P35. Question 6. Service Company

[maxima]

I am one-man Ltd. My accountant (NW) insisting I answer Question 6 as Yes in first part.

From my point of view - this is just a trick from IR to get all contractors legally shortlisted. Next year they will roll out massive attack to get money from them with very little hassle.

My question - is there any legal way to answer No on the question 6?

What is the penalty to answer No not having legal foundation to do so and be caught in future?

[Nixon Williams]

I am one-man Ltd. My accountant (NW) insisting I answer Question 6 as Yes in first part.

From my point of view - this is just a trick from IR to get all contractors legally shortlisted. Next year they will roll out massive attack to get money from them with very little hassle.

My question - is there any legal way to answer No on the question 6?

What is the penalty to answer No not having legal foundation to do so and be caught in future?

Please re-read our advice, we are certainly not insisting! Please read and note the last line.

"Many of you will recall the uncertainty regarding Question 6 on the P35 regarding “Service Companies”. The following is an edited extract from HMRC’s “Finishing the tax year up to 5 April 2009 - E10 (2009)”

“Question 6 is deliberately in two parts. The first question narrows those employers who need to
consider whether the second question applies. If the answer to the first question is no, the answer to the second question will similarly be no.

The first question should be answered yes if:
• an individual performed services (intellectual, manual or a mixture of the two) for a client or clients, and
• the services were provided under a contract between the client and the company of which, at any time during the tax year, the individual performing the services was 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 the services performed by the shareholders personally.

The second question should only be answered yes if

Income has been treated as deemed employment income and PAYE/NICs deducted in accordance with the Intermediaries legislation (IR35).

For the purposes of this question, ‘service company’ includes a limited company, a limited liability partnership, or a partnership.

The only engagements affected by the IR35 rules are those in which the worker would be classed as an employee (for NICs, employed earner) of the client if it were not for the service company involvement. Where the IR35 rules apply, the intermediary (service company) may have to account for an additional amount of PAYE and NICs on the deemed payment, which is based upon the income from the engagements, after an allowance for certain expenses and pension contributions.

If you are a service company (as explained above) in the year to 5 April 2009, tick the first ‘Yes’ box under this question. If you have deducted PAYE and NICs on deemed employment payments under the Intermediaries legislation (IR35) in respect of any person shown on the Return, tick the second box ‘Yes’. “

What does this mean?

Many of our clients will be classed as a “service company” based upon the definition as above, therefore we would suggest that this is answered as, “Yes”. Unless advised otherwise, this is how we will answer Question 6 for you.

The second question, would only be answered as a “Yes” if one or more of your contracts were caught by the IR35 legislation for the tax year ending 5th April 2009.

All clients can of course direct us to answer this question as you wish, just let your account controller know."

[MPwannadecentincome]

well there you have it.
next?

[Archangel]

No, no, no, no!

The first question should be answered yes if:
• an individual performed services (intellectual, manual or a mixture of the two) for a client or clients, and
• the services were provided under a contract between the client and the company of which, at any time during the tax year, the individual performing the services was 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 the services performed by the shareholders personally.

Most of your clients would be through an agent, so....

an individual performed services (intellectual, manual or a mixture of the two) for a client or clients yes

the services were provided under a contract between the client and the company of which, at any time during the tax year, the individual performing the services was a shareholder No, the contract is between the client and the agent, the contractor is not usually a shareholder of the agency


So the answer should be No unless you are direct to the client.

[Lewis]

No, no, no, no!

The first question should be answered yes if:
• an individual performed services (intellectual, manual or a mixture of the two) for a client or clients, and
• the services were provided under a contract between the client and the company of which, at any time during the tax year, the individual performing the services was 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 the services performed by the shareholders personally.

Most of your clients would be through an agent, so....

an individual performed services (intellectual, manual or a mixture of the two) for a client or clients yes

the services were provided under a contract between the client and the company of which, at any time during the tax year, the individual performing the services was a shareholder No, the contract is between the client and the agent, the contractor is not usually a shareholder of the agency


So the answer should be No unless you are direct to the client.

In this case isn't the agency your client?

[Pickle2]

No, no, no, no!

The first question should be answered yes if:
• an individual performed services (intellectual, manual or a mixture of the two) for a client or clients, and
• the services were provided under a contract between the client and the company of which, at any time during the tax year, the individual performing the services was 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 the services performed by the shareholders personally.

Most of your clients would be through an agent, so....

an individual performed services (intellectual, manual or a mixture of the two) for a client or clients yes

the services were provided under a contract between the client and the company of which, at any time during the tax year, the individual performing the services was a shareholder No, the contract is between the client and the agent, the contractor is not usually a shareholder of the agency


So the answer should be No unless you are direct to the client.

Archangel, the agency is your client. You perform services for the agent, who then resells your services to THEIR client.

The end company approached the agency to provide skills, not you.

[BrowneIssue]

General whinge

a) it is nice that after all these years we now all understand IR35.

b) isn't it good the PCG have been so successful in getting rid of IR35, and so quickly too.

[Fred Bloggs]

a) it is nice that after all these years we now all understand IR35.

b) isn't it good the PCG have been so successful in getting rid of IR35, and so quickly too.

a) You can't understand IR35, it changes with each case that goes to the commissioners and they make it up as they go along.

b) PCG have a vested interest in KEEPING IR35, they promote the use of Umbrella Co's.

[Epiphone]

Most one-man-band Ltd's will tick Yes to the first question.

And for Mr Nixon Williams: why do you ask for copy bank statements and expenses from the beginning of the year when you get them every month. Just easier for you guys to have them all in one envelope/email or something else..?

[Archangel]

a) You can't understand IR35, it changes with each case that goes to the commissioners and they make it up as they go along.

b) PCG have a vested interest in KEEPING IR35, they promote the use of Umbrella Co's.

PCG promote the use of umbrella companies? How?