CHAPTER 2: THE USE OF PERSONAL SERVICE
COMPANIES, RELEVANT LEGISLATION AND RECENT TRENDS |
12. The use of personal service companies extends
across a number of sectors of the economy and has expanded significantly
in recent decades. This Chapter considers the reasons behind this
trend, and provides an initial outline of relevant legislation
which has affected the use of personal service companies. It concludes
with a brief summary of recent initiatives undertaken.
The use of Personal Service Companies
13. In certain sectors of the economyinformation
technology and the oil and gas sector in particularit is
a long standing practice for individuals to set themselves up
as personal service companies, providing their services as consultants
to clients, rather than working directly as employees.
14. Use of personal service companies extends
into other sectors, where these arrangements may be less prevalent
but are still not uncommon. It is certainly the case that many
interim managers, in both the public and private sectors, choose
to work through personal service companies; the Institute of Interim
Management (IIM) estimated that there were up to 16,000 interim
managers in the UK providing their services on a freelance basis.
They told us that around 88% of these interim managers operate
through their own limited companies.
15. Personal service companies have also been
used by senior executives. In February 1993 it came to public
attention that the then Director General of the British Broadcasting
Corporation (BBC) was engaged through a limited company and was
not, therefore, a BBC employee.
Public sector use of personal service companies to engage senior
officials came to the fore once more in 2012, with the news that
the Chief Executive of the Student Loans Company was engaged through
a personal service company. The Government subsequently undertook
a review of public sector use of personal service companies and
made a number of changes, implemented through Procurement Policy
16. The trade association Oil and Gas UK told
us that, in their area of work, it was particularly common for
individuals to deliver their work through personal service companies,
and that personal service companies had been a feature of the
labour market in the oil and gas industry for many years. They
suggested that in certain areas of operation, including engineering
design, construction and project management, more than 80% of
personnel were engaged off-payroll.
17. Other sectors where the use of personal service
companies is common were identified during the course of our work;
these included construction, engineering, teaching and entertainment.
We sought an indication of recent trends in the use of personal
service companies; robust figures on the overall numbers of these
companies are not available, although a number of estimates were
18. HMRC estimated that the current personal
service company population was around 200,000. HMRC's estimate
for 1999, when the IR35 rules were first suggested, was 90,000.
HMRC explained that they "do not routinely estimate the size
of the personal service company population, because that information
of itself is not terribly useful for our operational compliance
activity. It is a pretty broad-brush estimate of a certain type
19. Witnesses expressed some support for these
figures. The Freelancer and Contractor Services Association (FCSA),
a body representing companies who provide accountancy and other
services to freelancers, suggested that these figures were "broadly
Institute of Chartered Accountants in England and Wales (ICAEW)
told us that the figure of 200,000 companies "would not seem
at all unrealistic to us".
20. The Professional Contractors Group (PCG),
a trade association representing freelancers, was concerned that
HMRC estimates were based upon a number of assumptions, which
were not publicly known. The IIM felt that estimates did not appear
to be underpinned by any statistical analysis. HMRC told us that
only 1,000 individuals had answered the service companies question
on their 2011-12 Self Assessment Tax Return (form SA100).
This is some way from the 200,000 estimate for the overall personal
service company population, although HMRC offered a number of
potential reasons for non-completion.
21. Despite the lack of clarity surrounding the
overall total of personal service companies, the large majority
of our witnesses felt that numbers had increased over the past
decade. John Whiting, Tax Director at the OTS, told us that "The
numbers have certainly gone up, however you look at it, over the
period that IR35 has been around".
Patrick Stevens, Tax Policy Director at the Chartered Institute
of Taxation, told us that "Certainly my perception is that
it has been steadily growing during the course of the last five
or six years".
The growth of personal service
companies: 'push' and 'pull' factors
22. We were told of a number of potential tax
advantages for individuals using a personal service company. Firstly,
the range of expenses which the personal service company can set
against its taxable profits will be wider than that which an employee
can set against his or her taxable income.
