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See also Personal Service Companies, Deadlines, Employment Status, Directors Pay.

Complying with IR35, if you accept that it applies to your circumstances, means complying with a tight time table.

Complex cases
IR35 can apply to some of the activities of a partnership or company, but will often apply to all the activities of a Personal Service Company (PSC).  In all cases we consider that the only practical way to deal with the regulations is to calculate the deemed salary on every occasion that income arises.

We can assist with the calculations, and generally prefer to do so by e-mail using an Excel workbook attachment.

Single activity PSC
Because most of the income has to be paid out as salary, a company with no other income is likely to have small reserves and therefore cash flow problems.  These may have to be funded by undrawn remuneration.  This should be taken into account in the early months of the company's activities, and well before the end of the first tax year at 5 April.

Most single activity PSCs will have a 31 March year end and the Excel workbook can become the business records, incorporating sheets for debtors and bank transactions.  For accounting purposes, turnover should reflect the full value of work done, whether or not this has been invoiced or receive.  "Employees" typically receive payment every month, but a PSC may find that it is giving credit, despite being treated as an "employee".

Calculation
We will discuss the individual circumstances of any client, but a typical calculation (using estimated round figures) might be as follows -

Only expenses which would qualify for s198 relief as an employee can be included in the calculation.  It is most tax efficient for the whole of any pension contribution to be a liability of the employer.  The employee can be paid his/her expenses with his/her net salary when available funds allow.

NI
The employee will normally be a director and therefore subject to an annual earnings period.  This can result in small NI contributions at the beginning of the tax year until the minimum earnings threshold (£4,535 for 2001/02, £4,615 for 2002/03) is reached, then unusually high contributions until the maximum threshold (£29,900 for 2001/02, £30,420 for 2002/03) is reached, then employer only contributions.  This unusual pattern of contributions can cause cash flow problems unless planned for.

Timing
Employer pension contributions must be received by the pension provider by the 19 of each month following deduction.  PAYE and NI remittances are due by the 19 of each month in respect of pay to the 5 of the same month.

This is particularly important at the end of the financial and fiscal year.  Unless we have maintained the records regularly throughout the year and are advised of the final invoice amounts on 1 April, we will take no responsibility for providing figures in time to comply with these deadlines.

Fees
Our annual fees for a single employee PSC, including Statutory Accounts and Corporation Tax Return can be as low as £350 including VAT if we receive all the information we require without unnecessary reminders.  We charge separately from £100 including VAT for preparing the employee/directors personal Tax Return.  We can organise and assist with the formation of a Limited Company for £200 including VAT.

Profit
The overheads of the company, including Annual Return and accountancy fees, must be kept within the 5% "overhead" allowance over the life of the company, otherwise the company will become insolvent.  If the overheads are kept within that limit, the resulting profit can be distributed as a dividend, or as a capital distribution subject to taper relief on the winding up of the company.

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