Evaluation of the associated legislation framework for Personal Service Companies (PSC)

Taxation system contributes to the efficient working of an economy.With the help of well-formulated tax structure and laws, the government would be able to generate revenue from tax, which would serve the major projects of the country such as healthcare, education transportation or any other requirement of the country to fulfill. The government of the state wants to collect taxes from all the liable sources without any concealment and evasion, which is why they make efficient laws and tax structures that could readily enable them to look into the taxation system efficiently and make sure that all the sectors of the economy are contributing towards paying tax by following the rules and laws imposed on them.

Some of the entities are always reluctant to pay taxes and they avoid following the correct payment mechanism as much as possible. Moreover, the government and tax collecting authorities have made several check and balance mechanisms in order to achieve the maximum satisfaction level of collecting taxes,and they always strive to implement such laws and regulations that make the tax implementation and acquisition mechanism more appropriate.

Associated legislation framework for personal service companies, which is known as IR35,covers the aspect of tax avoidance as specific to those contractors and service providers, who provide different services to the clients being in the capacity of the company rather than classifying themselves as employees and becoming liable for different types of taxes. Moreover, it helps tackle the avoidance of tax issues and insurance contributions by using intermediaries or partnerships.

The government aims to collect revenues from those contractors having their personal companies,who hide or use their company to avoid tax Moreover, the government does not demote the formulation and execution of service companies,however, its intention is to remove or prevent any possible advantages that the person might get while providing services through personal companies.

The definition of personal service company is not clear as ithas allowed several practicing individuals to take advantage of this term while dealing with their tax issues, however there is a need to understand the definition perfectly and when to apply IR35 rules effectively so that it might not bring adverse consequences to those contractors that are operating fairly and that the rules of IR35 might overburden their taxes. The basic definition that is understood by tax legislators of Public Service Company is, ‘the contractor’s company that supplies professional services and he also owns major shares of the company and also involves in direction.' The point of concern is not to conceal or evade taxes that are to be paid by law and that operating in the capacity of the company would not make any difference.




The use of public service company in order to evade tax is not acceptable at any cost, however in some cases the need to form a company and work through the company becomes necessary because clients cannot afford the slightest risk by hiring any employee and the hassle that would be faced by them because of the employees and their retention expenses as well. HMRC should monitor the cases effectively and should make effective decisions to decide whether the organization comes under the ambit of IR35 or not. The rules and the changes that have been made over the years in IR35 laws have made the tax evasion strict however, the effective implementation of the law could be done by ensuring that the laws should not exploit the rights of innocent contractors..................

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