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HMRC have responded to concerns about question 6 relating to service companies on this year's form P35 employers annual return.
They say that it has caused considerable confusion, and apologise for that.
Following the introduction of the managed service company legislation with effect from April 2007, HMRC explain that it was necessary to change the question on the P35 so that it related both to the managed service company legislation and to the intermediaries legislation (IR35).
See Rebecca Cave's article Especially for you for full consideration of this matter.
Given the confusion the question has caused, HMRC say they 'will not use the answers to question 6 on the 2007-08 P35 to risk profile individual employers for a compliance review'.
Employers who have already submitted their P35 who think that they may have completed question 6 incorrectly, do not need to amend it. Those who have not yet submitted their P35, should complete the question in light of the following guidance.
HMRC explain that the term 'service company' relates to limited companies, limited liability partnerships and general partnerships within the range of the intermediaries legislation or the managed service company legislation.
The first question should be answered yes if:
- an individual personally performs services for a client and the services are provided not under a contract directly between the client and the worker but under arrangements involving the limited company, limited liability partnership or general partnership (the service company)
- the limited company, limited liability partnership or general partnership's (the service company) business consists wholly or mainly of providing the services of individuals to clients
The second question should only be answered 'yes' if income has been treated as deemed employment income and PAYE/National Insurance deducted in accordance with the relevant legislation.
If the answer to the first part of the question is no, the answer to the second part will similarly be no.
