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A link between dividends and IR35 investigations?
by Susie Hughes at 11:23 08/01/14 (News on Business)
A leading accountant recently told the House of Lords enquiry into Personal Service Companies (PSCs) that he was 'independently aware' that HM Revenue and Customs (HMRC) is monitoring PSCs' dividend levels and then carries out an IR35 risk assessment by dividing the number of dividends by the number of shareholders.
This information came from Jason Piper, of the Association of Chartered Certified Accountants, after a Select Committee member queried an item on the 2013 tax return, which asks that contractors state how much in dividends and salary they took from their Personal Service Company in the tax year.

Specialist contractors accountants, Brookson, examines this issue:

Compulsory dividend question
This ‘compulsory’ question reads: “If you provided your services through a service company, enter the total of the dividends and salary you withdrew”.

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Mr Piper noted that legislation now dictates that PSCs must answer this question. He pointed out: “They’ve changed the law recently because of this uncertainty [over whether the question must be answered] so in the future, it will be compulsory.”

A number of experts gave evidence to the committee about the issue, with Patrick Stevens, a director at the Chartered Institute of Taxation, saying that HMRC is likely to look closely at PSC’s answers to this question in particular.

Mr Stevens commented: “Logically, they [HMRC] are going to use it as a springboard to police.”

What triggers an IR35 investigation?
It is largely unknown how exactly the taxman decides which contractors to investigate under IR35. However, HMRC has indicated that any individual who provides services through a service company to an end client potentially falls within IR35, but seeks to narrow those cases subject to investigation by considering a range of factors, including, sectors, engagement patterns and the nature of the service company.

There is no law stating the amount of dividends that can be taken out of a business, which is widely used as a legitimate tax planning measure. If you have regular IR35 reviews, then you are demonstrating your compliance as a legitimate self-employed professional and have nothing to fear.

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Susie Hughes © Shout99 2014

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