Tax barrister appeals against service company question

Tax Barrister Keith Gordon, MA (Oxon) FCA CTA (Fellow), has made an appeal to HMRC under Finance Act 2008, Schedule 36, against the 'service company' question on the 2009-10 self assessment tax return.

This question will be of interest to anyone working in pracitce, and indeed to anyone affected by the 'service company' (also known as the IR35) legislation. Keith has kindly provided TaxationWeb with a copy of his letter for publication on our website.

The letter reads as follows:

"HM Revenue & Customs
7 April 2009

Dear Sir/Madam

UTR XXXXX XXXXX

I refer to the question on my tax return under the heading “service companies”, dated 6 April 2009.  It asks me to identify “the total of the dividends (including the tax credit) and salary (before tax was taken off) [I] withdrew from [a service] company in the tax year”.

It is my view that such a question is ultra vires and, if left unanswered, would not render the tax return incomplete.  However, it is also my understanding that the HMRC view is that (since 1 April 2009), such a question may be validly asked by virtue of the Finance Act 2008, Schedule 36, paragraph 1.

If indeed it is your contention that the question is being asked by virtue of paragraph 1, I hereby exercise my right of appeal conferred by paragraph 29(1) of that Schedule.  My grounds of appeal (as required by paragraph 32(2)) are that:

1. such a request, being made of all recipients of a individual tax return is unnecessarily burdensome on taxpayers at large;

2. it is a breach of the conditions of Schedule 36 for such a notice to be sent indiscriminately to all individual taxpayers;

3. it is a breach of the conditions of Schedule 36 for such a notice to be included in another document;

4. the request cannot be responded to unambiguously because the terms of the request are not clear;

5. allied to this, the relationship between the wording of the question and the helpsheets is unclear;

6. the ambiguity is partly due to the fact that the request does not correlate with any aspect of my liability to tax (or indeed anybody’s) and therefore the meaning of the question cannot be reconciled with any issues that are relevant to the calculation of my tax position for the year in question;

7. given that the question was included in the 2008 return (when Schedule 36 was not in force), it cannot be intended that the question should fall within that Schedule;

8. I do not necessarily have the opportunity to ascertain the information required.  If I were engaged to perform work by a company of which I owned a single share, the question appears to expect me to find out whether or not half of the company’s income derived from the work performed by me and by other shareholders;

9. it is unclear whether the time limit that applies to the tax return satisfies the requirement in paragraph 7(1).

In accordance, therefore, with the Taxes Management Act 1970, section 49A(1), I hereby request that HMRC undertake a review of the purported request in advance of my referring my appeal to the First-tier Tribunal.

I also request that the time for compliance of the information notice (if it is indeed such) to be deferred until final resolution of this matter.

I look forward to hearing from you.

Yours faithfully

K M Gordon
Atlas Chambers
3 Field Court
Gray’s Inn
London WC1R 5EP

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We hope to publish HMRC's response to Keith's appeal in due course.

Article Added Tuesday, 14 April 2009

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