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IR35 teams target public sector contractors

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22nd Apr 2013
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HMRC has ramped up its IR35 compliance activity over the last two months, especially where public sector workers are concerned, according to contractors' adviser Qdos Consulting.

Under new rules that came into force from September 2012, public sector contractors operating off payroll will need to provide assurance that they are paying their income tax correctly.

HMRC investigation teams were set up earlier in 2012, which are complemented by the specialist recent reports confirming that public sector contractors operating off payroll are under the tightest scrutiny, mainly as a result of controversies surrounding senior civil servants providing services through personal companies, such as Student Loans Company boss Ed Lester.

The trend was brought to light in a recent blog by Cheapaccounting.com's Elaine Clark, who reported that a client contracting at the SLC was told the issue was so politically sensitive, the government agency would no longer engage people via limited companies.

PCG head of public affairs Simon McVicker confirmed that contractors are being "forced out" of contracts as a result of the new guidance.

“It is now clear that the guidance around ‘off payroll working’ issued to public sector bodies is the problem. We have irrefutable evidence that UK contractors are being forced out of legitimate contracts as a direct result of the guidance. We are very concerned and increasingly feel that these new rules need to be tested with a judicial review," he said.

"The current state of affairs is bad for contractors and even worse for the public sector. HMRC and the Treasury need to get control of the situation as a matter of urgency.”

Contractors working in the sector after six months months off payroll and earning more than £220 a day will need to determine where they stand, and can self assess themselves using HMRC’s 12-question business entity test.

“From our experience, we’re noticing the Revenue is targeting public sector workers specifically over the last two months,” he said.

If determined low risk by the test, this doesn’t rule them out of an IR35 investigation, warned Qdos operations manager Seb Maley, but medium to high risk contactors will definitely need to seek more assurance.

“Providing this assurance and complying with this is important, as if you don’t there is a financial implication and contracts could even be terminated.”

If a contract is caught by IR35, the contractor can provide a deemed payment calculation. This works out the worker’s income from an IR35 contract for the year and requires them make a payment to HMRC for employer NICs and pay the NICs and PAYE on the remainder of the income.

According to Maley, some companies misunderstand the rules or apply them differently to other organisations, for example by treating every contractor the same without taking their contract length or rate into account.

However nothing can be done to remedy this apart from helping individual contractors understand the rules and how to be compliant, Maley added.

While Qdos called IR35  “abject failure” last November, the recent activities from the IR35 specialist teams based in Croydon, Edinburgh and Salford could be having an effect.

As of the last HMRC IR35 Forum meeting however, Revenue officials said feedback and figures for the business entity tests and other issues will be provided at the next meeting on 29 April.

At the Security Cleared Expo in Bristol this week, Seb Maley also recommended three things about IR35 that are worth knowing, the video of which is available to view below:

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By vstrad
22nd Apr 2013 19:30

The Business Entity Test...

... is designed to enable businesses to assess the risk of being chosen by HMRC for investigation. It is NOT, as some people seem to think, a tool for assessing whether a contract is or isn't caught by IR35.

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By mikefleming3028
23rd Apr 2013 09:30

IR 35 and HMRC

HMRC have for the last number of years been paying Cap Gemini under the Aspire contract the sum of £75/£80 Million a month for IT support. One wonders how the contract has been serviced and if Cap Gemini have used the services of one man Companies to provide the  support required. I would suggest that this might be something that Margaret Hodge might put on the agenda when next she has a chat to Lynne Homer, I for one would be very interested to learn more of the arrangements that her department entered into with that Company and more importantly have there been any changes in those arrangements as a result of IR35 considerations. Mrs Homer should I think be given notice of the question just to be sure that the answer is given in public rather than in a written response which may not have the same impact or receive the same publicity.

Come on someone ask the question!!!!     

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By johnjenkins
23rd Apr 2013 10:59

You can bet your

sweet life that all these companies have fail safe contracts for services in place. In fact HMRC have more than likely already agreed that these contracts are cosher.

This is all huff and puff to say to other tax payers watch out we really do mean business ----- this time.

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