Contractor's Tools

We have created an information hub to support our Orange Genie Accountancy clients, our Umbrella Employees and agencies where the the Covid-19 rules and legislation are explained for recruiters, contractors and the self-employed. Click here to find out more>>

Understanding the Fee Payer's Deduction

In April 2017 new rules around IR35 were introduced that meant if an end client was based in the Public Sector they were responsible for determining your IR35 status. These rules are being extended to the Private sector from April 2020 (where an end client is deemed to be a “medium” or “large” company) and have an impact on any contractor wishing to continue using their own Limited company.

A Contractor's Guide to Demonstrating You're Outside IR35: Click here to download>>

If determined to be inside IR35, the new rules bring changes to the way a contractor is taxed and its important you understand how it works. If you continue to use your Limited company whilst “inside” IR35 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.

Why Orange Genie Accountancy?

Orange Genie Accountancy offers fixed fee accountancy packages to contractors and freelancers. Each client has unlimited access to their own dedicated approachable and friendly accountant. All Orange Genie Accountancy accountants are specialists in the contracting market, so they can give you bespoke, high quality advice.

We will always keep you informed about anything that could affect you and your company. Our relationships with our clients are extremely important to us so we'll be in touch often, whether it be face to face, over the telephone or email.

Our packages start at £75 + VAT a month for an online service. Our most popular package is £120 + VAT a month which provides you with your very own dedicated accountant as well as:

  • Unlimited accountancy support
  • Face to face meetings so we can get to know you and understand your contracting goals
  • Proactive contact
  • Director and employee payroll
  • Annual Return
  • Self-Assessment Return
  • A fully compliant service so you are safe in the knowledge that you are meeting your legal obligations

​And much more, includingaccess to wealth management advice, IR35 reviews and pensions planning. 

If you would like to appoint Orange Genie Accountancy as your accountants please either fill out our enquiry form or give one of our friendly expert accountants a call on 01296 468 185 or email accountancy@orangegenie.com

Request a Call Back from Orange Genie

If you would like to find out how Orange Genie could help you. Please fill out the form below and one of our new business team will be in touch.

Request a Call Back