Secondly, there may be a cash-flow benefit in avoiding tax being
deducted at source under PAYE each month. Thirdly, it may be possible
for individuals to retain within the business any earnings which
are not immediately required as income, reducing tax liability
through the application of corporation tax or capital gains tax.
23. In addition, the individual may be in a position
to receive dividends out of the company, instead of receiving
a salary, and this could eliminate his or her National Insurance
liability. It is possible to qualify for benefits whilst paying
no National Insurance contributions. Individual contractors who
pay themselves a salary from their personal service companies
between the lower earnings limit and the 'primary threshold' (£109
and £149 per week respectively in 2013-14) will not pay employee
National Insurance contributions but will still be treated as
a contributor. Similarly,
there are no employer contributions on earnings below the secondary
threshold, which is currently £148 per week (2013-14). It
is, therefore, possible to draw a salary of £148 or less
per week to ensure benefit cover without making either employer
or employee NI contributions.
24. Other, non-tax, reasons may lead an individual
to choose to operate through a personal service company; the PCG
told us that 84% of their members choose to incorporate for non-tax
reasons. These reasons
include limited liability and flexibility; we were also told that
operating through a company provides 'credibility' in some industries.
John Whiting told us that:
"Operating on one's own is increasingly
a lifestyle choice for many people, and once that decision has
been taken, operating through a personal service company can make
sense for many reasons
Saving (tax) money will always be
a factor, though not necessarily the main driver".
25. In some industries, where skills are at a
premium, individuals can choose to operate through a personal
service company. Oil and Gas UK told us that the number of personal
service companies engaged had increased, because highly skilled
individuals could insist upon their use:
"The principal reason why it is so high
in our particular industry is supply and demand. We compete globally
for talent. Many of our members operate globally and deploy their
resources on that basis. The industry in the UK has been very
technically challenging and is quite mature, so the expertise
that has been developed is highly prized and valued throughout
the world. It has been a feature for some time, but I think the
proportion has increased
We have vacancies for literally
thousands of people in the industry
the driver has come
very much from the individuals themselves, and there is certainly
a desire to reduce that ratio among our members".
26. There are, however, some potential disadvantages
for individuals choosing to operate through a personal service
company. These can include lack of holiday pay, sick pay and paid
training, and the absence of various rights and protections such
as maternity leave and working time protections. Pension entitlements
may suffer, with it being unlikely that individuals would benefit
from workplace pension provision.
27. In addition, the impetus for operating through
a company can come from the engager, rather than the individual.
The engager is under no obligation to pay employers' National
Insurance contributions, and also does not have to provide the
various rights and entitlements, as set out above, that would
be offered to a regular employee.
28. The FCSA told us that: "In a number
of sectors/industries either recruitment businesses and/or end
clients insist on the use of a limited liability supplier for
flexible workers. This is driven by managing the risk of employment
rights and unpaid taxes".
Amey plc told us that, "for tax risk reasons", it rarely
takes on a freelance consultant for a temporary contract unless
he or she agreed to operate through a personal service company.
The ICAEW cited the broadening scope of employment law and new
entitlements for employees as driving the growth of personal service
companies. They told us that there would "be pressure from
employers in a wider sense for people to adopt these structures
in certain cases" and that this would continue, "absent
any major policy changes".
29. More generally, we heard that the growth
in the number of personal service companies was a reflection of
structural changes in the UK labour market. The Institute of Directors
(IoD) suggested that:
"Since the 1990s and particularly so in
the aftermath of the credit quake, many businesses have needed
to adopt more flexible business models as the predictability and
security of their revenues has been adversely influenced by macroeconomic
factors. Most businesses consider themselves to have a less powerful
position in relation to their customers but a more powerful position
in relation to their suppliers and employees. Accordingly, we
consider it is wholly unsurprising that there has been a growth
in the use of personal service companies where their use is sustainable".
