMRC, he will have no choice but to take salary of an equivalent sum to avoid double-taxation. That salary will be tax free on his own payroll (you have to report it as non-taxable income in Data Field 58A according to their guidance note) and the IR35 deductions can then be debited to DLA in lieu of the PAYE deductions there would have been otherwise.

Best do this before the end of the corporation tax year though or you might end up having to carry back loss relief (or even worse, carry it forward).

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By Ruddles
to cfield
09th Nov 2017 12:41

Thankfully, I've not had to deal with any such clients yet, but it strikes me that the most obvious thing to do with the tax/NI deduction is to take it to the tax charge on the P&L. I know that it's not corporation tax but I consider it to be analagous to a company receiving overseas income from which foreign tax has been deducted, which tax does form part of the tax charge. The IR35 tax is a charge on the company, so I don't agree that the DLA should suffer as a result.

Whether or not accounting standards would permit such treatment I have no idea, but one thing's certain - it's not up to HMRC to dictate how company accounts are put together.

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By cfield
to Ruddles
09th Nov 2017 13:20

Ruddles wrote:

I know that it's not corporation tax but I consider it to be analagous to a company receiving overseas income from which foreign tax has been deducted, which tax does form part of the tax charge. The IR35 tax is a charge on the company, so I don't agree that the DLA should suffer as a result.

The IR35 deductions are far more analagous to PAYE than foreign tax so I still say it's correct to debit DLA. After all, PAYE itself is a charge to the company, but it doesn't hit the P&L (apart from the employer NI). It hits the DLA as this is only credited with net pay.

The commercial reality is that the director is being forced to take his remuneration as salary rather than dividend. Therefore, the accounts should reflect this and look exactly as they would if he took that much salary voluntarily rather than having his arm twisted.

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08th Nov 2017 17:40

Having dealt with one client where this was applied to their fees, I agree that the legislation is a really bad piece of knee-jerk re-action caused by The Daily Mail highlighting the BBC having a high percentage of their staff off payroll.

The "public purse" engagers are applying this without considering whether or not the engagement falls into IR35, because they don't have to, and it's no skin off their nose if it costs more with Ers NI (after all it's not their money they are spending is it.).

So you are effectively left with a company having to pay it's expenses out of taxed income because there is no un-taxed income to offset it against.

Appalling - should have been riots in the street (mind you I said that when the government cleverly switches statutory sick pay from something they were obliged to pay, to something the employer was lumbered with!!)

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By Matrix
to tom2another
08th Nov 2017 18:55

Well, if this is rolled out to the private sector then we will all have to do these calculations.

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By cfield
to Matrix
09th Nov 2017 11:16

Matrix wrote:

Well, if this is rolled out to the private sector then we will all have to do these calculations.

I think the private sector will be a much tougher nut to crack than the public sector bodies, who were more or less ambushed with this ill-thought out legislation. I can see a lot of them making full use of the much criticised (but nonetheless relatively benign) status tool to keep key staff on board.

The Government might think they have cleverly levelled the playing field to stop contractors deserting the public sector for jobs in the private sector, but actually the private sector will probably fragment into firms that impose blanket policies and those who either assess their contractors individually to get the best staff or simply outsource the work to larger firms.

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By SE
21st Nov 2017 10:12

Thanks to all

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