Tax deductibility of IR35 insurance, Jury service policies, etc

[jamesbrown]

Is it? If you treat income from a contract caught by IR35 without operating deemed payments etc. and just taking dividends instead, who owes what? Surely it's the individual who owes income tax?

I agree with Contreras that it's a company liability. The fact that IR35 aims to look through any intermediaries in the relationship between the service provider and the end-client is neither here nor there. The question concerns whether the company is correctly operating payments in light of the status of a particular contract. However, as I said above, I don't think IR35 insurance (or any other professional fee/tax liability protection insurance) is allowable.

[TheCyclingProgrammer]

I agree with Contreras that it's a company liability. The fact that IR35 aims to look through any intermediaries in the relationship between the service provider and the end-client is neither here nor there. The question concerns whether the company is correctly operating payments in light of the status of a particular contract. However, as I said above, I don't think IR35 insurance (or any other professional fee/tax liability protection insurance) is allowable.

I was wrong. See above edit.

I think the link you posted needs to be considered but I'm not sure it automatically makes IR35 insurance premiums not allowable. It says that insurance cover for investigation fees are allowable if the underlying fees themselves would have been allowable.

It then goes on to say it would only be allowable unless an enquiry reveals inaccuracies and liabilities for the given tax year and if you've been careless/deliberate.

How on earth could you evaluate whether or not the premiums are allowable on the basis of the above before any enquiry has even been opened?

That aside, if you're taking reasonable steps to ensure IR35 compliance (e.g. contract and working practice reviews) and have the insurance just in case then I'd say it was allowable as I think HMRC would be hard pressed to say you've been careless.

If on the other hand all your gigs are inside IR35 and you're just ignoring IR35 and hoping your insurance will save you, then I'd say it isn't allowable.

[jamesbrown]

How on earth could you evaluate whether or not the premiums are allowable on the basis of the above before any enquiry has even been opened?

In my interpretation, this is the relevant part:

"Furthermore it is not possible to apportion the premiums since it is impossible to identify a part that has been incurred wholly and exclusively for the purposes of the trade or profession. The cost remains disallowable even if the taxpayer makes no claim under the policy or only claims expenses that are allowable. This is because the premiums cover some risks where the related costs are not allowable for tax purposes."

[TheCyclingProgrammer]

In my interpretation, this is the relevant part:

"Furthermore it is not possible to apportion the premiums since it is impossible to identify a part that has been incurred wholly and exclusively for the purposes of the trade or profession. The cost remains disallowable even if the taxpayer makes no claim under the policy or only claims expenses that are allowable. This is because the premiums cover some risks where the related costs are not allowable for tax purposes."

Sure, but this is also relevant (emphasis mine):

Where the fee protection policy entitles the policyholder to claim (amongst other risks covered) for the cost of accountancy fees incurred in negotiating additional tax liabilities resulting from careless or deliberate inaccuracies, the premiums paid on the policy are not allowable deductions from trading income.

Can you always say an IR35 investigation comes around due to you being careless or deliberately inaccurate? Surely it depends on whether you've done your due diligence or not?

[jamesbrown]

Can you always say an IR35 investigation comes around due to you being careless or deliberately inaccurate? Surely it depends on whether you've done your due diligence or not?

But it doesn't need to be always the case, because the insurance covers liabilities where it can be the case, i.e. "risks where the related costs are not allowable".

That's my take. However, I fully accept that it's debatable, and there has been some debate in past threads here. Perhaps there are some accountants that want to offer their opinions...

[malvolio]

Of course, if you're a PCG member, call the Tax Helpline and ask the proper experts.

Just a thought...

[jamesbrown]

Of course, if you're a PCG member, call the Tax Helpline and ask the proper experts.

Just a thought...

Nah, idle speculation is more fun.

[7specialgems]

PCG membership is not a BIK precisely because without the company you wouldn't need it so the company can pay for it.

