Where you are the director and owner of a Personal Service Company, you will in effect be the person who must decide whether a particular engagement falls within the IR35 legislation. It has come to our notice that some workers working within the legislation are not aware that they are actually being engaged under such terms, particularly at the onset of their engagement. If you are the person providing the services then you are responsible for the terms you have agreed to, so it might be advisable to clarify the actual terms and conditions of the proposed relevant engagement.
You can submit a contract to us for an opinion.
Where an engagement falls within the IR35 legislation, then the intermediary is responsible for calculating the amount of the IR35 Deemed Payment. This deemed payment normally arises at 5 April each year. All payments and benefits received by the intermediary from relevant engagements in the tax year must be totalled. The intermediary must operate PAYE and pay Class 1 NICs on all earnings from the engagement (known as a relevant engagement), after deducting a limited allowance for expenses and capital allowances, pension contributions, secondary class 1 NICs, and in-year salary and taxable benefits. The resulting amount will normally be treated as paid at the end of the tax year, and be taxed as a payment chargeable to income tax as employment income and subject to Class 1 NICs.
You can submit a contract to us for an opinion.
Where the IR35 legislation applies and the worker provides services to the Client there is no obligation on the client to account for the worker’s tax and NICs.
Composite companies are required to operate PAYE where they pay a salary.
Where salaries, which are subject to PAYE, are not paid a composite company
must consider whether it meets the definition of a Managed Service Company
as defined by the MSC Legislation, and if they do they must perform an MSC
deemed payment.
If the composite company does not come within the MSC Legislation it must
consider whether particular engagements fall within the IR35 legislation,
and if they do an IR35 deemed payment arises.
There is often a recruitment agency in the chain between the worker and the end user of his services in addition to a Personal Service Company or partnership. However, the IR35 legislation is drafted in such a way that it is very unlikely that a recruitment agency would meet the conditions relating to an intermediary. The liability for tax and NICs normally rests with the Personal Service Company or partnership.
Scheme promoters should firstly consider whether any business models provided
meet the definition of Managed Service Companies. If business models do
meet the definition of an MSC, the MSC Legislation must be applied.
Provided the definition of an MSC is not met, we request that scheme promoters
make the workers fully aware of the terms, conditions and possible IR35
implications of the relevant engagement they are entering into.
