12 Aug 2015 10:33 AM

Like an itch that just won’t go away, HMRC can’t resist scratching at the rules around personal service companies to try and make them better.

The latest missive is in the form of the discussion document released last month welcoming stakeholders’ views on how the rules might be changed. This is on top of the changes to dividend taxation.

HMRC’s concerns are that the rules around personal service companies (PSCs) allow individuals to provide their services to an ‘employer’ through the medium of a limited company and pay less tax than if they were directly on the payroll. And they think this is not fair. The problem is that each contract a PSC has with an employee must be analysed to determine whether or not it really is an employee/employer relationship and if so, it is up to the PSC to self assess and pay over tax and NIC’s. Of the 100,000 or so such assessments HMRC expected, only 10,000 were made by PSCs.

The suggestion now being made in the discussion document is to shift the burden of compliance to the ‘employer’ or ‘engagers’ as HMRC describes them.

This is undoubtedly an enormous burden for the engagers and could result in many unfair outcomes on PSCs, leaving them to face higher tax bills with no recourse to appeal.

Comments are requested by the end of September after which HMRC may enter into a formal consultation.

If you need advice, or have any questions, please get in touch.

Read the full HMRC discussion document here