Contracting with individuals’ own companies

If a charity contracts with and pays an individual’s UK registered limited company it would not generally have to deduct income tax and NICs, unless the charity was a Public Authority as defined in the Freedom of Information Act 2000 (FOI) or Freedom of Information Act (Scotland) 2002 (FOIS).

However, with effect from 6 April 2017, Public Sector Bodies (Public Authorities as defined in FOI and FOIS) will be required to make deductions under PAYE on payments to limited companies where they are supplying individuals providing personal services, and were it not for the limited company, the individual would be on payroll.

If the charity is not listed in FOI or FOIS, it needs to ensure that the contract for services is also with the company. It should be noted that in some circumstances the individual’s company will have to account for income tax and NICs under the IR 35 regulations; but this is an issue for the service company not for the charity.

However, if the company is engaged as a corporate director or other office holder of the charity and the individual performs that role it is likely that the individual will be considered to be the office holder and therefore income tax and NICs will have to be deducted by the charity as HMRC will look through the limited company.

For more information on changes to IR35 regulations, read Susan Ball’s commentary piece here.

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