Public sector payments IR35

Flat rate scheme, corporation tax and bookkeeping

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After 6 April 2017, Ltd co will have PAYE and NI deducted from sales invoices. If FRS on cash basis, is FRS due on net income received?

Is corporation tax due on gross sales or income after PAYE?

What are the bookeeping entries to get rid of the debtor?

Replies (9)

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By Wanderer
22nd Mar 2017 12:39
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By [email protected]
23rd Mar 2017 01:00

If you are an umbrella company, how do you account for the revenue collected on behalf of you clients. Do you account for the client revenue or commission charged

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Replying to [email protected]:
By JCresswellTax
23rd Mar 2017 08:54

Why do you want to know?

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Teignmouth
By Paul Scholes
23rd Mar 2017 12:18

As shown in the guide linked above, the paying authority will pay the PSC the net payment plus VAT so the VAT accounting will see no change. For CT the whole process will be neutral as the net sum is received then paid out as salary and reported in RTI as a no tax no NI payment.

The confusion though is around FRS VAT and the deemed payment.

In standard IR35 situations the deemed payment is the gross fee less the FRS VAT, so does that mean you now have to tell the paying authority you are on the FRS and what your FRS liability will be or will the new deemed payment they now calculate always be on the net fee (gross less the 20% VAT), per the guide?

I suppose the latter makes sense as why should this new rule deny traders the benefits of the FRS "profit"?

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By EstherG
23rd Mar 2017 13:35

I should think all PSCs in the Public Sector caught by IR35 will be limited cost traders and so moved to 16.5% FRS from April, which wipes out FRS gain anyway doesn't it?!

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Replying to EstherG:
Teignmouth
By Paul Scholes
23rd Mar 2017 13:48

Good thinking Esther - yes lots of commentary on the contractors' websites about this so imagine a mass migration out of FRS.

My one public sector contractor client is taking this one step further and retiring, one extra regulation too many!

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By akr129
23rd Mar 2017 17:08

Point 15 of the item for which Wanderer provides a link
says PSC will still have to send in a FPS with the payment to the director shown as payments not subject to tax. My sole public sector client caught up in this will have to pay a monthly fee for her payroll support and a fee to me for her annual accounts. Do these produce a corporation tax loss as she has no income other than the public sector fee payments which are received after tax & Nic. The 5% to cover costs is abolished so does she have to pay this effectively out of her own pocket?

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Replying to akr129:
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By EstherG
24th Mar 2017 09:23

I'm thinking the same thing, if 5% expenses no longer permitted then are any legitimate business costs allowable?

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By martinjrichards
10th Apr 2017 14:19

This is a rare gem of a thread as it concisely covers alot of the tax practicalities and client queries we are faced with. The guidance in the link calculates the Employer NI at £645 on £6000, so does it seem odd that they have not calculated the PAYE and Employee NIC on the balance of £5354. Or am I missing something?
Thanks to all respondents in advance.

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