IR35 Tax – The End Of The Personal Service Company?

Big Bad Wolff Limited ("BBWL"), the personal service company of actor Robert Glenister, has lost its preliminary issue hearing against HMRC in relation to the interpretation of the application of the Intermediaries Regulations. The appeal was a test case with a number of other appeals, particularly concerning other actors, awaiting the outcome.

What does this mean? It means that HMRC can levy income tax and National Insurance Contributions on monies earned by contractors who have provided services through limited companies. HMRC can go back 10 years to recover these sums.

Big Bad Wolff case - speed read

Mr Glenister is a well-known actor. He had been providing his services directly to end clients (producers) through BBWL until 2011. He stopped using BBWL after this date and started providing his services directly. Mr Glenister was held to be a self-employed actor. He was also a director of BBWL receiving employment income and dividends from BBWL. Following an investigation, HMRC determined that BBWL was liable to pay primary and secondary Class 1 National Insurance Contributions ("NICs") in the sum of £147,547 for the period from 6 April 2004 to 5 April 2014. The case was for the determination of a preliminary issue on the correct interpretation of the appropriate regulations (namely, s4A Social Security Contributions and Benefits Act 1991, Regulation 6 Social Security (Intermediaries) Regulations 2000 and Social Security (Categorisation of Earners) Regulations 1978. The First Tier Tribunal (FTT) found that: s4A was intended to stop personal service companies being used to avoid NICs, an activity that had been rife before it was enacted. If Mr Glenister had provided the services directly then he would have been categorised as being employed and owed NICs accordingly. It is "more correct to categorise this as a case where someone who would otherwise be treated as being in...employment...using an intermediary company to reduce his liability to NICs." This was exactly the type of mischief s4A aimed to avoid. The preliminary issue was decided in HMRC's favour. Commentary

This is a good example of the FTT adopting the purposive approach set down by the Supreme Court in the recent Rangers tax case (for commentary see Matthew Sharp's article here). The purposive approach encourages the FTT to have regard for the purpose of a particular provision and to interpret it in a way which best gives effect to that purpose, as opposed to introducing...