Thread by @hselftax

So let’s think about the support announced by @RishiSunak and how it applies - or doesn’t- to PSCs

1/n

A PSC is a personal service company - typically with one employee who is also the director. Many “self-employed” people provide their services via a PSC, so are technically employees of the PSC. 2/n

Who uses a PSC and why? Joe the Plumber Ltd; Jane’s IT Support Ltd and so on.

Commercially their customers may prefer to deal with a limited company, but there’s also a tax angle. 3/n

Broadly, operating via a company gives a lower tax bill than operating as a self-employed trader (although the tax differences have reduced a lot in recent years). The big issue is IR35.

4/n

HMRC’s concern is that a lot of those who claim to be self-employer are really employees of their customer - so-called “disguised employment”. If the contract is via a PSC, the status of the contractor needs to be tested. 5/n

IR35 (the title of a 1999 Press Release) requires the PSC to check whether, in substance, the contract with the end customer is one of employment. If it is, the PSC is supposed to pay an extra tax charge, equivalent to applying PAYE and NICs to the contract. 6/n

But deciding employment status is complicated, so there have been many tax cases where HMRC and PSCs argue about it.

The position changed for public sector contracts a couple of years ago - the customer now has to determine the status, not the PSC. 7/n

Many NHS Trusts etc have put their contractors on the payroll - making them employees. Contractors were not happy, as this (usually) meant more tax/NIC. 8/n

And the same rules were about to apply to the private sector, but those changes have been deferred to 2021 - although a few big customers (eg banks) may have adopted these rules already. 9/n

So where does this leave Joe the Plumber Ltd and Jane’s IT Support Ltd?

It’s not good news for Joe and Jane. 10/n

Joe and Jane are not self-employed so do not benefit from the self-employed package announced today. 11/n

They are employees of their PSC, but it’s going to be difficult (impossible?) for them to be furloughed and qualify for the JRS.

So they probably get nothing. 12/n

Even if they can qualify for the JRS, they would only get money up to 80% of their salary. Many PSCs pay their owner a very small salary and the rest as dividends - the dividends will not count for support. 13/n

Yes, the structure saves Joe and Jane tax - you might think that means they shouldn’t get support. But when employees and the self-employed qualify, it seems harsh that contractors with PSCs get nothing. 14/n

(Those who moved to employment status as a result of the IR35 changes may be the lucky ones -they are more likely to qualify for the JRS) 15/n

What should the Chancellor do? In my view contractors with PSCs should get something. I’d suggest the amount paid under PAYE should qualify, for JRS or the self-employed scheme.

But I’m not sure that any extension will be forthcoming. We shall see.

16/16 ends.

@threadreaderapp unroll if you’d be so kind, please

Addendum: guidance suggests JRS should apply to PAYE amount. Good. But still a potential company law problem I believe.