ESM9085 - Off-payroll working: how the worker accounts for monies drawn from their intermediary
Where the worker draws remuneration / dividends from their PSC there will be a new approach to reporting this information for tax / NICS purposes. The worker’s intermediary (e.g. the PSC) will now be entitled to an offset against its payroll liability up to the amount of the deemed direct payment where the amounts paid to the worker can reasonably be taken to represent remuneration for services of the worker to a public authority
Remuneration
Remuneration drawn by the worker from their PSC will be free of PAYE tax / NICS up to the level of the deemed direct payment where that remuneration can reasonably be taken to be for services of that worker to a public authority. Every time a payment is made to the worker from the PSC however it must be reported to HMRC as a non-taxable payment on the Full Payment Submission (FPS) as part of the standard payroll reporting process.
Dividends
If the worker chooses to draw a dividend from their PSC this will also be tax free up to the level of the deemed direct payment where the dividend can reasonably be taken to be for services for the worker to a public authority. This dividend does not need to be returned on the worker’s self-assessment return.
As a result of the off-payroll reform a worker must now however account for the income received by their PSC from the public authority on their self-assessment tax return.
EXAMPLE
In the previous example (at ESM9080) we saw the worker (Philip) receiving an amount of £4,200 each month from his PSC which consisted of £1,000 salary and a £3,200 dividend. This payment could reasonably be taken to represent remuneration for services provided by Philip to the public authority. The amounts were covered by the available offset of the Deemed Direct Payment so no further PAYE / primary NICS deductions were due to be made by Philip Ltd on those amounts.
There was also the monthly payment from the public authority to the Philip Ltd of £5,400 per month (including £1,200 VAT). This had already had deductions of £1,400 PAYE tax and £400 primary NICS taken from it.
Annually Philip receives;
remuneration from Philip Ltd of 12 x £1,000 £12,000
dividends from Philip Ltd of 12 x £3,200 £38,400
£50,400
Annually Philip Ltd receives;
total fees from the public authority of 12 x £5,400 £64,800
including an amount of VAT of 12 x £1,200 (£14,400)
£50,400
PAYE deducted at source by public authority 12 x £1,400 £16,800
Primary NICS deducted at source by public authority 12 x £400 £ 4,800
£21,600
On Philip’s self-assessment tax return he will include;
Employment Page 1 (Public Authority)
Box 1: Pay from this employment, before tax taken off £72,000*
Box 2: UK tax taken off (£16,800)**
*This is the £50,400 received by Philip Overnight Ltd PLUS the £21,600 deductions made by the public authority
** This is the £16,800 PAYE deducted at source by the public authority