Reply to: P35 Qu 6

[Lewis]

FYI -

http://www.contractoruk.com/news/004309.html

And some further reading for anyone finding this through Google:

What is a Service Company? (HMRC's definition)
IT contractors don't have to answer Q6 on P35

[djped]

(repeated above)

[djped]

I've just done my return, answered YES/NO.
I'm your typical IT contractor but I've made sure my contract has been reviewed and found outside of IR35.

I can't see how reading the helpsheet you could answer NO to part 1 if you are (like me) a typical contractor using a Ltd. Yes I performed services for a client, yes there was a contract between the client and the company of which I was a shareholder and yes the companies income during the year was more than half dervied from those services...

So I'm taking honesty as my policy.... (probably where tax is concerned not the best option )


Quote helpsheet:
The first question should be answered yes if:
• an individual performed services (intellectual, manual
or a mixture of the two) for a client or clients, and
• the services were provided under a contract between
the client and the company of which, at any time
during the tax year, the individual performing the
services was a shareholder or partner, and
• the company’s income was, at any time during the tax
year, derived wholly or mainly (that is, more than half
of it) from the services performed by the shareholders
or partners personally.

[Lewis]

The accountacyweb from the link (have you read it?) article includes the following example:

"2. A firm of accountants – two partners, and no staff

Clearly, once again we have a potential “service company” for Question 6, as this time we have a partnership. The responses to points one and two are an unequivocal “yes”. On to point three. Once again are these services performed “personally” by the partners? There is no doubt that if they are, the answer is yes and we have to go on and consider Question 2. But what if the firm employed someone? Although there are no employees at the moment, does this mean that the firm could use the services of any available and suitably qualified individual to perform the services for the client? I think they could, and here I contest the use of “personally”. Neither of the partners performs the services in his personal capacity, and the services could easily be provided by someone else within the firm. So I’m thinking “no” to point three, making part 1 a “no” again.

As I have shown, although the guidance is much improved over last year, the entire question turns on the interpretation of the word “personally” in part 1 of the question. If I am right, then the question should not be an issue for many businesses currently concerned about this issue. Part 1 being negative, part 2 follows as a negative – job done."

I'm happy with this interpretation and intend to follow it until the HMRC tell me otherwise. I am satisfied I am following their rules and therefore am not intentionally doing anything wrong.

Clearly the article is a discussion and people are putting forward different points of view and I have yet to come to a decision myself so I am not telling you it is one way or the other. I am asking how people interpret the wording to enable me to make a decision.

The PCG, QDOS and most accountants seem to have taken the view we should answer yes/no. I am not so happy with that interpretation and so want to get all the facts clear in my head.

The problem with the "I can substitute" argument is that there seem to be some pretty clear comments against it, such as the one I have already posted (have you read it?) which states

I was on the ICAEW committee that met HMRC on this one, and regret to inform you that they think that 'personally' means 'in person' as the last commentator suggested.

[Lewis]

For the last ******* time, you dont need to answer this question!

And that is advice I have from tax counsel.

Is this advice published anywhere so I can print it out and keep it in my records? What is the name of the tax counsel?

[BolshieBastard]

That time of year again and I am still not sure about this question on the P35. I have read all the latest threads I can find on various sites and it still does not seem clear cut to me except it seems most experts are recommending yes/no for a IR35 not-caught company. Possibly the best thread is this one http://www.accountingweb.co.uk/cgi-b...%20%25B%20%25Y.

So what is everyone else going to answer and why?

For the last ******* time, you dont need to answer this question!

And that is advice I have from tax counsel.

[Little'Old Me]

The accountacyweb from the link (have you read it?) article includes the following example:

"2. A firm of accountants – two partners, and no staff

Clearly, once again we have a potential “service company” for Question 6, as this time we have a partnership. The responses to points one and two are an unequivocal “yes”. On to point three. Once again are these services performed “personally” by the partners? There is no doubt that if they are, the answer is yes and we have to go on and consider Question 2. But what if the firm employed someone? Although there are no employees at the moment, does this mean that the firm could use the services of any available and suitably qualified individual to perform the services for the client? I think they could, and here I contest the use of “personally”. Neither of the partners performs the services in his personal capacity, and the services could easily be provided by someone else within the firm. So I’m thinking “no” to point three, making part 1 a “no” again.

