In our experience IR35 investigations have tended to focus on IT contractors, but Qdos Contractor are currently defending three contractor clients who are offshore workers in the oil and gas industry, and have been selected for IR35 enquiry.
IR35 is a tax legislation which seeks to reclassify workers as employees, leaving the worker with a potentially crippling tax bill.
They all have one thing in common. All three contractors provided their services to Amec Foster Wheeler, a technical services company for the energy sector which has recently merged with Wood Group plc. Whilst HMRC have never, and are unlikely to, disclose their selection criteria, this supports a longstanding theory that they will find an end client who uses a number of limited company contractors and select a few to investigate.
If successful, they are more likely to investigate more of their contractors as the chances of success are much greater. This was also true for two of our IT contractor clients we interviewed last year, who worked at the same end client where a number of contractors were being selected for IR35 enquiries.
According to one of the clients, Amec sat down with HMRC to help them forge an IR35 compliant contract a good number of years ago. Whether this prompted the current enquiries today is unclear, but it would seem odd for HMRC to probe the contractors of a company who seems to have taken proactive steps to ensuring the IR35 compliance of their contractors.
The case of Usetech Ltd v Young was a key case in demonstrating the impact that the upper level contract can have on a case.
Mr Hood was a computer software specialist, providing 3D drawings of oil and gas equipment to the industry via his limited company, Usetech Ltd. Whilst the contract between Usetech Ltd and the agency contained a clause for the right to send a substitute (a key factor in proving self-employment), this was merely a standard contract and the clause didn’t exist in the upper level contract between the agency and end client.
Along with some strict hours and termination clauses also present in the upper level contract, it was ultimately concluded that this right of substitution did not exist in reality. Usetech Ltd was therefore liable for the tax, NICs, and interest owed.
All three enquiries are being worked out of the IR35 unit in Edinburgh, one of four IR35 specialist teams across the UK, and are all currently in their infancy. Could these recent enquiries be a turn in direction for HMRC?
Whilst the oil & gas industry may not be as buoyant as it once was, HMRC can go back several years and may see the market as ripe to exploit.
Only 20% of Qdos’ energy sector contractors have some sort of IR35 protection in place. We can insure both the defence costs and potential tax liabilities for as little as £17 per month. As an illustration, an oil and gas contractor on a day rate of £500 could be looking at an IR35 liability in excess of £150k for a 6 year period (this is an estimate – book a free personal IR35 liability calculation with one of our consultants).
If you are an oil and gas contractor who hasn’t considered IR35 yet, now is the time. We have a wealth of guidance on the website and downloadable guides available. Alternatively, get in contact to speak with one of our specialists.
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