Freelancers with personal service company
It is easy to think – oh my freelancer has their own company so nothing to do with law or tax is going to be a problem for me. Unfortunately, if they are the only person in their company, then this is not always the case.
The law on IR35 (tax) and equality for freelancers with a personal service company is changing
A personal service company has discrimination rights
If you stop using a PSC because the person you pay that way is too old, or pregnant, or disabled, or for any other equality related reason – then you can’t use the fact it is a company to get out of a discrimination tribunal. In a recent Employment Appeal Tribunal decision it was held that the PSC was a legal personal with rights that could include claiming equality and discrimination rights. If you’d like a more technical report on this – read Christopher Head’s LinkedIn pulse article – click here.
HMRC has just closed consultation on IR35 (tax) for personal service companies
HMRC can already make you deduct the equivalent of PAYE from PSCs. The consultation is about making you ask specific questions when you contract with a PSC. The idea is that if you don’t ask those specific questions you will find yourself liable for the equivalent of PAYE. Click here for the consultation document.
Many business owners still don’t understand IR35 (who does…) but what is clear is that paying people who have their own limited company is not automatically going to mean there can be no tax or legal questions to answer.
What is a personal service company?
Many people run limited companies where they are the only office holder or employee (or some with a spouse and no employees). They were often advised to by accountants as a way of spreading their fee income over more than one year. Others do so to take advantage of the protection that limited companies can offer. There are also people who were happily employed who were told by their boss – from now on we will only keep you if we pay you through a company!. Many contractors use a personal service company as a way of handling their contracting income.
The situation in terms of who is responsible, who needs to ask what, and who gets the bill, is changing. But what is clear is that simply saying – there were a limited company is not going to protect the end user or client from the requirement to tax the fees under PAYE, or IR35. For more information on this highly complex subject click the lengthy HMRC guidelines here.
What is clear is that you need a contract to set out who does what, and who is responsible for what…
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