Avoid the consultancy tax trap

first_imgThecontroversial IR35 legislation may be here to stay, but it needn’t preventfirms buying in skills from personal service companies. It just requires alittle more craft and cooperation, says David AndrewsManybusinesses have traditionally sourced skilled workers by engaging them throughpersonal service companies operated by consultants. This arrangement minimisesthe risk of the consultants obtaining employment law rights against therelevant business. It also reduces the overall labour costs involved insourcing skilled workers, because the relevant business does not pay employer’sNational Insurance Contributions (NICs), the consultants are not given employeebenefits (such as pensions contributions or private medical expenses cover),and they are usually excluded from participating in any share option schemes.Untilrecently, this arrangement was also beneficial to consultants as they were ableto reduce their tax and NIC liabilities by means of their service companiesoff-setting operating costs against the fees they generated, paying a salary totheir spouses (in order to take advantage of the spouse’s lower-rate tax bands)and distributing part or all of the fees generated by paying dividends (whichdo not attract NICs) to the consultant as the owner of the service company.  However,controversial new tax legislation, generally referred to as IR35, hassignificantly reduced the tax advantages for consultants providing theirservices through a personal service company. A judicial review challenging theGovernment’s implementation of IR35 recently failed and many consultants arenow abandoning this method of operating. The scope of the legislation isfar-reaching, but it is still possible to engage consultants through personalservice companies, provided you take certain practical steps.Thescope of IR35IR35is the reference number of the press release issued by the Inland Revenue on 9March 1999 announcing the intention to change the tax laws. The legislationcame into force on 6 April 2000 and applies to a particular engagement whereeither: –The consultant, alone or with any associates (family and unmarried partners),has a “material interest” in the service company, meaning ownershipof more than 5 per cent of the issued ordinary share capital of the servicecompany, an entitlement to more than 5 per cent of the dividends declared bythe service company or (in the case of a closed company) to more than 5 percent of the assets on the winding up of the service company or–The consultant receives a payment from the service company, which is nottaxable under Schedule E, that could reasonably be taken to represent paymentfor services provided by the consultant to a client; and the consultant would,under the normal common-law test of employment status, be deemed an employee ofthe client if he or she carried out the work directly for the client and notthrough the service company.Helpingconsultants avoid legislationAnybusiness that wishes to continue to benefit from engaging consultants throughpersonal service companies will need to provide their consultants withassistance in trying to avoid the IR35 legislation. There are in effect twomethods of doing this.Theservice company through which the services are provided should be set up so thatIR35 does not apply. For example, if the business engages 21 or moreconsultants, the consultants could group together and provide their servicesthrough one service company. Provided each consultant takes an equalshareholding in the company, none of the consultants would own 5 per cent ofthe shares in the company or be entitled to 5 per cent of the dividends of thecompany. Aslong as the consultants do not receive a payment from the service company(which is not taxable under Schedule E) that could reasonably be taken torepresent payment for services provided by the respective consultant to hisclients, IR35 will not apply. One way around this is for the consultants toagree to take low basic salaries and pay out as much of the profit of thecompany as possible by way of dividends to each consultant as a shareholder ofthe service company.Thisproposal may not be attractive to consultants where there is a significantdifference in fee generation from consultant to consultant, as the only methodof reflecting the difference in fees generated by each consultant would bethrough payments taxable under Schedule E, such as additional salary,commission or bonuses. Makingsuch balancing payments reduces the scope for maximising the tax benefits ofoperating through a service company and therefore this type of scheme will onlywork well where the fee generation of each consultant is similar.Thealternative is to ensure, for each engagement-the consultant undertakes, thatthe common law test of employment status would not point towards employment ifit were not for the consultant acting through the service company. In order tominimise the chance that the test points towards employment, the businessshould be willing to agree with the consultant, to the extent it deems iscommercially acceptable, that:–The contract between the service company and the business does not include anymutuality of obligations requiring the service company (or, even worse, theconsultant) to perform any additional services that the business may requireand forcing the business to instruct the service company in relation to anysuch additional services the business may require–The consultant is free to determine when to provide the services (subject to anagreed delivery date for a project), where to undertake the services and howthe services should be approached to complete the project successfully–The engagement relates to the completion of a particular project, each projectcan be completed in a relatively short period (ideally no more than threemonths) and the consultant does not work for the business in relation toseveral projects back to back which continue for a long period in total–The terms of payment are based on a fixed sum for completion of a project(not  on an hourly or daily rate) sothat the service company can maximise profitability through the efficient andtimely completion of projects–The service company does not have to provide a particular consultant to performthe services and has the right to substitute any qualified person who isemployed or engaged by the service company–The service company has its own offices or place of work and providestransport, tools and equipment for the consultant-Theconsultant provides his services (through the service company) to severalclients, being instructed by different clients either at the same time, beforeor after the project undertaken for the business–The consultant does not receive any benefits (such as sick pay, pension,private medical expenses insurance or life assurance) from the business and thecost of providing such benefits is not expressly charged back to the businessby the service company–The consultant is not integrated into the workforce employed by the businessand does not undertake the same work as an employee of the business at aneighbouring workstation–The contractual documentation clearly states that the parties regard therelationship as one of self-employment and–If contracting through an agency, the terms of engagement between the agencyand the business and between the service company and the agency are consistentwith the above points.Ideally,a business should aim to build up a pool of consultants, any of whom they arehappy to engage. Consultants should then be engaged from the pool in relationto short projects, noting the points above, and the business should vary theconsultant engaged on back-to-back projects.FacingrealityTheInland Revenue will apply the IR35 legislation wherever possible to maximisethe collection of taxes through the PAYE system and so many consultantsoperating through service companies will be caught. If a business wishes tocontinue to benefit from self-employed consultants, it should do all that iscommercially reasonable to engage consultants in a manner and on terms thatwill permit them to operate outside the scope of the IR35 legislation.      DavidAndrews is an employment lawyer at Brobeck Hale and Dorr Comments are closed. Avoid the consultancy tax trapOn 1 Sep 2001 in Personnel Today Previous Article Next Article Related posts:No related photos.last_img read more

