UK: IR35 Tax – The End Of The Personal Service Company?

Last Updated: 28 November 2017
Article by Matthew Goodwin

Big Bad Wolff Limited ("BBWL"), the personal service company of actor  Robert Glenister, has lost its preliminary issue hearing against HMRC in relation to the interpretation of the application of the Intermediaries Regulations.   The appeal was a test case with a number of other appeals, particularly concerning other actors, awaiting the outcome. 

What does this mean?  It means that HMRC can levy income tax and National Insurance Contributions on monies earned by contractors who have provided services through limited companies.  HMRC can go back 10 years to recover these sums.

Big Bad Wolff case – speed read

  • Mr Glenister is a well-known actor.  He had been providing his services directly to end clients (producers) through BBWL until 2011. He stopped using BBWL after this date and started providing his services directly.
  • Mr Glenister was held to be a self-employed actor.  He was also a director of BBWL receiving employment income and dividends from BBWL.
  • Following an investigation, HMRC determined that BBWL was liable to pay primary and secondary Class 1 National Insurance Contributions ("NICs") in the sum of £147,547 for the period from 6 April 2004 to 5 April 2014.
  • The case was for the determination of a preliminary issue on the correct interpretation of the appropriate regulations (namely, s4A Social Security Contributions and Benefits Act 1991, Regulation 6 Social Security (Intermediaries) Regulations 2000 and Social Security (Categorisation of Earners) Regulations 1978.
  • The First Tier Tribunal (FTT) found that:
    • s4A was intended to stop personal service companies being used to avoid NICs, an activity that had been rife before it was enacted. 
    • If Mr Glenister had provided the services directly then he would have been categorised as being employed and owed NICs accordingly.
    • It is "more correct to categorise this as a case where someone who would otherwise be treated as being in...employment...using an intermediary company to reduce his liability to NICs."
    • This was exactly the type of mischief s4A aimed to avoid.
    • The preliminary issue was decided in HMRC's favour.


This is a good example of the FTT adopting the purposive approach set down by the Supreme Court in the recent Rangers tax case (for commentary see Matthew Sharp's article  here).  The purposive approach encourages the FTT to have regard for the purpose of a particular provision and to interpret it in a way which best gives effect to that purpose, as opposed to introducing unnecessary judicial gloss.  It is likely that the FTT had some regard for that judgment in reaching the BBWL decision.

What makes this finding all the more important is what happens next.  This was a test case for a significant number of ongoing appeals between HMRC and members of the acting community.  We understand that HMRC is currently working on a list of 469 media figures in relation to this issue.

There is a suggestion that Mr Glenister is considering appealing the decision, but no appeal has been lodged at the time of writing.

The decision means that HMRC has free rein to start collection activity against any outstanding enquiries arising from the same facts.  It is unlikely that HMRC will be able to utilise its powers to issue Accelerated Payment Notices (APNs) or Follower Notices for tax due, but we expect HMRC to adopt an equally aggressive stance irrespective of which collection approach is adopted.

Reminder: APNs and Follower Notices

An APN can be issued by HMRC if a taxpayer has received a tax advantage from participating in a scheme; HMRC has an open enquiry or appeal into that tax advantage; and the scheme in question has been declared as a tax avoidance scheme under DOTAS.   A Follower Notice can be issued if a taxpayer has made a return or claim based on a tax benefit arising from a specific scheme; HMRC are investigating the return or claim; and HMRC consider there to be a "final judicial ruling" against a similar scheme to the one in question. For a more detailed explanation of HMRC's powers, you can  review Nathan Talbott's article "Sit Up and Take Notice"

The wider impact

The crackdown on this type of tax planning is the latest in an increasingly aggressive approach by HMRC.  If HMRC continues to treat the use (or abuse) of personal services companies as tax avoidance, they are likely to treat them in the same way as they have tax avoidance schemes including: Employee Benefits Trust, Employee Funded Retirement Benefit Schemes (EFRBS), Stamp Duty Land Tax (SDLT) schemes, Employee Bonus Schemes (such as the Growth Securities Ownership Plan (GSOP)), Capital Gains Mitigation schemes (such as Entrepreneurs Relief schemes) or Business Premises Renovation Allowances (BPRA) schemes.  In each case HMRC has relied on the purposive approach.  It is likely that HMRC's aggressive tactics will only increase the more the Court cements the purposive approach.

The reality is that if you have used a personal services company in the last 10 years or so and have avoided paying NICs or income tax as a result, it is very likely that HMRC will want to look into your tax returns. 

What can you do?

Get in touch with us.  Often the sooner you engage with this problem the better.  We represent a growing number of clients who were providing services in this way and have helped clients to negotiate a settlement with HMRC following enquiries.

In addition to assisting clients with HMRC determinations and enquiries, we have also been successful in obtaining compensation from parties' professional advisers.  Typically clients have conducted their tax affairs in this way following advice from their accountant, financial adviser, tax adviser or even their solicitor.  These professional advisers owed a duty of care to provide honest and appropriate advice on the risks associated with tax avoidance.  In such circumstances a professional negligence claim may exist.

A word of caution: Limitation

HMRC will often go back at least 10 years in its enquiries.  If you do wish to bring a compensation claim against a professional adviser, you must act quickly.  You can only bring a claim within six years of the negligent advice being given or, alternatively, within three years of finding out that the advice may have been negligent.  Once a matter falls outside this time limit you may not be able to pursue the adviser.

Our advice?  Don't bury your head in the sand. Pick up the phone and talk to a professional.  We may be able to help. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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