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Doctor, Doctor, I think you should be an Employee

Young Doctor with stop sign

A report in the Telegraph on the 14th July 2014…

Dozens of NHS executives face possible investigation by HM Revenue and Customs after they refused to answer questions about their tax arrangements, it can be revealed.

An investigation has identified 86 senior health service officials paid off-payroll who have refused to give assurances to their employers that they are paying the correct level of income tax and national insurance.

They are paid through service companies – arrangements that allow public sector employees to be paid as contractors through private companies, potentially cutting their tax bills.

http://www.telegraph.co.uk/health/healthnews/10966314/Dozens-of-NHS-executives-face-tax-inquiry-into-off-payroll-earnings.html

Monitor found 30 foundation trusts had issues to resolve in their report of the 10th July 2014:

  • 20 foundation trusts have 1 or more senior employees paid through an off-payroll arrangement, and they are waiting for responses after asking those employees for assurance about their tax arrangements
  • 23 foundation trusts (including some of the 20 above) still have at least 1 board member or senior member of staff with significant financial responsibility employed through an off-payroll arrangement
  • of these 23 trusts, 9 are facing wider issues relating to their performance which they have explained is affecting their ability to recruit and retain permanent skilled staff; this resulted in the need to use interim off-payroll contracts to attract high-performing staff to help improve the foundation trust’s situation
  • as a result of their performance issues, these 9 trusts are facing current enforcement action by Monitor, which is unrelated to their use of off-payroll employment
  • out of those 23 trusts, the other 14 which are not facing enforcement action have plans to end off-payroll arrangements by the end of the year

Will this end the use of PSC’s in the NHS?

steve@bicknells.net

Service Company – Yes or No

with computer

It’s time to run your first RTI PAYE year end and you have your own limited company, how do you answer this question?

Service Company ‘Yes’ if you are a service company – ‘service company’ includes a limited company, a limited liability partnership or a partnership (but not a sole trader) – and have operated the Intermediaries legislation (Chapter 8, Part 2, Income Tax (Earnings and Pensions) Act 2003 (ITEPA), sometimes known as IR35). Otherwise indicate ‘No’.

The question is now a bit more specific, which is great, because you will only answer ‘Yes’ if you have operated IR35.

steve@bicknells.net

What are the implications of being a Service Company? Q1 Page TR4 SA100

business people colorful illustration

Here is the question:

If you provided your services through a service company (a company which provides your personal services to third
parties), enter the total of the dividends (including the tax credit) and salary (before tax was taken off) you withdrew
from the company in the tax year – read page TRG 21 of the guide
£ • 0 0

This is what the guide says:

Service companies
Box 1 If you provided your services through a service company

Complete this box if you provided your services through a service company.

You provided your services through a service company if:

• you performed services (intellectual, manual or a mixture of both) for a client (or clients), and
• the services were provided under a contract between the client(s) and a company of which you were, at any time during the tax year, a shareholder, and
• the company’s income was, at any time during the tax year, derived wholly or mainly (that is, more than half of it) from services performed by the shareholders personally.
Do not complete this box if all the income you derived from the company
was employment income.

http://www.hmrc.gov.uk/worksheets/sa150.pdf

The majority of limited company contractors are, by definition, ‘personal service companies’ and therefore this box is of relevance.

The question however has no statutory backing and you cannot be penalised for failing or refusing to answer it but if contractors ignore the question when HMRC know full well that their company is a ‘service company’ then they may be drawing unnecessary attention to themselves.

The information to be entered is the total of the gross salary and dividends taken from the contractor’s company in the year ended 5th April 2012.

http://shop.qdosconsulting.com/freelancer/news/2013/01/18/psc-question-on-sa-return

The point is not the whether you answer the question or not, its whether your company falls under IR35 that matters most.

IR35 came into existance in 1999,  it was created to prevent workers previously employed from creating a limited company and then benefiting from lower taxes and national insurance through the use of dividends and expenses.

So you think you are self employed, does HMRC agree?

http://stevejbicknell.com/2012/01/28/so-you-think-you-are-self-employed-does-hmrc-agree/

Can your business pass the HMRC IR35 Business Entity Tests

http://stevejbicknell.com/2012/05/14/can-your-business-pass-the-hmrc-ir35-business-entity-tests/

Consultants beware of IR35

http://stevejbicknell.com/2011/09/10/consultants-beware-of-ir35-use-the-qdos-model-contract-free/

steve@bicknells.net

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