The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
Many businesses require a large number of workers on a regular basis. Others need to expand and contract their workforce on a flexible basis. Accordingly, there are different arrangements by which a client may contract and remunerate a worker.
The most common arrangement is employment. This may be on a permanent, fixed term or temporary basis, but it is essentially a ‘contract of service’. This contrasts with a ‘contract for services’ which arises between a client and service provider. The service provider is essentially conducting a trade, profession or vocation. See the Badges of trade guidance note.
The service provider has the freedom to structure their business as they choose, and it is common to use a limited company in many industries. One of the advantages of the use of a company is the lower effective rate of tax on earnings.
The term ‘personal service company’ (PSC) is typically used to refer to a company which provides the service of one individual, usually the sole director and shareholder. Compared with employment, it delivers a significantly reduced rate of tax and NIC for both the client and the worker.
Accordingly, there have been a number of tax anti-avoidance measures introduced to prevent the use of such arrangements instead of employment.
Employees contract directly with their employers, and self-employed individuals and partnerships contract directly with their clients. In a PSC structure, the relationship with clients is indirect:
the PSC contracts with the client to supply services, which are provided by the individual
the PSC invoices the client for the services supplied
the money received by the PSC is used to meet its expenses, including salary to the individual
the profit after allowable expenses is subject to corporation tax, and
the after-tax profit is paid out to the individual as a dividend
The client is often referr
**Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason.
Access this article and thousands of others like it free for 7 days with a trial of TolleyGuidance.
Read full article
Already a subscriber? Login
IntroductionUK tax must be withheld on UK payments including:•interest•royalties•rental incomeWithholding tax may be reduced under double tax treaties (DTT) or European directives, both of which may be subject to making a formal claim.This guidance note outlines the rules for UK withholding tax, and
Normal due dateIndividuals are required to pay any outstanding income tax and Class 4 National Insurance, Class 2 National Insurance, and capital gains tax due for the tax year by 31 January following the end of the tax year (ie 31 January 2021 for the 2019/20 tax year). From 6 April 2020, UK
This guidance note provides an overview of what conditions need to be met before a business is entitled to treat VAT incurred as input tax. This note should be read in conjunction with the other notes in the ‘Claiming input tax’ subtopic. For a flowchart outlining the procedure for claiming input
Business asset disposal relief (previously known as entrepreneurs’ relief) is a capital gains tax (CGT) relief that allows business owners with chargeable gains on qualifying business assets to pay CGT at a rate of 10%. For disposals made on or after 11 March 2020, the relief is available on up to
To view our latest tax guidance content, sign in to Tolley Guidance or register for a free trial.