Contractors with company income generated under an agency contact - I haven’t seen this point raised anywhere else, so this is something to think about……

Chapter 7 S44-47 ITEPA 2003 (The Agency Legislation)

One of the qualifying conditions is that;
‘the legislation will only apply when remuneration is received by the worker as a consequence of providing the services. Therefore dividends paid to the worker as a genuine consequence of their shareholding in the PSC will not normally fall within the new Agency legislation.

Genuine dividends from the PSC would not normally be considered to be remuneration for the purposes of the Agency legislation. However in cases of avoidance there may be instances where HMRC argue that these payments are remuneration either as general earnings or as remuneration for the purposes of the Agency legislation.’

This little known publication from 2014, served as a warning that if a contractor is involved in any tax avoidance enquiry, HMRC could ‘look through’ dividends paid, and although the salary payment will fall outside agency legislation, the part of the company income generated under an agency contract which was treated as dividend may not.

If the enquiry is under IR35, then as agency legislation supercedes the intermediaries’ legislation, this could make IR35 insurance policies useless, however, it could also give rise to an argument that HMRC should consider agency legislation instead, which can leave the PAYE debt with the agency, particularly if the conditions under a specific Targeted Anti Avoidance Rule are met.