Service Companies question in 2011 Personal Tax Assessment

[geoffreywhereveryoumaybe]

Any advice on whether this should be completed?

I do not feel that I should complete the Service Companies box question.

According to the guidance in TRG 21 and the service companies question link that you attached, I would not agree that:

"the services were provided under a contract between the client(s) and a company of which you were, at any time during the tax year, a shareholder;"

Any services that I provide for clients are provided under a contract between the clients and an intermediary company and not directly between my company and the end-client


Admin note: sorry to muscle in on your post but since the topic moves on to other things wanted to flag up some recent articles on CUK:
P35: What is a service company
Contractors can leave blank P35's service company

[SueEllen]

You have just answered your own question then.


BTW my accountant has always answered no to that question.

[Hex]

Any advice on whether this should be completed?

I do not feel that I should complete the Service Companies box question.

According to the guidance in TRG 21 and the service companies question link that you attached, I would not agree that:

"the services were provided under a contract between the client(s) and a company of which you were, at any time during the tax year, a shareholder;"

Any services that I provide for clients are provided under a contract between the clients and an intermediary company and not directly between my company and the end-client

Your client is the agency if you are working via an agency. Your client is whoever your Ltd has a contract with.

[Craig@Clarity]

My thought is that if you're providing services to a client from your personal service company (generally accepted as a company where you would be the contractor, director and main shareholder) you need to complete the service companies question even though there is lack of clarity from HMRC on what is a personal service company. If you've filed your P35 and ticked yes to the question "are you a service company", then you'll need to complete the service companies question on your tax return otherwise there will be discrepancies.....

[geoffreywhereveryoumaybe]

P35?

My thought is that if you're providing services to a client from your personal service company (generally accepted as a company where you would be the contractor, director and main shareholder) you need to complete the service companies question even though there is lack of clarity from HMRC on what is a personal service company. If you've filed your P35 and ticked yes to the question "are you a service company", then you'll need to complete the service companies question on your tax return otherwise there will be discrepancies.....

Thanks for the reply (and to the others)

I don't know what a P35 is - it may be something my accountant does for me?

[Craig@Clarity]

Thanks for the reply (and to the others)

I don't know what a P35 is - it may be something my accountant does for me?

It's the employer's annual return that was due to be filed by 19 May telling HMRC who the employees are, what salary was paid amongst others things. Assuming you have a PAYE scheme for the company for the last tax year, they should have filed one for you. It's normally filed at the same time a P60 is produced for you.

[centurian]

While it is tempting to simply reply 'No' under the basis of "what's the worst they can do", it will probably be sufficient justification for them to apply the full 100% penalty - they will no doubt claim this meets the "delibrate and concealed" element

Not saying whether people should answer 'Yes' or 'No', but just pointing out that if HMRC do investigate and find a case for any back taxes under IR35 (and can make it stick), you've probably handed them the 100% penalty on a plate if you said 'No'.

[ratewhore]

While it is tempting to simply reply 'No' under the basis of "what's the worst they can do", it will probably be sufficient justification for them to apply the full 100% penalty - they will no doubt claim this meets the "delibrate and concealed" element

Not saying whether people should answer 'Yes' or 'No', but just pointing out that if HMRC do investigate and find a case for any back taxes under IR35 (and can make it stick), you've probably handed them the 100% penalty on a plate if you said 'No'.

Doubt it, considering there is no legal definition of 'service company'.

IMHO of course...

[centurian]

Ah, but they don't have to go to court to simply apply the penalty. It's decided on the whim of the tax inspector - and if you hand him/her the excuse gift wrapped with a bow, they're gonna take it.

Sure, it needs to stand up in court if they want to enforce it, but not to a criminal standard. So many times - people think that HMRC need to "prove" their case. Tax avoidance is settled by civil courts under "balance of probabilities", which basically means their story needs to be more believable than yours to win.


The point is, ticking the box means
a) A slightly elevated risk of being investigated (that's why they ask the question)
b) Less chance of a 100% penalty

Not ticking the box means
a) No change in the risk of being investigated
b) A slightly elevated risk of getting a 100% penalty - and having it stick

There is no zero-risk option - it's up to people to decide where to shift the risk.

[Taxless]

This is a BIG question with potentially BIG consequences and there is no element of choice in how you answer the question.

If MSC is in point you answer "Yes", otherwise you answer "No".

If, having fully considered the position, you are confident that the correct answer is "No", then you should fully document the reasoning behind this conclusion in a Company Minute. If you simply answer "No" and subsequently HMRC ask the question, you are potentially facing a penalty under the new "behaviour based" penalty regime.

Without any documentation to back up your decison it will be much more difficult to convince HMRC tht you did give considered thought to your answer. On that basis, HMRC will argue tht you did not take sufficient care to get your tax affairs correct and so if a penalty is imposed, it is much more likely to be at the higher end of the scale (0% - 100%).

You should NEVER be tempted to produce any backdatd documentation.

With a fully thought out decision making process documented in a Company Minute, even if you got it wrong, at least you did your best and any penalty will be that much lower, or even extinguished with a bit of reasoned argument.

This is a complex area with possible disastrous consequences if you get it wrong. I would strongly recommend that you discuss the postion with your accountant. You could ask him to review the whole MSC position in relation to your unique circumstances and ask for an opinion.

This will inevitably involve a fee, but would be money well spent.