SA tax return - services company section?

[Clare@InTouch]

ok ... making some progress on this one.... I've found the 'ticked' box on the P35 (in the mycompany bundle) ... this clearly states mycompany is a services company. So, I guess I have no choice but to declare it on the SA also.

So, Please can anyone offer their advice to my (perhaps) daft question.

If I declare my income from my company (salary & dividend) int he 'services company' section, do I also declare them in the salary and dividend sections?

Yes. The Services box is for information only. The tax itself is calculated from the figures you enter elsewhere on the return.

[meanttobeworking]

Necessary to answer?

Any views on this?

2011 tax returns - the question you should ignore - tipsandadvice-businessdatabase.co.uk

Edit: When I clicked on the link above to check it, it wanted me to sign up for a trial. Article below:

Your 2010/11 self-assessment tax form asks whether your company provides services. To the untrained eye it might seem a harmless question but answering it could target you for a tax enquiry. So can you simply ignore it?
Related documents - The Next Step
Suggested statement to include on your SA form [Document]

Sneaky question

If you're in business, you've probably heard of the Taxman's infamous IR35. It's the name given to the rules introduced a decade ago to squeeze more tax from director/shareholders of companies which provide services, i.e not those who make or sell goods. Unfortunately for the Taxman it was more difficult than he expected to identify companies which might be caught by IR35 so he came up with a plan to get director/shareholders to do the job for him. He simply added a sneaky question to the self-assessment (SA) tax return.

Which question?

The question, at the bottom of page TR4 of the SA form, is aimed at director/shareholders who work directly for their customers rather than provide services through their employees. It says “If you provided your services through a service company (a company which provides your personal services to third parties), enter the total of the dividends and salary you withdrew from the company in the tax year.” Armed with this information the Taxman can delve further into your company's business contracts to see if, in his view, IR35 applies. His goal is to treat your dividend income as if it were salary. This will trigger higher tax and NI bills.

Trap. Even where you get a clean bill of health from the Taxman he will have wasted hours of your time and no doubt caused you a great deal of stress. And if your accountant needs to get involved, you'll probably rack up a hefty bill. It would be better for you all-round if you could simply ignore the service company question.

Legal battle

In 2008, tax expert and barrister, Keith Gordon, was so incensed by the IR35 question that he refused to answer it on the grounds that it was beyond the Taxman's powers to ask. His argument was that the information isn't needed to check or calculate how much tax you should pay. So he ignored the question but explained why he did in the additional information space of his SA tax return. He was expecting a fight!

No response

True to form the Taxman processed Mr Gordon's SA form and then did nothing. He was using one of his classic ploys - if you don't know what to do just stick your head in the sand and forget about the problem. However, he wasn't dealing with a run-of-the-mill taxpayer. Mr Gordon then went on the offensive and asked for the matter to be considered by the tax tribunal.

The expert's advice

Under threat of a tribunal hearing the Taxman recently responded. The good news is that essentially he now accepts Mr Gordon's view that the question isn't a statutory request for information.

Tip. Our advice is that you shouldn't answer the service company question on your SA form. However, to cover yourself against any suggestion that you've made an incorrect return, include an explanation of why in the additional information space of your tax return (see The next step).

[Clare@InTouch]

In my view you'd just be waving a red flag by adding extra information though, which is more likely to get a person's attention as it actually requires someone to read it. Besides, part of the information they want is available on the P35 anyway.

At the IR35 Forum of 14th September 2011, HMRC confirmed that the service company question is, in many cases, left blank which itself can be risk profiled against other entries on the return which would tend to indicate that the question should have been answered. So those that believe by abstaining from answering the question may be helping them to keep their heads below the parapet, quite the reverse could be true.

Tax Return Fishing for IR35

[Greg@CapitalCity]

Yep, agree with Clare on this one. It makes no sense to leave the box blank if you work through your own PSC. This has been debated for years and years (and also the P35 question that is similar) - and I have not seen any adverse effects to responding truthfully to this question.

[xoggoth]

There's a thing on contractor weekly that might be useful

Tax Return: Fishing for IR35

[malvolio]

Or alternatively try <snip>The important question framed by HMRC that is, of course, totally ambiguous | Contractor Accountants[/url] for the definitive answer. Perhaps...

[TheFaQQer]

There's a thing on contractor weekly that might be useful

Tax Return: Fishing for IR35

KUATB

[Greg@CapitalCity]

Or alternatively try <snip>The important question framed by HMRC that is, of course, totally ambiguous | Contractor Accountants[/url] for the definitive answer. Perhaps...

Thats strange - the article talks about Service Company questions that appear on a company's PAYE annual return, as if they actually appear on a personal self assessment tax return?

[tractor]

..

Yep, agree with Clare on this one. It makes no sense to leave the box blank if you work through your own PSC. This has been debated for years and years (and also the P35 question that is similar) - and I have not seen any adverse effects to responding truthfully to this question.

Whilst this may be true, have you seen any adverse affects from taking the opposite action and ignoring the question?

[malvolio]

Thats strange - the article talks about Service Company questions that appear on a company's PAYE annual return, as if they actually appear on a personal self assessment tax return?

Probably in the interests of simplicity and clarity? HE's only really talking about the two questions, set against the average one-man-band company having to look at the totalilty. I'm only guessing , but most of the author's articles are illustrating principles rather than writing manuals. I could be completely wrong of course, it has been known...

Worth also noting that the barrister's question, as quoted in the CUK article, is not actually relevant to contractors or to this debate. He was seeking to clarify that he, as a disintersted individual, could ignore the question. 99% of us contractors aren't disinterested.