ESM10030 | off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: how the worker accounts for and reports monies drawn from their intermediary

Where the worker draws remuneration or dividends from their PSC, the approaches below can be used to report information for tax and NICs purposes. The worker’s intermediary (e.g. a PSC) will need relief against its payroll liability if Chapter 10, Part 2 ITEPA 2003 / Part 2 SSCIR 2000 have been applied. The worker can take remuneration or dividends at a time of their choosing from their intermediary.

Remuneration

Remuneration (i.e. such as a salary) drawn by the worker from their PSC will be free of PAYE tax and NICs up to the level of the deemed direct payment, where that remuneration can reasonably be taken to be for services of that worker to a public authority or medium or large-sized organisation not in the public sector. This prevents payments being subject to double taxation (see ESM10024).

This only applies to payments of remuneration to the worker who performed the services subject to the off-payroll working rules. A payment of remuneration can be made by the PSC at any time, but every time a payment is made to the worker from the PSC it should be reported to HMRC as a non-taxable and non-NICable payment on the Full Payment Submission (FPS) as part of the standard payroll reporting process, using box 58A.

The worker will only show taxable pay on their self-assessment return on the employment pages under the deemed employment with the deemed employer. They do not have to also record the non-taxable remuneration from their PSC on the SA return.

For a worker to claim statutory payments they must do so through their intermediary. To be eligible to claim statutory payments the worker must be paid payroll payments through their intermediary in the way explained in this section. Therefore, they will need to make payments through payroll and report it on a Real Time Information FPS using box 58A if they wish to claim statutory payments (see ESM10033A for further information).

Dividends

If the worker is remunerated via a dividend from their PSC, this will also be tax free up to the level of the deemed direct payment, where the dividend can reasonably be taken to be for the services of the worker to a public authority or medium or large-sized organisation not in the public sector. This only applies to dividends paid to the worker who performed the services subject to the off-payroll working rules. This dividend does not need to be returned on the worker’s self-assessment return.

The worker will only show taxable pay on their self-assessment return on the employment pages under the deemed employment with the deemed employer. They do not have to also record the non-taxable dividends from their PSC on the SA return.

As dividends are not deductible when computing income for corporation tax purposes, the PSC is entitled to relief during the calculation of taxable profits to ensure corporation tax is not taken from already taxed income, under section 141A Corporation Tax Act 2009.

Further information on CT accounting can be found at ESM10035

EXAMPLE

David works through his PSC, David Ltd. David Ltd receives £5,400 per month (including £1,200 VAT) from a large-sized client who is the deemed employer for Chapter 10, Part 2 ITEPA 2003 purposes. This comprises £7200 less deductions of £1,400 PAYE tax and £400 primary NICs

The worker, David, receives an amount of £4,200 each month from his PSC, David Ltd, which consists of £1,000 salary and a £3,200 dividend. David receives 12 monthly payments within the tax year.

The payment of £4,200 David receives from David Ltd could reasonably be taken to represent remuneration for services provided by David to the client. The amounts are therefore covered by the available offset of the Deemed Direct Payment (ESM10024), so no further PAYE / primary NICs deductions are due to be made by David Ltd on those amounts. If the PSC has other sources of income, they may subject to PAYE tax and Class 1 NICs deductions.

Annually David Ltd receives;

total fees from the client of 12 x £5,400 £64,800

including an amount of VAT of 12 x £1,200

PAYE deducted at source by the client 12 x £1,400 £16,800

Primary NICS deducted at source by the client 12 x £400

Annually David receives;

remuneration from David Ltd of 12 x £1,000 £12,000

dividends from David Ltd of 12 x £3,200

On David’s self-assessment tax return he will include the figures from the deemed employers payroll;

Employment Page 1 (the large-sized client)

Box 1: Pay from this employment, before tax taken off £72,000*

Box 2: UK tax taken off (£16,800)**

*This is the £50,400 received by David Ltd PLUS the £21,600 deductions made by the large-sized client.

** This is the £16,800 PAYE deducted at source by the large-sized client.

Primary Class 1 NICs are not recorded on the SA return, so only the amount of tax should be inputted into ‘Box 2’, as illustrated above. They will form part of the accounts of David Ltd when using the gross accounting method (see ESM10035) and will be included in the FPS the deemed employer makes to HMRC through its payroll.

Universal Credit (UC)

When calculating the amount of earned income for Universal Credit purposes deemed earnings for off-payroll purposes should be included.

Student loans (including Postgraduate Loans)

Student loans should not be deducted by the worker’s intermediary on amounts of off-payroll working income.

Off-payroll workers should make student loan repayments through an income tax self-assessment return.

Individuals who receive income already taxed under the off-payroll working rules will be automatically registered to complete an income tax self-assessment return to enable them to make student loan repayments (if not already registered).

This automatic registration occurs when the deemed employer marks the RTI flag (sometimes referred to as the off-payroll worker marker - see ESM10019) to declare the individual is an off-payroll worker and that person is a student loan borrower.

If a worker takes income from their intermediary that was not subject to the off-payroll working rules, then student loan repayments should apply as normal on these amounts if the relevant threshold is met to trigger repayments.