In accordance to new advice put forward this year by HMRC, contractors who operate through their own contractor limited company must now complete a P35 Employer Annual Return for submission to Revenue and Customs by 19th May of this year, or be faced with an automatic penalty.

The new advice (on page 18 of HMRC’s Employer Helpbook E10) serves as an amendment to the new question 6 that was introduced last year, which asks ‘Are you a Service Company?’, to which the contractor is advised to answer ‘yes’ if:

• “An individual performed services (intellectual, manual or a mixture of the two) for a client or clients, and
• The services were provided under a contract between the client and the company of which, at any time during the tax year, the individual performing the services was a shareholder or partner, and
• The company’s income was, at any time during the tax year, derived wholly or mainly (that is, more than half of it) from the services performed by the shareholders or partners personally.”

This would make the role of ‘service company’ applicable to largely any contractor who operate in limited companies. This may cause complications and unwanted investigations as it is likely contractors who last year ticked ‘no’ to question 6 will now tick ‘yes’, and vice-versa, which could leave potentially hundreds of thousands of contractors open to compliance checks from HMRC to ensure their contracts are outside of IR35.

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