27 August 2019 15:50
The Financial Times reports HMRC sent identical letters last week to contractors working in various departments of pharmaceutical company GSK, including IT and biomedical sciences. IR35 specialist Qdos claims many of the affected contractors have contacted it for advice on the letter, which states: "It is our view that the contract between your PSC (personal service company) and GlaxoSmithKline (GSK) comes under the off-payroll working rules 'IR35.'" Commenting further, Qdos CEO Seb Maley said: "In these letters, HMRC takes the view that contractors are guilty until proven innocent. This is yet another example of the taxman's aggressive and unfair treatment of independent workers. "At this stage, none of these contractors' actual working practices have been reviewed. Without doing so, it's impossible for HMRC to say with confidence that contractors are in the wrong.
"We urge contractors who have been contacted by HMRC to seek expert advice. The same goes for independent workers who are unsure of their IR35 compliance in general. "As we approach IR35 reform, private sector firms must take note of HMRC's behaviour and ensure they can confidently set IR35 status correctly when the rules change in April next year." In response, an HMRC spokesperson said: "It is fair that two people working like employees broadly pay the same tax and National Insurance, even if one of them chooses to work through their own company. We treat everyone fairly and consistently, and the same rules apply to everyone. "HMRC works to ensure everyone pays the tax that is due under the law.
Our compliance activity spans a variety of industries and is focused on specific areas based on our analysis of where current risks to the tax system lie." When contacted, a GSK spokesperson said: "GSK is aware that some of our agency workers received communication this week from HMRC regarding IR35 tax rules. "We acknowledge the important contribution these workers provide to the company. If individuals have concerns about this communication from HMRC, we would advise them to speak with their tax advisers." Almost 1,500 contractors at GlaxoSmithKline (GSK) have received letters from HMRC accusing them of being inside IR35 for the 2018/19 tax year, a status review firm says. The recipients are told they have until September 19th to either agree with HMRC's assessment and make a 'deemed payment' for their work at the pharmaceutical giant, or disagree but give reasons, says Qdos. "HMRC is working off the basis that these contractors are guilty until proven innocent," the IR35 review firm says, "[because it has not run a] review of these contractors' actual working practices at GSK." Another client was recently named in a similar HMRC letter to a similar batch of PSCs who, like the GSK contractors, had, or have contracts with the company, says Bauer & Cottrell. But writing today exclusively for ContractorUK, the IR35 advisory's co-founder says the new letters differ because "doing nothing" in response to them is not an option. "They [HMRC] will be checking to see what you did and if you have not done, as asked, they will carry out an IR35 compliance check and may also charge you penalties," warns the advisory's Kate Cottrell. "[So] you must act now – there is little time left especially if you--like many other contractors--have taken a holiday." 'Disturbing but not unexpected' A former tax inspector Carolyn Walsh agrees about the potentially hefty financial consequences. "These HMRC letters about IR35 compliance will be disturbing but not altogether unexpected. "[They effectively say] a review isn't imminent but if the recipient doesn't spring into action, the penalties for getting [IR35 status] wrong…are much greater." Now boss at CWC Solutions, Walsh added: "And action means either gathering evidence to counter HMRC's opinion--which is all it is. "Or if the CEST tool does give an 'Intermediaries legislation applies' result, then the normal action would be to start operating IR35, and that would require the additional tax and NI to be reported at the next pay/due date. So it's not as shocking as HMRC makes it sound." 'Serious need' Online, however, contractors are saying what's 'shocking' is the taxman not granting them 30 days to respond, as most of the letters containing the September 19th deadline were received on Thursday August 22nd and Friday August 23rd. "Who do HMRC think they are?" wrote one contractor, implying the window to reply to be too small. "The personnel affected need to seriously get legal advice or representation." Seb Maley, chief executive of Qdos echoed: "If you've received a letter, it's important you seek the help of an IR35 expert, who will advise you on how to respond, deal with the matter throughout and, if necessary, represent you legally." 'Worth the money' In fact, any limited company contractor says Walsh, "not just the ones in receipt of these HMRC nudge-style letters," should consider their IR35 position and use CEST. And then seek support. "It's well worth the money spent, given you may have to argue your status with a client or clients next year from April," she advised contractors in a statement, adding: "Anyone thinking they are caught but are fearful of declaring themselves inside IR35 at this point, can mitigate risk by increasing salary and reducing dividends this year while putting things in place to change direction, i.e. evidencing the factors that take their contracts completely outside IR35." 'Consider the 2019/20 tax year' Also a former inspector of taxes, Cottrell endorsed the idea of contractors considering the future, because it's clear from its letters that the Revenue is thinking about from next April onwards. She said: "Essentially, HMRC state they know you treated yourself, as self-employed--outside IR35--but they consider that IR35 applied in 2018/19 tax year, and say you should also consider the 2019/20 tax year." Her full guidance on ContractorUK to affected contractors covers the instance where a review has been run and found an outside IR35 position; where no review was run, and how to avoid 'carelessness' which, if proven, can be used by HMRC to increase its IR35 enquiry period from four years to six years. Editor's Note: This article is an updated version of the original, reflecting new information about the number of GSK contractors HMRC is targeting.