HMRC has written to some 1500 contractors who were at GSK (GlaxoSmithKline) in the 2018/19 tax year. The letter is similar to many others HMRC has been sending to contractors, but crucially has deadlines for responding and threats of penalties. The implication in the carefully crafted letter is that a failure to respond or to do as HMRC demands, is linked to the penalty.
The letter further suggests that if you think you should be taxed as a “disguised employee” for 2018/19, you need to pay the tax and NIC before 22nd September. You also need to consider whether you should be taxed this way in 2019/20. Finally, the letter indicates that in the event you consider you are not within the deemed employment rules, you need to supply evidence before 19th September.
A campaign begins
We will be reporting shortly on the statutory obligations of taxpayers and HMRC and others in this sector and what HMRC is hoping to achieve with these opening shots in what promises to be a long campaign.
We will also be examining the impact that this may have in relationships between the end clients and the intermediaries and the specialist IR35 firms, both in relation to the promised crop of enquiries and with one eye on the April 2020 deadline for IR35 decision making. HMRC is plainly seeking to influence the decisions made and frankly, is not being very subtle about it.
Initially, however we want to focus on two issues.
First, what are the implications for individual contractors should they have such a letter?
Second, what are the implications for those carrying insurance for such enquiries?
The letters are couched in terms that imply that failure to do as HMRC asks will inevitably result in enquiry, penalty and more of both in the future. As my colleagues will demonstrate in subsequent posts, HMRC is bound to follow the legal processes laid down in TMA 1970. There is for instance, no requirement to respond by the absurdly short deadlines presented by HMRC. There is a process for resolving disputes as to status, if necessary, via a tribunal.
Whilst it is advisable for recipients of these letters to seek advice and prepare for the inevitable pursuit from HMRC in order to “maximise revenue”, there is no direct connection between failing to respond and an immediate financial penalty.
It is certainly the case however that advice should be sought. Also, some form of response has to be made, even if only to ask for an extension.
There are many firms in this sector who offer insurance against the costs of an IR35 enquiry. Many of these firms have also perhaps advised on the original contract terms and perhaps have conducted in post reviews. Sometimes this insurance is part of the service offered by an agency. Sometimes it is a stand alone policy.
If you have such a policy and have a letter from HMRC, contact your insurer as soon as possible.
If this is the start of a long campaign from HMRC, those insurers are going to need to ramp up their resources quickly. Their model is also based on a low number of claims being made. If we see that rate increasing, then clearly costs will increase as a result. That will have implications for insured and insurers.
We will also inevitably see the rise of “defence groups”. Here though we question if this is viable.
One of the main arguments against IR35 reform is that end clients will apply a blanket decision to all or groups of contractors when each situation should be reviewed individually. (The irony that HMRC has contacted a large number of contractors with their own blanket “inside” determination is not lost on us.) A defence of a contractor will therefore need to be an individual one.
This presents a problem in that understanding how large companies work and how they engage with contractors is complex and time consuming. More so where that group operates several different models for engaging contractors.
Group actions work where a large number of individuals have undertaken substantially the same transaction. Where each contractor claims that for IR35 purposes, they are genuinely outside IR35 due to their individual circumstances, each defence has to be individual. Of course, some common elements will be present where they all work at a large end client, but otherwise, the benefits of critical mass are not going to be present.
In summary, for now, if you are insured, speak to the insurer. Then, speak to an adviser.