Could this be the death knell for Personal Service Companies (PSCs)? - End users be aware!
The ‘IR35’ legislation was introduced to remove any tax advantage from those operating through Personal Service Companies (and other intermediary vehicles), if they would be considered to be employees of the end user company but for the existence of the PSC.
The PSC would be deemed to have paid remuneration to the individual equal to the income from the end user, and have that charged to PAYE/NIC. In other words the individual would be no better off than if they had been directly employed by the end user. Responsibility for the application of IR35 lies with the intermediary company.
With effect from April 2017 any public sector organisation ‘end user’ will be responsible for deciding whether IR35 applies. This has caused a degree of trouble and upheaval, particularly within the health sector.
Recently the BBC has been trying to unravel a tangled web of presenters and other performers who allegedly might have been encouraged to set up PSCs by the Beeb to save the licence fee payers’ money.
The Government has announced a consultation exercise to consider the responsibility in the private sector to also move to the end user company. Could this be the death knell for PSCs?
There appears to be a bit of a backlash against zero hours’ contracts and the gig economy generally. The employment status question is constantly being challenged in tax courts and employment tribunals. Uber, CitySprint and Pimlico Plumbers were all won by the workers. In addition to the decided claims, there are several more cases in the pipeline against companies including eCourier, Excel and Addison Lee – and threats of claims against Deliveroo, Jinn, and DPD. The claimants are delivery drivers, couriers and taxi drivers.
A well written contract for services can be helpful but the Courts have focused more on the actual intention and reality of the relationship between the parties. Here are some relevant factors for you to consider:
Mutuality of obligation, control, equipment, substitution, financial risk, basis of payment, benefits, intention and personal factors.
Just because your company does work for more than one or two end user companies does not of itself put you in the clear. Each contract/relationship should be looked at separately as regards employment status. You could be deemed to be within IR35 on one contract, but not on the other three.
Don’t just assume that your Personal Service Company arrangement will not be examined by HMRC. Please talk to us before back taxes, penalties and interest hurt your business.
Partner – Head of Tax
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mobile: 07790 840394
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