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Q6 on P35

Q6 "Are you a service company"

Has anyone clarified directly with HMRC whether this means "are you caught by IR35/MSC rules" or whether it means literally "do you provide personal services".

If the latter, what possible reason could HMRC have to want to identify ALL personal service companies including those not caught (of which there are thousands!).

My thinking is to answer 'No' where IR35/MSC does not apply. Booklet E10 is extremely badly worded, but it does say "If you are a service company (as explained above) in the year to 5 April 2008, tick the first ‘Yes’ box under this question." As the explanation refers to IR35/MSC, I think someone forgot to write 'a service company is one where the IR35 or MSC rules apply'.

YJ

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By ABHill
26th Apr 2008 17:16

HMRC GUIDANCE BOOKLET FOR END OF YEAR
I accept that HMRC now claim to have clarified the matter BUT reading page 18 of E10, their guidance on completing the P35, it is clear that the first question does mean "are you a service company" as per a normal definition of service company and not "are you a service company as caught by the IR35 rules". The second question then raises IR35.

I would say that they have not just clarified the matter. They have contradicted their own advice in booklet E10, which is the place that you would expect to go for guidance.

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By Taxi
22nd Apr 2008 10:42

HMRC
Breaking news - look forward to something similar for SA returns. Your comment sounds most hopeful, Rebecca.

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22nd Apr 2008 00:30

Don't panic
HMRC working on finalising better guidance for the SA return.
P35 more urgent, but in truth with a bit of careful reading you are there. If in doubt, use Employer helpline comment and rely on that. (Reasonable care satisfied - see new guidance on this)

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21st Apr 2008 19:33

Sorry Nicola..
the heading of my previous post was not directed at you (I just meant there seems to be confusion over this generally); I do appreciate you taking the trouble to point me to the links - I had actually read them and did actually post beneath your article before I started this thread.

The HMRC responses in the links to you don't seem very helpful. Did they not answer the straight question "is the term service company as used in the P35 and SA return = IR35 intermediary".

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By Anonymous
21st Apr 2008 16:45

Now I am confused.
I posted the links as you have been posing again all the questions that have been in and out of the mangle, and seem to have reached the same conclusions. I thought that the links might be helpful as you seem not aware of the previous debates.

When you said "Has anyone clarified directly with HMRC whether this means..." I assumed that you might appreciate the links. If you look at the previous articles you can see HMRC's responses.

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21st Apr 2008 11:45

I'm not sure why the confusion?
Nicola,

I only started this thread as the linked discussions seemed at the time to have stopped (and my posting there did not appear on the 'latest answers' list - perhaps AWeb should change the system on that).

For P35, surely there is no confusion now the employer CD rom explicitly states 'service company' = 'IR35 intermediary'.

For the SA return, does not the previous quote from the tax return guide strongly indicate the same thing, together with use of the same term in the P35 and the confirmation from the SA helpline lady who said she raised this at training (although I do realise a call is not something to rely on later).

It's beyond me if HMRC have been asked by an Institute, why they cannot provide a useful answer to the SA query! Presumably the question was directed at the HMRC people responsible for the questions themselves (we're completely lost if they can't provide an answer!!).

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By Anonymous
21st Apr 2008 09:43

SA tax return
To avoid repetition, these are the links to previous articles on this:
2007/08 P35 and SA tax returns: Who's not a service company?

So are you a service company, and why does it matter? And can HMRC ask you?

***

I know that at least one institute is considering the SA question, and HMRC have not been able to provide us with useful answers.

Tax lecturer, Rebecca Benneyworth considers that the SA disclosure, if you chose to make it should include all forms of income derived from your company, so include rent and interest and benefits.

Keith Gordon, barrister considers the SA question ultra vires.

