The Service Company Question on Form P35

Newsletter issue - May 08.

The end of year PAYE form P35 to report the total NI and tax deducted from each employee in 2007/08 has to be submitted by 19 May 2008, but this year it includes a rather confusing question in part 3 of the form. Question 6 says:

• Are you a service company? No or Yes
• If 'yes', have you operated the Intermediaries legislation (sometimes known as IR35) or the Managed Service Company Legislation?

The note below question 6 directs you to read Taxman's leaflet CWG2 for further information, but this is actually the wrong booklet, so you won't find the answer there! The Taxman has now apologised for the confusion and added some further explanation to his web site at:

http://www.hmrc.gov.uk/employers/2007-08-P35-Quest-6.htm

Essentially you should only answer 'yes' to the first part of question 6 if your business falls within the IR35 rules, or the new Managed Service Company rules. This will apply to a relatively small number of owner-managed businesses that supply the services of the shareholders to customers, under conditions where the worker would be treated as an employee of the customer if the owner-managed business did not exist. All other businesses should answer 'no'. If you are not certain whether question 6 applies to your business, talk it through with us before submitting your form P35 for 2007/08.