Following a recent Freedom of Information request some interesting statistics were provided by HMRC in relation to the service company question that has appeared on the Employers Annual Return (form P35) since the introduction of IR35.
Three questions were asked in the Freedom of Information request, as follows:
- How many companies (each) year have ticked the first 'Yes' box in answer to the question, “Are you a service company?”
- How many of those (each year) who ticked the first 'Yes' box then went on to tick the second 'Yes' box to indicate that the intermediaries legislation or the managed services companies legislation was operated?
- What were the total numbers of companies (each year) that submitted P35 Employer Annual Returns?
| Y/E 5th April | No. of P35 Returns (nearest '00,000) | Q6 Part A – Yes (nearest '000) | Q6 Part B – Yes (nearest '000) |
| 2001 | 2, 000, 000 | 11, 000 | 7, 000 |
| 2002 | 1, 900, 000 | 15, 000 | 10, 000 |
| 2003 | 2, 100, 000 | 11, 000 | 7, 000 |
| 2004 | 2, 600, 000 | 4, 000 | 2, 000 |
| 2005 | 1, 700, 000 | 6, 000 | 5, 000 |
| 2006 | 1, 900, 000 | 145, 000 | 6, 000 |
| 2007 | 1, 900, 000 | 7, 000 | 6, 000 |
| 2008 | 1, 800, 000 | 72, 000 | 29, 000 |
| 2009 | 1, 700, 000 | 84, 000 | 10, 000 |
| 2010 | 1, 700, 000 | 97, 000 | 10, 000 |
The service company question has evolved throughout the years with varying degrees of ambiguity which has caused confusion, leading to clarification and further clarification.
| Years | Q6 Part A | Q6 Part B |
| 2000/01 – 2002/03 | Do the rules relating to payments for services provided through a Service Company or a Partnership apply to any of your business income? | If 'Yes', is PAYE and NICs on the deemed remuneration included over the page or on any continuation sheets? |
| 2003/04 | Do the rules relating to services provided through an intermediary (sometimes known as IR35) apply to any work carried out by any worker listed on this return? | If 'Yes', have you included a deemed payment, or any part of one, in the list on this form or on any Continuation Sheets? |
| 2004/05 – 2005/06 | Do the rules relating to services provided through an intermediary (sometimes known as IR35) apply to any work carried out by any worker listed on this return? | If 'Yes' have you included a deemed payment, or any part of one on their form P14? |
| 2006/07 | Do the rules relating to services provided through an intermediary (sometimes known as IR35) apply to any work carried out by any worker listed on this return? | If 'Yes' can you confirm that either sufficient amounts of employment income have been paid to reduce the deemed payment to nil or that a deemed payment has been included on their form P14? |
| 2007/08 – 2009/10 | Are you a service company? | If 'Yes' have you operated the Intermediaries legislation (sometimes known as IR35) or the Managed Services Companies legislation? |
It appears that confusion reigned for a long time until, with the exception of the year ended 5th April 2006, 2007/08 when the definition of a personal service company was spelled out.
As a risk assessment tool, the P35 question is only one of many that HMRC has at its disposal. Given the number of enquiries that have been taken up in the five years up to 5th April 2011, a total of 322 (officially), does it really carry that much of an imposing threat? In the future, it will continue to serve its usefulness to specialist IR35 teams but only those contractors who are at highest risk are likely to be the ones chosen for enquiry.
The original source of this article can be found on Contractor Calculator.
“Are you a service company?”
This is a very ambiguous question.
1)
Couple this with the comment “with the exception of the year ended 5th April 2006, 2007/08 when the definition of a personal service company was spelled out.”
I don’t see ‘personal’ in the question!!
2) I am finding it difficult to think of any company that does not provide a service. Can anyone help?
Please refer to HMRC’s definition contained within Employers Handbook E10 the link to which I have provided below
http://www.hmrc.gov.uk/helpsheets/e10.pdf