VAT & IR35

knowledgeispower

Hi All,

I have an IT contractor who has his own LTd co (VAT Registered) and have been caught by IR35 this April; Therefore he now works through an umbrella company. Q: should VAT be paid to him with his wages on his payslip? If not, how do yo account for it on his VAT return? Thanks in advance

TaxAdvisorWB

If your client is working through an umbrella company it is likely he will be an employee of the umbrella company, rather than invoicing them for the work. The employment income would be like any other, it would not form part of his turnover but would be reported through the employment pages of his SA return.
https://www.gov.uk/guidance/working-through-an-umbrella-company

douglasstroud

But as far as I am aware if they are receiving the payments through their Ltd Co and they are VAT registered then they will also have to charge VAT on their services

JPXYZ

It doesn't matter where the payments go. It's about the contractual arrangements.

If the person is employed through an umbrella company, then it's earned income. If it just so happens to be paid into the company bank account, it doesn't make it company income. It will simply be a credit to the DLA and debit when that sum is withdrawn from the DLA.

douglasstroud

I agree, but if the money was being paid into the Ltd Companies bank account then I would have expected the contract to be with the Company, if that is the case then VAT needs to be charged.