It’s been over a year since HMRC wrote to 1,500 contractors accusing them of incorrectly working outside IR35 when working on a project with the pharmaceutical giant, GlaxoSmithKline (GSK).
You may recall, in these letters, the tax office took the view that contractors - many of whom were still working with GSK at the time - were guilty of non-compliance. This is despite HMRC not having examined each contractor’s working practices, which often hold the key in an IR35 case. Even more concerning was that the letter went as far to outline ways these individuals could calculate and make the ‘deemed payment’, which is tax owed from a contract that falls inside IR35.
While the tax office is yet to respond to the replies that Qdos sent on the behalf of many contractors who sought our assistance, the ‘one to many’ approach taken here by HMRC raises a number of important questions, including:
Let’s take a look...
Quite possibly. As our CEO, Seb Maley, explained in a recent Contractor UK article, blanket enquiries could become the norm upon the arrival of IR35 reform. But why is this? Put simply, because the end-client will soon be tasked with determining IR35 status (with the fee-paying party held liable) and role-based IR35 assessments are allowed (although Qdos advises businesses not to conduct these). This means numerous contractors with the same contractual conditions may be placed outside IR35 at once, which therefore leaves the door ajar for HMRC to carry out multiple enquiries simultaneously.
Even if a role-based IR35 decision hasn't been made, and contractors have been individually assessed, HMRC may choose to cast its net far and wide in the hope of cornering contractors, similar to the GSK scenario.
Granted, a hit and hope approach to tax compliance isn’t something you might expect from the tax office, but it’s no secret that the Treasury is under pressure to raise tax revenue as a result of COVID-19 and sees IR35 as an area in which to do so.
Both, realistically. While it will soon be the fee-paying party that carries the IR35 liability in the private sector (unless a contractor is engaged by a small company), HMRC allows itself to scrutinise contracts that took place up to six years ago. You may have heard that the tax office said IR35 reform will not be retrospective, but even so HMRC will have no hesitation in investigating engagements that took place before the changes if “there is reason to suspect fraud or criminal behaviour”.
This means contractors cannot rule anything out and should continue to protect themselves from IR35 for the foreseeable future, given the possibility remains that HMRC could investigate a contract completed when the individual carried the liability.
Very little in terms of stopping HMRC from opening up an IR35 enquiry into an existing or previous engagement that took place before IR35 reform. Therefore, contractors must instead prioritise their IR35 compliance at the very least until their medium and large private sector clients take on the responsibility for IR35, much like in the public sector.
Beyond the introduction of IR35 changes on 6th April 2021, and to mitigate the risk of a tax investigation into a contract completed before the liability shifted to the fee-payer, contractors can protect themselves with tax liability insurance.
This covers any tax liability, interest and penalties up to the indemnity on the policy, along with expert IR35 advice and representation. In addition to an IR35 enquiry, this invaluable policy includes tax investigation into PAYE compliance, VAT disputes and a number of other tax-related events.
To learn more about Qdos’ leading tax liability insurance policy, which could prove vital if HMRC decides to pursue contractors in a manner similar to those engaged by GSK, please click here.
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