IR35 GSK: HMRC prescribes bad medicine to off-payroll workers

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

IR35 GSK: HMRC prescribes bad medicine to off-payroll workers

 

The rain showers are now more frequent, the tans are starting to fade and both children and adults alike are becoming even more fidgety than normal.

 

Add that all up and it means that we’re just about at the end of the summer holiday season.

 

Of course, many of us might have used our vacations not only to draw breath from busy work schedules but to practice some of the dwindling foreign vocabulary retained from our school days.

 

That may be why my brain kept returning to one French phrase, in particular, while mulling over HMRC’s latest tax crackdown: plus ça change, plus c’est la même chose.

 

Despite the impending departure of its Chief Executive Sir Jonathan Thompson and a recent series of high-profile reverses in relation to its interpretation of the rules on off-payroll working (both of which have been explored elsewhere on this ‘blog), the Revenue seems positively immutable when it comes to IR35.

 

Its behaviour reminds me of a boxer who, having taken several lusty blows to the head, insists on continuing regardless of the possibility of concussion.

 

Rather than reflection, HMRC has, in the last month alone, decided to press ahead with the expansion of its off-payroll campaign.

 

On the very same day, in fact, that it published the results of a three-month consultation about its plans to apply new off-payroll rules to the private sector, it announced a new Finance Bill including the changes.

 

Anyone with even the most superficial understanding of official administration will acknowledge that Government departments aren’t terribly fast in digesting information and converting it into a coherent plan of action, which might reinforce the suspicion that the changes were a foregone conclusion.

 

They’re required, says HMRC, because there’s “widespread” non-compliance with the IR35 rules which came into effect in 2000.

 

Two years ago, therefore, ministers introduced reforms requiring public sector bodies using freelances to determine whether someone was bound by the rules as opposed to contractors themselves.

 

According to the Revenue, the switch has generated an additional £550 million of Income Tax and National Insurance Contributions (NICs).

 

With figures like those, you might argue that it’s a no-brainer for HMRC to apply the changes to the private sector too, something which it intends to do for medium and large-sized enterprises from April next year.

 

Yet even before such rules take effect, the Revenue has written to 1,500 self-employed contractors working for one of the country’s biggest pharmaceutical companies, GlaxoSmithKline (GSK) accusing them of being “disguised employees”.

 

One commentator told the Financial Times that HMRC was attempting to “terrify” contractors and was working on the basis that “these contractors are guilty until proven innocent”.

 

The letters coincided with a new guidance note for employers about the intended new off-payroll rules.

 

What they mean, in effect, is that as well as establishing whether the freelances whom they use are caught by the IR35 regulations or not, businesses will be responsible for calculating, processing and collecting all taxes due.

 

For those individuals “deemed employed for tax-purposes”, client companies will be liable for employer’s NICs and even liable for possible penalties if they haven’t  exercised “reasonable care” in assessing a contractor’s IR35 status.

 

I’m not sure whether the GSK letter was genuinely coincidental with the guidance note or timed to generate – in one of HMRC’s favourite phrases of recent times – “maximum impact”.

 

Nevertheless, the missive has ratcheted up the pressure on both contractors and companies alike.

 

Given that it’s only four months since a key tool created by HMRC to help determine whether someone falls within the ambit of IR35 – Check for Employment Status for Tax (CEST) – was roundly criticised by MPs, it’s fair to say that those businesses and individuals who have approached us for advice have exhibited a mixture of uncertainty about the rules and fear of the potential consequences.

 

Trying to comprehend the UK’s very lengthy tax code can be stressful enough, even without the kind of threats from the Revenue which GSK contractors and others have seen.

It is, though, possible to navigate the changes without pain, no matter how onerous you may consider them to be.

 

If you or your clients need help with tax issues relating to IR35, why not contact us at info@etctax.co.uk or on 01925 363006?

 

We have vast experience in dealing with companies and contractors regarding off-payroll rules since their introduction and can help you cope with the anxiety should one of HMRC’s strongly-worded letters drop through your letterbox too.

 

If you have any queries regarding IR35 GSK or IR35 in general then please do get in touch.

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