So I assume you voluntarily pay more tax than you are required by law then? Or are you saying "no you can't have that - it's all mine'?
I am sure Lorraine pays tax (or she'd be in prison) but the HMRC clearly believe she should be paying more.
Regarding your question - I have received notices from HMRC in the past that I owed them tax and I paid up. Sure it wasn't over a million but I paid them what I owed them.
This ruling from the judge may well be lawful but it doesn't mean it's ethical.
I guess Lorraine's tax bracket is at the 45% mark? Her salary must be large from ITV.
That's the entire point of this issue. Lorraine isn't taxed as PAYE (Pay As You Earn) with normal employer deductions for income tax and national insurance.
Instead Lorraine's services to ITV are provided by her service company, who ITV pay. ITV aren't employing Lorraine directly, they are contracting Lorraine's service company to provide her services (just as you might contract a cleaning company to clean your offices, rather than directly employing cleaners yourself)
This means ITV don't pay any employer national insurance contributions, and don't handle her income tax via PAYE. Those responsibilities are devolved to the company that employs Lorraine (i.e. her own service company).
Lorraine's service company employs Lorraine, not ITV. Her service company may employ her at a very low salary (so she doesn't pay any income tax, or only pays at a low rate) and only pays a small amount of National Insurance contributions.
Her company keeps the rest of the ITV payment (pre-tax), and then pays the company shareholders (Lorraine, but possibly also her husband, kids, relatives etc.) lumps sums via dividends, which are then also taxable, but possibly not at the same rate as would be the case for PAYE income tax, and won't incur NI payments.
Similarly Lorraine's company may cover a lot of her expenses, allowing money to spent that has yet to be taxed as income (though some of these may be taxed as benefits).
This is a widespread technique to reduce the amount of tax paid by people, and was deemed legal and acceptable for many years.
It is a technique the HMRC are trying to reduce the use of though, particularly where people working via service companies are doing so only to avoid being taxed PAYE, and where employers are using it to minimise their NI payments, when the people working are, in effect, direct employees.
Lorraine seems to have argued that as she is a performer, her approach to taxation was valid. HMRC was arguing she should refund the HMRC the amount they believed she saved in tax payments (comparing her service company taxation payments vs what she would have paid if she had been PAYE)
Last edited by noggin on 23 March 2019 10:56am - 3 times in total