P35 and Service Company questions

P35 and Service Company questions

Didn't find your answer?

The questions on P35s re service companies have previously been:

1    Are you a service company?

2    If "Yes", have you operated the intermediaries legislation (sometimes know as IR35) of the managed Service Companies Legislation?  

For 2014 end of year reporting under RTI, according to the HMRC documentation the question is now simply:

Service company - answer:

"Yes" if you are a service company - "service company" includes a limited company, a limited liability partnership (but not a sole trader) - AND have operated the Intermediaries legislation.  Otherwise indicate "No".     (my emphasis on the "AND")

Some of my clients (as is my company) are service companies - who for various reasons do not need to apply the IR35 regulations, so would have answered "Yes" and "No" in previous years.     Apparently this year they should simply answer "No".   However, Sage payroll software simply asks the question - "Are you a service company" which would invite an incorrect answer to the intended question by HMRC if IR35 has not been applied.  

I raised a query with Sage about this but as yet have not had an response - and I don't think the software update has been issued for final RTI reporting for 2013.14. 

Has anyone else noticed this and addressed it yet?

Replies (10)

Please login or register to join the discussion.

avatar
By Wanderer
10th Mar 2014 17:23

Moneysoft phrases it as one complete question:-

Are you a service company and have operated the Intermediaries legislation (sometimes known as IR35) or the Managed Service Companies legislation?

Thanks (0)
By JCresswellTax
10th Mar 2014 17:51

The advice we received direct from HMRC was:

Answer 'Yes' if a service company AND applied IR35

Otherwise

Answer 'No'.

Its ridiculous as its clearly wrong, but this is how HMRC are saying they want the question answered.

Thanks (0)
avatar
By Huw Williams
10th Mar 2014 18:26

So no check then

If this is what HMRC want then presumably the question is pointless:

1  Did I check the rules and IR 35 applies and I applied IR35 properly - answer yes

2  Did I check the rules and IR 35 does not apply - answer no

3  Did I fail to check - answer no

4  Did I check the rules and IR 35 applies but I decided to ignore it - answer no

Thanks (1)
Replying to WhichTyler:
Euan's picture
By Euan MacLennan
11th Mar 2014 10:32

I would split (1)

Huw Williams wrote:

If this is what HMRC want then presumably the question is pointless:

1  Did I check the rules and IR 35 applies and I applied IR35 properly - answer yes

2  Did I check the rules and IR 35 does not apply - answer no

3  Did I fail to check - answer no

4  Did I check the rules and IR 35 applies but I decided to ignore it - answer no

1(a)  Did I check the rules and decide that IR 35 applies, so I applied IR35 properly and calculated the deemed payment under IR35 - answer Yes

1(b)  Did I check the rules and decide that IR 35 applies, so I calculated the actual salary required to avoid a deemed payment under IR35 - answer No.

So, in my opinion, the answer is No in every case except where you have shot yourself in the foot and ended up with an IR35 deemed payment.

Thanks (0)
By Steve Holloway
11th Mar 2014 08:21

Happy days surely?

There was originally that nagging fear that a yes and no answer would be useful in some way to HMRC in weeding out an IR35 to do list. OK, subsequently we found out from the OTS that there were some 80,000 respondents you answered this way but at least now everyone answers 'no' and sleeps happily!

Thanks (0)
avatar
By ThornyIssues
11th Mar 2014 10:21

Get it right for your clients!

he HMRC PDF about RTI and IR35 http://www.hmrc.gov.uk/rti/ir35.pdf says :-

The final FPS will include a specific question to indicate that this is a Service Company and has operated the Intermediaries legislation otherwise known as 'IR35'. Employers who have operated IR35 should answer this question positively which will then alert HMRC that the scheme falls into the special arrangements for IR35. 

This indicates to me even more strongly that HMRC only want those that are 'caught' under IR35 to complete that question. I wonder how many other accountants that fill out the RTI for their clients will realise this and effectively drop them in it? Is your PII up to date if you did?

Thanks (0)
avatar
By spuddle
11th Mar 2014 13:01

Thanks to the responders. It will be interesting to see if Sage changes the final version of the question to include the second part.  Otherwise there will be a lot of "Yes" answers when they should be "No"......

Thanks (0)
avatar
By garethgreen
27th Mar 2014 20:14

In HMRC's Basic PAYE Tools software, the question in the final submission is:

"Are you a service company that has operated the Intermediaries legislation (sometimes known as IR35) or the Managed Service Companies legislation?"

There's a ? symbol to provide help. If you click it, it says: 

"A service company who has operated the Intermediaries legislation (sometimes known as IR35).

A service company is one which is set up to supply a worker's services to a client. There is no contract between the worker and the client. The contractual arrangements are between the company and the client, either directly or via another intermediary. The company is usually under the control of the worker and it derives its income wholly or mainly from the supply of the worker's personal services.

For example: John Smith is a software engineer. John is a director and shareholder of his own company, John Smith Software Ltd.

Company A contracts with John Smith Software Ltd to use the personal services of John as a programmer. All payments are made by Company A to John Smith Software Ltd. In this example John Smith Software Ltd is a 'service company'."

 

So, this too, is ambiguous about whether they want a yes only for those companies that actually have an IR35 deemed payment or also for any service company that is satisfied IR35 does not require a deemed payment.

Thanks (0)
avatar
By dnicholson
27th Mar 2014 22:34

HMRC defined
I can't speak on Sage's behalf, but the wording comes directly from the HMRC definition of the declarations in the RTI specification. It is HMRC who define the question as it now is, not the software provider. So that's where questions about the meaning should be addressed.

Thanks (0)
avatar
By spuddle
11th Apr 2014 11:32

Update to original post

Sorry - should have updated earlier - Sage has been amended to ask the correct question as posed by HMRC.  As concluded above, all my responses will be "No". I don't see what HMRC will deduce from this but "ours in not to question why.........."

Thanks (0)