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Markel Tax

03 Sep 2019

The gloves are off: GSK and IR35

Over 1,000 of contractors who provided services to GSK in 2018/19 have received intimidating letters from HMRC demanding action by mid-September. David Harmer considers what a contractor should do in these circumstances.

There has been a lot of publicity and speculation about the HMRC’s letters concerning services provided to GSK.  While the number of contractors who have received this letter has not been confirmed it is believed to be at least 1500.

This is not the first time HMRC have undertaken a targeted campaign of this type, we have seen an increase in this “one to many” letter approach in the last few years. One to many letters is a tactic which has been used by HMRC many times and is designed to ‘nudge’ taxpayers to review their tax position and make them feel that they are under the spot light, even though these letters are absolutely not the start of an HMRC investigation.

This is also not the first time HMRC has challenged IR35 where GSK is the end client.  Back in 2011 Accountax (now Markel Tax) successfully defeated an HMRC challenge into Primary Path Limited (whose client was GSK) after the taxpayer’s eight-year enquiry.

Anyone in receipt of one of these letters will be understandably concerned about their tax position, but contractors must pause before they take steps that could detrimentally affect their liability.
Despite the intimidating tone of the letter, it is simply an HMRC campaign to seek information.      

It is not a formal notification of a compliance review on your company.
 
It is not a formal notification of Enquiry into your company.

It is not a formal request for information

This letter carries with it no formal legal underpinning, and despite the reference to a reply deadline, there is no legal obligation to respond.

If you take a step back and read the letter carefully, you can see that it simply states that contractors “may” be subject to a compliance review.  However, this is true of any contractor in the country; HMRC may open up a compliance review into any UK company, at any time, to confirm the company is complying with its tax obligations.

So what should you do?
It is entirely your decision whether you would like to reply to HMRC or not.  There are two schools of thought: 
  1. HMRC are more likely to formally investigate a company which does not respond.
  2. HMRC are more likely to formally investigate a company that does respond.
It is not entirely surprising many contractors feel they are damned if they do, damned if they don’t; but it is futile exercise playing and replaying the consequences of responding or not responding.  Gone are the days when even the best of us can predict what HMRC will do next (!)
Our advice is to take control of the situation now.  The only way to do this is to review your contracts and working practices.  We would recommend, even if you are a contractor who is an expert on IR35, that you get a written opinion from a third party specialist.  This will provide you written evidence from an independent organisation which offers a professional opinion on whether you are within IR35 or outside of IR35.  Even if HMRC disagree with that opinion, it is evidence that you have taken all reasonable steps to comply with your obligations.

If you have already had your contract reviewed, you know your position in respect of IR35. If you are within IR35, you should have already accounted for any tax duet; and If you are outside of IR35 you will have detailed, written evidence.  You therefore have all the information you need to provide a response to HMRC should you wish to do so.

If you have not had a contract review carried out, then this should be your first point of action.  You simply do not know what your position is and you cannot then make an informed decision as to whether or not to respond to HMRC.   Whether you do respond or whether you do not respond you are still in the same situation.  Uncertainty.  This is never a position any taxpayer should elect to be in where they have a choice.

Our advice is to take this letter as a prompt to seek a review from a specialist provider.  Once you have that independent opinion, you are in a position where informed decisions can be made.  Even in the worst case scenario that the decision is the engagement is “caught”, you will be empowered to have discussions with your accountant and make proactive decisions.  If the decision is that your engagement is not caught, then again you have all the information you need to defend your position should you need to.

Despite HMRC’s direction in the letter to its CEST tool, we would always advise contractors to seek advice from a specialist instead of using this tool.  The CEST tool has been widely criticised for its poor phrasing of questions and its lack of questions on fundamental legal principles (in addition, while, in a recent Tribunal case HMRC themselves tried to argue that a taxpayer could not rely on the decision of the CEST tool).
 
Tagged IR35
Next article in series

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VAT recovery on gifts bought for a charity