CH 25 - Off-Payroll Working

Question 1

When ‘off-payroll working’ rulles apply?

Answer 1

• where the worker owns more than 5% of the share in the intermidiary
• or is entitled to 60% or more of the profits of a partnership

Question 2

When a corporate entity will be small?

(includes LLPs)

Answer 2

if the latest accounts due to be filed before the start of the tax year relate to a financial year in which the small companies regime applies to the entity.

and if it satisfies 2 or 3 tests:
* Annual turnover must be not more than £10.2 million
* The balance sheet total must be not more than £5.1 million
* The average number of employees must be not more than 50

It will only be classed as medium or large if these conditions are not met in two consecutive years.

Where there is a group of companies, the test is applied by looking at the group as a whole.

Question 3

How to determine whether the client is small, if the client is individual or partnership?

Answer 3

It will be treated as small if it satisfies the turnover test in the financial year which ends at least nine months before the beginning of the tax year in question.

Question 4

off-payroll working

Medium/large clients - what are implications for the client

address:
- who is responsible for determining rules
- who will calculate and what
- who is responsible for decuctin what & provide to worker what
- what is deducted from the amount of the d. d. p., excluding what, less any…

Answer 4

• the client is responsible for determining if the rules apply
• the client will calculate a deemed direct payment which will be subject to PAYE and NICs
• The client is responsible for deducting and accounting for PAYE/NICs and will need to provide the worker with a form P60 (and form P45).

The amount of the deemed direct payment will be the amount due to be paid to the intermediary (excluding VAT) less any;
- direct costs of materials and, at the option of the client,
- any expenses met by the intermediary which would be deductible from taxable earnings if the worker been an employee.

Question 5

off-payroll working

Medium/large clients - what are implications for the intermediary

Answer 5

On Intermidiary side;

• the deemed direct payment is deducted from income extracted from the intermediary by the worker so as to avoid double taxation;
• does not have to operate PAYE/NICs on a salary payment to the worker to the extent that it is covered by the deemed direct payment.
• The net amount received by the intermediary from the client is not taxable on the intermediary.

Question 6

Medium/large clients - what are implications for the the worker

Answer 6

The deemed direct payment will be reported on the worker’s SA tax return, showing the client as the employer, and credit will be given for the PAYE deducted.

Salary or dividends received by the worker from the intermediary are tax free up to the level of the deemed direct payment and do not need to be reported on the worker’s self- assessment return.

Question 7

Small clients - what are implications for the intermediary

Address:
- income exceeding actual salary paid out is deamed to be received on…
- deemed salary needs to be reported on a …
- legislation referenc no.
- what is due for submission & date (deadline)
- deadline date by which HMRC will accept estimate of o/s amounts
- deadline for adjustment in relation to provisional payment of…, shouldb e reported to HMRC on an… by (date)..
- what can be deducted in arriving at the chargeable profis
- how intermediary company can avoid double taxation

Answer 7

• the income from relevant engagements that exceeds actual salary paid out and various other deductions, is deemed to be a salary received on 5 April.
• The deemed salary payment should be reported on a Full Payment Submission (FPS).
• The steps of this computation are set out in ITEPA 2003, s.54.
• PAYE and NICs will therefore be due on this deemed salary by 22 April where payment is made electronically (19 April otherwise).
• HMRC will accept an estimate with any outstanding amounts due by the following 31 January.
  (However, interest will be charged on any tax and NICs paid late)
• any adjustments in relation to provisional payment of PAYE & NIC made, should be reported to HMRC on an FPS by the following 31 January.
• The deemed salary payment and the related employer’s Class 1 NICs can be deducted in arriving at the chargeable profits of the intermediary for the period in which the deemed salary payment was treated as made.
• The intermediary company can make a claim to avoid double taxation so that to the extent dividends can be matched with the deemed salary, they will not be taxable.

Question 8

Small clients - what are implications for the worker

Answer 8

• It is the worker’s responsibility to determine if the rules apply.
• the deemed salary payment will be included as employment income on the worker’s self- assessment tax return and they will receive credit for the PAYE deducted.