Reply to: Service Company Question in Personal Self assessment

[Contreras]

This thread dates back originally to 2009 and may now contain out of date or misleading advice.

I have started a new thread here specifically for the RTI question.

[The Spartan]

I spoke to my accountant at Intouch about this last night as I had to provide a declaration for PAYE 13/14 and she told me that I have to answer yes to being a PSC on both this and my self assessment 13/14, slightly annoyed to be honest about it as though I provide services it doesn't have to be me that delivers them.

[rqo]

It's not clear that it is and it is not clear that it isn't.

You're only liable to pay costs if your miscompletion of a form leads to a mispayment in tax.

If you're a what HMRC calls PSC outside of IR35 then you've surely paid yourself minimal salary and high dividends - so irrespective of whether or not you tick that box, those numbers would be "wrong" if it was for whatever reason retrospectively decided that you were inside IR35.

So with that in mind - don't fret about it.

My personal advice is - see what you ticked on last year's P35 and give the same answer on this document, so that there is some consistency.

Different shareholders will answer that question differently based on their personal relationship to the company. For example, if you're the company's breadwinner and 99.9% of its income comes from you, you might feel like it is your PSC.

But if your partner is a shareholder, they might not feel like it is theirs...

Thankyou, that's very useful.

[7specialgems]

Apologies if I've missed this.

I know it wasn't compulsory to answer the service company question on the 2011/2012 self assessment, and it appears that it will be compulsory on the 2013/2014 SA, but I'm not clear if it is compulsory on the 2012/2013 SA?

It's not clear that it is and it is not clear that it isn't.

You're only liable to pay costs if your miscompletion of a form leads to a mispayment in tax.

If you're a what HMRC calls PSC outside of IR35 then you've surely paid yourself minimal salary and high dividends - so irrespective of whether or not you tick that box, those numbers would be "wrong" if it was for whatever reason retrospectively decided that you were inside IR35.

So with that in mind - don't fret about it.

My personal advice is - see what you ticked on last year's P35 and give the same answer on this document, so that there is some consistency.

Different shareholders will answer that question differently based on their personal relationship to the company. For example, if you're the company's breadwinner and 99.9% of its income comes from you, you might feel like it is your PSC.

But if your partner is a shareholder, they might not feel like it is theirs...

[rqo]

Apologies if I've missed this.

I know it wasn't compulsory to answer the service company question on the 2011/2012 self assessment, and it appears that it will be compulsory on the 2013/2014 SA, but I'm not clear if it is compulsory on the 2012/2013 SA?

[TheCyclingProgrammer]

The service company question is asked on the final RTI submission of the year, but it is now a single question rather than two.

The question on the self-assessment about service company income will not be changing, as far as I know...

Hope this helps!
Craig

Thanks. So in your opinion if we previously answered YES/NO do we just answer NO this year?

Looking at this:
http://www.hmrc.gov.uk/rti/ir35.pdf

My interpretation of the final point under Reporting Arrangements is that HMRC only want you to answer YES if you are caught by IR35.

[Craig at Nixon Williams]

With P35s no longer used at the end of the year due to RTI, where would this service companies/IR35 question now be asked?

The service company question is asked on the final RTI submission of the year, but it is now a single question rather than two.

The question on the self-assessment about service company income will not be changing, as far as I know...

Hope this helps!
Craig

[TheCyclingProgrammer]

With P35s no longer used at the end of the year due to RTI, where would this service companies/IR35 question now be asked?

[SimonMac]

As I understand it the declaration of your IR35 status on your self-assessment is mandatory and stating you are outside will then result in a letter asking you to prove it

What would be deemed as acceptable proof?

Will correspondence from a IR35 Contract Review be enough?

[Craig at Nixon Williams]

Despite being a poor company name (!!) does the forum concur that this is the correct approach. Our accountant has entered a gross dividend + salary figure on both of our SA's - correct for me but not for the other half in my opinion.

You are correct, it should only appear on your return if you were the only one providing your services through the company. The second shareholder doesn't need to complete this box.

Hope this helps!
Craig

[v5srv]

With respect to the question on the SA form it appears to be clear enough that the provider of the service needs to enter gross dividends + salary into the box under "Service Companies".

However with regard to the significant other - the company secretary - my reading is that a zero entry is correct. Guidance found elsewhere states ...

Eric is a tax consultant. He trades through Eric Ltd. The whole of Eric Ltd's income is derived from work which Eric performs personally. Eric Ltd is not caught by IR35. 50% of the shares in Eric Ltd are owned by Fiona, Eric's wife.

Eric Ltd is a 'service company' in relation to Eric and the total remuneration and dividends which Eric receives from Eric Ltd should be shown in the 'service company' box (as well as being shown in the appropriate boxes elsewhere on the return). However, Eric Ltd is not a 'service company' in relation to Fiona. Therefore the income which Fiona derives from Eric Ltd should not be shown in the 'service company' box on either her own or Eric's tax return (it does of course need to be shown as income in the appropriate reporting boxes of Fiona's tax return).

Despite being a poor company name (!!) does the forum concur that this is the correct approach. Our accountant has entered a gross dividend + salary figure on both of our SA's - correct for me but not for the other half in my opinion.

[Jessica@WhiteFieldTax]

Yep, I notice the absence of minutes as well.

I'ld agree there is a common sense interpretation, but, well, it is disconcerting we have to rely on common sense

Plus ça change

[LisaContractorUmbrella]

Yes, that rings a bell.

I think the problem is with "operated".

You could interpret "operated" as considering yourself IR35 caught and paying a compliant salary.

Or, in extremis could applying the status tests and deciding that you were outside as IR35 be "operated" - in which case it's a red flag question.

Hopefully the IR35 forum will elicit some guidance on this.

I think we all know what they mean but, as usual, it is pretty badly worded. There don't seem to be any IR35 forum minutes available on the HMR&C website after July but I am fairly sure there has been a meeting since

[Jessica@WhiteFieldTax]

Yes, that rings a bell.

I think the problem is with "operated".

You could interpret "operated" as considering yourself IR35 caught and paying a compliant salary.

Or, in extremis could applying the status tests and deciding that you were outside as IR35 be "operated" - in which case it's a red flag question.

Hopefully the IR35 forum will elicit some guidance on this.

[LisaContractorUmbrella]

Exact wording was "In relation to IR35, it was noted the two part question 6 currently asked on the P35 will be merged into one “Are you a service company who has operated the Intermediaries legislation (sometimes known as IR35) or the Managed Service Companies legislation?”. The question will be embedded into the PAYE regulations for 2013/14 and it will become a legal requirement to answer it on the last return for the tax year"

So yes you may be right - depends on what they mean by 'embedded' I suppose (nice and clear as usual) As I understand it, if you answer yes an IR35 investigation will automatically be triggered making life easier for those lovely folks at HMRC