IR35, PAYE and VAT

[BradMcA]

Hi,

I am inside IR35, directly contracted to a university who I invoice monthly and they pay the amount less tax and NI to my personal bank account through PAYE on the payroll, I see payslips on their portal and links to P60 downloads in the future.

HMRC confirm on the phone they see me as an employee given PAYE (although I as an individual contract here) so say that I will owe no extra class NIC in future.... that call should be recorded their side hopefully given I wanted to be crystal clear with them...

Here's my question, the university is very concerned about me and VAT, it's likely that my gross earnings will hit the VAT threshold however given what HMRC said and PAYE - am I required to invoice VAT to them once the threshold is triggered?

[Hobosapien]

If they're issuing you payslips under PAYE then there is no VAT registration requirement. Employees don't need to be VAT registered. The invoices you're providing is just confirmation of billing time similar to a timesheet, as an employee you don't raise real invoices just confirm how much work you did that they then pay you for.

However if they were just paying your invoices less tax without PAYE acknowledgement, classing you as self-employed, then the VAT threshold would need considering (on the gross invoice amount), and it would all be a bit of a cluster****.

Hopefully from what you've said, you're in the first camp and can relax.

[mudskipper]

If they're paying you personally, and not via a LtdCo, then they are effectively operating PAYE and VAT does not apply.

If you are operating via a LtdCo, then it gets a bit more complicated!

[BradMcA]

Thanks for the replies, I think their concerns over VAT are unfounded too.


I have a LTD too, but that's outside of this relationship.

[DeludedKitten]

VAT is irrelevant if you are being paid as an employee via payroll.

Do HMRC give a call reference if you ask for one? If so it might be worth having the conversation again and getting a reference just in case you need it in the future.

[RokkieContract]

VAT, Staff Supply, Services and Wages

These guys have made a mess on this IR35 items.

I thought VAT was to be charged on a supply of services. If your inside IR35 then that itself would mean that you are not in the business of a supply of services.. Therefore there should be no VAT charge by the individual or agency on that element of supply except only the profit element.

Why this matters -- the health and financial services companies cannot recover the 20% VAT, so this is an end cost to the company. Their budget absorbs this 20% as it is not recoverable as they don't make taxable supplies.

There is definitely some inconsistency in this IR35 items.. and in particular I hope someone challenges the VAT element of the supply in relation to financial services / health sector.

[malvolio]

To be precise, VAT is charged where there is added value to the item - actual widget or service delivery - that has been supplied. The clue is in the name...

But it does not apply to a salaried employee, which is essentially what the OP is despite there also being a Ltd Co which is outside the scope of this engagement.

As for the threshold, that is only relevant to the OP's company if either (a) it is VAT registered, or (b) it exceeds the gross turnover limit, when registration is compulsory, and either way (c) if it is invoicing the university, which it appears it isn't.

It's always slightly worrying when company owners don't really understand the rules, it's seriously scary when an end client with a significant financial interest doesn't...

[LondonManc]

To be precise, VAT is charged where there is added value to the item - actual widget or service delivery - that has been supplied. The clue is in the name...

But it does not apply to a salaried employee, which is essentially what the OP is despite there also being a Ltd Co which is outside the scope of this engagement.

As for the threshold, that is only relevant to the OP's company if either (a) it is VAT registered, or (b) it exceeds the gross turnover limit, when registration is compulsory, and either way (c) if it is invoicing the university, which it appears it isn't.

It's always slightly worrying when company owners don't really understand the rules, it's seriously scary when an end client with a significant financial interest doesn't...

Sounds like a bit of clueless supplier management - their perception of IR35 could also be wildly inaccurate as part of this.