30. A changing regulatory environment may also
have been partly responsible for increasing numbers. The Conduct
of Employment Agencies and Employment Business Regulations 2003,
commonly known as the 'conduct Regulations' or 'agency Regulations',
came into force in April 2004.
The Regulations govern the conduct of the private recruitment
industry and establish a set of minimum standards that clients
(both engagers and work-seekers) are entitled to expect.
Under the regulations, an employment business must ensure that
temporary workers are paid for all the work that they do (even
if payment has not been received from the end-client), that they
receive paid holidays and that they are not forced to work longer
than 48 hours per week. A range of further provisions and protections
31. Regulation 32 offers a personal service company
the opportunity to opt out of the Regulations.
The decision to opt out must be notified in advance of the contract
commencing, and lasts only for the duration of the contract in
32. A large proportion of contractors source
their work through agencies, rather than directly from end-clients.
We were told that some engagers and employment agencies encouraged
individuals to provide their services through a personal service
company, in order to avoid liabilities under these regulations
and thereby reduce costs.
The IIM told us that they advise their members to opt out when
APSCo, a trade body representing recruitment companies, told us
that 98.6% of contractors who secure work through their members
opted out of these provisions.
33. Sections 44 to 47 of the Income Tax (Earnings
and Pensions Act) 2003 were also said to have played a role in
the growth in numbers of personal service companies. These provisions
require employment agencies to make deductions for PAYE from the
earnings of the worker that they engage and supply to clients,
where that worker is subject to the client's supervision, direction
or control. The PCG stated that:
"Recruitment agencies will typically insist
upon freelancers using a limited company. Agencies would be exposed
to large legal and tax liabilities if they were to pay a sole
trader gross because of sections 44-47 of the Income Tax (Earnings
and Pensions) Act, therefore they prefer to deal with an individual
working via their own limited company".
Kate Cottrell, an IR35 specialist who runs her own
advice firm, agreed that these provisions had had a significant
effect upon the growth in personal service company numbers.
34. The Agency Worker Regulations,
which came into force in October 2011, also appear to have had
an effect. The Regulations give agency workers the entitlement
to the same basic employment and working conditions as if they
had been recruited directly, once they have completed a qualifying
period of 12 weeks in the same job.
35. The definition of agency worker to which
the Regulations apply excludes cases where there is a contract
whereby the agency or the end hirer is dealing with an individual
carrying out a profession or business undertaking.
Guidance to the regulations makes clear that "individuals
who find work through a temporary work agency but are in business
on their own account (where they have a business to business relationship
with the hirer who is a client or customer)" are likely to
fall outside the scope of the Regulations.
36. We were told that this exemption for personal
service companies had encouraged movement of individuals from
other intermediaries, such as umbrella companies, into personal
service companies. APSCo told us that:
"The agency workers regulations increased
the number of contractors moving from umbrella models to personal
service company models, certainly in the professional sector.
The main reason for that, we understand, was that professional
contractors do not want the protections afforded to them by this
37. Others, however, felt that the 'push' came
from the agencies. A major umbrella company, the Giant Group,
told us that the use of umbrella companies was declining as more
and more individuals were "pushed" into using personal
service companies by agencies, in order to avoid the Agency Worker
Regulations and the 2003 Regulations.
The use of umbrella companies is considered in more detail in
Chapter five of this report.
38. It is apparent that a number of factors,
including labour market changes, regulatory changes and, in some
industries, skills shortages, have driven the growth in the number
of personal service companies over recent years. This growth has
taken place despite the introduction, in 2000, of the 'IR35' rules.
The IR35 legislation
39. This section provides some brief background
to the IR35 rules. A more detailed consideration of the operation
and efficacy of the rules is provided in Chapter three.