As I have shown, although the guidance is much improved over last year, the entire question turns on the interpretation of the word “personally” in part 1 of the question. If I am right, then the question should not be an issue for many businesses currently concerned about this issue. Part 1 being negative, part 2 follows as a negative – job done."

I'm happy with this interpretation and intend to follow it until the HMRC tell me otherwise. I am satisfied I am following their rules and therefore am not intentionally doing anything wrong.

[Ravello]

I answered yes/no last year and will do so again this year..

It appears a bit more clear cut this year than last, but either way if you're confident you're operating outside of IR35 yes/no is perfectly valid and defendable (should it come to that).

[Lewis]

Dunno about you guys, but I regularly invoke my right of substitution, and also provide my skills as a substitute for other contractors when they are unavailable to work!

Opinion seems to be unless you were substituted for more than half the work done by the company you need to answer yes/no too.

The theory goes... (1) as an individual you have performed services during the year, (2) services were provided under contract and you were a director or shareholder and (3) more than half the company income was derived from you doing the work.

So that is Yes/No (assuming you are outside IR35) even if you have provided a substitute and been a substitute. Although clearly this helps your IR35 status people like PCG, QDOS etc.. seem to think you must still answer yes/no.

[Weltchy]

Dunno about you guys, but I regularly invoke my right of substitution, and also provide my skills as a substitute for other contractors when they are unavailable to work!

[Lewis]

Some will and others won't. I am answering no/no for any client that can confirm they could use others (employees or contractors) in their "contracts", or if more than 50% of their turnover is not for the Labour part of their services.

If a client is not sure, I ask them what would happen if you were unable to work for 6 months? Who would provide the services? If they would not continue to provide the services through their company, because they could not "contract it out", or employ someone to do it, then they are a "Service Company" and the answer is Yes/No. In these cases, the Company can only have an income if they can provide their personal services.

As an Accountant if I was not able to work for 6 months, I could easily arrange for someone else to work for my company and carry on the "services" for clients. I may not make much or any money, but the services provided by my company are not dependant on me, providing my personal services to the company, advantageous perhaps , but not essential.

Well that is exactly the logic I followed for answering last year. But as far as I can tell from reading lots of sources the "I can substitute" argument has been discredited. Opionion seems to be this year that the question is simply asking if the person did the work themselves.

[eazy]

HMRC Advice on Q6

HMRC Advice - Page 18

http://www.hmrc.gov.uk/helpsheets/e10.pdf

[Little'Old Me]

Last year I was No / No.

My understanding is that now the question has been clarified, I will be answering yes / no, along with thousands of others, be they accountants, plumbers, electricians, window cleaners, child minders, financial advisor's etc etc. or IT contractors.

Some will and others won't. I am answering no/no for any client that can confirm they could use others (employees or contractors) in their "contracts", or if more than 50% of their turnover is not for the Labour part of their services.

If a client is not sure, I ask them what would happen if you were unable to work for 6 months? Who would provide the services? If they would not continue to provide the services through their company, because they could not "contract it out", or employ someone to do it, then they are a "Service Company" and the answer is Yes/No. In these cases, the Company can only have an income if they can provide their personal services.

As an Accountant if I was not able to work for 6 months, I could easily arrange for someone else to work for my company and carry on the "services" for clients. I may not make much or any money, but the services provided by my company are not dependant on me, providing my personal services to the company, advantageous perhaps , but not essential.

[Lewis]

Last year I was No / No.

My understanding is that now the question has been clarified, I will be answering yes / no, along with thousands of others, be they accoutnants, plumbers, electricians, window cleaners, child minders, financial advisors etc etc. or IT contractors.

Yes this is my thinking too.

[Pickle2]

Last year I was No / No.

My understanding is that now the question has been clarified, I will be answering yes / no, along with thousands of others, be they accoutnants, plumbers, electricians, window cleaners, child minders, financial advisors etc etc. or IT contractors.