An approach highlighted recently by the HM Revenue and Customs (HMRC) uses PSC's dividend levels as a tool to pinpoint individuals for further investigation under the IR35 legislation.
The year-end tax records showcasing total dividend levels will allow HMRC to quickly and easily pinpoint PSC's at high risk, which will in turn put individuals under the radar for further HMRC investigations.
In front of the House of Lords' Personal Service Companies Select Committee, Jason Piper from the Association of Chartered Certified Accountants claimed to be independently aware of HMRC's method of analysing PSC's dividend levels - then dividing this level by the number of shareholders to highlight high risk individuals. Patrick Stevens, Director of the Charted Institute of Taxation supported this industry logic when speaking to the Committee. He claimed that it will become compulsory for PSC's to provide “the total dividends and salary withdrawn in the near future.
So what key features of PSC dividend levels would place individuals under the scrutiny of an IR35 investigation? Individuals who operate as the sole director, with low expenses, who pay themselves a very low wage but withdraw large dividends from the company could be perceived as high risk candidates for IR35 investigations.
Although, HMRC's clamp down can be an intimidating prospect, there is nothing to fear if you, as a PSC, are confident you operate outside of IR35.
How can PayStream help?
It is important to work with a compliant and trustworthy accountancy provider, such as PayStream. PayStream can provide you with a free tailored IR35 review, which will guide and advise you on your likely IR35 status. For more information please click here. We can also ensure your tax records are kept up to date and assist you in completing tax returns in a risk free manner.