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The working practice between HM Revenue & Customs and its CIO has been criticised for bearing the hallmarks of a 'Friday to Monday' scenario - the main reason its officials introduced IR35. Deepak Singh was on the Revenue's payroll for three years as chief information officer until his employment ended in June 2009, at which point he stayed on by becoming a contractor. Using a personal service company, Orwell Consulting Ltd, Singh took a three month-contract doing the same job for nearly £50,000 a month, equating to almost as much as his annual salary was. The Revenue's accounts state: "For the period 19 June 2009 to 18 September 2009, £149,5000 was paid to Orwell Consulting Ltd for the services of Deepak Singh (a director of that company) who held the position of Acting CIO." Under that arrangement, Singh could pay himself in dividends, excluding him from National Insurance Contributions, thereby reducing his tax burden, and reducing overheads for HMRC. This structure, of using a limited company, could make the 46-year-old liable for corporation tax, standing at 28%, as opposed to the less favourable income tax rate, standing at 40%. "The Revenue had for some time been concerned about the hiring of individuals through their own service companies, so as to exploit the ‘fiscal advantages offered by a corporate structure’", said Seb Maley of IR35 experts Qdos Consulting, explaining why IR35 was introduced. "Employees were being handed their P45 on a Friday only to return to the workplace on the following Monday to do exactly the same job but, hey presto, as a contractor this time." "Consequently the contractor could now pay themselves dividends and, by so doing, avoid NIC [for both employer and worker] and reduce the [overall] tax burden." However, it is yet to be seen if either the Revenue or Singh will realise the tax advantage, given that he does not have to file the corresponding tax return until January next year. At present, the Revenue accounts show it made a "third party payment for [the services of a senior manager," yet its officials have reportedly stressed that no tax would be avoided as a result of the arrangement. A former tax inspector told CUK in a statement: "The circumstances here appear to be a so-called 'Friday to Monday' (employee on Friday - limited company supplier on Monday) scenario, which was the main reason for the introduction of IR35 by the tax authority in the first place." Jul 27, 2010 Email this article Printer friendly page Previous Page
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