P35 Question 6

[Ruprect]

Fine - so answer yes to the question as stated. You will, of course, have applied the rules and determined that there is no tax to pay since you are not in their scope...

Of course, Hector is more likely to think that if you said Yes, you should have paid some tax as a result, so let's have an aspect enquiry...

Is this as close as the PCG gets to advising "no/no"?

[malvolio]

Is this as close as the PCG gets to advising "no/no"?

No, that was strictly my opinion, and was supposed to be ironic.

PCG aren't advising anything, nor can they.

[GreenerGrass]

Spoke to my accountants about this and they are advocating a "No, No" as I have a right of substitution in my contract.

Presumably for those in this boat their personal tax return will have to be consistent with this, in assuming no dividend income has come from a "personal service company".

[chris79]

I did mine tonight online and ticked no/no. The f**kers can come and investigate me for all I care, they need to have more clarity in their questions if they expect black and white answers.

Ambiguity is a word which springs to mind when it comes to HMRC.

[THEPUMA]

extract from the ICAEW website http://www.icaew.com/index.cfm?route=157095.

In summary, answer no no unless you are caught by IR35 or the MSC legislation.

Form P35 question 6 on service companies
Clarification being sought from HMRC

Question 6 on HMRC employer end-of-year form P35 for 2008 asks:

• ‘Are you are a Service Company?’
and then:
• ‘If “yes”, have you operated the Intermediaries legislation (sometimes known as IR35) or the Managed Service Companies legislation?’.

As the meaning of ‘Service Company’ is not readily apparent from HMRC’s guidance in booklet CWG2 (to which P35 refers) or Helpbook E10, we have been trying to obtain clarification for employers.

On 4 April 2008, we wrote to HMRC asking whether they would agree with our interpretation of the meaning of ‘Service Company’ based on their guidance. After some discussion, on 14 April HMRC sent us draft supplementary guidance with an invitation to comment. The text of our response, submitted on 15 April, is published as TAXREP 29/08.

In our response we have referred to the widespread uncertainty that has arisen and pointed out that we are now well within the period in which employers are filing their end-of-year returns P35.

We:
• recommended that HMRC should not publish the supplementary draft guidance as it stood;
• requested confirmation that HMRC will not use the answers to Question 6 this year, that there will be no adverse consequences for those who respond however they answer the two parts of the question (for example, the replies will be ignored for risk profiling purposes) and that employers who have already filed should not be obliged to amend their returns in the light of subsequent guidance; and
• asked HMRC to undertake to consult in good time on the wording of both the questions and the guidance for next year (so that the wording of next year’s questions and guidance reflect whatever it is HMRC wants to know).

In addition, we asked that HMRC should, as a matter of urgency, notify all employers to this effect and say sorry for the confusion.

We are delighted that HMRC have told us that they intend to publish a statement shortly to the above effect.

In the meantime, our analysis is that you should answer ‘no’ to the first question in Q6 unless you are:

• a personal service entity (IR35) within the terms of Chapter 8 – Application of Provisions to Workers Under Arrangements Made by Intermediaries – of Part 2, ITEPA 2003. The engagements to which Chapter 8 applies are set out in section 49 ITEPA;
or:
• a managed service company within the terms of Chapter 9 – Managed Service Companies – of Part 2, ITEPA. The meaning of ‘managed service company’ is set out in section 61B ITEPA.

If you have answered ‘no’ to the first question, then the answer to the second is unnecessary.

If you are applying the IR35 intermediaries legislation or running managed service companies then you are likely to be able to work out quite easily that you should answer ‘yes’ to both questions.

We have also written to HMRC raising similar concerns in relation to the service company question on page TR4 of the 2007/08 SA tax return. We expect to be able to publish a response shortly.

18 April 2008

[Pondlife]

Excellent post Mr Puma.

Many thanks for digging it up.

[Sockpuppet]

I went No/No.

Dr Pepper accounting I like to call it. Whats the worst that could happen.

[moorfield]

Excellent post Mr Puma.

Many thanks for digging it up.

Hear, hear.

[Chugnut]

This question and the SATR one are just total bollox.

HMRC know that IR35 applies on a per-contract basis. So once again, how are you supposed to answer if you do two six month contracts in a year; one inside IR35 and the other outside? How can you be a service company for one half the year and not the other half?

Anyone got an answer for that then?

[malvolio]

Nope. I asked the same thing when it first kicked off.

FYI PCG have picked up on the excellent data from Mr Puma and HMRC's latest "explanation" and have gone back for fresh advice (talk about moving goalposts). I'm guessing the answer will revert to No/No or No/blank...

Ever get the feeling the people in charge are seriously taking the p*ss?