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Accountants warn against using personal service companies

If you’re a freelancer or a contractor that uses a personal service company you might be in for a world of hurt, many accountants warn.

Contractor accountants and other financial service experts with experience in helping the self-employed reconcile their tax burden with Her Majesty’s Revenue & Customs have begun to warn of using PSCs, especially since the taxman seems so damned keen to eradicate the use of such arrangements on the grounds that they’re too easily abused when it comes to tax avoidance. For what it’s worth the warning has quite a bit of urgency behind it considering how much trouble HMRC has been stirring when it comes to contract workers using PSCs, all because a few bad apples have ruined it for the rest of us.

Honestly the controversy surrounding the use of PSCs isn’t necessarily new, but it has been renewed over the past few years – and it’s absolutely grown to epidemic proportions. The taxman has convinced itself that any contractor that uses a PSC is a dirty tax dodger, and has been strengthening regulations to root out avoidance – especially through increasing disguised employment rules through IR35 and related activities. Honestly most sane people are sick of IR35 and its depredations – and a recent consultation by the House of Lords reiterated the sentiment that IR35 is a cumbersome and over-reaching method for determining tax avoidance – but even with all the evidence to the contrary there’s little indications that disguised employment rules are going to go away any time soon.

In order to combat the issue, accountants have begun to earnestly tell their contractor clients to think twice about using a PSC if they don’t want to run aground in the razor-sharp shoals of IR35 enforcement and investigation. This is something that may be easier said than done, considering some 1.5 million business entities currently use PSCs in the UK – and a massive number of those are undoubtedly freelancers and contract workers. Still, if you’re looking to keep your nose clean when it comes to tax avoidance accusations, I can’t think of a better way to do so than avoid anything that HMRC has in its sights – and with PSCs currently on the taxman’s radar it’s not such a terrible idea.

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