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Media personalities, IT professionals and others often obtain perfectly legitimate tax advantages by providing their services as independent contractors via their own private companies. As one case showed, however, the tax authorities are making ever-increasing use of their power to look behind the corporate veil to discern the reality of working relationships.
The case concerned a TV presenter whose services were provided to a broadcaster by a company of which he was the majority shareholder. HM Revenue and Customs (HMRC) took the view that, if the company were taken out of the equation, his relationship with the broadcaster would, in reality, be one of employment.
Were it not for the intermediate presence of the company, HMRC asserted, he would have been paid directly by the broadcaster via the PAYE system. On that basis, HMRC exercised its powers under the intermediaries legislation – better known as IR35 – to raise against the company six-figure demands for Income Tax and National Insurance Contributions in respect of a six-year period.
Challenging those demands before the First-tier Tribunal (FTT), the company argued that, for many years prior to its incorporation, the presenter had provided his services to the broadcaster and other clients on a self-employed basis. There was thereafter no change in his working arrangements and there was no intention to create an employment relationship. The company also pointed out that he was not afforded the benefits that go with employment, including holiday and sick pay.
In rejecting the company's appeal, however, the FTT found that there was a mutuality of obligation between the presenter and the broadcaster. The latter had first call over the presenter's services for a specified number of days each year and had a sufficient level of control over him and how he went about his work to give rise to an employment relationship. The reality was that he was dependent upon the broadcaster as the paymaster for the financial exploitation of his talents.