Risks: Failure to withold tax when paying a personal service company
Individuals may wish to be classed as employed by their own company which in turn contracts with the University to minimise their employment taxes liability. For example, company director-shareholders may pay themselves with dividends, which are not subject to NIC and attract lower rates of income tax, rather than salary. Categorising individuals contracting via PSCs as employed by the PSC rather than the University also reduces the University’s employment taxes burden as no employer’s NIC is due by the University.
If the individual, or the University, evades tax or National Insurance and was enabled to do so because the University’s processes, which would have identified that tax should have been withheld at source, were not followed, the University could have committed the corporate criminal offence.
Any time an individual provides services for the University through a PSC or other intermediary, the nature of the relationship must be assessed for that piece of work; this includes new contracts, contract extensions and renewals. The University must make the correct assessment and, if appropriate, withhold employment taxes when paying the individual. Under IR35 intermediaries legislation, where individuals would be employed by the University were it not for the PSC or other intermediary that they work through they pay employment taxes in a similar way to employees.
MORE INFORMATION ON PERSONAL SERVICE COMPANIES