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The Review and "Retro" IR35 Investigations

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    The Review and "Retro" IR35 Investigations

    There's already been about 1,749 threads on the risk of "retro" investigations, HMRC targeting your historical contracts with your client if your role is declared inside IR35, if you go brolly with the same client, or if you go perm with the same client. Perhaps one of the more important ones is here:
    https://www.contractoruk.com/forums/...ould-i-go.html

    There's also been some discussion about what HMRC specifically said about this topic:
    HMRC has already committed to not using information resulting from the changes to therules to open a new compliance check into Personal Service Companies for tax years priorto 6 April 2020, unless there is reason to suspect fraud or criminal behaviour.
    I've previously expressed my view that "reason to suspect" can be used to open any investigation that they want. They don't have to actually have any evidence, they just have to have "reason to suspect" and then they can open the investigation. Even if they open it and don't find "fraud or criminal behaviour," once it is open it is open and then they just might "find" that you actually should have been inside IR35 all along.

    Now that I've read the review in entirety, I think I've found what they will use as "reason to suspect." It's in their response to the blanket PSC bans.

    They have always claimed that the reform would not impact those who are truly self-employed. The blanket PSC bans strike at that claim, so they've found an excuse that lets them keep it:

    2.15 The Government is aware that some organisations are considering whether PSCs are the best way to engage contractors who are working like employees. Businesses reported that where individuals had been moved onto payroll, this was a result of a review of the structure of their workforce.
    If you stop and think about that, what they are saying is the blanket PSC bans are coming in because organisations were engaging contractors who were working like employees.

    In other words, the "it's a policy decision rather than a determination" defence isn't going to work with HMRC. They can't acknowledge "policy decisions" because that would move some truly self-employed people onto payroll and so make the "reform" impact the truly self-employed, when they've been denying all along that it would. So they have to treat "policy decisions" as a determination that contractors were "working like employees".

    So clearly, HMRC's policy (whether they actually believe it, or whether they have adopted it to spare their blushes in the face of blanket PSC bans) is that a blanket ban IS an inside determination.

    That means if you've been contracting for a client that has instituted a blanket ban anytime within the last 6 months, HMRC now is on record as believing you were inside (whether they actually believe it or not, that's their policy). And if you didn't declare yourself inside, then that means they have "reason to suspect" that you have engage in "fraud or criminal behaviour" and so, within their policy, grounds to open an investigation.

    If you go brolly with the same client through the same agent, there is, in my view, a substantive risk that they will match you up and decide there is basis to investigate you, and they have already prejudged the matter that you were "working like an employee." The fact that they have prejudged the case will be damaging to their case and beneficial to yours once you get to tribunal, but you'll possibly have months or years of misery before it gets that far.

    I still do not think those impacted by a blanket ban will be their first or easiest target, but this review should not give you any comfort. If you are going brolly with the same client and you have any significant exposure on prior contracts with the client, you should get your company closed ASAP, in my view.

    #2
    Useful post WiB but this comment is pretty earth shattering.

    So clearly, HMRC's policy (whether they actually believe it, or whether they have adopted it to spare their blushes in the face of blanket PSC bans) is that a blanket ban IS an inside determination.
    It's the polar opposite of what we've been saying on here for a long time (aside from a couple of threads) and the common thinking on this. I really think this needs investigating and highlighting.

    Are there any articles or expert opinion around we can link to this to try and clear it up rather than it being just another opinion? I'd be surprised if Dave Chaplin hasn't picked this up for example?

    It's so important IMO we need to qualify and stick that as a heading for sticky.

    Also my opinion on the 'fraud or criminal activity' is that HMRC will see his as a fairly simplistic tool to use as WiB mentioned. I would imagine anyone in their eyes stating that they are outside with no diligence carried out i.e. contract checks etc would be committing fraud in their eyes. It's false statement to gain a tax advantage. Doing some diligence and getting it wrong is a disagreement over the situation which is different. Either way they will think it's fraud and use that to investigate.
    I think that's another key area that needs further expert opinion IMO.

    Thanks WiB. Great post.
    'CUK forum personality of 2011 - Winner - Yes really!!!!

    Comment


      #3
      A damning find, but I do think going from

      2.15 The Government is aware that some organisations are considering whether PSCs are the best way to engage contractors who are working like employees. Businesses reported that where individuals had been moved onto payroll, this was a result of a review of the structure of their workforce.
      to

      what they are saying is the blanket PSC bans are coming in because organisations were engaging contractors who were working like employees.
      is a bit of a leap. Whilst not quite a 2 + 2 = 5 scenario, I do think you're adding them up and getting to 4.1 (or maybe 4.01).