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19th Apr 2008 18:36

SA return question on 'service companies'

This does only relate to IR35 companies:

I spoke to the SA helpline and the lady confirmed this was a question she raised during her training, and it was confirmed the phrase 'service company' = 'IR35' company

If you read Tax return guide p7 it states:

"Dividends from companies affected by the service company rules
If you are affected by the service company rules – you will know if you are – andthe company has made a claim for the dividends not to be taxable on you and we have approved that claim, you may exclude those dividends from your Tax Return."

This also confirms they are using 'service company' as shorthand for IR35 company.

I wish during times like these our Institutes took a lead and obtained answers to such unclarity direct from HMRC and then emailed their members with the correct interpretation!

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19th Apr 2008 17:54

Definitive answer

When filing online, the employer CD-ROM 2008 provides the following pop up at Q6:

'A service company is one where a worker works for a client company through an intermediary and, but for that intermediary company, would be treated as an employee of the client company'

Problem solved! (at least for the PAYE return). Only answer Q6 as 'Yes' if you are caught by IR35.

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18th Apr 2008 20:31

SA Tax Return

Mary w, a straight 'normal English' interpretation of the guide (TRG15) would lead you to your conclusion to include all companies where services are provided personally by the taxpayer.

It is possible that HMRC are 'fishing' here to identify all companies where IR35 may be in scope, with a view to raising enquiries into those where the salary element is low. Or it could be a question purely for statistical purposes.

However, as with the E10 PAYE guidance, it is also quite possible someone may have written the guidance in an appallingly unclear fashion, and 'service company' means an IR35/MSC company.

It is also unclear whether there is meant to be any link between the SA and PAYE questions, apart from the use of the term 'service company'.

It will be interesting to ring the SA helpline to see what they say.

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By Anonymous
18th Apr 2008 20:25

P35 different to SA Return
From what I have read, this is the view I have taken and it seems to be that of many others.

P35 - only complete 'Service Company' box as yes if IR35 or MSC.

SA Return - fill in figures if you provide your services via a limited company, even if not IR35 or MSC.

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By Anonymous
18th Apr 2008 16:19

Ah But
Service companies and the new box on the tax return.
If you read TRG15 it states that you should complete this box if you provided your services personally of which you are a sole or joint shareholder.

If the companies income is wholly or mainy from services provided to third parties by you personally or you personally and your fellow shareholders.

Do not complete if you are a shareholder and the income is derived wholly or mainly from provision of services of company employees whose total income is treated as employment income, or derived from the manufacture/provision of goods.

So as far I see it, it means any company that provides a service, Like accountants etc. Where the shareholder has a reduced salary and higher dividends.

Your comments please

Mary W

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By Anonymous
18th Apr 2008 15:34

Earlier debates
YJ
I fared less well with the helpline and could not print the results, but I did decide that a service company is an IR35 or MSC

Link to article

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18th Apr 2008 14:22

Combinations of answers

Yes - Yes
If you are caught by IR35:

this makes sense

If not caught by IR35:

the second Yes can only mean you have operated the Intermediaries legislation in the sense you have decided it is not applicable.

I can't see how HMRC can distinguish the above two scenarios, evidence perhaps that if not caught then you should not answer 'Yes' to the first part.

Yes - No
If you are caught by IR35:

Seems like an admission of failing to follow the requirements

If not caught by IR35:

HMRC may think you are saying you are caught but not complying, and so potentially increases your chances of an enquiry.

Again, evidence I believe that they do not intend 'not caught' companies to answer 'Yes' to the first part.

No - No
If you are caught by IR35:

Wrong answer which could land you in serious trouble!

If not caught by IR35:

first 'No' could be right (see my first posting), but second box should be left blank

No - Yes
This combination does not make sense (why comply with IR35 if you are not a service company to begin with)

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18th Apr 2008 15:10

Employer helpline answer

I rang the helpline and for a change was given a very clear and confident answer.

I was told that In their training, the HMRC staff have been told clearly that a 'service company' is only one caught by the IR35/MSC rules.

The lady said she would pass on my comments that the HMRC guidance is very unclear, but was very confident in her answer.

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