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Self Assessment tax return: service companies question

Amended guidance

The guidance relating to the service companies question on page TR4 of the 2007-08 Self Assessment tax return for individuals has been revised.

We acknowledge that with hindsight the question on the tax return and original guidance were unclear, for which we apologise.

Since concerns were first raised, HM Revenue & Customs (HMRC) has been working closely with representatives of the Institute of Chartered Accountants in England and Wales (ICAEW) and the Chartered Institute of Taxation (CIOT) to make the text of the question and the guidance clearer. We are pleased to announce that as a result of that collaboration we have now developed:

  • clearer guidance in the tax return guide which should be read when completing the 2007-08 Self Assessment tax return and tax returns for future years
  • revised wording for the service company question, which will first appear on the 2008-09 Self Assessment tax return

The amended guidance is reproduced below. HMRC will shortly update the 2007-08 tax return guide (SA150) on the Self Assessment returns part of our website to reflect the new text.

The text of the revised question for 2008-09 is also reproduced below for information.

If you have already submitted your 2007-08 Self Assessment return

If you have already submitted your 2007-08 Self Assessment tax return, you do not need to take any action as a result of these changes. There will be no adverse consequences simply because you completed (or left blank) the question in a return filed prior to today’s date.

Record keeping

It is not necessary to keep any additional records to determine whether more than half of the company’s income was derived from services performed by the shareholders personally. Where the level of income derived from services performed by the shareholders personally is not readily discernable from existing records, best judgement should be used.

Updated guidance for 2007-08 onwards

Service companies

Complete this box if you provided your services through a service company. You provided your services through a service company if:

  • you performed services (intellectual, manual or a mixture of the two) for a client (or clients); and
  • the services were provided under a contract between the client(s) and a company of which you were, at any time during the tax year, a shareholder; and
  • the company’s income was, at any time during the tax year, derived wholly or mainly (that is, more than half of it) from services performed by the shareholders personally

Do not complete this box if all the income you derived from the company was employment income.

Example

Services are provided through a service company as described above:

Salary received from the service company (before tax)   £15,000

from the service company

   
Dividends received from UK companies (including tax credit)    
from the service company £50,000  
from a shares portfolio £ 5,000 £55,000
Total   £70,000
     
Amount to be entered (excluding the shares portfolio dividends)
in the service companies box (box 1 on page TR4)
  £65,000

Text of the revised question to be included on the 2008-09 Self Assessment tax return

If you provided your services through a service company (a company which provides your personal services to third parties), enter the total of the dividends (including the tax credit) and salary (before tax was taken off) you withdrew from the company in the tax year.