40. As part of the March 1999 Budget, it was
proposed that a number of changes would be made to ensure that
people working through personal service companies in a manner
that could be considered 'disguised employment' would, in practice,
pay the same tax and National Insurance as someone employed directly.
Details were provided in a press notice issued at the time of
the Budget, which was numbered 'IR35'.
The legislation which has developed subsequently is commonly known
as the 'IR35 legislation', or 'IR35 rules'.
41. The IR35 press notice stated that:
"Businesses employing their workers directly
say that they are unable to compete with those encouraging the
avoidance at which the new legislation is aimed. As a result,
ordinary workers can find they are unable to compete for jobs
with those willing to participate in such arrangements. But those
who do participate often have to pay a price in terms of loss
of protection under employment law
The proposed changes
are aimed only at engagements with essential characteristics of
employment. They should affect only those cases where these characteristics
are disguised through the use of an intermediarysuch as
a service company or partnership. There is no intention to redefine
the existing boundary between employment and self-employment".
42. Legislation was introduced in the Finance
Act 2000. The income
tax provisions related to IR35 were contained in section 60 and
Schedule 12 of the Act. Measures relating to National Insurance
were introduced in the Social Security Contributions (Intermediaries)
43. The explanatory notes for the Finance Bill
explained that Schedule 12 introduces "new rules concerning
the taxation of workers who provide their services to clients
through intermediaries, such as personal service companies".
They went on to state that: "The new rules use existing case
law to define an employee and determine that, where workers meet
that definition in relation to work done for their clients, they
will pay broadly the same tax and NICs as an employee, even if
they provide their services through an intermediary".
44. Section 60 of the Act gives effect to Schedule
12. Schedule 12, paragraph 1 states that:
"This Schedule applies where
(a) An individual ("the worker") personally
performs, or is under an obligation personally to perform, service
for the purposes of a business carried on by another person ("the
(b) The services are provided not under a contract
directly between the client and the worker but under arrangements
involving a third party ("the intermediary"), and
(c) The circumstances are such that, if the services
were provided under a contract directly between the client and
the worker, the worker would be regarded for income tax purposes
as an employee of the client".
45. Schedule 12, paragraph 2 states that:
"If, in the case of an engagement to which
this Schedule applies, in any tax year
(a) The conditions specified in paragraphs 3,
4 and 5 are met in
relation to the intermediary, and
(b) The worker, or an associate of the worker
(i) Receives from the intermediary, directly
or indirectly, a payment or other benefit that is not chargeable
to tax under Schedule E, or
(ii) Has rights entitling him, or which in any
circumstances would entitle him, to receive from the intermediary,
directly or indirectly, any such payment or other benefit.
The intermediary is treated as making to the
worker in that year, and the worker is treated as receiving in
that year, a payment chargeable to income tax under Schedule E".
46. Parts 2 and 3 of Schedule 12 set out detailed
computational rules, including those used for calculating any
tax payments to be made. These complex rules provide for notional
calculations to be made, based on deemed payments and set deductions.
47. The provisions contained within Schedule
12 provide the essence of the IR35 rules, with "the circumstances"
referred to in paragraph 1 (c) being determined on the basis of
case law regarding employment for income tax purposes. The use
of case law in this manner has been central to subsequent discussion
about the complexity of the rules.
48. Schedule 12 applies to specific contracts,
rather than the wider, fuller activity of a worker or intermediary.
As such, the IR35 rules apply on a 'contract-by-contract' basis.
This aspect of the rules adds further complexity; John Whiting
described the approach as "innately clumsy".
49. The introduction of these rules was controversial
at the time. The PCG stated that the proposals "show astonishing
naiveté of the knowledge-based entrepreneurial sector and
tip the balance in favour of large US companies at the cost of
small British enterprises". The Chairman of the PCG described
the measures as "a body blow to enterprise culture".
