Establishing a company to act as an intermediary between yourself and the clients to whom you provide your services can have substantial tax advantages. As a case involving a broadcast journalist showed, however, such arrangements are pointless if the underlying relationship is, in substance, one of employment.
Via her personal service company, the journalist entered into a seven-year contract with a national broadcaster. HM Revenue and Customs (HMRC) took the view that Income Tax and National Insurance Contributions should have been deducted from her income at source. That was on the basis that, had the company been taken out of the equation so that she provided her services directly to the broadcaster, there would have been a contract of employment.
After HMRC raised demands against the company totalling £419,151, the journalist pointed out that, during the course of the contract, she had considerable editorial independence. She had set up the company on the broadcaster's suggestion and was not afforded the range of benefits enjoyed by its employed personnel. Her challenge to the demands was, however, rejected by the First-tier Tribunal.
In dismissing her appeal against that outcome, the Upper Tribunal found that she had, in effect, held a full-time job with the broadcaster under a fixed-term contract. The broadcaster had the right not only to require her to work on particular days, but to direct what work she did. It could also edit her material as it saw fit and had ultimate control over the way she provided her services. The relationship with the broadcaster was, therefore, that of an employee.