HMRC have issued new guidance clarifying the corporation tax treatment for Personal Service Companies (PSCs) under the new public sector off-payroll working rules.

From 6 April 2017 the off-payroll working rules will be reformed for PSCs working in the public sector. Responsibility for assessing and paying employment taxes will shift from PSCs to the public sector body paying them.

The draft legislation in Finance Bill 2017 as released to date has caused some confusion as to how the payments received by a PSC working in the public sector should be treated for corporation tax purposes:

  • The legislation indicated that the company would only receive a deduction for the net amount of the DDP received.
  • If the company recorded turnover equal to full invoice cost this would leave them with taxable profits equal to the income tax and NICs withheld.

In their updated guidance HMRC resolve this problem by suggesting that PSC’s should only reflect the amount they actually receive in their accounts: i.e. turnover should be recorded net of tax, NICs and VAT. See our guide: Personal service companies & tax

The tax bodies have all noted that the provisions as currently drafted in Finance Bill 2017 are scant on many other details concerning this measure.

HMRC's new guidance can be found here

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