Do composite companies really protect their contractors from IR35?
Do they really offer protection?
I was interested in one of the responses to your questionnaire. I know several contractors who are currently contracting through them. One of these has only contracted through them, 18 months ago he was a permie, and knows nothing about IR35. He wouldn't have the knowledge to complete their dedicated questionnaire effectively. He says he isn't caught by IR35 because the company says he isn't. He gets paid the statutory minimum wage and weekly dividend payments to make up the balance of his contract rate.
Please advise if I have mis-interpreted the legislation but I think the Revenue have a clause that makes these payments subject to IR35.
The legislation is split into two sections the first if you have a material interest in the company (> 5% holding or > 5% receipt of dividends) and the second for the others. The second case was probably intended to safeguard employee membership schemes such as EDS.
Assuming the company's employees have less than a 5% share in their composite companies they would still be caught by the following clause:
'the payment or benefit is received or receivable by the worker directly from the intermediary, and can reasonably be taken to represent remuneration for services provided by the worker to the client'.
Isn't the fact that they pay the worker dividends based on his hours worked and contract rate a reasonable ground for concern?
Based on the number of contractors and companies on their books I guess each contractor has on average a 10% share of their company. I make that a material interest, don't you?
Why do they have over so many composite companies? I can think of only a couple of possible reasons maybe you could enlighten me.
1. To ensure they stay under the main corporation tax rate - if this is so isn't it tax evasion? Don't the Revenue have the right to look at the structure of a company and if its only purpose is to reduce tax liability then they can ignore it and apply the tax measures anyway.
2. To ensure that if they are investigated and caught by IR35 that only one company goes to the wall at a time.
-- iand_ces