It wasn’t long ago that all HMRC enquiries took the form of individual Compliance Checks, where an officer of HMRC would write to you, hold a meeting with you, review your records and reach a conclusion (not always right) based on all of this, or evidence as it was commonly called.
Times are changing though, and in a world where all public bodies are being asked to do “more for less”, and let’s be blunt, with a workforce that is less skilled than before, they have had to come up with new ways of working. These ways rely on encouraging taxpayers to correct any grey areas more out of fear than any proven wrongdoing.
The letter to contractors of GSK are the latest example of this new working method.
Here is an example where the Revenue has targeted a sub-set of the taxpayer population of a particular end client, and essentially tarred them all with the brush of tax evasion. The accusation (of being inside IR35) made without any basis whatsoever. HMRC then ask that everybody review their position and correct it or face the threat of severe penalties.
There have by now been plenty of blogs and articles on the legalities and practicalities of such a request so I will not cover old ground. However, many have asked me – why have the Revenue chosen GSK contractors?
The answer is that I suspect that GSK will not be alone but simply the first in a number of end clients that will be targeted in such a way.
Preparing the ground
HMRC these days tend to divide their work into what it call “sectors”, but what most would refer to as industries. My educated guess is therefore, this is a clearly defined project looking at contractors in the Pharmaceutical industry as a whole.
Such a project probably had its origins as far back as 12 months ago, where it would have been scoped and signed off. HMRC will have been preparing the ground ever since.
This would have likely started with HMRC requesting all 2018/19 payments to contractors from the targeted end clients. This may have been an informal request through the Customer Relationship Manager that HMRC assigns to all large businesses, but more likely would have been by using the formal powers that they have to compel these end clients to provide such payment information.
Once in receipt of that data, they would have matched it to their own records to remove those that are operating inside IR35, or at least you would hope they would! Once that data was cleansed, then they would write to all those who received payments and hope that many will do the work for them and declare they were indeed inside IR35 and make payment. This is of course the stage we are at now.
Working down the list
After a suitable time period, I expect HMRC to open individual compliance checks into those that received the highest payments, and work down the list until it’s exhausted or the project hits its target. If it is a success, and that definition will most likely be a simple calculation of additional tax collected, rather than resource required or how many were actually correctly declaring outside IR35. That done, they will move on to the next industry.
I suspect that this is only the beginning and will gain pace before IR35 in the Private Sector crystallises in April 2020. Whatever HMRC is planning to do going forward, we at WTT are prepared and ready to guide and support any contractor through the maze of issues, and indeed, help them plan and protect themselves in the future, regardless of industry or “sector”.
If you have any concerns over the matters raised above and would like talk them through, then call us. Our initial consultation is free. We are here to help.