Emily Coltman FCA investigates questions that accountants have raised about IR35 as it affects their clients.
A client who is subject to the new rules for IR35 in the public sector has had tax and NI deducted from his reimbursed expenses (mileage and parking) as well as from his labour charges.
Both respondents to this question believe this to be incorrect and that the reimbursed expenses should not be subject to tax or NI.
HMRC’s initial guidance mentions only “payments to the worker’s intermediary” and does not distinguish between fees and reimbursed expenses. However, the employment status manual directs the paying entity to strip out both VAT and expenses when determining how much to deduct tax and NI from.
Therefore, in my opinion the respondents are correct and the public sector engager should not be deducting tax and NI from the client’s expenses.
FreeAgent can support you and your clients with IR35 legislation
If your client works in the public sector, you can submit the income on which they’ve already paid tax as a result of IR35 as a tax free payment via FreeAgent’s RTI payroll feature. If your client works in the private sector, FreeAgent’s IR35 report calculates the accumulated deemed payment from IR35 projects, helping your clients to plan and set their monthly salary so there is no additional deemed payment to account for at tax year-end.
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