A Personal Service Company, which only has income from relevant engagements, has two employees: A - the contractor who receives a salary of £20k, and B the administrative assistant (who is a relative), who receives a salary of £5K.
- Can A deduct B's income in calculating the tax and NICs he pays on earnings from contracts caught by IR35?
- Can you also confirm that B's NI contribution records will be based on what has actually been paid by B while A's will be based on the total payments made less those attributable to B?
A will pay tax and NICs on a deemed payment calculated on the basis of income from his contracts. If the PSC pays B for work done, PAYE tax and NICs will be due on B's salary in the normal way. The 5% allowance for the costs of running the service company can be used to pay for administrative assistance (regardless of who the assistant is). No additional deduction will be allowed in calculating A's deemed payment.
We do not see any double taxation issue here: both A and B are paying the
correct amount of tax and NICs on what they earn for doing different jobs.
If an employee were to employ his wife, in whatever capacity, and pay her
a salary, that salary would not be deductible from his taxable earnings
from his employment. It would not therefore be consistent with the principle
of fairness between PSC workers and direct employees to allow a deduction
in these circumstances. The position on NI Contribution records is that
both A's and B's records will be based on the contributions they actually
pay.
| Home | ||||
