P35 Employer Annual Return - Question 6 continues to cause confusion

View the previous news item for HM Revenue and Customs

1 May 2008

HMRC has apologised for the confusion caused for many employers over the wording of Question 6 in the Part 3 Checklist of the P35 Employer Annual Return. The wording of this question seems to change every year as a result of continuous changes to the Service Company and IR35 legislation.

For those employers who have not yet filed their P35, HMRC provides the following clarification:

"Question 6 is deliberately in two parts. The first question narrows those employers who need to consider whether the second question applies. If the answer to the first question is no, the answer to the second question will similarly be no.

The term service company relates to limited companies, limited liability partnerships and general partnerships within the range of the Intermediaries legislation (IR35) or the Managed Service Company legislation (Chapters 8 or 9 ITEPA, respectively).

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 (Pay As You Earn)/National Insurance (NI) deducted in accordance with the Managed Service Company or Intermediaries legislation(IR35)."

Employers who have already filed their P35 and believe that they have answered the question incorrectly do not need to amend their Return. HMRC (quote) "will not use the answers to Question 6 on the 2007-08 P35 to risk profile individual employers for a compliance review."

...UK Payroll News - Latest

Further information:
2007-08 P35: Question 6 - meaning of service company

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