Michael Phillips Moskowitz named Entrepreneurship Fellow at Shorenstein Center

first_imgThe Shorenstein Center on Media, Politics and Public Policy, located at the Harvard Kennedy School, is pleased to announce the appointment of Michael Phillips Moskowitz as the Center’s first Entrepreneurship Fellow.The newly established Entrepreneurship Fellow program will invite established technology entrepreneurs to provide guidance and mentorship to students, and to work with faculty on research and course development. “The explosion of innovation coming out of emerging technology companies has profound consequences for the public sphere — from media to public policy,” said Nicco Mele, the Center’s director.“By developing relationships between communities of private sector entrepreneurs and Kennedy School students, we hope to do two things: encourage more thoughtful approaches to public policy on the part of disruptive startups, and better support Kennedy School students looking to start new organizations and programs,” Mele said. “Michael Phillips Moskowitz has an exceptional and unusual ability to think outside the box; this has served him well in his entrepreneurial ventures. Students on campus will find they have a lot to learn from a leading creative thinker at the intersection of technology and design.”Moskowitz will focus on how to apply user experience and usability design practices to improve online engagement, ranging from from news consumption to government service. He will be in residence for the fall 2016 semester, joining the Center’s Joan Shorenstein Fellows, Derrick Z. Jackson, Erie Meyer, Markus Prior, and Yeganeh Rezaian, and the Walter Shorenstein Media and Democracy Fellow, Bob Schieffer.last_img read more

Conway Springs wins big over Bluestem 55-14

first_img Close Forgot password? Please put in your email: Send me my password! Close message Login This blog post All blog posts Subscribe to this blog post’s comments through… RSS Feed Subscribe via email Subscribe Subscribe to this blog’s comments through… RSS Feed Subscribe via email Subscribe Follow the discussion Comments Logging you in… Close Login to IntenseDebate Or create an account Username or Email: Password: Forgot login? Cancel Login Close WordPress.com Username or Email: Password: Lost your password? Cancel Login Dashboard | Edit profile | Logout Logged in as Admin Options Disable comments for this page Save Settings You are about to flag this comment as being inappropriate. Please explain why you are flagging this comment in the text box below and submit your report. The blog admin will be notified. Thank you for your input. There are no comments posted yet. Be the first one! Post a new comment Enter text right here! Comment as a Guest, or login: Login to IntenseDebate Login to WordPress.com Login to Twitter Go back Tweet this comment Connected as (Logout) Email (optional) Not displayed publicly. Name Email Website (optional) Displayed next to your comments. Not displayed publicly. If you have a website, link to it here. Posting anonymously. Tweet this comment Submit Comment Subscribe to None Replies All new comments Comments by IntenseDebate Enter text right here! Reply as a Guest, or login: Login to IntenseDebate Login to WordPress.com Login to Twitter Go back Tweet this comment Connected as (Logout) Email (optional) Not displayed publicly. Name Email Website (optional) Displayed next to your comments. Not displayed publicly. If you have a website, link to it here. Posting anonymously. Tweet this comment Cancel Submit Comment Subscribe to None Replies All new comments Sumner Newscow report — Conway Springs had no trouble over Bluestem although the proficiency of scoring was slower than usual. See stats here: Conway Springs – Box Score Report – 9_6_2014Follow us on Twitter.last_img read more

Province implements changes to the Building and Plumbing Code

first_img– Advertisement – Another change includes new regulations for secondary suites that will require fire separations between residences to improve safety for everyone in the homes. For more information regarding the changes, you can visit bccodes.ca. VICTORIA, B.C. – The Province of British Columbia has announced that it is implementing changes to the Building and Plumbing Code. According to the Government, the changes will support innovative construction methods to help build more affordable homes faster, while enhancing building standards for energy efficiency and safety for British Columbians.   One of the changes to the building code enables local governments to allow 12-storey tall wood buildings, up from the previous limit of six storeys. Thirteen communities have signed on to be early adopters of tall wood buildings using mass timber technology. last_img read more

STAND-OFF AT FERRY AS SWIMMERS USE BOAT AS DIVING BOARD

first_imgThe Foyle Rambler ferry being used as a diving board! PIcture by Brendan Flanagan.A number of people were involved in a ‘stand-off” with the operators of the Lough Swilly Ferry service yesterday.The people, who were swimming at Buncrana Pier, too exception to the Foyle Rambler ferry docking at the pier.Some of the group then boarded the boat and climbed to the top and began diving off the boat. Eye-witnesses said the Captain asked them to get off the ferry, but they refused.Swimmers at the pier in Buncrana before the ferry docked. Picture by Brendan Flanagan.On a number of occasions he tried to get the men from climbing up on top of the ferry to dive off the boat.Staff on the boat eventually made a phonecall and the men eventually dispersed.The men, who had been drinking cans of alcohol, began shouting at the captain of the ferry. The ferry finally pulled out at 4.40pm. STAND-OFF AT FERRY AS SWIMMERS USE BOAT AS DIVING BOARD was last modified: July 21st, 2013 by StephenShare this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Reddit (Opens in new window)Click to share on Pocket (Opens in new window)Click to share on Telegram (Opens in new window)Click to share on WhatsApp (Opens in new window)Click to share on Skype (Opens in new window)Click to print (Opens in new window) Tags:ferryFoyle Ramblerstand-offlast_img read more