Reply to: RTI - Service Comnapy Question

[DaveB]

This is what the help file indicates...


A service company who has operated the Intermediaries legislation (sometimes known as IR35).

A service company is one which is set up to supply a worker's services to a client. There is no contract between the worker and the client. The contractual arrangements are between the company and the client, either directly or via another intermediary. The company is usually under the control of the worker and it derives its income wholly or mainly from the supply of the worker's personal services.

For example: John Smith is a software engineer. John is a director and shareholder of his own company, John Smith Software Ltd.

Company A contracts with John Smith Software Ltd to use the personal services of John as a programmer. All payments are made by Company A to John Smith Software Ltd. In this example John Smith Software Ltd is a 'service company'.

Which is fine, except it doesn't explain what is meant by "operated the intermediaries legislation", although it does define HMRC's view of a service company.

Given Craig's earlier statement about the HMRC view I'm still going to answer No to this one as I've made no deemed payments.

[blinko]

This is what the help file indicates...


A service company who has operated the Intermediaries legislation (sometimes known as IR35).

A service company is one which is set up to supply a worker's services to a client. There is no contract between the worker and the client. The contractual arrangements are between the company and the client, either directly or via another intermediary. The company is usually under the control of the worker and it derives its income wholly or mainly from the supply of the worker's personal services.

For example: John Smith is a software engineer. John is a director and shareholder of his own company, John Smith Software Ltd.

Company A contracts with John Smith Software Ltd to use the personal services of John as a programmer. All payments are made by Company A to John Smith Software Ltd. In this example John Smith Software Ltd is a 'service company'.

[Craig at Nixon Williams]

So if I regard all my company income as caught by IR35, but there is no deemed payment because my actual salary and pension contributions have nullified any need for one, I should say no?

If you regard the company income to be caught by IR35 then in my view you should answer yes to this question.

Craig

[IR35 Avoider]

I have checked with HMRC a couple of months ago and they said the latter - if you have operated IR35 (and made a deemed payment) then you should say yes to the question, otherwise it should be no.

Craig

So if I regard all my company income as caught by IR35, but there is no deemed payment because my actual salary and pension contributions have nullified any need for one, I should say no?

[borderreiver]

Just think of it as a conditional statement ...

answer = (isPSC && insideIR35);

So you have to be both in order to answer "yes", I would think.

IANAA but I think it would be hard for HMRC to dispute this line of reasoning. If they want more precise responses they need to be asking 2 separate questions ...

[ctdctd]

I need to answer the RTI question as well - I'll be putting "No".

My contracts are IR35 OK but my actual working practices may not be - at a level just above support monkey, it's hard to avoid Direction and Control.

To mitigate this, I pay small salary and put most of the rest in a pension. What's left, after expenses, is only a few percent - possibly within the IR35 5%.

However, I don't operate the legislation and I don't calculate any deemed payment - so the answer is "No"

It's stupidly written legislation and each iteration of the question makes it worse.

[Contreras]

I must have misunderstood, was the quote in OP something InTouch sent then? I was under the impression he was quoting the submission form.

The quote was verbatim from the HMRC Basic PAYE Tools Software (RTI). Sorry, should have been clearer.

[Clare@InTouch]

I must have misunderstood, was the quote in OP something InTouch sent then? I was under the impression he was quoting the submission form.

I think the thread was a mix of the two!

[TheCyclingProgrammer]

There's a difference between your accountant asking you if you're a service company, which is a question of fact, and the rather misleading HMRC question which means more than it actually reads!

I must have misunderstood, was the quote in OP something InTouch sent then? I was under the impression he was quoting the submission form.

[Clare@InTouch]

Thanks Craig, useful to know (although I'll double-check with my own accountant too). I assume the SAR questions for 2013-14 will remain unchanged?

It's here under Final Submission for the tax year:

HM Revenue & Customs: What to report

There's a difference between your accountant asking you if you're a service company, which is a question of fact, and the rather misleading HMRC question which means more than it actually reads!

[TheCyclingProgrammer]

I have checked with HMRC a couple of months ago and they said the latter - if you have operated IR35 (and made a deemed payment) then you should say yes to the question, otherwise it should be no.

Craig

Thanks Craig, useful to know (although I'll double-check with my own accountant too). I assume the SAR questions for 2013-14 will remain unchanged?

[Craig at Nixon Williams]

Regardless of whether or not we consider ourselves "personal services companies" (which arguably most of our companies are), that doesn't appear to be what the question is asking to me. It's asking if we've "operated" IR35 or MSC legislation. Without defining "operated". Does it simply mean you've considered it and decided it doesn't apply? Or does it mean you've operated one or more of your contracts as inside IR35?

I have checked with HMRC a couple of months ago and they said the latter - if you have operated IR35 (and made a deemed payment) then you should say yes to the question, otherwise it should be no.

Craig

[TheCyclingProgrammer]

As there is no legal definition of a service company, isn't the nature of it open to interpretation

There is no legal definition but if HMRC have their own definition, and it's an HMRC question, then I suppose it follows that that is the definition to base your answer on.

[TheCyclingProgrammer]

Why do you think that advice is incorrect Spartan? I would have thought that most or all contractors would answer yes according to the parameters of the questions - most or all income would be derived from the services of the individual and the contractual arrangements would be as shown

Regardless of whether or not we consider ourselves "personal services companies" (which arguably most of our companies are), that doesn't appear to be what the question is asking to me. It's asking if we've "operated" IR35 or MSC legislation. Without defining "operated". Does it simply mean you've considered it and decided it doesn't apply? Or does it mean you've operated one or more of your contracts as inside IR35?

[DaveB]

By this I mean that the company has made a deemed salary payment to the employee.

Craig

In which case the answer should be No, as if you are outside IR35 you won't have made a deemed salary payment, so the OP was correct to challenge his accountants advice.