In recent days, IR35 has come back into the spotlight after a legal case was concluded involving a former BBC presenter and clients should urgently review their service company structure. If a change is required, clients should consider a solvent winding up (a members’ voluntary liquidation) to enable the shareholders to withdraw their funds in a tax efficient way.The recent case, involving former Look North newsreader Christa Ackroyd, leaves the television presenter with a £419,000 tax bill made up of PAYE and National Insurance after being required by the BBC to invoice for her services through a personal service companies.

Despite Ms Ackroyd having no rights to sick pay, holiday pay or other common employment rights from the BBC, the failure of the self-employed status of Ms Ackroyd was partly due to her final contract with the BBC being for seven years and that it amounted to “what was effectively a full time job” which the Tax Tribunal in Leeds deemed “was pursuant to a highly stable, regular and continuous arrangement. It involved a high degree of continuity rather than a succession of short term engagements. That is a pointer towards an employment contract.”

Other common lines of attack used by HMRC against personal service companies include reviewing:

  • “Right Of Substitution” clauses which provide for the service company to provide a substitute somebody else in case the main contact is not available. However, in practice many personal service companies do not have any other directors or employees who are suitably experienced or qualified to carry out the role.
  • If an individual works on a number of different projects, but also is retained to work on other tasks in between specific projects within the same business, this will suggest that the person is actually employed by the business, rather than engaged in a freelance capacity (despite what any contract says).
  • Mutuality of Obligation is a terms used where a contract, which may have begun on a project-by-project basis, is extended, perhaps annually, without any regard to the specific projects in mind. This suggests that both parties expect there to be an obligation on the other – on the individual to be available for work and for the business to provide the work. This is one of the most significant clauses that tax tribunals will consider when they decide whether an individual is actually employed by a business.

HMRC have indicated that further wide-scale investigations will follow into organisations that engage many individuals through personal service companies. High-risk sectors include the NHS and other healthcare organisations, the offshore industry and the banking and finance industry.

If you have any clients that are concerned and would like to discuss their situation, please contact Leading Corporate Recovery:

Jamie Playford – 07739 277275 – jamie.playford@beta.leading.uk.com

Kelly Goodman – 0800 246 1845 – kelly.goodman@beta.leading.uk.com

 

Notes for editors:

Leading Corporate Recovery is East Anglia’s fastest-growing insolvency and business recovery practice, providing insolvency, restructuring and strategic advice to businesses and individuals nationwide, from offices in East Anglia, the Midlands and London.