I guess that this is the dogma that this post is attempting to challenge.

Let's look at what benefits (deliberately chosen word) that the membership offers you [My interpretation of who benefits]:

1) A specialist to defend you in a tax investigation at no cost [INDIVDUAL BENEFIT? Who is "you"? ]
2) Free tax and legal helplines [INDIVIDUAL BENEFIT?]
3) Debt recovery: special member rate [COMPANY BENEFIT]

4) Toolkits with business templates, client contracts and more [COMPANY BENEFIT]
5) New and guidance on changes that affect you [COMPANY BENEFIT]
6) Extensive networking [ARGUABLY BOTH?]
7) Free use of seven working areas in London [COMPANY BENEFIT]
8) A specialist to represent you at HMRC compliance checks [ARGUABLY BOTH? Which checks?]
9) Up to £10k for failed payments [COMPANY BENEFIT]
10) Up to £5k for Jury service [ARGUABLY BOTH? Who gets the payout?]
11) Up to £2k if you're off work ill [ARGUABLY BOTH? Who gets the payout?]
12) Up to £1k if the Agency breaks the contract [COMPANY BENEFIT]
13) Up to £500 per day for Tax compliance meetings [ARGUABLY BOTH? Which entity are they interested in?]

At a glance, these benefits doesn't appear to be "wholly, exclusively" for the business. Perhaps the CTax and BIk status of the expense hinges on an interpretation of whether or not any personal benefit was incidental? (http://www.hmrc.gov.uk/manuals/bimmanual/bim37400.htm)

As for "without the company, you wouldn't need it". Well, arguably, being a PSC, I am the company, so this defence seems tautologic to me, hence the original question and my attempt to determine if BIK is payable.

IMO I have the product because I am the practicing consultant in a one man band and I am every bit as interested in the company's income being protected as I am that I personally am not hassled by Hector.

If I was the business owner and had a fleet of employed consultants who worked for me (maybe one day), I don't think I'd have this product (and nor would they, they'd probably join a trade union) and I expect my contracts would be structured very differently as I doubt my consultants would be individually interviewed?

It is MyCo that holds the contract and needs the assurance, so MyCo can damned well pay for it as a legitimate business expense.

Isn't PCG in your personal name? I know that the company name is recorded in the meta data but I am fairly sure (correct me if I am wrong) that it is the individual who the letters are addressed to?

[7specialgems]

Nah, idle speculation is more fun.

If they base it on what we are, it is probably equally as idle.

It'd be great to capture the view of any accountants that post here. Don't we also have a QDos chap that posts regularly too? I'd be interested if they would be prepared to put their neck on the block and give their take on it too.

[TheFaQQer]

1) A specialist to defend you in a tax investigation at no cost [INDIVDUAL BENEFIT? Who is "you"? ]

Tax investigation covers PAYE and VAT so are business related, plus any check into business records. It includes IR35 but even if you accept IR35 as a personal thing (and I don't agree with that view), there are significant business benefits.

2) Free tax and legal helplines [INDIVIDUAL BENEFIT?]

If you use them to ask personal questions, then HMRC could argue that they are personal. The only time I've used the legal helpline was to ask about opting out of the agency regulations and a contract term that I wasn't sure of. Those are business benefits, not personal.

10) Up to £5k for Jury service [ARGUABLY BOTH? Who gets the payout?]
11) Up to £2k if you're off work ill [ARGUABLY BOTH? Who gets the payout?

They are benefits to the business of any named personnel not being able to work.

13) Up to £500 per day for Tax compliance meetings [ARGUABLY BOTH? Which entity are they interested in?]

If it's a business investigation, then it protects the business. If it's a personal enquiry which means that you have to take time away from running your business, then it's a business benefit to help recover those costs.

If you want to put it down as a BIK, I don't think HMRC would argue the point with you. I don't class it as a personal expense, though, so I don't declare it as a benefit in kind.