Contractor possibly caught under Agency Legislation or IR35
Katie2014
New MemberMAAT, AAT Licensed Accountant Posts: 29
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
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
0
Comments
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.
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
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
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!!!!