Why all business is like showbusiness to the taxman

By Brian Keegan

Reports last week in the British media suggest that the BBC is changing the way it pays some key presenters, among the highest profile people in the country.

The changes involve the likes of Chris Evans and Claudia Winkleman, who anchors Strictly Come Dancing.

Claudia Winkleman

Up to now, the BBC were paying some of their presenters through what is known as a personal services company.

That usually means that instead of paying the presenter directly as an employee, a fee is instead paid to a company which is owned by the presenter.

It is only possible to operate PAYE on an individual, so the fee paid to a company doesn’t have income tax deducted when it is paid.

Using a Personal Services Company can offer advantages when it comes to pension arrangements from the point of view of the broadcast presenter.

Earlier this year, the UK tax authority, HM Revenue and Customs, had challenged in the courts aspects of a personal services company arrangement for a presenter with the BBC.

The court found that some of the money paid to the presenter in question was not taxed properly.

It is possible that this outcome has prompted a more cautious approach when it comes to paying via intermediary companies rather than paying directly to the individuals themselves.

In Ireland, personal services companies are also used, but the law here does not permit the kind of look-through of company arrangements which applies in the UK.

Nevertheless, the Irish Revenue share with their UK counterparts a suspicion of personal services companies, believing that they are frequently used to sidestep tax and Pay Related Social Insurance (PRSI) obligations.

Some years ago Revenue’s National Contractors Project was a systematic investigation of the use of personal services companies, mainly to ensure there were proper controls over things like expense payments and travel allowances.

Vat gives rise to tax problems too.

Salaries don’t have Vat consequences, whereas when fees for services are more than the annual threshold of €37,500, Vat must be charged and paid over.

There can also be problems from not getting the Vat rate correct.

Many traders, farmers and other professionals have ceased operating as self- employed and instead set up companies to which they are now running their businesses.

There are plenty of very good commercial reasons for doing this, but it can make the business more of a target for Revenue scrutiny.

The lure of the 12.5% rate of corporation tax — as contrasted to income tax rates of 40% plus USC and PRSI — on the face of it would suggest that incorporation of a business is always a good tax saving idea.

But when a business is incorporated, a second taxpayer, which is the company itself, is created.

That, in turn, creates another set of tax duties and obligations.

While the National Contractors Project has wound down, Revenue in recent days has stated that it will begin focusing on the income and expenses of medical locums generally, but particularly medical locum companies contracted by intermediaries, such as an employment agency, to provide their services.

Investigations and audits are being promised.

If you are operating a business of any type through a company, you need to make sure that any money leaving the company is properly taxed.

In particular, your drawings from the company will usually be subject to PAYE.

You will also need to be careful to ensure that any expenses paid by the company to you as the owner, or to any other workers, are properly vouched and accounted for.

These days, you don’t need to be a high-profile TV personality to attract the attention of the Revenue Commissioners.

Brian Keegan is director of public policy and taxation at Chartered Accountants Ireland

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