HMRC LOSES £100K IR35 ENQUIRY IN ANOTHER STORY OF TAXMAN’S APPROACH TO COMPLIANCE

blog header image

Posted : 20 Feb 2019 at 10:18:35
Category: News

Share this article

With many of us looking ahead to what HMRC has in store for the roll-out of private sector IR35 reform next year, you could be forgiven for not noticing the current behaviour of the taxman. But it was again brought into sharp focus this month in a disturbing case of a needless IR35 enquiry, delay, lack of transparency and indifference to the impact of the contractors involved. 

Last week, Qdos received the welcome news that we had successfully shut down a year-long IR35 enquiry where the tax liabilities would have amounted to more than £100,000 for two contractors, both of whom are directors for the limited company that was under investigation.

 The outcome was a huge relief for the contractors of course, whose company was protected with tax enquiry insurance. And it was another win for Qdos. But there is a bigger story behind this that’s worth exploring. The inadequacies the case brought to light and latest defeat inflicted on HMRC should be of concern to all of us.

 The length of time it took the taxman to accept reality is another indication of HMRC’s lack of care for contractors’ well-being.

We are left asking a number of questions about the case. Why, when the right of substitution was exercised regularly by the contractors on the two projects being investigated, did it take HMRC more than a year to accept that they both belonged outside the scope of IR35? The length of time it took the taxman to accept reality is another indication of HMRC’s lack of care for contractors’ well-being. There appears to be a tendency to draw things out for the long-term.

 So why did HMRC, that has shown so much faith in its IR35 technology, choose not to use it to assess the status of these two individuals?

Of course, demonstrating substitution alone doesn’t always mean a contract should sit outside IR35, but when assessed by CEST - the taxman’s very own IR35 tool - it does. Put any engagement with a genuine right of substitution through CEST and it will deliver an outside IR35 verdict. So why did HMRC, that has shown so much faith in its IR35 technology, choose not to use it to assess the status of these two individuals? Was this deliberate or just another sign of the internal chaos and disorganisation at HMRC? I’ll let you decide, but whatever your opinion, it doesn’t look good for the taxman.

 Furthermore, in our team’s expert opinion, control was not exercised by either end-clients. By all criteria, it was a fairly cut and dried case, but HMRC seemed determined to go the distance in what wasn’t your typical IR35 enquiry.

 This case was slightly unusual, and not just for the fact that it involved two contractors working through one limited company. HMRC initially opened a Corporation Tax enquiry in 2017 before deciding to pursue the business in January 2018 for IR35 liabilities. Was this merely a coincidence? We can’t rule it out, but the chances of this do seem slim. And so we’re led to wonder whether this was a move to target the company one way or another based on information sharing between departments. As always, HMRC will keep its cards close to its chest, but for all we know this could be a sign of things to come.

In addition to HMRC finally accepting that IR35 did not apply (I hasten to add they didn’t specifically disclose why), there was one other positive to take from this particular case. The two private sector end-clients were very supportive of the contractors’ outside IR35 status, emphasising just how important it is that contractors, clients and when involved, agencies, are joined up in their thinking.

IR35 reform can be managed but accurate assessments must be prioritised over risk-averse decisions. 

This part of the story at least bodes well for contractors, many of whom quite understandably have fears about the private sector’s readiness for next April, when medium and large engagers become responsible for administering IR35. It shows that some private sector companies are ready to contribute to the discussion, take the matter seriously and will support contractors’ outside IR35 status. We’re working hard to make sure this message carries through when the liability shifts to these engagers next year - IR35 reform can be managed but accurate assessments must be prioritised over risk-averse decisions.

 HMRC also has a responsibility to play its part in all of this too. After suffering yet another loss, the taxman needs to rethink the way it enforces IR35 - because right now, its current strategy clearly isn’t working.


If you are engaging Self -Employed contractors and are really not sure how to confirm or check the status, especially with the current issues being highlighted with the HMRC CEST system, please get in touch with one of our Service Consultants on 0207 700 2000.


https://www.linkedin.com/pulse/hmrc-loses-100k-ir35-enquiry-another-story-taxmans-shambolic-maley/

LATEST SIMILAR NEWS

HMRC HITS CATERPILLAR FOR £37M
Posted on: 02 Dec 2019 at 10:04:49
The UK tax authorities have clamped down on Caterpillar’s tax avoidance methods in the UK and billed it for £37.5m.Haul truck made by Caterpillar in the UK using globally source componentsThe tax demand followed a review by HM Revenue & Customs of Caterpillar’s transfer pricing agreements....
CV FOR SELF-EMPLOYED OUTSIDE OF IR35
Posted on: 28 Nov 2019 at 07:27:57
Making sure that your CV and online presence is adjusted for IR35 as of April 2020 is essential.So what does a post-IR35 reform CV look like? And what steps should Limited Company Contractors take now to get their primary work-seeking paperwork reflective of their genuinely self-employed status?CV,...
EMPLOYER CONFIDENCE IN THE UK ECONOMY DROPPED FURTHER IN THE RUN-UP TO THE GENERAL ELECTION, TO A NET FIGURE OF -34.
Posted on: 27 Nov 2019 at 12:35:39
ARE THE 5 MILLION SELF-EMPLOYED WORKERS SEEN AS AN IMPORTANT PART OF THE ELECTORATE?
Posted on: 26 Nov 2019 at 18:31:31
Following on from Boris Johnson unveiling the Conservative manifesto on (24/11/19) and the Liberal Democrats announcing theirs (20/11/19), it appears the 5 million votes of the self-employed are being viewed as an important section of the electorate.Julia Kermode, chief executive of The Freelancer &...
FLEXIBLE WORKERS AND WHAT MOTIVATES THEM TO CONTRACT OR TEMP
Posted on: 22 Nov 2019 at 12:24:36
KEY FINDINGS Flexibility and good work go hand in hand. Understanding motivators for individuals and businesses is key to maintaining and enhancing two-way flexibility that benefits all parties. Here are some core messages from our research: } Flexible work is the new normal – two in five people in...
FLEXIBILITY WORKS: WHY PEOPLE CHOOSE FLEXIBLE WORK
Posted on: 22 Nov 2019 at 12:13:32
Flexibility works: Why people choose flexible workGood work and flexibility go hand in handThe world of work is evolving, but flexible work has remained a significant and steady feature of the UK labour market. On any given day recruiters place over a million people into temporary and contract assig...