Contractor possibly caught under Agency Legislation or IR35

Katie2014

Hi

I have possible new client who is a contractor in the building sector and is going to be receiving work through an employment agency. The agency have asked him to set up a limited company to pay him through and they are going to deduct 20% CIS from him.

I have been looking into this and I seem to be going round in circles. I believe this will come under the agency legislation (rather than IR35?) and if so what does this mean for how his accounts should be prepared?

How should he legally take the money from his own limited company once he has been paid and can he put all his expenses through his limited company or are there certain rules as in IR35?

This area is quite new to me and from doing my own research nothing seems very clear!

Thank you in advance for your help.

Katie

reader

He should get his contract reviewed for IR35 by a company such as Qdos.

If his contract is outside of IR35 (i.e. not caught by the intermediaries legislation) he can claim any expenses that are wholly and exclusively (w&e) incurred for business, and pay himself a tax efficient salary and dividends.

If his contract is inside of IR35 95% of his company income would need to be processed as a salary and all the e'er ni, e'ee ni and paye paid to HMRC. In this case he would receive a net salary. There may be a minor 5% profit which can be used to pay for accountancy fees and any other admin costs that are w&e incurred.

I can't understand how you have concluded that the agency legislation will take precedent? It's a shame you do not post your reasoning for this as I don't feel that I'm learning anything from this thread.

Katie2014

Thank you for your reply. I think I confused myself after reading the agency legislation and thought it might apply in this case, I have since realised that it doesn't.
Yes I was aware of the IR35 rules but its good to know I was on the right track anyhow with those.
Thank you again for your help

payrollpro

I would have said that as long he does not fail a status check he can rely on the CIS scheme to deal with payments and some deductions. I can't see IR35 being an issue becuase either way, IR35 or CIS, HMRC gets their money and in most cases they'd prefer a CIS withold rather than something more complex. One word of warning, getting the CIS suffered back from HMRC is a nightmare and we have convinced all of our CIS clients to ditch the Ltd company and go back to sole trader. HMRC do everything possible to hold on to the CIS and not pay it back at all, sometimes they make the business pay the CT first and then agree to repay the CIS, and then they dont repay it!

Katie2014

Hi payrollpro, thank you for your comment and advise.
The agency that my client will be getting the contracts through will only take him on as a ltd co, otherwise we would have strongly considered the sole trader route. After doing some research I've found that getting the CIS payments back from HMRC is a nightmare for many accountants/clients so I am considering applying for gross payment status from the outset to resolve this. As long as the agency has no issue with that.
Have you not considered using gross payment status to help with the CIS repayment issues? If you had any experience of using GPS instead, has this been beneficial to you?
Many thanks

reader

I too have no idea what Payrollpro is on about- I'm not sure she has the best username to be honest!

As mrme89 has alluded to, if CIS has been deducted at source the ltd company just deducts this from the PAYE/NI liability from the deemed payment if IR35 applies:

https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm3262

It would be interesting if Payrollpro could post some back up to her statements:
1) HMRC gets their money: clearly not because a significant amount of e'ee and e'er Ni would have been lost!
2) HMRC prefers CIS to IR35: well not according to the link above, i.e. IR35 tax calculation takes precedent!
3) HMRC does like something complex: sigh, if only!!!!

reader

Fair enough, can't argue with that