Have the company that he is working for not insisting that he sets up a PSC?
Is he working direct or under an umbrella?
I deal with a lot of people like this and all of them are incorrporated. Some fight IR35 some just go along with it.
The way that the legislation changed to a company by company basis though where its only one client I cannot see the point attempting to fight it anymore.
Whatever the situation it is down to your freinds son or his representitive to inform HMRC. From the clients perspective the service provider is just another supplier so treat pretty much as you would the clients payment of your own services.
kind regards,
Shaun.
p.s. the above assumes some knowledge in this area. If you need me to reexplain/ expand it no probs.
p.s.2 amended because the editor lost my paragraphs (again)
-- Edited by Shamus on Thursday 4th of July 2013 12:33:07 PM
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I Have just had an enquiry from a friends son who has just become a freelance technician. I know he will be responsible for tax and ni but does he notify hmrc as per the self employed model or will the company he is freelancing for do that?
Are the self employed/freelancing rules exactly the same tax wise (eg class 2 ni, same business expenses allowed)
Have the company that he is working for not insisting that he sets up a PSC?
Not that I know of
Is he working direct or under an umbrella?
Direct
Ive asked him for more info and its only going to be part time about £7-£8k so he will be under tax threshold. (Student at university) Would he probably be best off just treating himself as a sole trader rather than setting up a psc?
I deal with a lot of people like this and all of them are incorrporated. Some fight IR35 some just go along with it.
The way that the legislation changed to a company by company basis though where its only one client I cannot see the point attempting to fight it anymore.
Just had a read up on this and it appears that if HMRC deem you IR35 you have to put everything through PAYE which means you cop for employers ni as well. Not connected in this case but that hardly seems fair when your "employer" wont treat you as paye
Whatever the situation it is down to your freinds son or his representitive to inform HMRC. From the clients perspective the service provider is just another supplier so treat pretty much as you would the clients payment of your own services.
kind regards,
Shaun.
p.s. the above assumes some knowledge in this area. If you need me to reexplain/ expand it no probs.
p.s.2 amended because the editor lost my paragraphs (again)
-- Edited by Shamus on Thursday 4th of July 2013 12:33:07 PM
I have seen several posts about IR35 and don't really understand it. Can I take you up on your offer to explain more please? Your explanations are easier to understand than HMRC documents - I have never had any clients in this situation but it is something I should have a understanding of.
well, IR35 was a bit of an ill conceived idea by the last administration to attempt to increase yield for people working in the field of service industries.
There was an active media campaign painting a picture of people leaving work as an employee on a friday and then coming back to the same desk on a monday doing the same job but paying less tax.
Personally having lived in that world I saw no evidence of that until the media put the iidea into employers heads that there was a benefit to getting rid of employees off payroll and paying them as a supplier. so no pension, no holidays, no sickness, no training, no employee rights, no tax issues, able to get rid of the person at a moments notice etc. etc.
The mechanics of IR35 have developed over the years but basically comes down to the only expenses that are allowable against the PSC are those that would have been allowable had the director been an employee. So basically travel, hotels, employers NI and pension.
All other costs of running the business must come out of 5% of turnover.
So, joe blogss has a PSC and earns £20k from a single contract. Of that £20k they have an allowable mileage expense of (say) £2000.
The amount that they have available to pay for stationary, training, accountancy fee's, dividends etc. is 5% of £20k. So £1k.
Remember that dividends can only be paid from profit so all other company expenses need to be considered out of the £1k before a dividend.
When caught by IR35 everything that is not allowable is deemed salary and the director is taxed on it as though drawn in salary even if they had not yet drawn it in salary.
So, in our example. £20k - £1k (5% of turnover) - £2k (mileage and hotels). Remainder £17k
£15716.05 - 955.33 - 1255.21 = £13505.31 deemed paid and taxes have been taken based on the demmed payment rather than the actual payment.
Remember that it is not whether the director is actually paid but it is assumed that they receieved that money and are taxed on it even though it may still be in the company.
My stance is firmly anti IR35 as it was legislation designed to combat a situation that did not exist (or did not widely exist, I cannot say that there were no instances of it) until the legislation was brought in,
We've seen similar government campaigns in relation to justifying raids on pension funds.
IR35 has destroyed PSCs ability to retain any reserves or invest in growth or diversification.
There have been cvarious attempts to get around the legislation including contracts that are supposed to be IR35 proof (that seldom are) and Umbrella companies that pretend to be employers for a collection of contractors working as a single company (and HMRC are working their way through them one at a time).
The conservatives promised to repeal IR35 when they came into power... Still waiting!
HTH,
feel free to ask follow ups as I'm sure that I've probably missed something out of the above,
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
There is still the seperation of the business from the individual even though the tax legislation would seem to ignore that so even PSCs do still have the protection of the veil of incorporation.
And of course there is the issue that some compnaies will only deal with LTD's due to the deemed threat of perceieved employment if other business forms are used.
Got to go to a clients now but if I think of any other advantages over self employment whilst I'm out I'll amend the reply on my return.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
