Readers' forum: VAT about IR35?

Taxpayer company X Ltd has many directors some of whom work full time and are on the payroll. Others are on the board for their particular expertise and are not involved in the day-to-day business but tend to do one-off consultancy work. The latter group have their own personal service companies (PSCs) which invoice X Ltd for their services and charge VAT. There are consultancy agreements in place between the parties. HMRC is denying X Ltd an input tax deduction on the PSC invoices. It says the PCSs are not acting as taxable persons when making their supplies and there is no economic activity in Principal VAT Directive terms.

The conclusions of a review letter (the result of extensive correspondence between us and HMRC) state: ‘A director of a company is an employee of that company ... as a director they have a contract for service with the company...