50. In October 2000 the PCG was granted leave
by the High Court to proceed with a judicial review to examine
whether the legislation was consistent with the Human Rights Act
1998. On 2 April 2001 the Court decided in favour of the Revenue
on all counts, awarded costs to the Revenue and refused the PCG
leave to appeal.
SUBSEQUENT CHANGES TO THE LEGISLATION
51. The rules first set out in the 2000 legislation
were consolidated in the Income Tax (Earnings and Pensions) Act
2003, with the relevant provisions being found in Chapter eight.
The original paragraphs set out in detail above are replicated
in sections 49 and 50 of the 2003 Act.
52. In the Finance Act 2007 the Government introduced
legislation relating to managed service companies.
Managed service companies offered a vehicle through which contractors
could place their accounting and invoicing processes, without
having to manage directly these functions themselves. Prior to
the managed service companies legislation, it was not uncommon
for groups of up to 20 contractors to form a composite company,
in which they were all shareholders. This limited the running
costs of the business, and allowed the individuals concerned to
take remuneration in the form of dividends rather than salary,
offering tax benefits. It was thought that this structure was
being used to circumvent the IR35 provisions.
53. A more recent change was introduced following
the Government's review of off-payroll arrangements in the public
sector. The review, and its recommendations, are considered in
more detail in Chapter six of this report.
54. Following the review, the Chief Secretary
to the Treasury announced a consultation about 'controlling persons'.
Even if these individuals provided their services through personal
service companies, the engaging organisations would be responsible
for deducting income tax and National Insurance as if they were
employees on the payroll.
In the event, this initiative was not pursued. Instead, the Finance
Act 2013 introduced an amendment to section 49(1)(c) of the income
tax (Earnings & Pensions) Act 2003 which specified that the
IR35 rules can apply to 'office holders', as well as those who
might be engaged in circumstances which could be considered to
Recent debate and proposals for
THE OTS REVIEW OF SMALL BUSINESS
55. In July 2010 the Government announced that
a review of small business taxation would be undertaken by the
OTS, and that this would include exploring alternative legislative
approaches to IR35.
The OTS was asked to:
· Identify and provide evidence of the complexity
and uncertainty created by IR35;
· Consider alternative legislative approaches
that would be simpler and create certainty while ensuring that,
where intermediaries are used to disguise employment, any income
that is effectively employment income is taxed fairly; and
· Consider the scope for tax avoidance and
the extent to which alternatives to IR35 would affect it.
56. The OTS published an interim report in March
2011. The main recommendation was that the Government should look
at the integration of income tax and national insurance. This
would remove one of the incentives for incorporation. Recognising
that this would take some time to achieve, the OTS identified
three options which could deliver more immediate improvements
to the impact of IR35.
The first option was to suspend IR35, with a view to permanent
abolition. The OTS stated that:
"From the perspective of simplification,
abolition of IR35 delivers the greatest improvement, providing
individuals with certainty over tax status and removing legislation
The OTS's view is that a commitment from the Government
to the integration of income tax and NICs would lead to a reduction
in the tax motivation for incorporation, and would limit the long
term cost of this option
The OTS is not in a position to
calculate the amounts at risk but it could clearly be significant;
work on the figures is needed and must be realistic".
57. The second option put forward was for HMRC
to improve the administration of IR35. It was suggested that improvements
could deal with issues such as the fear of investigation, the
length of time an investigation takes, and enabling individuals
to self certify their IR35 status. More consistency from HMRC
was also thought to be required.
58. Finally, it was suggested that the Government
might wish to consider the introduction of a test which would
exempt some businesses from IR35 entirely. The proposal was to
establish a range of simple tests that those at risk of falling
within IR35 could apply to their situation, in order to gain a
measure of certainty regarding their status.
59. In the Budget Report 2011 the Government
stated that IR35 would be retained "as abolition would put
substantial revenue at risk".
