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Where Taxpayers and Advisers Meet

Public sector calculations for contractor

taxz
Posts:14
Joined:Fri Jun 21, 2019 11:26 am
Public sector calculations for contractor

Postby taxz » Wed Dec 18, 2019 11:40 pm

We are an intermediary (I) (a consultancy to be sure), supplying an IT contractor to a public sector client (P). The contractor is deemed inside IR35 for tax purposes. He operates as a service provider through his own limited company (C).

(C) invoices us a daily rate times days worked. In this case he has invoiced us 2925 + VAT for a months work.

Our accountant (A) has prepared the following on a payslip:
"Basic pay" 2657
"Income tax" 531
"NI (employee)" 232
"Net pay" 1894

The difference between "Basic pay" and (C)'s invoice we've been told is equal to Employers NI:
"Employers NI" therefore is 2925 minus 2657 = 268

(A) has instructed us to pay (C) the sum of "Net pay" and Employers NI - so
So we have indeed paid (C) 1894 + 268.

It is our understanding that under the 2017 off-payroll rules concerning public sector engagements, the intermediary (I) is *not* allowed to deduct Employers NI from (C)'s invoice (2925 to be sure). So with above in mind, we *have* to a good extent followed the rule to the dot. BUT if Income tax and Employers NI are calculated on the wrong base, we still have a problem.

The question: We think "Basic pay" (I believe HMRC call this deemed salary) should be 2925, and that "Income tax" and Employers NI should be calculated on 2925. Is this correct?

This is the guidance we're following: https://www.gov.uk/government/publications/off-payroll-working-in-the-public-sector-reform-of-the-intermediaries-legislation-technical-note/off-payroll-working-in-the-public-sector-reform-of-the-intermediaries-legislation-information-for-agents

(For anyone wondering, we *have* accounted for Employers NI in our invoice to (P) )

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: Public sector calculations for contractor

Postby robbob » Thu Dec 19, 2019 9:55 am

I am guessing it depends on the exact wording of the engagement, for the avoidance of doubt it probably makes sense to have tit clear as day that he gross rate being offered "per payslip" is reflective of the fact that ers ni will be suffered.
I don't know the answer but if you have engaged them for 2925 gross and suddenly make payslip out for 2657 will they not simply say you have understated my gross pay?

I can confirm i have seen it done how you advise on the payslips with a note that the gross rate would be reduced by the calculated ers ni but i have no idea what the engagement contract would have said to ensure that was all "legal"

taxz
Posts:14
Joined:Fri Jun 21, 2019 11:26 am

Re: Public sector calculations for contractor

Postby taxz » Thu Dec 19, 2019 1:05 pm

The outcome is that we deduct less income tax and less employers NI, and that it all seems compliant on the face of it. The contractor gets more. We get more margin. Will the contractor complain? Unlikely. Will this ever be a problem? No idea. We can't even establish right or wrong. Have spoken directly with HMRC employers helpline who was not able to help. I'm at loss.

taxz
Posts:14
Joined:Fri Jun 21, 2019 11:26 am

Re: Public sector calculations for contractor

Postby taxz » Sun Dec 22, 2019 12:25 am

Happy to disclose my position initially stated is correct. Our accountant finally agreed, and all is good.


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