Posted by Nick Day on 09 Oct 2012

IR35 Personal Service Companies

The House of Commons Public Accounts Committee has reported on the use of personal service companies and found that despite their widespread use in the BBC and other public sector organisations, HM Revenue & Customs (HMRC) has reduced its enquiries into these types of arrangements.

It is ironic that HMRC’s efforts in this area appear to have focused on the private sector and not the public sector, given the apparent widespread use of personal service companies at organisations such as the BBC.  HMRC are very quick to probe in to all aspects of some taxpayers’ affairs, leaving no stone unturned to ensure everyone makes what the Government calls “their fair contribution”, but it seems less prone to disturb the cosy world of the public sector.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, commented as follows:

“It was also shocking to find out that no fewer than 2,400 central government appointees were benefiting from off-payroll arrangements. Furthermore, the Treasury Review only covered civil servants. Tax avoidance in the public sector goes much wider.

We were shocked, for example, to discover that the BBC has about 25,000 off-payroll contracts. 13,000 of these are for individuals who are on our screens and on the radio every day. They are the public face of the BBC.

It told us that it intends to review these arrangements. We want the review to explain how the BBC will gain assurance that the staff involved are paying the correct amount of tax on their income from the public purse. Similarly we suspect that many individuals and employers in local government and in the health service do not pay their proper tax and national insurance contributions.”

The use of a service companies to engage in contracts that are no more than employer/employee arrangements will not save tax or National Insurance Contributions as for example, dividends paid out will be re-categorised as salary payments.  But sometimes there is a fine line between genuine corporate trading and the incorrect use of a personal service company.

Much will depend on individual circumstances, and issues such as how many different trading partners a company has, whether the company is bearing any risk, and whether substitute arrangements are possible.

Tax Innovations

In the right circumstances, personal service companies can still make good sense and lead to tax savings if implemented correctly.  Tax Innovations has specialist advisers who can help you through the minefield of the personal service company rules.

Contact us

If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or customerservice@taxinnovations.com.