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PSC or Umbrella ?

Is client treated as a PSC or paid through an Umbrella.

A Ltd company client has received payments from a recruitment agency into the business bank account along with remittance advices to support these payments which make reference to timesheets and show deduction of PAYE/NI. However the director has also received a P60 from the recruitment agency reflecting these payments and the PAYE deducted. The Ltd company has incurred various expenses relating to this work paid out of the business bank account.

Am very confused as to why a P60 has been issued to the individual but actual payments and remittance advices addressed to the ltd company and so am uncertain how this income (and associated expenses) should be treated in the ltd company accounts ?

Surely the P60 income has to go on personal Self Assessment tax return, but are the payments into the business bank account then credited to directors' loan account ? and what about the related expenses as if this income is not reflected in the accounts what is the expenditure matched with ?

First time I have come across this scenario so guidance would be greatly appreciated.

Many thanks.

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By SXGuy
17th Jan 2019 19:14

Sounds more like an Ir35 case to me.

Agency has operated payroll and deducted ni.

As you say the p60 goes on the self assessment.

Check this thread here. GR pretty much says it all.

https://www.accountingweb.co.uk/any-answers/ir35-34

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By Matrix
17th Jan 2019 19:17

Assuming he has a public sector contract, you will need to catch up on the off payroll rules.

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By GR
17th Jan 2019 22:01

1) The remittances have all the information that you need to create sales invoices, i.e. i.e. DR Trade Debtors and CR Sales and CR VAT.

2) The receipts from the agency should be credited to debtors, i.e. DR Bank and CR Trade debtors.

3) There will still be a DR balance in your sales ledger control (this represents that PAYE/E'EE NI deducted by the agency). Write off this DR balance to director's remuneration, i.e. DR Director's remuneration and CR Trade debtors.

4) Post the net salary journal (which is the net invoice amount less the PAYE/NI deducted), i.e. DR Director's remuneration and CR DLA.

5) Any payments that director makes to himself out of the limited company bank account DR the DLA, i.e. DR DLA and CR bank.

After doing steps 1 - 4 there should be no profit left (apart from any gain made on the flat rate scheme for VAT).

Step 5 essentially creates a net wages control account.

Any business expenses (e.g. accountancy, insurance, etc) will create a loss for the company (assuming no outside of IR35 contracts) and this loss will need to be funded by the director personally. The loss will need to be carried forward or carried back.

The P60 is declared on personal tax return. There will probably be additional tax to pay when you prepare the tax return because the tax code normally used is BR in these situations, i.e. the agency may not have deducted any applicable 40% tax.

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to GR
18th Jan 2019 07:35

GR wrote:

( There will probably be additional tax to pay when you prepare the tax return because the tax code normally used is BR in these situations, i.e. the agency may not have deducted any applicable 40% tax.

On the up side, no CT and a possible carryback relief.

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to atleastisoundknowledgable...
18th Jan 2019 07:44

downside :
agency fee[s], possible pension AE ERS+ EEs : apprentice levy 'contribution', and from the company trading insolvently ie losses in company etc

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to GR
18th Jan 2019 09:23

Fanastic answer thank you. Step-by-step and journal by journal, explained amazingly !

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By cfield
to GR
21st Jan 2019 11:45

I would do it slightly differently. I would debit the shortfall on Debtors to the Loan Account at Step 3 and use the gross figure instead of the net for the payroll journal at Step 4.

Same result. P&L is debited with the gross figure and the loan account is credited with the net. Turnover is the correct gross figure and no balance is left on Debtors. However, it more accurately reflects what is really going on here; i.e. that payroll is outsourced (involuntarily) to a third party (the agency).

The only other thing I would add is that the PSC payroll software should not be touched, unless you want to report non-taxable pay in Field 58A.

This assumes that the director accepts IR35 status and does not wish to challenge it. Most people prefer to keep their heads down rather than argue with HMRC, just as the legislators intended.

As for PSC v umbrella, I would opt for a PSC every time as a) the umbrella fees can be almost as high as paying an accountant to look after a PSC, b) you can claim other expenses, such as mobile phone bills and software, and c) you can offset the losses against future profits (if you can get a contract outside IR35).

Sadly, most agency workers don't get the choice these days and are herded into umbrella companies, some with very dodgy payroll models.

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