Working in your company when you have Public Sector contracts or a mix of Public and Private Sector contracts

As you are aware, working through your company from 6th April 2017, will be different for assignments in the public sector where the public sector body has determined that your assignment is caught by IR35.  These FAQS hope to address any concerns you may have with regards to how your company will operate going forward.

Do I have to raise my sales invoices in Connect differently?

Not at all. You will continue to raise your sales invoices as normal via Connect.  If your assignment is in the public sector and captured under the new rules, you do however, need to let us know. 

How do I let you know that my contract is caught by the new public sector rules?

If you have a number of assignments which are a mix of public and private sector it is important that you let us know.  This is because public and private sector roles are now taxed differently.  This impacts the accounting we do for you, impacts your tax position and ultimately affects how much you are able to withdraw from your company and what your company liabilities are.  Once you have been advised by your Agency or client, please email us.  Alternatively, we will shortly have a tile on Connect which asks you to confirm whether your assignment is in the public sector or not.

Do I have to charge VAT on my public sector work now that I am taxed as an employee?

The IR35 changes in the public sector do not impact your VAT position.  If you are currently registered for VAT, then you are obliged to charge VAT, which will continue to be added to your sales invoice raised to your Agency.  Your Agency will pay the VAT as usual to your company, and VAT returns will be completed for you to review each quarter, so there are no changes in this respect. 

If I work in the public sector how much can I withdraw from my company?

Your agency or client should provide you with payslips to evidence the PAYE/NI deducted.  As long as you only draw the net amount advised, then no further PAYE/NI is due- the implication being that you draw salary to a similar level as advised on your Agency payslip. 

If all your income is derived wholly from public sector work and you are taxed in this manner, then there is no corporation tax due when we prepare your company accounts -this is because the matching payment to yourself is treated as an exempt withdrawal in your company accounts.  If you are always working in the public sector and caught by IR35 you should consider the validity of continuing to work through a limited company as this may no longer be the best way to work. 

Do I receive any relief for expenses in respect of my public sector assignment?

If you are deemed to be inside IR35 by your public sector end client, then the expenses you are able to claim tax relief on are restricted.  You can no longer claim tax relief on travel to your main worksite, as this is now deemed to be a permanent place of employment.

There are three types of costs to consider: 

i) Costs borne by the company

E.g. accountancy fees, company pension costs, stationery and postage, etc., paid directly by your company and reimbursed by your company to yourself.

These should be kept to a minimum as these expenses will create a loss in the company accounts.

This happens as the income received from the Agency is taxed at source and as noted above, you can withdraw a matching payment to yourself which is an exempt withdrawal for you personally.

You will not pay corporation tax on the taxed income received from your Agency.

The net effect of the above transaction puts you in a no profit/no loss position-  therefore the additional company costs, such as accountancy fees, company pension costs and postage and stationery will create a loss in the company. Company running costs are unavoidable, however, in these circumstances you should consider transferring your company pension to a personal one, going forward, in order to obtain personal tax relief. 

What if I have employees?

If you have employees, then you do need to consider whether retaining them is a viable option- in the majority of cases, it isn’t and is an avoidable cost for your company.

If the employees have generated income for you, which you have charged to your Agency, you, ultimately as director, in your personal service company, will suffer PAYE/NI on the income received into your company.

Therefore, any payments you make to employees are out of funds, already taxed, that you are entitled to withdraw out of the company by exempt dividends- so you receive less from your company.

Payments to employees, details of which are submitted to HMRC under the RTI system, attract tax relief in your company against available profits- but as noted above, we advise you to keep your costs to minimum as these expenses will create a loss in the company accounts, which  will be difficult to relieve.

If you are looking to terminate your employee’s services, then you should consider your responsibilities with regards to employment legislation and any potential termination payments due and payable.

If your company was not captured under IR35 in the previous accounting period

There is the facility to carry back losses to the prior year and obtain a corporation tax refund, if your company paid corporation tax in the prior year. Similarly, if your current accounts are cessation accounts, then you have the facility to carry back your cessation loss against 3 years of prior period profits. 

If this is your first period of trade

If the current period is your first period of trade, then the company has a loss to roll forward, to offset against future profits.

If you intend to have a mix of public and private sector income, then these losses will have utilised against your private sector profits.

 For clients wholly in public sector going forward, these expenses have to come out of income already taxed by the Agency when the funds come into the company bank account- hence, keep these costs to minimum. 

ii) Costs that are borne by the company where relief given in Agency payroll

HMRC have advised that if your Agency is willing to do this, then the following amounts can be deducted in their payroll calculation made to your company.

 These are costs that you are obliged to pay as an employee if you were an employee of your end client and covers:

  • Any employer pension contributions made to an approved scheme which are allowable under normal rules.
  • Professional indemnity insurance premiums.
  • Capital allowances in respect of computer equipment purchased by your company
  • Professional subscriptions to, and levies of, societies where related to the engagement.
  • Home working costs if contractually obliged to work
  • Travel expenses which are adhoc and infrequent in nature

Because it is unlikely that the Agency will have a framework to process expenses, these are costs borne by the company and relief can be obtained in the manner shown above.

Please note that certain expenses noted below can actually be relieved by claiming the following expenses via your self-assessment return. 

iii)Tax relief for employees

If you have losses, that can’t be relieved as above, then best practice may be to collect these costs and claim on your self-assessment return- these are expenses which must be wholly, exclusively and necessary in order to do your job. If the expense doesn’t meet this strict criteria, then you cannot claim these expenses on your self- assessment return (or P87 if you do not ordinarily complete a self-assessment return).

  • These cover:
  • Work clothes - specific/necessary to role
  • Homeworking – contractual obligation
  • Adhoc travel expenses- infrequent /irregular nature
  • Professional fees and subs- necessary to employment
  • Capital allowances on equipment- equipment necessary to employment 

Do I still receive capital allowances on my company fixed assets? 

If you are working through your company on a public sector contract and have a company car, then best practice is to remove the asset from the company.

You can do this by selling the vehicle to yourself at its market value -this is treated as a dividend in the company accounts.  The reason we advise to remove the vehicle is that you can only make a deduction for capital allowances where the vehicle or plant or machinery bought is necessary for the performance of your duties of employment. A company car doesn’t meet this criterion as there is a personal benefit attached to same.  This personal use element would also give rise to a benefit in kind charge, reportable on form PllD and resulting in an additional personal tax liability.  From a company perspective, it is an unnecessary asset as there are no capital allowances available and the costs associated with this asset aren’t allowable.

Plant and machinery necessary for the performance of your duties of employment still continue to be eligible for relief. 

What funds can I withdraw if I have a mix of public and private sector assignments?

You do need to consider each type of income separately- as highlighted above, you can withdraw funds up to the amount of your net salary received from your Agency or client with no further tax impact.  You will still, of course, be able to draw dividends on the available profits arising from your private sector income and we will advise you of same via Connect providing you have kept us informed on whether your assignment is in the public sector and IR35 applies or not.

 

If you have any further queries which we have not addressed above, with regards to your Public Sector contract, please do not hesitate to contact us.

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