Other points on personal service companies

By Tolley
OMB_tax_img

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Other points on personal service companies
  • The normal position
  • National Insurance deeming rules
  • How the deeming provisions affect personal service companies
  • Cross-border workers and NICs
  • Working in another EEA country
  • Reciprocal agreements and other countries
  • Income-splitting

This note covers:

  • the position where the tax rules for intermediaries are not the same as those for NICs, and
  • how a personal service company can be used to split income between partners and family members, thereby reducing the total tax and NICs due

For an outline of intermediaries rules, see the Introduction to personal service companies guidance note. For the rules, see the Personal service company rules and the Intermediaries and the public sector guidance note. For the calculation methodology, see the Calculating the deemed employment payment guidance note.

The normal position

Separate legislation exists for tax and NIC. In most cases both sets of legislation produce the same outcome, so that an engagement will either be within the rules, and thus liable for both tax and NIC, or outside, and liable for neither. However, this is not always the case.

The NIC deeming rules means that those who provide services as teachers, some examiners, cleaners, non-executive directors or entertainers may be subject to special rules. Cross-border workers may also be treated differently for IR35 and public sector intermediaries tax and NICs. Both of these situations are discussed below.

ITEPA 2003, ss 48–61, 61K–61X; SSCBA 1992, s 4A; SI 2000/727 as amended by SI 2017/273 (subscription sensitive)
National Insurance deeming rules

An individualmay be self-employed under the status tests (see the Employed or self-employed guidance note), but this status may be over-ridden for NICs by various deeming provisions.

SSCBA 1992, s 2(2)

Examples of workers who are deemed to be employed earners for NICs include office cleaners and cleaners of telephone apparatus. Actors and entertainers used to be categorised as employed earners under the regulations but the relevant provisions were repealed

More on Personal service companies: