Providers targeted in contractor battle

The taxman has moved to crack down on companies set up for contractors to
avoid income tax and national insurance by going after the providers of the
companies rather than the companies themselves.

Legislation in the Budget sought to acquire powers to identify companies
involved in the tax dodges – which the chancellor said cost the UK ‘billions’
every year – by who had sold the off-the-peg arrangement.

Anne Redston, of the CIoT, said such providers were not tax advisers. ‘This
is much more than having tax advice. It’s a total package,’ she said.

The companies, known as composites, could be attacked under IR35 rules were
it not so cumbersome for the taxman, and will now be targeted on the provider
basis as well as by what the companies do.

Since rules were introduced in the pre-Budget report on the companies
themselves, thousands have moved to set up their own personal service companies.

Such companies may also be caught by the new moves, since the personal
companies will have been advised on by the original managed service company
adviser.

The use of such companies by people who are effectively employees but who
receive their earnings through the company by paying out dividends, avoiding
income tax and NICs, has dogged the taxman for years.

The IR35 rules caused a huge row when introduced, hitting many IT contractors
unwittingly. ‘It will be difficult for people to dodge their tax liabilities,’
Redston added.

Advisers providing professional advice to personal service companies will not
be affected.