/ Salary Payments, Timesheets & Tax Years...

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James Malloch 10 Feb 2020

A truly riveting post, for sure...

If I worked for X weeks via an agency (the last X weeks of this tax year) but delayed the submission of my timesheets until 6th April when the new tax year starts, would the income count towards my 2019/20 or 2020/21 taxable income?

In essence, does payment date trump the date of work from a tax perspective?

mrphilipoldham 10 Feb 2020
In reply to James Malloch:

Depends on how you do your books. I think basing it on payment date is called 'cash basis'. I don't believe it matters when you submit your timesheets on that basis, you only pay the tax in the year it was then paid.

BnB 10 Feb 2020
In reply to James Malloch:

PAYE payments should count as 20/21 if processed after 5th April ‘20 but there is a “Week 53” provision in PAYE that creates some flexibility. It would depend on whether the year had been closed by the agency.

If you are working through a limited company, the invoice should bear the date the service was delivered but you would have total discretion over the payment from limited company to worker, ie you.

Post edited at 18:07
Mr Lopez 10 Feb 2020
In reply to James Malloch:

You can choose to do it by invoice date or payment paid/received so far as you do that for all contracts in the same year and don't miss any strugglers if you change from year to year

https://www.gov.uk/simpler-income-tax-cash-basis

https://www.gov.uk/self-employed-records

teh_mark 10 Feb 2020
In reply to James Malloch:

Stupid question, but just to cover all bases: are you paid by the agency through payroll/taxed through PAYE, or do you trade a sole trader/limited company and invoice for the work you've done?

I suspect the latter, but you never know...

James Malloch 10 Feb 2020

Thanks for the replies. I currently operate as a limited company but my client is applying a blanket ban on limited companies (yay for IR35) meaning I need to switch to PAYE through an agencies payroll. 

So I will still be submitting weekly timesheets (paid weekly but have up to 60 days to submit them) still but the end pay route is different. I dont think I'll be self-employed via this route.

This might mean that cash basis payments aren't allowable?

Due to the unexpected change (and previous PAYE earnings before I went to a PSC) pushing the earnings out if possible would be extremely useful!

BnB 10 Feb 2020
In reply to James Malloch:

What you’re hoping for isn’t impossible, but it’ll be at the agency’s discretion which year your payment falls into, although you can force the issue to an extent by leaving timesheet submission late enough that they are compelled to close the current tax year. My advice is simply to ask them directly if you’re unsure of their procedures. Every agency has its own systems and conventions.

Mr Lopez 10 Feb 2020
In reply to James Malloch:

New rules on IR35 as of this week is that the new terms will only apply for services provided after April 5, so unless the client wants to be dificult or is not aware you should be off the hook and able to stay an Ltd till the end of this financial year.

ETA: https://www.ftadviser.com/your-industry/2020/02/07/hmrc-moves-date-for-ir35-pay/

Post edited at 22:40
James Malloch 10 Feb 2020
In reply to Mr Lopez:

Unfortunately my client (large international bank) is one of those who have made a blanket assessment and won’t budge. And unfortunately the people I can speak to aren’t high enough up the food chain to try and influence. All decisions are just passed down from the legal teams - my hope is that in the next 2 weeks they will provide some wiggle room...

James Malloch 10 Feb 2020
In reply to BnB:

> What you’re hoping for isn’t impossible, but it’ll be at the agency’s discretion which year your payment falls into, although you can force the issue to an extent by leaving timesheet submission late enough that they are compelled to close the current tax year. My advice is simply to ask them directly if you’re unsure of their procedures. Every agency has its own systems and conventions.

Thank you - I’ll try to speak with the agency and see if there is any leeway in this respect. I’ve not received a new contract yet so not certain who’ll I’ll be working through (or new pay even) yet. They have said they are happy for us to delay submission for up to 60 days from the date of working - well not happy but can do so contractually - so perhaps it is one where we can just keep pushing it out...

Fingers crossed it can be worked out - the uncertainty means I’m not paying myself properly at the moment as you can’t plan anything without knowing total YTD earnings. Bit of a pain but glad to have work at least!

Mr Lopez 10 Feb 2020
In reply to James Malloch:

Uh, that complicates things, as Ltd's are not eligible to submit the return on cash basis anyway, but if you pay yourself from the Ltd it may be possble?. On traditional accounting you declare what/when you invoice. The crux will be as to findng out whether submitting a timesheet would be classed as invoicing, and so sending the timesheets late would clear you of having to declare that this tax year and dealing with possible multiple tax codes.

Post edited at 23:02
Ciro 11 Feb 2020
In reply to James Malloch:

Your payment from the agency isn't income - the salary and dividends that you pay yourself are your income.

