Probably a numpty question, but I am asking about the correct way to process IR35 transactions in the books of a limited company operated by a contractor to a large organisation. He is definitely inside IR35.
The large organisation uses Capita Resourcing to process contractor payments, and they have issued a self billing invoice/remittance advice to the contractor’s company. The payment includes VAT and has tax and NIC deducted, which they say they will remit to HMRC on behalf of the contractor. So far so good I think.
My question is about what the contractor has to do to account for this correctly in the limited company accounts. What he has done so far is:
- He has raised a sales invoice for his daily rate plus VAT, which he hasn’t sent to Capita Resourcing as they have provided a self-billing invoice.
- He has processed a payslip using his company’s employer registration that calculates his employee’s NIC and PAYE. The employee taxes are the same as the payment made to HMRC by Capita Resourcing, and he has reported this on an FPS.
- He has matched in his accounts the unpaid balance of the sales invoice with the employees taxes due, so that both contra off and both the sales invoice and the HMRC liability are no longer outstanding (no effect on VAT).
- He is left with a balance of employer’s NIC to pay to HMRC as he isn't eligible for EA.
I have searched widely for advice on the above process, and there is much online about status determination but little practical help for those definitely within IR35. Is anyone able to confirm that he is doing the right things, and that his Company should pay the employer’s NIC to HMRC? The IR35 helpline is closed (staff transferred to Covid help). I have emailed them, but goodness knows how long it will take to get a reply.
Also regarding the 5% deemed costs that can be deducted, should this be claimed by him from his Company as an employee expense so that a) he receives it tax free and b) the Company benefits from a CT deduction for that cost?
Finally regarding the Company’s CT comps, as far as I can see it will have sales of (say) £50,000, gross pay of £50,000 and employers NIC of say £4,000. Add to that a 5% deduction for costs and the Company will be reporting a loss every year. That doesn't sound correct.
Any thoughts people?