Composite quarrels escalate despite HMRC crackdown

Composite companies have given HM Revenue
& Customs
headaches for years, so you would think that its big tax
crackdown on the structures would signal the beginning of the end of the

HMRC has struggled to
nail down individuals that work within composites to pay what it considers the
correct tax.

The move was the second largest revenue raising measure in the pre-Budget
report and will see the government rake in as much as £1bn over the next three

Individuals are classed as directors within a composite company and are paid
a small salary and a dividend, reducing their PAYE and national insurance

But as soon as HMRC attempts to catch these tax avoiders under IR35, the
composites are broken up and reformed, leaving no assets.

HMRC has formed draft legislation to hit them, but there is likely to be
months of debate and argument challenging the strategy.

The composites are not going to lay down and die,and have called the
government’s decision economically unstable and political.

Ruth Blackmore, chief executive of Safe Solutions International, says the
legislation will be disastrous for the UK economy, arguing that contractors’ tax
benefits are balanced by the temporary nature of their work.

As far as individuals with their own service companies are concerned, the
issues are unclear.Blackmore says many could be affected by this move

The CIoT’s Anne Redston believes this issue has been effectively handled in
the consultation.Grant Thornton tax partner Mike Warburton says the poor will
suffer from HMRC’s crackdown. ‘Nurses and teachers, who are on a low income,
have been hit here.’

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