Company A is a start-up with a sole director who runs a consulting firm specializing in accounting and business consulting. Currently, there is one client for Company A, and it is highly likely that more than 80% of its income will be earned from this client. At the end of the financial year, should this income be taxed at the company tax rate or the individual tax rate, considering the company is run by a sole director?
Step 1: PSI Income
- Have you received PSI? Yes, go to Step 2.
Step 2: The Result Test
- Being paid for a specific result: Yes
- Providing own equipment: Yes
- Rectify mistakes at your own expense: Yes
- (Selling materials or equipment is not PSI.)
75% of all three conditions for 75% of the income you earned, you pass. PSI does not apply.
Step 3: 80/20 Rule
- Less than 80% income from one company: Not pass.
Step 4: The Remaining Tests
- Unrelated clients: Pass
- Employment test: Pass
- Business premises test: Pass
- The company promotes the business to the public and advertises on social media platforms and collaborates with other companies.
In conclusion, I passed Step 2 and Step 4, but did not pass Step 3. I am confused about whether Company A should pay using the individual tax bracket or the company tax rate.
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