Reply to: Tax deductibility of IR35 insurance, Jury service policies, etc

[malvolio]

No, it doesn't. It really doesn't.

It assumes that they are able to and will use any excuse to open up a tax enquiry that can go back many years and which could easily morph into an IR35 investigation. Whether there are any worms in your can is irrelevant, it's all an unecessary worry even if you are a member and insured to the hilt. These cases as you know can go on for many, many years once they get their teeth in.

Other than random sampling, which is unavoidable but occurs at a very low level, the only way to trigger an enquiry is to submit late, incorrect or contradictory returns or to sign up for something that has or should have a DOTAS number.

The best protection is not to get investigated. The best way to do that is follow the rules and hit the deadlines with accurate and verifiable information. I refuse to cower under the shadow of a silly little man in a bowler hat, life's too short.

[tractor]

...

That assumes there's a can of worms to be uncovered of course

No, it doesn't. It really doesn't.

It assumes that they are able to and will use any excuse to open up a tax enquiry that can go back many years and which could easily morph into an IR35 investigation. Whether there are any worms in your can is irrelevant, it's all an unecessary worry even if you are a member and insured to the hilt. These cases as you know can go on for many, many years once they get their teeth in.

[malvolio]

The point is not the ten quid though, it's the can of worms it may open up which may even lead to an IR35 investigation. I suspect PCG members usually go to the bottom of the pile when it comes to setting priority for those though.

That assumes there's a can of worms to be uncovered of course

[tractor]

...

That's true - and you could be liable for tens of pounds

The point is not the ten quid though, it's the can of worms it may open up which may even lead to an IR35 investigation. I suspect PCG members usually go to the bottom of the pile when it comes to setting priority for those though.

[v8gaz]

So what you are saying is that even if your accountant agrees to put PCG membership down against your profits, any audit by the HMRC would probably flag it up - and then what? They would recalculate your corporation tax liability as far back as you were claiming membership?

That's true - and you could be liable for tens of pounds

[adam42]

So what you are saying is that even if your accountant agrees to put PCG membership down against your profits, any audit by the HMRC would probably flag it up - and then what? They would recalculate your corporation tax liability as far back as you were claiming membership?

[TheCyclingProgrammer]

Yes, I think it is generally understood that there is no BIK for PCG membership for the company but not allowable for CT due to the reasons you just outlined. I have a special category set up in FreeAgent just for my PCG membership ("Non-tax allowable Trade Membership").

[7specialgems]

After some digging around, I've come across this section of information written by Mandie Bell, who is a Partnership Manager at the PCG and was posted a year ago:

Subscriptions to PCG: the full story

PCG is what is called by HMRC a “trade protection association” – that is, an association formed to protect the common interests of its members and funded by their annual subscriptions.

Many years ago (1913, actually) a member of a trade protection association went to court to claim tax relief for its contributions. If anyone’s interested, it was the Lochgelly Iron & Coal Company Ltd (based, incidentally, in what is now the parliamentary constituency of one Gordon Brown) and the company was paying subscriptions to the Fife and Clackmannan Coalowners’ Association. The Court of Session decided that although the subscription was not deductible as such, the company could “look through” the Association and have tax relief for that part of their subscription which was applied by the Association towards expenditure which would have been allowable had it been incurred directly by the company itself.

Two years later the Grahamstown Iron Company of Falkirk (a place incidentally where the Scots were heavily defeated by the English in 1298 but won the re-match in 1746) were in court claiming relief for their subscriptions to the National Light Castings Association. However, unlike Lochgelly they did not have the Association’s accounts to hand and were unable to demonstrate what their subscriptions had in fact been spent on. The company lost its case and the principle was established that a member of a trade association could not get tax relief for its subscription without exhibiting the accounts of the association itself.

To avoid the need for all members of an association individually to negotiate with HMRC what proportion of their subscription is tax-deductible under the principles established in the Lochgelly and Grahamstown cases HMRC offer a non-statutory “arrangement”. Under this they will allow members to have tax relief for the subscription provided the trade association accepts liability to Corporation Tax on the excess of its receipts over its payments (subject to some limitations). This is the only non-statutory arrangement which HMRC will contemplate: in particular what you might think would be the obvious solution (namely, agreeing with an Association what proportion of the subscription has been spent on things which would have been tax-deductible if incurred directly by the member, and then allowing tax relief to the member for that proportion of his subscription) is not on offer.

In correspondence with PCG, HMRC made it clear that before agreeing to enter into the arrangement with PCG they would wish to have details of membership. The Board of PCG considered that it would not be in the interests of members for details to be provided to HMRC and as a result the arrangement is not available to PCG.
The advice that the Board have had is that the strict legal position in this area is completely clear, having been established many years ago by the cases cited above. As a matter of law, any appeal against the way in which HMRC administer a non-statutory arrangement could only be by way of judicial review, of which the outcome would be uncertain and of which the cost is considered to be out of all proportion to the benefit to PCG and its members.

Members who wish to confirm the position for themselves may want to look at the HMRC website BIM24800 - Meaning of trade: mutual trading and members clubs: mutual associations: specific activities: trade protection associations: introduction and layout of guidance

Everything so far seems to suggest, for PCG+, no BIK and not allowable for CTax, and the same for IR35 insurances.

Lifted from here (PCG members need to log in)

[Craig at Nixon Williams]

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.

There are two types of tax protection insurance that we see going through frequently:

1. Where the insurer pays for any additional legal or accountancy fees resulting from an HMRC enquiry.
2. Where the insurer covers the cost of any additional tax due as a result of an enquiry.

Our interpretation of this is as follows:

In scenario 1, this would be allowable for tax as legal/accountancy fees are deductible if incurred by the business directly.

In scenario 2, the premium would not be deductible as tax is not a deductible expense.

[TheCyclingProgrammer]

The way I see it, if HMRC want to argue that PCG membership paid for by the business is a BIK and taxed on the individual accordingly, then it should be tax deductible for YourCo like most other employee benefits and remuneration. They can't have it both ways.

[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.

[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.

[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?

[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.

[malvolio]

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

Just a thought...