Those self-employed who set up ‘personal service companies’, paying themselves low salaries in order to pay lower tax, while also allowing dividends that attract less tax than a regular income, will be investigated.
The government is to take a closer look at firms who use the IR35 rule and are either using a limited company payment structure or a composite company umbrella service. The aim of the legislation is to eliminate the avoidance of tax and National Insurance contributions through the use of brokers.
If you operate as the owner or shareholder of a limited company then you are entitled to take dividends on the shares, but they can only be paid from the profits of the company after expenses have been paid.
As the law stands, the issue of shares being paid to other parties is legal, though there can be tax implications in paying dividends to large shareholders who have not made an investment in the firm or actually generate income for the company.
However the recent Pre-Budget report stated that the government would be launching a consultation on draft legislation to prevent income shifting.
Helen Jones, senior press officer for business at HMRC, said: “We police any tax regime that we operate to make sure that there is compliance. If we find anyone operating incorrectly then we would look at it on a case-by-case basis.”
Robin Gordon-Walker, spokesperson for the FSA, said: “Duties for accounts are required under law. Brokers are responsible for their payments.”
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