Chapter 25 - Personal Service Companies Flashcards
Introduction
People had begun using personal service companies as intermediaries for employment services to avoid PAYE and NIC
The Rules
Designed to prevent people putting a co between them and a client to enable gross payments to be made to a co which are then extracted through dividends. The rules apply where a worker would be treated as an employee of the client if the PSC didn’t exist.
Use the employed vs. self employed test, if they would be employed, they are caught by the IR35 leg.
The Rules Cont.
The effect of the rules is to take away any income from relevant engagements and deduct any salary paid to the worker, leaving income which has not been paid out as salary. This excess is demed to have been paid as a salary to the worker on April 5.
HMRC treat the worker as receiving a salary at the year end and this salary is subject to PAYE and NIC
Calculating Deemed Salary Payment
It’s in S.54 ITEPA 2003
Calculation
Income from rel engagements Less: automatic 5% deduction Less: expenses paid by employer allowable as deductions from earnings if paid by an employee Less: Employer pension contribs Less: Employers NIC on workers pay Less: Actual salaries and benefits paid Gross deemed payment Less: employers NIC on gross payment Net deemed payment
Net Deemed Payment
Subject to PAYE and NIC as if it were a normal salary. PAYE and NIC must be paid over to HMRC by 22nd April electronically or 19th April otherwise
Note
PSCs likely can’t claim the employment allowance on NICs because it can’t be claimed on director salaries and the PSC is usually set up by one person who is both the director and worker
Implications on the Intermediary
Gross deemed payment is deductible when arriving at taxable profits for CT in the period the payment is treated as being made.
Ownership
The rules only apply where the worker owns more than 5% of the shares in the intermediary company, which will almost always be the case
