Managed & Personal Service Comapnies & IR35

Overview of Personal Service Companies and IR35:

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Personal Service Companies (PSCs)

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Definition:

• A Personal Service Company (PSC) is a business structure where a person provides services through their own company rather than directly as an employee or a self-employed individual.

• Typically, the individual is the sole employee and director of the PSC.

Purpose:

• Using a PSC can provide tax benefits and flexibility for both the worker and the client.

• It allows the worker to be paid in a more tax-efficient way through dividends rather than solely through salary.

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IR35 Legislation

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Introduction:

• IR35 was introduced in April 2000 to counter tax avoidance by individuals providing services through a PSC who would otherwise be considered employees if the PSC did not exist.

• It ensures such individuals pay similar taxes and NICs as employees.

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How IR35 Works:

• Determination: It is up to the individual to determine whether IR35 applies to their contract.

• Deemed Payment: If IR35 applies, a deemed salary is calculated, and PAYE (Pay As You Earn) tax and National Insurance Contributions (NIC) are applied.

• Compliance: Failing to comply with IR35 can result in HMRC recovering unpaid taxes, interest, and penalties.

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HMRC and Employment Status Reviews

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Employment Status Checks:

• HMRC conducts reviews to determine if individuals should be classified as employees rather than self-employed.

• For PSCs, if HMRC determines that the relationship would be employment but for the PSC, IR35 rules apply.

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Managed Service Companies (MSCs)

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Definition:

• An MSC is an intermediary company that provides services to end clients but is controlled by a third party rather than the individual providing the service.

• Includes "umbrella" companies where multiple contractors are engaged through a single company.

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Legislation:

• From April 2007, legislation was introduced to ensure payments received by individuals through MSCs are subject to PAYE.

• The MSC legislation takes precedence over IR35.

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Changes to IR35

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Public Sector Rules:

• Since April 2017, public sector clients must determine if IR35 applies and operate PAYE if necessary.

 

Private Sector Rules (Effective April 2021):

• Similar rules extend to medium and large private sector businesses.

• A business falls under this legislation if it meets two or more of the following criteria:

  • Annual turnover exceeds £10.2 million.

  • Balance sheet assets exceed £5.1 million.

  • More than 50 employees.

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How We Can Help

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Expert Advice

1. Review and Advice: We can review your contracts and working arrangements to determine if IR35 or MSC legislation applies.

2. Tax Investigations: If HMRC opens an investigation into your use of a PSC or MSC, we provide expert representation.

3. Negotiation: We negotiate with HMRC to resolve disputes and minimize any additional tax liabilities.

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Initial Consultation:

• We offer a free, confidential, no-obligation discussion to understand your situation and how we can assist you.

• Contact us to schedule an initial meeting.

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If you are using a PSC or MSC and need to review your tax position, or if HMRC has opened an investigation, please get in touch for professional support and representation.