HMRC's Latest IR35 Campaign is "taxing"
Since 2010 over 5700 readers of my Accountingweb article have indulged in a spot of IR35 crystal ball gazing.
The following news article has now been published by Contractor UK.
In February 20012 reports of government departments paying high-profile people through personal service companies were everywhere. The Treasury has apparently investigated how many other people who work for government departments were employing similar techniques to lower their tax bills.
HMRC’s ethical rhetoric about disguised employment is apparently hypocritical and now being exposed.
Recently, we have seen IR35 sticking plasters in relation to categorising people in controlling positions and even HMRC suggesting some pretty much absurd business tests.
Probably due to political pressure, HMRC IR35 Enquiries have now been sent out. It is assumed that this new campaign is not restricted to high-profile people.
IR35 is about assessing the employment status characteristics of hypothetical contractual arrangements between the worker and end client by striking out the personal service company acting as the contracted intermediary.
Those challenged by the latest batch of IR35 Enquiries will recall Moira Stewart’s 2008 slogan that “tax doesn’t have to be taxing”. Nothing is further from the truth. Ironically, Moira Stuart was reported in February 2012 as being paid by HMRC through a personal service company arrangement.
However, when considering a recent Upper Tribunal decision whereby ITV’s NICs appeal was quashed because entertainers where deemed as employees, tax is taxing.
So why does the tax and NICs treatment differ? The simple answer is revealed in the history of NICs regulations.
Generally, where Class 1 NICs are paid, the employee who has paid those contributions may be entitled to a wider range of state welfare benefits, such as Jobseekers Allowance, which are not available to self-employed people paying other classes of NICs.
Most performers/artistes in the entertainment sector are engaged under contracts for services and would generally be assessable to tax as self-employed under Schedule D. However, it was acknowledged that to follow this line for NIC purposes would mean that the majority of entertainers who had previously paid Class 1 NICs would only be liable for Class 2 and Class 4 NICs which would not entitle them to welfare benefits.
The NICs treatment of individuals who are entertainers is different from that which applies for tax. This is amplified in the case of ITV Services Ltd v HMRC FTC/12/2011 [2012] UKUT 47 (TCC); the Upper Tribunal decision was released 7th February 2012. This was just at the time of the breaking news about Moira Stewart.
In essence the payments by ITV to actors were computed in various ways under various types of contract were deemed as “salary” as defined in the NICs legislation.
HMRC had determined that certain entertainers engaged by ITV should have been treated as being in employed earner’s employment for NICs purposes and that ITV is to be treated as liable to pay secondary Class 1 NICs in respect of the payments it makes to those entertainers.
The NICs “Categories of earners” legislation deems many different ‘classifications’ that may otherwise be self-employed for tax purposes. When considering the characterisation of payments, from the outset of the contract, ITV entertainers were considered to be caught by this NICs legislation.
Now what if they had had their own personal service companies, and the arrangements were not caught by IR35.
The legislation appears to be contradictory and absurd, please contact Tax Networks Ltd for advice.