The Government were, however, committed to making clear improvements
in the way that IR35 is administered. A number of changes to HMRC's
enforcement and compliance activities on IR35 have been made since
then; the effect of these is considered in Chapter four of this
AUTUMN STATEMENT 2013 AND FINANCE
60. In the Autumn Statement 2013 the Government
set out a number of measures which seek to make a clearer distinction
between employment and self-employment. These measures are of
contextual relevance to the work of the Committee, illustrating
that the difficulties encountered in determining employment status
extend across a wide range of engagements and situations.
61. One such measure deals with onshore employment
intermediaries, with draft legislation set out in an HMRC consultation
document published in December 2013.
The measures proposed seek to target PAYE and National Insurance
avoidance; the intermediaries in this context are usually employment
agencies, working through a complex structure of companies to
avoid tax and National Insurance, as well as the payment of holiday
pay. The proposed new rules will focus on whether the individual
is subject to, or has the right of, supervision, direction or
control as to the manner in which their duties are carried out.
If an intermediary or agency contracting with the end client exercises
control it will have to operate PAYE and also pay National Insurance
62. The Autumn Statement also contained proposals
dealing with salaried partners in Limited Liability Partnerships
(LLP). At present,
it is possible for a salaried partner of an LLP to receive more
favourable tax treatment than an individual who is an employee
of a company engaged on similar terms.
The LLP is also not liable for employer's National Insurance contributions
on a member's profit share. The Government propose treating an
LLP member as an employee for tax and National Insurance purposes
if each of three new tests are met.
These new rules are expected to come into force on 6 April 2014.
63. The third of the relevant Autumn Statement
proposals deals with offshore employers who have no presence,
residence or place of business in the UK. These structures, often
involving chains of intermediaries, are increasingly being marketed
and promoted as a legitimate way to avoid employer's National
Insurance. Benefits for the individual are sometimes further enhanced
through the use of Employee Benefit Trusts and other mechanisms
to limit further the tax payable on any income.
64. Following consultation in May 2013,
the Government confirmed, in the Autumn Statement 2013, that they
would create obligations on offshore employers employing workers
in the UK. If the offshore employer fails to pay the charge can
be moved to an onshore engager of the labour. It is likely that
the liability will attach to the intermediary which is closest
in the chain to the business which uses the worker.
These changes will also take effect from 6 April 2014.
2 IIM, written evidence. Interim managers are used
to fill short-term management vacancies in both the public and
private sectors. Back
On 1 March 1993 the BBC announced that this arrangement had been
changed and that the Director General would henceforth be engaged
as an employee. Back
See Chapter six. Back
This figure will include those engaged through other off-payroll
arrangements, such as agency PAYE, as well as those engaged through
personal service companies. Back
Q 34 Back
The question asks: "If you provided your services through
a service company (a company which provides your personal services
to third parties), enter the total of the dividends (including
the tax credit) and salary (before tax was taken off) you withdrew
from the company in the tax year". Back
Q 118 Back
Q 13 Back
Q 34 Back
Income Tax (Trading and Other Income) Act 2005, section 34. Expenses
incurred wholly and exclusively for the purposes of the trade
are deductible in arriving at taxable profits of an unincorporated
business. Income Tax (Earnings and Pensions) Act 2003, section
336(1)(b). Expenses incurred wholly, exclusively and necessarily
in the performance of the duties of the employment may be deducted
from an employee's taxable earnings., Corporation Tax Act 2009,
section 54. Expenses incurred wholly and exclusively for the purposes
of the trade are deductible in arriving at taxable profits of
a personal service company. Back
