Both of the following cases were covered by Qdos Contractor under their Tax Liability Cover policies and show that despite similar cases, the approach taken by HMRC can often be quite different.
In both cases, the contractor had ceased trading and Qdos had presented HMRC with the same case reference for dismissing the enquiry. In spite of this, in Case A's situation, the inspectors took note and closed the case almost right away, whilst in Case B's situation, the enquiry was dragged out for another 12 months until ultimately arriving at the same conclusion.
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Contractor A's company provided engineering services within the oil and gas industry and had ceased trading in July 2013, having made application to be struck off Companies House register once final accounts to June 2014 had been drawn up.
In July 2014, HMRC opened an IR35 enquiry into the period 01.01.12 – 30.06.14. Qdos issued a response the following month, providing HMRC with all the information requested but also pointed out that the company had ceased to trade a year previous and that the company was devoid of any assets.
Qdos reminded HMRC of the case of Larkstar Data Ltd v HMRC (2008) where the contractor decided to retire and not contest HMRC’s appeal so as to protect his family from further stress. Thus, by the time the appeal was heard by the Special Commissioners, there was only £129.79 left in the company’s bank account. HMRC were therefore left impotent in terms of collecting the resultant PAYE and NIC liability following their successful appeal. Even if the contractor was to concede that IR35 applied, how would HMRC collect the PAYE tax and NIC?
HMRC did appear to take notice and the IR35 team at Crawley, who tend to be more pragmatic than their colleagues in the other teams around the UK, agreed that the contracts fell outside of IR35 in October 2014.
Contractor B’s company provided management and IT consultancy services to BT. The business had only started in 2010, when in October 2014, HMRC’s IR35 team in Bradford launched an IR35 enquiry for the year ending 05.04.14.
All opening information was provided and as in the case study above, the analogy to the Larkstar Data Ltd case was used, as the PSC had ceased to trade and the contractor had moved into full time employment. Consequently, an application had been made to dissolve the company which was being held up by HMRC’s objection whilst they conducted their enquiries.
The contractor had undertaken their IR35 diligence by having the company’s contracts and working practices reviewed and deemed outside of IR35.
The contractor declined the invitation to meet with HMRC to discuss their working practices, so all this information was provided via electronic correspondence. After reviewing all the information HMRC decided in April 2015 that they wanted to discuss the working practices with BT.
Months passed without HMRC being able to arrange a meeting with BT until Qdos’ Head of Tax lost patience with the Revenue’s ineptitude and lodged an official complaint in August. This had little effect as the Complaints Team simply supported the officer handling the enquiry.
In November 2015, HMRC finally met with BT and a month later opined that the contracts fell outside of IR35.