      The first sentence refers to PSC engagements with contractors "who are working like employees", implying that the second sentence also refers to the same. I accept if can be read to mean what you suggest though.

      But, I'd agree with this:

      I still do not think those impacted by a blanket ban will be their first or easiest target, but this review should not give you any comfort. If you are going brolly with the same client and you have any significant exposure on prior contracts with the client, you should get your company closed ASAP, in my view.

      Comment


        #4
        Yes an interesting post.

        But, realistically if you've got the stage where a human is investigating I think this would be a weak indicator, and that they would put more weight on the facts of your pre-April engagement.

        I am not taking up the offer of an 'inside' contract and my deliverables are being off-shored - I don't think they would care about this in an investigation.

        Having said that, while 'blanket ban/assessment' may be a weak indicator in reality, it fulfils HMRC's broad definition of fraud, and they are a naturally suspicious bunch aren't they... so...

        It all depends on the data. Do they have access to data that can identify you as a 'fraud suspect'?

        Also, realistically HMRC don't have the resources to split hairs for the large volumes available post-April - they will be going mail-merge / guilty until innocent for the vast majority of us, or carrying on plucking juicy individual cases for 'special attention' (or both, or neither).
        Last edited by SouWester; 28 February 2020, 10:50.

        Comment


          #5
          It's a cover story, HMRC are in a corner on big business policy changes, that's all.

          I'm sure HMRC would like to think policy change = 100% inside, but they'll never use it. It'll get shot down immediately when tested, but it's a good line to bash out on question time if it comes up in a few weeks time though, post budget.

          Comment


            #6
            They will certainly use nudge letters in this scenario but will probably fail in actual cases at the same rate they fail at tribunal currently (so 50% or whatever). This is mainly a target rich environment for nudging, which is happy days for HMRC in itself - cheap to do and known to work.

            Comment


              #7
              Originally posted by northernladuk View Post
              Are there any articles or expert opinion around we can link to this to try and clear it up rather than it being just another opinion?
              I did indeed find an expert opinion from a particularly trusted source.

              HTHBIDI

              Comment


                #8
                Originally posted by Paralytic View Post
                Whilst not quite a 2 + 2 = 5 scenario, I do think you're adding them up and getting to 4.1 (or maybe 4.01).
                No doubt. Do you doubt HMRC's capability and shall we even say "propensity" to do the same kind of math?

                Comment


                  #9
                  Originally posted by SouWester View Post
                  But, realistically if you've got the stage where a human is investigating I think this would be a weak indicator, and that they would put more weight on the facts of your pre-April engagement.
                  No doubt. The problem is them using this to decide who to target. And they will still be able to argue that "your client thinks it should have been inside, that's why they said it had to be payroll." They'll still be biased in how they interpret the "facts of your pre-April engagement," which is likely to make the investigation process quite painful.
                  Originally posted by SouWester View Post
                  It all depends on the data. Do they have access to data that can identify you as a 'fraud suspect'?
                  Yes. That's the risk of going brolly through the same agent, they'll have that data.
                  Originally posted by SouWester View Post
                  Also, realistically HMRC don't have the resources to split hairs for the large volumes available post-April - they will be going mail-merge / guilty until innocent for the vast majority of us, or carrying on plucking juicy individual cases for 'special attention' (or both, or neither).
                  Well, they'll have six years, won't they?

                  Comment


                    #10
                    I am truly amazed at the number of contractor friends and ex-colleague contractors who have put their heads in the sand over IR35 April 2020.

                    A number of them have discussed it with me but are carrying on regardless of having been told they will have to go through an Umbrella from April. They are ignoring my warnings of retro action from HMRC and are ignoring the obvious signs of no support from their clients. It beggars belief - and I know they aren't desperate for the money, they could take a bit of time off to assess the landscape. It is just purely lazy and ignorant behaviour.

                    But then again - I would have always classed them as inside IR35, so perhaps it isn't surprising that they are just carrying on as though nothing has happened.

                    Ultimately if you are in business on your own account then you have to manage your business. Not just your daily workload in the office. And managing that business means having knowledge of all things that impact your business, and not just focussing on your technical skills in the office.

                    I see the same problem with Section 24 taxation in the property letting business. The number of landlords who still aren't aware of this tax change is shocking.

                    The government is desperate for money. We're f&*ked in the UK. I've been through the Loan Charge fiasco - trust me: HMRC will come after every pound they can get, they will f&*k you up for every last pound. Whether you actually owe it or not.

                    Comment

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