Get your timesheets and invoices in ASAP, but there's no need to pay yourself in this tax year. It can stay in your business account and you can draw it down tax free at £2k a year, or wind the company up and take 50% of the first £25k tax free, the rest at 10%

Michael Hood 11 Feb 2020
In reply to James Malloch:

IR35 is a bitch. It was when initially introduced and now they've made it even worse (by shifting the "is it/isn't it" question onto the "employing" company who are generally risk averse so decide to avoid the question by making a blanket decision).

Initially designed to remove the "1-man ltd company low pay/high dividend/low tax" model and make it an equal playing field - b*****ks - they made a sledgehammer to crack a nut. And then some of the worst "avoiders" of IR35 were in government departments FFS. If they'd not included needing to pay employers NI (as well) with the deemed payment, and allowed all reasonable expenses (not limited to 5% of turnover) then it might have been.

James Malloch 11 Feb 2020
In reply to Mr Lopez:

> Uh, that complicates things, as Ltd's are not eligible to submit the return on cash basis anyway, but if you pay yourself from the Ltd it may be possble?. On traditional accounting you declare what/when you invoice. The crux will be as to findng out whether submitting a timesheet would be classed as invoicing, and so sending the timesheets late would clear you of having to declare that this tax year and dealing with possible multiple tax codes.

Unfortunately I’m only allowed to use one of three umbrella companies and can’t do this via my own PSC so can’t control the dates myself. I think a call to the required agency & umbrella company is in order. Though unfortunately we’re still a little in the dark about it all so finding out who to even speak to is a pain in the ass...

James Malloch 11 Feb 2020
In reply to Ciro:

> Your payment from the agency isn't income - the salary and dividends that you pay yourself are your income.

> Get your timesheets and invoices in ASAP, but there's no need to pay yourself in this tax year. It can stay in your business account and you can draw it down tax free at £2k a year, or wind the company up and take 50% of the first £25k tax free, the rest at 10%

That’s the case currently, but under the new structure my Limited company will be obsolete (other than past retained profits). All new income will be subject to tax at source like any permanent job. The new income will mean unexpected, retrospective tax on dividends (32% rather than 7%) due to the forced PAYE earning in the last 6 weeks. 

My company is still fairly young too so I can’t qualify for Entrepreneurs Relief so closing the company would all need be done via capital gains. I need to decide if weathering the storm is worthwhile - I’ll wait until the budget at least to see what eventually gets implemented.

teh_mark 11 Feb 2020
In reply to Michael Hood:

> IR35...government departments...

One of my clients is a publicly-owned conference centre. About three years ago they decided that IR35 was a concern, and so made all their limited company subcontractors jump through hoops to prove they didn't fall under it. A massive ill-informed kerfuffle ensued.

They didn't seem to care about their sole trader subontractors doing the exact same job and spending 200+ days in the venue per year though, despite the fact that all of us trading as limited companies were very obviously legitimate business concerns providing a variety of services to a wide variety of clients on a weekly basis.

'cking infuriating.

James Malloch 11 Feb 2020
In reply to Michael Hood:

> IR35 is a bitch. It was when initially introduced and now they've made it even worse (by shifting the "is it/isn't it" question onto the "employing" company who are generally risk averse so decide to avoid the question by making a blanket decision).

> Initially designed to remove the "1-man ltd company low pay/high dividend/low tax" model and make it an equal playing field - b*****ks - they made a sledgehammer to crack a nut. And then some of the worst "avoiders" of IR35 were in government departments FFS. If they'd not included needing to pay employers NI (as well) with the deemed payment, and allowed all reasonable expenses (not limited to 5% of turnover) then it might have been.

Yes it really is a pain. HMRC investigation numbers & comments show that it’s really a deterrent which is a great thing. However when every large organisation (Lloyds Bank, HSBC, RBS, Glaxo, Microsoft etc.) doesn’t feel the rules are clear enough to fully determine a contractors status and implements a blanket ban, clearly the regulation is flawed. 

A lot of people I know are now out of work and consultancies (EY, Deloitte etc) are making a mint from it as they can supply backfill staff for all the knowledge that’s being forced to leave. 

Luckily I’m in a good position to wait everything out, but many people With families and big mortgages are going to be finding themselves in quite a tricky situation. 

In reply to James Malloch:

Anecdotally, I work for a large global bank and have some colleagues who are contracting as limited companies. As you have said, they are all being chopped...across the whole bank, no remorse.

One thing I have learned though through talking to them is that they are nervous of an investigation, as they have been doing the same job for years, ergo not really a "contractor". They have been advised to leave, liquidate their company and then take a sabbatical for 3-6 months before cropping up elsewhere, and ideally not in a bank. This is just the most cautious method....they could ignore and still fly under the radar.

James Malloch 11 Feb 2020
In reply to Bjartur i Sumarhus:

> Anecdotally, I work for a large global bank and have some colleagues who are contracting as limited companies. As you have said, they are all being chopped...across the whole bank, no remorse.

> One thing I have learned though through talking to them is that they are nervous of an investigation, as they have been doing the same job for years, ergo not really a "contractor". They have been advised to leave, liquidate their company and then take a sabbatical for 3-6 months before cropping up elsewhere, and ideally not in a bank. This is just the most cautious method....they could ignore and still fly under the radar.

Yeah that’s the consensus amongst many of the contractors I know and work for. I believe my work wouldn’t be caught by the regs if I were investigated, and even if it were it would be a very small amount of change due to length of contract & how I’ve had to structure myself anyway. 

I may close soon, but purely as no one is taking anyone on in this capacity so you’d just end up paying an accountant for ages without getting any benefit from keeping the company open.

BnB 11 Feb 2020
In reply to James Malloch:

> Yeah that’s the consensus amongst many of the contractors I know and work for. I believe my work wouldn’t be caught by the regs if I were investigated, and even if it were it would be a very small amount of change due to length of contract & how I’ve had to structure myself anyway. 

> I may close soon, but purely as no one is taking anyone on in this capacity so you’d just end up paying an accountant for ages without getting any benefit from keeping the company open.

When the same process was enacted in the public sector 3 years back, organisations who had placed a blanket ban re-started limited company hires after six to twelve months because they couldn't cope with the ensuing resource shortages and/or Deloitte/EY's exorbitant fees. There's no guarantee the same will happen again but I'd wait and see for a short while.

Martin W 11 Feb 2020
In reply to Bjartur i Sumarhus:

> Anecdotally, I work for a large global bank and have some colleagues who are contracting as limited companies.

> One thing I have learned though through talking to them is that they are nervous of an investigation, as they have been doing the same job for years, ergo not really a "contractor".

And for such people I feel very little sympathy.  Nor do I have much sympathy for organisations which have been happy to enjoy the NI and other perks that they got by exploiting the loophole, and who now find themselves potentially short of staff.  IR35 has been around since I, rather involuntarily, was contracting for a short time in the early 2000s.  It was obvious even back then that a rigorous, to-the-letter application of the rules would bring a lot of staff in the large bank that I was contracting in to within its scope, and that it was only a matter of time before someone decided that a crackdown was required.  I'm only surprised that it took so long.

James Malloch 11 Feb 2020
In reply to BnB:

> When the same process was enacted in the public sector 3 years back, organisations who had placed a blanket ban re-started limited company hires after six to twelve months because they couldn't cope with the ensuing resource shortages and/or Deloitte/EY's exorbitant fees. There's no guarantee the same will happen again but I'd wait and see for a short while.

Yes I think that’s going to be my plan. Given I’ve only operated for 6 months there’s not really any way for me to close down the company that’s more efficient today compared to in a years time (unless CGT rates/allowances change). So hopefully it’ll all blow over.

Martin W 11 Feb 2020
In reply to James Malloch:

> consultancies (EY, Deloitte etc) are making a mint from it as they can supply backfill staff for all the knowledge that’s being forced to leave.

Ha ha.  Another opinion would be that the consultancies can bodyshop out their eager but inexperienced young graduates under the oversight of a junior partner, and simply rotate out the ones the customer doesn't like, on a "next man up" basis.

Alternatively: why can't the displaced contractors can all go and work for the consultancies?

My last experience of EY was when they took over from my then employer in carrying out supplier security assurance reviews for one of our major financial customers.  EY had the unbelievable chutzpah to call me up and ask me how we went from administering the review questionnaire (which was a fairly mechanical process) to producing assessments and recommendations in the final report.  In other words: they'd bid for and won work that they didn't know how to do.  We told them to get lost (actually my sales rep did, in very diplomatic, professional-sounding terms - I'd have been rather more brusque and to the point about it).

Prior to that, I had carried out a review of EY for the customer that they subsequently won from us.  EY's response to the review questionnaire was lamentably bad.  They answered most questions with "see our security policy" with nothing helpful like a reference to where in the security policy the question was actually answered.  Probably because a lot of the time it wasn't - I know because I ended up trawling through the while 64 pages of it searching for the answer to each question that they said was in there somewhere.  I wasn't allowed to submit a report that said "EY failed to answer most of the questions" (my first draft did say that, but it was rejected), so I had to go back to them with long list of all the questions that they had failed to answer, which then turned in to an exhausting iterative process of teasing out answers until the list had finally been cleared.  That review ended up taking about four times as much effort as the norm.  It was certainly the most time consuming one I ever had to do, and not at all what I would previously have expected of a major consulting organisation whose raison d'être is basically to tell other companies how to do things properly (or, at least, in accordance with the latest fads and buzzwords which happen to be trending within the board level bubble).


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