Personal Service Companies – Plan Ahead
Changes to the tax regime in relation to personal service companies appear to be inevitable. We should all bear this in mind when entering into or renewing arrangements under which we engage individuals to work for us through their own personal service company (rather than directly as employees or self-employed contractors).
The government is concerned that many personal service companies are not accounting properly to HMRC for income tax and national insurance in relation to the individual whose services the company is providing.
Changes have already been made, in April 2017, to address this in relation to the engagement of personal service companies by organisations in the public sector. It is widely expected that similar rules will be applied to the private sector – April 2020 is the date being suggested for this.
The most likely approach is that the business that is engaging the personal service company will be made responsible for assessing whether the individual provided by the personal service company is working as an employee – employed by the personal service company. If the business assesses that to be the case, it will be responsible for accounting for income tax and national insurance contributions on the payments that it makes to the personal service company.
These arrangements will clearly change the relationship between the business and the personal service company, placing the obligation to collect the amounts due in respect of those taxes and to pay them over to HMRC on the engaging business – which will clearly want to deduct those amounts from the fees it would otherwise pay over to the personal service company.
These changes are not imminent – but arrangements of this type are common, and the changes need to be borne in mind.
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This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: email@example.com