Brain food: Matters for the mind to chew on - Workplace rights - A tax on personal services

Brain food: Matters for the mind to chew on - Workplace rights - A tax on personal services - Setting up a personal services company seems like a wizard wheeze for saving tax. It works like this. Harry Potter sets up Harry Potter Ltd as an 'intermediary'

by MICHAEL BURD and JAMES DAVIES, Lewis Silkin, solicitors
Last Updated: 09 Oct 2013

Setting up a personal services company seems like a wizard wheeze for saving tax. It works like this. Harry Potter sets up Harry Potter Ltd as an 'intermediary' to provide his services to a client firm. By getting the firm to pay the intermediary company rather than himself, Harry can avoid paying tax and national insurance. And he can take the money out of Harry Potter Ltd as dividends rather than salary, again escaping NI contributions. Magic!

But the spoilsport Inland Revenue has broken the spell. New rules known as 'IR35' aim to remove the unfair tax advantages that people such as Harry have been enjoying over other workers. Under IR35, if, without the personal services company, the individual doing the work would have been an ordinary employee of the client firm, all money paid will be subject to normal tax and national insurance.

So that's the story, hogwarts and all ...

e-mail: info@lewissilkin.com.

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