IR35 – the recent tax case of Christa Ackroyd Media Limited and the Commissioners for HMRC
In a recent tax case, Christa Ackroyd Media Limited and the Commissioners for HMRC, Christa Ackroyd (the taxpayer) lost her appeal against HMRC’s decision that she was caught by IR35. This is the first of what’s expected to be a number of high-profile appeals involving television presenters and IR35.
Do you run a personal services company? Seek advice now.
IR 35 is aimed at identifying individuals who, in the view of HMRC, are avoiding paying tax and National Insurance by supplying their services to clients via a structure such as their own personal service company, when the individual is acting like and is being treated like an employee of the end client.
Its effect is to severely restrict the tax breaks, ensuring that individuals cannot avoid PAYE by remunerating themselves by dividends. If caught by IR35, the individual is required to deduct income tax and National Insurance from any of their company’s income that they haven’t already drawn out as salary. This deemed payment of salary is a special calculation that allows tax relief for certain expenses.
Normally, tax relief is available for travel and subsistence expenses for travel to and from a worker’s home to a temporary workplace, but not for ordinary commuting, eg from home to a permanent workplace. However, since 6 April 2016, the cost of travel from home to and from all workplaces is no longer an allowable deduction for a worker who is caught by IR35, or who is otherwise under the supervision, direction or control of the client. This is because each of their assignments is considered to be a separate employment, ie. a permanent workplace.
Since 6 April 2017, public authorities are responsible for deciding if IR35 applies to a person providing services through their own intermediary. The person providing the services through their own intermediary will need to provide information to the public authority to help them make their decision. If the rules apply, the public authority, agency or other third party who is responsible for paying the worker’s intermediary must deduct income tax and National Insurance.
This legislation, known as the off-payroll working rules, hasn’t been extended to apply to workers in the private sector. The person providing services through their own intermediary remains responsible for deciding if the IR35 rules apply for work in the private sector.
So, if you think this may apply to you, seek good taxation and accountancy advice now.