Self Employed or Employee

[Goodmans]

Hi All,

Has a question.
If a LIMITED Company (VAT registered) getting some job done by a Self employer contractor. Should the company pay VAT 20%.

And again the self employed have to pay 20% PAYE+NI?

Cost to Company : 12000 + 2400 (VAT) = 14500?

Cost to Self Emplyed: If the employes total income is less than 38K.
Paye: 12000 * 20% = 2400
NI: 500 (aproximately)
Total: 2900

Total Expenses: 2400+2900 = 5400? Nearly 45% of total jobs cost?

Please suggest me if my above calculatins are correct?

Regards
Gmans

[Ignis Fatuus]

Hi All,

Has a question.
If a LIMITED Company (VAT registered) getting some job done by a Self employer contractor. Should the company pay VAT 20%.

And again the self employed have to pay 20% PAYE+NI?

Cost to Company : 12000 + 2400 (VAT) = 14500?

Cost to Self Emplyed: If the employes total income is less than 38K.
Paye: 12000 * 20% = 2400
NI: 500 (aproximately)
Total: 2900

Total Expenses: 2400+2900 = 5400? Nearly 45% of total jobs cost?

Please suggest me if my above calculatins are correct?

Regards
Gmans

Not really. Skipping over the fact that if the contractor in this example is self-employed then he is not "the employee", if the Ltd Co has to pay VAT, it will pay it to the contractor, and the contractor will pay it to HMRC. But then the Ltd Co will in effect claim back the VAT paid, against its VAT receipts on what it sells.

So the VAT is (more or less) not paid by the contractor nor by the Ltd Co, but by the end customers.

But in a more general sense it is true that taxes are paid on exchange of money, so as you follow through a series of taxable transactions adding up the tax paid, you will find more and more of the single-transaction amount being paid in tax.

However that is not the whole story either, because the tax money paid will be spent by HMG and so it is not being removed from the economy.

On the other hand the things or labour that HMG buys with this will be instead of other things that might have been done instead....

It really is not as simple as you might think.

[Ignis Fatuus]

But if what you really mean is: If I set up a Ltd Co and hire myself to it as self-employed, will HMRC still want VAT and PAYE and NI? then the answer is yes (if registered for VAT). Same as a Ltd Co + employee setup.

[MarillionFan]

If the self employed person is VAT registered than they invoice including VAT, you claim it back.

If they are not VAT registered, they charge you excluding VAT. You have nothing to claim back.

If you are outsourcing them and you are VAT registered, then you charge your client VAT to them.

[Greg@CapitalCity]

Just had a quick look at this, and see two things missing/wrong;
(1) Leave VAT out of your calculation - its cash neutral for B2B transactions (unless you are on the flat rate scheme, then things change slightly);
(2) You have forgotten to account for the ltd company corporation tax saving in paying for this expense;

[Goodmans]

If the self employed person is VAT registered than they invoice including VAT, you claim it back.

If they are not VAT registered, they charge you excluding VAT. You have nothing to claim back.

If you are outsourcing them and you are VAT registered, then you charge your client VAT to them.

Thanks so much for your clarification. Just for confirmation.

So If the self employed is not registered to VAT. I will pay him the straight amount. and will not pay or claim any VAT from or to HMRC.

Thanks so much for your quick response guys. Really helpful.

Regards
Gmans.

[Goodmans]

Just had a quick look at this, and see two things missing/wrong;
(1) Leave VAT out of your calculation - its cash neutral for B2B transactions (unless you are on the flat rate scheme, then things change slightly);
(2) You have forgotten to account for the ltd company corporation tax saving in paying for this expense;

Sorry I guess I am on VAT flat rate as i earn less than 100K py. Please explain how this is going to effect.

Regards,
Gmans.

[northernladuk]

Can I ask if this is a genuine setup or are you trying some tax fiddle with friends?

[MarillionFan]

Can I ask if this is a genuine setup or are you trying some tax fiddle with friends?

Why do you think it's some kind of tax fiddle?

Somebody is registered Self Employed, not VAT Registered and the OP is asking whether the contractor should have to add VAT or not to his invoice?

Registered Self Employed is different to having someone who is not registered working for you, then it's all about PAYE & tax.

[Goodmans]

Can I ask if this is a genuine setup or are you trying some tax fiddle with friends?

This is a genuine setup. Self employed contractor will anyway pay the PAYE+NI. The question is do I have to pay VAT or not.

If i want to take extra 12K for myself i will take it as extra Dividend. It just cost me 20% tax. Why would i worry about it? and invite problems from HMRC?.

Regards,
Gmans