From 6 April 2017, new tax rules were introduced which potentially affect individuals who provide their personal services via their own companies (PSCs) to an organisation which has been classified as a ‘public authority’. Amendments have now been made to the definition of a public authority.
Where these rules apply:
- the public authority (or an agency paying the PSC) calculates a ‘deemed payment’ based on the fees the PSC has charged for the services of the individual
- the entity that pays the PSC for the services must first deduct PAYE and employee National Insurance contributions (NICs) as if the deemed payment is a salary payment to an employee
- the paying entity will have to pay to HMRC not only the PAYE and NICs deducted from the deemed payment but also employer NICs on the deemed payment
- the net amount received by the PSC can be passed onto the individual without paying any further PAYE and NICs
The rules were intended to cover those engaged by public sector organisations including government departments and their executive agencies, many companies owned or controlled by the public sector, universities, local authorities, parish councils and the National Health Service.
However, prior to this amendment, private sector retail businesses including high street pharmacies and opticians would have inadvertently been within the scope of the off payroll working in the public sector measure. As a result, such businesses would have been required to consider whether the new rules applied to all contractors working for them through an intermediary. This was not the intention of this policy and the rules have been amended.
The rules operate in respect of payments made on or after 6 April 2017. This means that they are relevant to contracts entered into before 6 April 2017 but where the payment for the work is made after 6 April 2017.
If you would like any help with these new rules contact us.