I have been reading the two guidance documents issued on 3rd February: Off-payroll working in the public sector:reform for fee-payers / Off-payroll working in the public sector: personal service companies.
Rather than provide clear answers I am afraid that these documents have just created even more questions in my head.
The Reform for Fee-Payers document states that tax should be deducted from payments at BR together with employee NI. Employer's NI is payable by the fee payer and not the contractor, which appears to be a divergence from the IR35 rules which apply to PSC's working for the private sector where all the tax and both lots of NI fall on the contractor.
The guidance for personal service companies states that the individual can pay him/herself the net amount received "through your payroll without Income Tax and NICs" OR "You can pay yourself a tax-free dividend up to the total of the net fee received from contracts in the public sector, where Income Tax and NICs have been deducted at source. You do not need to declare that dividend on your self-assessment return"
Maybe I am missing the point here but what about higher rate tax and the dividend tax? Do these not apply to individual's working through PSCs on public contracts? I can understand the reasoning behind the dividend tax not applying (although it is just another complication to an already overly complicated system) but the higher rate tax bit doesn't make any sense. From the guidance wording, if all the net proceeds are withdrawn by dividend, no more tax is payable.
For the PSC, the net amount received from the payer is treated as a deduction for CT so it would appear logical that the fee payer would only deduct basic rate tax as noted in the guidance because to deduct tax at 40% would reduce the net amount received and therefore increase the profits for CT which would increase the tax cost significantly.
This guidance appears to side step a lot of the basic principles of cumulative earnings and higher rate tax. Is this guidance designed to be misleading for a purpose or does it indicate a change of mindset? Will these rules be extended to PSC's operating in the private sector?
Has anyone else read this guidance?