Director invoicing through personal services company

Director invoicing through personal services...

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I have a new Ltd Co client who has a contractor working in the office invoicing through her personal services company (PSC).  She has now become a Director.  As a Director she is automatically an employee, although she does not receive a salary, she just invoices for work done through her company - she has carried on in the same way as before she was a Director.

She is basically trying to find new business for my client and I believe she has other work in her company too, although I do not act for the Director/PSC and she bears her own IR35 risk.

To protect my client I will recommend that any contract is robust so the PSC is bearing IR35 risk/NI costs.  They should make sure that she chooses her hours, place of work etc and uses her own computer and I have also advised that maybe she should be paid on a commission basis rather than a fixed fee for sourcing the new business.

However since she is a Director then should she just be on the payroll in the first place?  If this is the only way forward now she is a Director then I will advise the client and they will have to bear the e'er NI and the Director will have to bear her e'ee NI.

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By Accountax
08th Dec 2014 12:11

Split contracts are the way to go

This is a common issue since the changes to the IR35 rules brought directors and office holders into the tax/NIC charge automatically.  The issue is that if there is a single contract covering all of the services provided then all of the remuneration is caught by IR35.  This is a problem where the individual acts both as a director/office holder and a consultant under a single contract.

The way to avoid having all of the income caught by IR35 is to create two contracts one for the directorship and one for the consultancy.  Because this splits the duties the arrangement is commonly termed as split contracts.  It will only work where it can be shown that there is clear blue water between the duties of the directorship and those of the consultancy.

If you would like further advice on setting up split contracts or on drafting the required director's service agreement and consultancy contracts I'd be happy to help.

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