Public authorities: using a personal service company
Steps for public authorities to consider when engaging with a personal service company.
If you plan to offer a temporary job to someone who works through their own company, you’ll need to decide whether the off-payroll working rules apply. You can use the Employment Status Service tool (available from the end of February 2017) to help you make the decision.
If off-payroll working rules apply
If the rules apply you’ll need to:
- calculate the deemed direct payment in respect of the worker’s services
- deduct Income Tax and National Insurance contributions (NICs)
- report and pay those deductions over to HM Revenue and Customs (HMRC)
You’ll also need to pay the company’s invoice after accounting for Income Tax and NICs deductions. VAT may also be payable if the company is VAT-registered.
If you’re in charge of hiring and contracts but others are responsible for payments, you should tell your payroll and accounts departments that the new rules apply to the contract with this worker.
If you used an agency you must tell them you’ve determined that the off-payroll working reforms should be applied to the contract with this worker.
If off-payroll working rules don’t apply
If the Employment Status Service indicates that the rules don’t apply, you should pay the contractor’s invoices as normal and retain the records that support this decision.
Contract with an agency who pays the personal service company
You should inform the agency that you have determined that the engagement should be subject to off-payroll working rules. Your accounts department pays the agency’s invoice for providing the worker as per the contract with them.
Contract with personal service company and paying them direct
If you pay their company to operate the off-payrolling rules, your payroll and accounts departments should:
- tell HMRC the worker has started
- use starter declaration C – secondary employment
- calculate the deemed direct payment and report
- pay Income Tax and NICs to HMRC
- pay employers’ NICs to HMRC
- deal with the invoice and ensure payment of the fee less the amounts deducted is made to the personal service company, plus VAT
The personal service company submits the invoice for payment of the worker’s services. The invoice includes VAT.
The payroll team note that the worker will not be:
- entitled to statutory payments
- subject to student loan deductions
- enrolled in to our pension scheme
If the contract comes to an end the payroll software automatically produces a P45 which you give to the worker.
Published: 3 February 2017
From: HM Revenue & Customs