In evidence to the Public Accounts Committee, the BBC admitted that 148 of its 467 “on screen” presenters were paid through “personal service” firms rather than as ordinary employees.
Being paid in this fashion allows the employee to be taxed in part at the corporation tax rate of 21 per cent rather than pay as much as 50 per cent in income tax.
The company is taxed at the corporation tax rate: that is true. But if the employee of the company wants to take out a wage then normal income tax and NI is charged. And the profit upon which the company is paying corporation tax reduced, of course.
If the owner of the company (obviously, usually the same as the employee) takes out money as a dividend then the usual higher rate tax, if the money is sufficient to put them into those bands, is charged.
In terms of income tax there is very little benefit in this services company thing.
The advantage comes from the different national insurance treatment. Dividends are not subject to either employees or employers.
There are others: being able to wind up the company and distribute capital with no taxation. Income splitting, timing of income.
But the one thing that everyone says about service companies, that they provide large savings on income tax, is the one thing that they don\’t really do.