Business as usual for HMRC

HMRC's appetite for enquiries shows no sign of being appeased

Despite the impending IR35 reform in the private sector, HMRC appear in the meantime to be surprisingly active in their long running pursuit of contractors, and are increasingly demonstrating their appetite to take enquiries to tribunal with little regard for the evidence presented to them.

This is particularly reminiscent of the Jensal Software case where, due to the strengths of the evidence, it was Qdos’ opinion that the enquiry should never have resulted in a tribunal hearing.

Qdos are currently dealing with an IR35 enquiry where we are extremely confident of our prospects of success. Many of the key status tests; Right of Substitution, Control, and Mutuality of Obligation are evident and supported by the end client. Despite this, HMRC are continuing their pursuit to the point where we have had to submit a complaint to HMRC due to the Inspector’s reluctance to accept evidence. This has resulted in an appeal being lodged with the tribunal, for which the hearing date is due to be confirmed shortly.

HMRC’s motives for being reluctant to accept evidence are unclear, particularly given their success rate in tribunals of late, which has been particularly low even by their standards. This is certainly not useful propaganda for HMRC – the costs involved in a tax tribunal are considerable, and HMRC’s lack of success in most cases of late, most recently involving ITV Presenter Lorraine Kelly, demonstrates that it’s perhaps not one of the most productive ways to spend taxpayers’ money.

Despite HMRC’S lack of success with IR35, HMRC have had some success with the Managed Service Company Legislation (MSC), involving Costelloe Business Services, where all of the workers were deemed to be Managed Service Companies. 

A typical MSC is a form of intermediary company through which workers provide their services to end clients. Essentially, a scheme provider promotes the use of these companies and provides the structure to workers. The worker, despite being a shareholder (or partner), does not exercise control over the company.

The effect of the legislation is similar to that of IR35 and where a contractor is deemed to be an MSC, HMRC will look to reclassify all payments received for the services provided by an individual as employment income, subject to PAYE and NICs.            

Following HMRC’s success with the MSC legislation, Qdos have been notified of a number of enquiry letters having been sent out to contractors, not concerning IR35 but the MSC legislation instead. Click here for more information on how to determine if you would be deemed an MSC.

Perhaps HMRC are hoping for some further accomplishments to bridge the gap between their successes and failures, and if HMRC are not successful in deeming a contractor to be an MSC, there’s always IR35 to fall back on.

You might think that HMRC’s activity would have lessened in view of impending IR35 reform into the private sector, however this has proven to not be the case and it certainly seems to be business as usual for HMRC in their relentless pursuit of contractors.