Basic principles: off-payroll working: how to calculate the deemed payment - example
Section 61Q Chapter 10 ITEPA 2003
Regulation 17 The Social Security (Miscellaneous Amendments No. 2) Regulations 2017
Philip provides his services through a personal services company (PSC), Philip Ltd. The PSC has accepted a contract from a public authority to supply Philip’s services for twelve months. Philip starts work on 1 May 2017.
The public authority knows that, from 6 April 2017 changes have been introduced for people working off-payroll in the public sector. They tell Philip Ltd that his services fall within these new rules and as a result, it will deduct tax and NICs from the amounts Philip Ltd invoices each month.
Philip Ltd sends the public authority an invoice for £7,200 each month as the agreed charge which includes VAT (£1,200). During the engagement Philip incurs expenses of £250 per month, the cost of which is met by his PSC but for which he could have claimed a deduction if employed by the public authority. Philip also provides materials necessary to the performance of the contract via his intermediary at a cost of £750 per month.
Identify the amount of the chain payment net of VAT £6,000
Deduct direct cost of any materials (£ 750)
Deduct eligible expenses (£ 250)
The deemed direct payment £5,000
The deemed direct payment will be chargeable to PAYE and NICS on a monthly basis in the same way as a direct employee and the normal Real Time Information processes should be followed. Further guidance on this process can be found at https://www.gov.uk/paye-online/using.