HMRC Challenges Private Sector Personal Service Companies (PSC)

By now you may have already heard that HM Revenue & Customs has written to around 1,500 PSC’s providing services to pharmaceuticals giant GlaxoSmithKline (GSK), advising them to check whether they are complaint with IR35 rules.

For those of you that have no clients providing services to GSK this is what the letter said:

“Dear Sir or Madam,

Check your employment status

We’re writing to you because you told us that you were self-employed when you worked for, and received payments through, your own company. We call this type of company a ‘Personal Service Company’ (PSC).

It’s important that you full consider the employment status of every contract/engagement.

After looking at the information we have for the 2018 to 2019 tax year, our view is that the contract between your PSC and GlaxoSmithKline (GSK) comes under the off-payroll working rules ‘IR35’. In order to check and confirm your employment status, you can use our online tool, accessible at www.gov.uk searching for ‘Check employment status for tax’ (CEST) or seek advice from a tax expert.

Whether a worker is employed or self-employed for tax purposes is not a matter of choice. Instead, you need to look at the facts of the working relationship between you and GSK. This will help you decide if you would have been an employee of GSK had you worked for them directly and not through your PSC. To find out more about how this decision is made, go to www.gov.uk and search ‘IR35’. You can also see the common differences between being an employed and a self-employed person.

What you need to do by 19 September 2019

If you do not agree that your work with GSK comes under the off-payroll working rules, you must write to us to tell us why and give us evidence. You must do this by 19 September 2019. The address you need to write to is at the top of this letter.

If you agree that your work comes under the off-payroll working rules, you now need to work out how much Pay As You Earn (PAYE) tax and Class 1 National Insurance contributions (NICs) you have to pay for your work with GSK. This will be based on the income you got from working with them for the tax year 2018 to 2019. The 2018 to 2019 tax year is from 6 April 2018 to 5 April 2019.

The amount you have to pay is called a ‘deemed payment’. To work out the amount you have to pay, please use the ‘IR35 Deemed Employment Payment Calculator’. Go to www.gov.uk/guidance/ir35-what-to-do-if-it-applies and go to the section ‘Calculate the deemed employment payment’.

Once you have worked out the deemed payment, report the details of that income and deductions in your ‘Full Payments Submission’ (FPS) and pay us any PAYE tax and NICs due by the 22nd of the tax month following your employment status check.

You must also work out how much PAYE and Class 1 NICs that you have to pay for any income you get from GSK in the 2019 to 2020 tax year. This will be for work that you do through your PSC. You must make sure that you do not treat these payments as if you were self-employed. You must report the details of that income and deductions in your FPS and again pay us any PAYE tax and NICs due by the 22nd of the next tax month.

You must continue to report these details in your FPS each month and pay us any PAYE tax and NICs due. You must do this while your employment status stays the same.

If you have any questions about your employment status check, please phone us by 19 September 2019. Our phone number and opening hours are at the top of this letter.

If we carry out a compliance check

We will be contacting all those who are self-employed and use their own PSC to receive payments. We will then be checking that they have done what we asked. If we find that you have not done what we asked, this may lead to further review work. We call this a ‘compliance check’.

If we carry out a compliance check and find something wrong, we may charge you a penalty. We call this an ‘inaccuracy penalty’. For more information about inaccuracy penalties, see the enclosed factsheet CC/FS7a ‘Penalties for inaccuracies in returns or documents’. Our factsheet CC/FS9 ‘The Human Rights Act and penalties’ explains your rights when we are considering penalties. To find our factsheets, go to www.gov.uk and search for ‘CC/FS7a’ and ‘CC/FS9’.”

It is anticipated that HMRC will be issuing more of these letters to PCS’s providing services to large private sector companies. So, what should you do:

  1. Ask clients to get their contracts reviewed.
  2. Ask clients to complete a working practises questionnaire signed by their end client, if possible.
  3. Ask clients to complete  HMRC’s employment status questionnaire, which is at https://www.gov.uk/guidance/check-employment-status-for-tax  and keep a copy of the result on file.

Vantage Tax Fee Protection Contract Review Service:

As part of the GSK review process and the upcoming Off-Payroll Worker changes which came in for Public Sector contractors from 6 April 2018 and will be introduced for those contractors working for Large Private Sector end user clients from 6 April 2020, we would recommend a review of the contractual terms and conditions to establish any exposure to the IR35 legislation both as part of the year end accounts and tax return preparation process and when new contracts have been offered to establish the potential exposure to PAYE and Class 1 National Insurance Contribution implications to avoid any unforeseen tax charges arising.

We provide two levels of contract review service as follows

IR35 Contract Assessment (“Short” review) – £40+VAT

  • Overall pass/fail opinion on the contract
  • A concise list of any necessary changes
  • Liaison with the end user client/agency if required

Full IR35 Review (“detailed” review) – £105+VAT

  • Overall pass/fail opinion on the contract
  • A concise list of any necessary changes
  • Liaison with the end user client/agency if required
  • Comments on each relevant clause
  • Full reasons why each clause is pass/fail
  • Working Practices review (as HMRC may disregard the contract if the day-to-day engagement does not accurately reflect the contract terms).

To enquire about the service and to discuss the different reviews available please call 0116 243 7892 or email taxadvice@vantagefeeproctect.com and quote your QACC reference number.

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