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TASBooks - Posting deductions for off-payroll working rules (IR35)

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Summary

If you employ contractors that are 'deemed employees' subject to the off-payroll working rules (IR35), then you're likely to be responsible for deducting tax (PAYE) and National Insurance (NI) via payroll from the contractors' fees and paying it to HMRC. In TASBooks, you can make additional postings to account for these deductions.

Description

If you employ contractors that work via an intermediary, such as their own Personal Services Company (PSC), and you have provided an employment status determination that confirms the contractor is a 'deemed employee' subject to the off-payroll working rules (IR35), then you're likely to be responsible for deducting tax (PAYE) and National Insurance (NI) via payroll from your worker's fees and paying it to HMRC.

In TASBooks, you can make additional postings to account for these deductions. This article assumes you are using the standard VAT scheme.

Resolution

Create a new IR35 nominal code

We recommend you create a new nominal code for IR35 deductions within the Current Liabilities area of your chart of accounts. You can check your chart of accounts categories in Nominal codes, Chart of accounts.

  1. Click Nominal  then click Nominal Account, then click Maintain chart of accounts.
  2. Create a new nominal with the following details:
    Number & DeptUse a number in the 2100 range, for example 2103.
    DescriptionEnter the name for the new nominal, for example IR35 deductions.
    Account TypeSelect Liability from the drop-down list.
    Nominal GroupSelect your required Nominal Group.
    Analysis CategorySelect the required Analysis Category.
  3. Click Save then click Yes.
  4. Click Cancel.
If you use nominal link
  1. To ensure your nominal link posting are correct, you must adjust your nominal link settings to account for the IR35 element. Find out how >
  2. Once you've processed your payroll, run the nominal link as normal. Provided you've carried out the nominal link changes in step 1, this will post a debit amount to the IR35 deductions nominal code.
  3. In TASBooks, post the invoice from your contractor as normal.
  4. In TASBooks, post a credit note to the IR35 deductions nominal code. This reduces the amount due to the contractor and posts a credit to clear the IR35 deductions nominal code. 
If you post manual salary journals

If you normally post manual salary journals in TASBooks, for any deemed employees you must post the following four journals to account for IR35 deductions:

N/CNameDebitCredit
5410Employers NI - The total employer NI contribution under IR35.
Debit

2310PAYE - The total PAYE deducted under IR35.
Credit
4100National Insurance - The total employer and employee NI contribution under IR35.
Credit
2103IR35 deduction - The total amount withheld under IR35.
Debit

For deemed employees no other journals are required, for example, for gross pay or net pay.

You should also post the invoice from your contractor as normal, plus a credit note to reduce the amount due by the IR35 deduction you've made.

When you pay the invoice, you can allocate the credit note and pay the difference to your contractor.

Manage deductions outside of your payroll

If you process IR35 deductions separately from your payroll, you should post the invoice from your contractor as normal, plus a credit note to reduce the amount due by the IR35 deduction.

When you pay the invoice, you can allocate the credit note and pay the difference to your contractor.

When you pay the deduction to HMRC, post the bank payment to the IR35 nominal code to clear the liability.

If the IR35 deduction is to be offset rather than paid directly to HMRC, you can post further journals to move the balance as required.


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