PCG, supplementary written evidence. Back
BCS, the Chartered Institute for IT Back
Q 44 Back
John Whiting Back
Q 75 Back
Amey plc Back
Q 39 Back
See http://www.legislation.gov.uk/uksi/2003/3319/made SI 2003
No 3319, made under the Employment Agencies Act 1973. Back
Department for Trade and Industry, Guidance on the Conduct
of Employment Agencies and Employment Business Regulations,
See http://www.legislation.gov.uk/uksi/2003/3319/regulation/32/made SI 2003 No 3319,
made under the Employment Agencies Act 1973. Back
Giant Group Back
Q 48 Back
Q 23 Back
, SI 2010 No. 93, made under the Health and Safety at Work Act
1974 and the European Communities Act 1972. Back
Department for Business, Innovation and Skills, Agency Workers
Regulations: Guidance, May 2011. Back
SI 2010 No. 93, paragraph three. Back
Department for Business, Innovation and Skills, Agency Workers
Regulations: Guidance, May 2011. Back
Q 48 Back
Giant Group Back
Inland Revenue Budget press notice IR35, Countering avoidance
in the provision of personal services, 9 March 1999 (Appendix
Finance Act 2000, available at: http://www.legislation.gov.uk/ukpga/2000/17/contents
SI 2000 No 727. Corresponding regulations for Northern Ireland
were made in SI 2000 No 728. These regulations were made under
the Welfare Reform and Pensions Act 1999 (sections 75 and 76);
an amendment was introduced during the passage of the Bill to
facilitate the making of these regulations. Back
Explanatory note for Finance Bill 2000, clause 59 and Schedule
12, available at: http://www.hmrc.gov.uk/ir35/explanatorynote.pdf
Finance Act 2000, Schedule 12. Back
Paragraph three sets out criteria which identify company intermediaries
to which the rules apply. Paragraph four introduces the criteria
which identify partnership intermediaries to which the rules apply,
and paragraph five identifies intermediaries who are individuals
to which the rules would apply. Back
Finance Act 2000, Schedule 12. Back
See Chapter three. Back
Q 15 Back
PCG Press Notice No 12/99, 23 September 1999. Back
R (on the application of Professional Contractors Group Ltd)
v Inland Revenue Commissioners  EWHC (Admin) 236. Back
The one substantive change is to remove the reference to Schedule
E, with reference instead made to 'employment income' and 'earnings
from employment'. Back
Part 3, section 25. Detailed provisions contained in Schedule
HC Deb, 23 May 2012 col 1161. Back
Provision to this effect is made in Finance Act 2013, section
HMT press notice 29.10, 20 July 2010. Back
HM Treasury, Small Business Tax Review: terms of reference,
(2012). Available at: https://www.gov.uk/government/publications/small-business-tax-review/small-business-tax-review-terms-of-reference
The findings of the OTS review, and the Government response to
it, are considered in more detail in Chapter three. Back
OTS, Small Business Tax Review, March 2011, pp. 39-42. Back
HC 836, March 2011, paragraph 2.203. Back
HMRC, Onshore Employment Intermediaries: False Self-Employment,
Consultation document, (2013). Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/264649/Onshore_employment_intermediaries_-_false_self_employment.pdf. Back
HMRC, Partnerships review: limited liability partnerships:
treatment of salaried members. Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/264620/4._Partnerships.pdf
The Limited Liability Partnerships Act 2000 introduced a provision
allowing members of an LLP to be taxed as if they were partners
in a partnership established under the Partnership Act 1890 (i.e.
a traditional partnership), even if they were engaged on 'salaried
partner' terms. Back
The proposed tests are as follows: (i) The member performs services
for the LLP in his or her capacity as a member, and is expected
to be wholly or substantially rewarded through a 'disguised salary'
that is it is fixed or, if varied, varied without reference to
the profits or losses of the LLP; (ii)The member does not have
'significant influence' over the affairs of the partnership; (iii)
The member's investment contribution to the LLP is less than 25%
of the 'disguised salary'. Back
HMRC, Offshore Employment Intermediaries Summary of Consultation
Resposnses, (2013). Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/249786/Summary_of_Responses_Offshore_Employment_Intermediaries.pdf
PWC, United Kingdom: Tax changes announced in the Autumn Statement,
5 December 2013. Back