Understanding the Fee Payer's Deduction

So your Public Sector Body has determined that your current role is now deemed to be inside IR35, but you want to continue to provide services through the Limited company you have built up.

Under the new rules it is still possible to trade in this way, but now the party paying your Company, the Fee Payer, needs to make a few deductions.
 

The Finance Act of 2017 requires that the Fee Payer deduct PAYE and Class 1 NIC from the fee for your services. Let’s look at an example:-

Assume you raise an invoice for £6,000 plus VAT through your Limited company. For ease we will assume there are no materials or expenses.

Invoiced amount

£7,200

VAT       

£1,200

Deemed Direct Payment

£6,000

The Fee Payer will need to deduct PAYE and NIC from the Deemed Direct Payment

PAYE

£1,458

Primary NIC

£413

The PAYE deductions will be made based on a BR tax code.

Your company will receive a payment from the Fee Payer, of £5,329

Deemed Direct Payment

£6,000

Less PAYE

(£1,458)

Less NIC

(£413)

Plus VAT charged

£1,200

The PAYE and NIC deducted by the Fee payer will be paid over to HMRC and will be reported through their RTI submissions.

Note there is no allowance for any company running costs in this calculation.

You will need to account for VAT according to your registration.

Within your own records you will record a reduced turnover of £4,129 and a net salary taken of the same amount, reported through your own RTI as a non-taxable payment to avoid any double taxation.

At the end of the year, adjustments can be made on your self-assessment for Pension contributions, childcare costs and any other expenses that are allowed but have not been taken into account by the Fee Payer when calculating the deductions.

To find out more about how Orange Genie Accountancy could help you, please call 01296 468 185 or email accountancy@orangegenie.com.

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