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The important question framed by HMRC that is, of course, totally ambiguous

The important question framed by HMRC that is, of course, totally ambiguous

When is a question not a question? Now there’s a question. And the answer is, apparently, if it’s a notice under TMA 1970 Section 8 which, as ony fule kno, is not a notice under FA2008 Schedule 35 paragraph 1. Until the situation is changed at which point we will be informed of the change. So that’s perfectly clear then.

Who said tax had to be taxing…

Let me explain. There are two questions on the Self Assessment return we have to complete every year that ask “Are you a Service Company?” and “Have you applied the Intermediaries Legislation?” Needless to say, you have to answer either Yes or No to both.

But since this question has been framed by HMRC, it is, of course, totally ambiguous.

Firstly, exactly what is a “Service Company”? Such a beast is not actually defined anywhere: trawl through the labyrinth that is the HMRC website and you will find many references to the now outlawed Managed Service Companies, but nothing on simply “A Service Company”. Which is useful.

Of course we know they mean a Personal Service Company – something else that doesn’t exist in law – and that by common usage is understood to be a company through which one or two individuals sell their services to a range of clients. Otherwise known as a totally ordinary business. Or, if you really have to particularise things, a nano-business.

So that’s easy then: is my company a non-existent undefined entity or not. So we can safely say Yes since it is. Or it isn’t. Sue me if I’m wrong.

Then we get to the second question, “Have you applied the Intermediaries legislation?” Well yes, I have and I have concluded it doesn’t apply. So do I answer Yes because I have applied it or No because it doesn’t apply? Which one will lead Hector to believe I am liable for IR35? Well, we know the answer to that one; any combination of answers since I am caught until proven otherwise. But I digress.

Apparently the real answer, according to people who have more time for this nonsense than I do, is to answer Yes to the first and No to the second since that is a defensible combination no matter what HMRC try to stick you with.

And, just to add to the confusion, there is an argument that says you don’t have to answer the damned question at all. That gets a bit convoluted (well it was a barrister that raised it) but basically in 2009 HMRC sought to prevent people not answering the question by making it no longer ultra vires, meaning you could be penalised for not answering it. Which is where we came in. Honestly…

The barrister in question argued that a question on a tax return is not a notice, i.e. something you are obliged to answer. And eventually he got the answer back from HMRC as per my opening paragraph: it’s a question not a notice. So you needn’t answer it.

Except of course the barrister in question is, as I understand an already confusing situation, not a nano-business so the question doesn’t actually apply to him anyway: he was merely seeking clarification that he didn’t need to explain not answering the question. I don’t think people like me can be quite so sanguine about it.

So do I answer Yes then No? Now there’s a question…

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited

Image: Stress by Dave-F

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