The new public sector IR35 arrangements look very complicated and raises a number of questions:
- Q. If the contractor has insufficient income to use all his allowances in the tax year, is the tax deducted by the employer from the payments made to the PSC repayable?
- Q. Does the NI deducted from the payments made to the PSC count towards the number of years payments required for state pension?
- Q. When the PSC pays the contractor, either by salary or dividends, is that only out of net pay received by the PSC? Is the same income taxed twice?
Looks like a can of worms and the HMRC illustrations only deal with the easy bits. The impact assessments are laughable.
- A. The correct amount of tax should hopefully be deducted at source by the fee payer as the worker has to provide details at the start of the contract to enable the fee payer to operate the right PAYE code number. However, should the individual have overpaid tax at the end of the tax year, then it appears that this should be repaid to them via Self Assessment. This is because it is the individual who has suffered the tax deduction & is treated as having an employment with the fee payer. If you refer to the example of Rebecca in HMRC’s technical note, she receives a P45 from the Ministry once her contract comes to an end. She then enters the relevant pay & tax details on the employment income supplementary page of her Self Assessment Tax Return.
- A. As the worker is suffering Class 1 NIC deductions & is treated as an employee of the fee payer, then it should follow that those contributions count towards the state pension as they will be reported under RTI by the fee payer.
- A. There will be no double taxation of the same income. Again, if you refer to the afore-mentioned example of Rebecca, her gross monthly earnings are £6,000 & £4,200 net after tax & NIC. Out of this net income, her PSC pays her a monthly salary of £3,000. Tax & NIC are not deducted as these have already been deducted at source by the Ministry.
This answer was provided by Qdos Contractor.
Hang on. P45?
My company employs me so it has my P45. Do I have to sack (OK not quite but…) myself from my own company to work in public sector contracts (which I will be dropping like a hot potato in reality).
Dog’s breakfast.