Clients who work in the public sector may have been caught by the off-payroll working rules which came into effect from 6 April 2017, and as a result had tax and NI deducted from their invoices. The problem for us is how to deal with these deductions in the accounts of the intermediary personal service company, and in our client’s personal tax return.
HMRC has provided guidance on how to report the income for the individual worker on their SA tax return for 2017/18 and later years. If we didn’t get this quite right for the individual’s 2017/18 tax return there is still time to amend that tax return online.
The personal service company can account for the amount received from their customer either on a net or gross basis:
- Net – the amount received after deductions for income tax and NIC is included as turnover for corporation tax purposes.
- Gross – the total invoice value before tax and NIC is deducted is accounted for as turnover for corporation tax. The company will show that tax and NIC as a debtor which it will never receive. It will have to write-off that amount representing the tax and NI deducted from its invoices.
HMRC accept that either the net or gross basis can be used, but the net basis is probably easier for our clients to understand.
Where the worker takes a salary from his PSC, the amount of tax already deducted from its invoices can be set as a tax credit against that salary. The PSC should not have to pay any further tax and NIC if the salary paid to the worker does not exceed the net fees received by the company. Note that the example in section 17 of the HMRC guidance is misleading.
Written by the Tax Advice Network