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) )
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