I have a couple of clients asking for advice on how to account for contract caught under the new off-payroll rules in the public sector.
I've read the "guidance" from HMRC here: https://www.gov.uk/government/publications/off-payroll-working-in-the-pu...
I think I understand the correct way to account for these transactions but I'm not 100% sure so I'm hoping someone on here will be able to confirm my thinking. I'll use the HMRC example figures from the guidance (where I have be able to prove the PAYE and NI figures current based on certain assumptions).
PSC invoices £6,000 + VAT and the fee payer deducts £1,871 before paying the invoice. In the books of the PSC, this leaves the sales ledger short paid by £1,871.
To my mind we have to release this into the P&L as a salary cost to the director which leaves the balance sheet clear but the company with a profitable sale and a double taxation risk.
Section 12 of the guidance indicates the director should report the income as employment income on their tax return but as things stand the money is currently sat in their PSC. The director should therefore be allowed to extract the net pay from the company tax free so we debit salary costs and credit the directors loan account for the net amount (£4,129 in the HMRC figures).
At this point the PSC has made no profit (£6k turnover, £6k salary) so no double taxation through CT but also no relief for expenses so in reality the PSC is going to report a loss (of the accounting fees if nothing else) which goes unrelieved?
HMRC implies the PSC could choose to pay the director as dividends but I cannot see how that treatment would work. Surely double taxation is inevitable if the net pay is declared as a dividend? Doesn't that lead to profits liable to CT charge and both dividends and employment income (for the same money) on the self assessment?
Can anyone confirm that my book entries make sense and that I have the accounting treatment correct?