Personal Service Companies - Select Committee on Personal Service Companies Contents



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 economy—information technology and the oil and gas sector in particular—it 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.[2]

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.[3] 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 Note 07/12.[4]

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.[5]

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 made.

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 of company".[6]

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 accurate".[7] The 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".[8]

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).[9] 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.[10]

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".[11] 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".[12]

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.[13] 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.[14] 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.[15]

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.[16] These reasons include limited liability and flexibility; we were also told that operating through a company provides 'credibility' in some industries.[17] 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".[18]

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".[19]

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".[20] 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.[21] 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".[22]

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".[23]

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.[24] 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.[25] 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 apply.

31.  Regulation 32 offers a personal service company the opportunity to opt out of the Regulations.[26] The decision to opt out must be notified in advance of the contract commencing, and lasts only for the duration of the contract in question.

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.[27] The IIM told us that they advise their members to opt out when negotiating contracts;[28] 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.[29]

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".[30]

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.[31]

34.  The Agency Worker Regulations,[32] 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.[33]

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.[34] 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.[35]

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 employment-related legislation".[36]

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.[37] 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'.[38] 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 intermediary—such as a service company or partnership. There is no intention to redefine the existing boundary between employment and self-employment".[39]

42.  Legislation was introduced in the Finance Act 2000.[40] 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) Regulations 2000.[41]

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".[42] 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".[43]

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 client"),

(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".[44]

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[45] 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]

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.[47]

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".[48]

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".[49]

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.[50]


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.[51]

52.  In the Finance Act 2007 the Government introduced legislation relating to managed service companies.[52] 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.[53] 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 constitute employment.[54]

Recent debate and proposals for reform


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.[55] 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]

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.[57] 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".[58]

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.[59]

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".[60] 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 report.


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.[61] 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 contributions.

62.  The Autumn Statement also contained proposals dealing with salaried partners in Limited Liability Partnerships (LLP).[62] 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.[63] 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.[64] 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,[65] 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.[66] 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

3   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

4   See Chapter six. Back

5   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

6   Q1 Back

7   FCSA Back

8   Q 34 Back

9   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

10   Q 118 Back

11   Q 13 Back

12   Q 34 Back

13   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

14   PCG, supplementary written evidence. Back

15   BCS, the Chartered Institute for IT Back

16   Q 44 Back

17   IbidBack

18   John Whiting Back

19   Q 75 Back

20   FCSA Back

21   Amey plc Back

22   Q 39 Back

23   IoD Back

24   See SI 2003 No 3319, made under the Employment Agencies Act 1973.  Back

25   Department for Trade and Industry, Guidance on the Conduct of Employment Agencies and Employment Business Regulations, 2003. Back

26   See SI 2003 No 3319, made under the Employment Agencies Act 1973.  Back

27   Giant Group Back

28   IIM Back

29   Q 48 Back

30   PCG Back

31   Q 23 Back

32   See , SI 2010 No. 93, made under the Health and Safety at Work Act 1974 and the European Communities Act 1972.  Back

33   Department for Business, Innovation and Skills, Agency Workers Regulations: Guidance, May 2011. Back

34   SI 2010 No. 93, paragraph three. Back

35   Department for Business, Innovation and Skills, Agency Workers Regulations: Guidance, May 2011. Back

36   Q 48 Back

37   Giant Group Back

38   Inland Revenue Budget press notice IR35, Countering avoidance in the provision of personal services, 9 March 1999 (Appendix 5). Back

39   IbidBack

40   Finance Act 2000, available at:  Back

41   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

42   Explanatory note for Finance Bill 2000, clause 59 and Schedule 12, available at:  Back

43   IbidBack

44   Finance Act 2000, Schedule 12. Back

45   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

46   Finance Act 2000, Schedule 12. Back

47   See Chapter three. Back

48   Q 15 Back

49   PCG Press Notice No 12/99, 23 September 1999. Back

50   R (on the application of Professional Contractors Group Ltd) v Inland Revenue Commissioners [2001] EWHC (Admin) 236. Back

51   The one substantive change is to remove the reference to Schedule E, with reference instead made to 'employment income' and 'earnings from employment'. Back

52   Part 3, section 25. Detailed provisions contained in Schedule 3. Back

53   HC Deb, 23 May 2012 col 1161. Back

54   Provision to this effect is made in Finance Act 2013, section 22. Back

55   HMT press notice 29.10, 20 July 2010. Back

56   HM Treasury, Small Business Tax Review: terms of reference, (2012). Available at:  Back

57   The findings of the OTS review, and the Government response to it, are considered in more detail in Chapter three. Back

58   OTS, Small Business Tax Review, March 2011, pp. 39-42. Back

59   IbidBack

60   HC 836, March 2011, paragraph 2.203. Back

61   HMRC, Onshore Employment Intermediaries: False Self-Employment, Consultation document, (2013). Available at: Back

62   HMRC, Partnerships review: limited liability partnerships: treatment of salaried members. Available at:  Back

63   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

64   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

65   HMRC, Offshore Employment Intermediaries Summary of Consultation Resposnses, (2013). Available at:  Back

66   PWC, United Kingdom: Tax changes announced in the Autumn Statement, 5 December 2013. Back

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