Deemed Employee Payment Calculations
Whether your role falls “Inside IR35” or “Outside IR35”, you can continue to work through your own Personal Service Company.
What will change is that your PSC will need to be paid a “Net” amount after Tax and National Insurance if you are deemed inside IR35.
If your role is deemed Inside IR35, we will be issuing a new Contract in order for these deductions to be made from the Payment Rate that is agreed within your current Assignment Schedule.
Where this differs from an Umbrella Company PAYE Scheme is that there is no allowance needed for either Pension Contributions or for Holiday Pay – this will be the responsibility of your PSC.
Your role will also not be subjected to the “Agency Worker Regulations” as again, your Personal Service Company remains “The Employer”.
Our Responsibilities as the Fee-Payer:
When we receive the Worker’s Employment Status Determination Statement and the Off-Payroll Working Rules apply, we must:
- Calculate the deemed direct payment to account for Employment Taxes and National Insurance contributions associated with the contract
- Deduct those Taxes and Employee National Insurance contributions from the payment to a worker’s intermediary
- Pay Employer National Insurance contributions
- Report to HMRC through Real Time Information the Taxes and National Insurance contributions deducted
- Apply the apprenticeship levy and make any payments necessary
- Employment allowance cannot be used against payments to deemed employees
These new rules will apply to any payments made to the worker’s intermediary for services provided on or after 6 April 2020.
Below is an example based upon your current IQN Pay Rate of £400 per day:
|Daily IQN Pay Rate:||£400.00|
|Fee Payer PSC Engagement Day Rate:||£350.00|
We will need to make allowances for the current IQN Pay Rate / Company Income Rate to cover the Employers National Insurance and Apprenticeship Levy.
This is calculated by adding 13.8% to cover the cost of the Employer’s National Insurance and 0.5% to cover the cost of the Apprenticeship Levy onto the PSC Engagement Day Rate of £350.00 shown above.
Once this Rate has been agreed as part of this Contract re-negotiation process, a new Contract will be issued with the PSC Engagement Day Rate to your Personal Services Company of £350.00.
We then have the following estimated breakdown for a Net payment due to your PSC:
|Weekly Income (exl VAT):||£1,750 (this being the PSC Engagement Day Rate of £ £350.00 x 5 days)|
|Employee National Insurance:||£111.28|
Please note that Tax will initially be calculated using a Basic Rate – BR – Tax Code.
The calculation above is based on a standard Tax Code of 1250L to provide a more accurate estimate of Tax that may be due over the year for you.
A BR Tax Code is used as HMRC view the role you have with your PSC as your Primary Employment, and this will be viewed as being Secondary Employment.
Should you wish to move your Personal Allowance to the role that you have with Eaglecliff, it will be your responsibility to arrange this with HMRC directly.
We will process a Payment to your Personal Service Company for the Net Pay Total, plus 20% VAT on the full Deemed Salary Rate if you are VAT Registered.
These Payments are made directly to your Business Bank Account and you will also receive a Remittance Advice outlining the deductions above.
If you have multiple Assignments and some of these fall “Outside IR35”, it may be beneficial to continue working through your Personal Service Company.
Ultimately, it is your Financial Advisor or your Accountant who can best answer these questions as they are aware of your own personal circumstances.