Director Chartergates
Columnist
Share this content

HMRC launches IR35 attack on GSK contractors

HMRC has written to approximately 1,500 personal service companies that provided services to GlaxoSmithKline in the 2018/19 tax year. Mark Taylor unpacks the contents and explores what advisers should do if their clients have received such a letter.

10th Sep 2019
Director Chartergates
Columnist
Share this content

The letters to 1,500 contractors using personal service companies (PSCs) are classic HMRC scaremongering: sent on a mass scale with no detail and no appreciation for the law on employment status. As well as being unsigned, the letters are not even sent from a named person.

The only grounds for HMRC’s belief that each and every PSC it has written to is caught by IR35 is the following statement:

“After looking at the information we have for the 2018 to 2019 tax year, our view is that the contract between your PSC and GlaxoSmithKline (GSK) comes under the off-payroll working rules ‘IR35’.”

Clearly HMRC has put no effort into ascertaining the facts of a particular engagement to give a firm opinion before writing to 1,500 contractors. Even worse, the passage above references the contract between your PSC and GSK.

Those PSCs that contacted us at Chartergates are all providing services via an intermediary such as an agency and therefore do not have a contract directly with GSK. So, the only crumb of substance to this letter is fundamentally flawed.

Wrong advice

Worryingly, the letter states that a PSC that is caught by IR35 must operate PAYE every month. This is simply not how IR35 works in the private sector. The application of IR35 involves a ‘deemed payment calculation’ at the end of each tax year, not monthly PAYE deductions.

We called the number on the letter to discuss this with the Employment Status and Intermediaries Team, but there was nobody technical from HMRC to speak to on the number given, only an offer to pass on enquiries to the ‘Project Team’. At the time of writing we are still waiting for the ‘Project Team’ to get back to us.

What makes HMRC’s actions even more nonsensical is that it has already pursued a PSC providing services to GSK all the way to the first tier tax tribunal. Of course, the facts of every case can be different (although HMRC seem to believe all 1,500 PSCs are the same) but you would have thought that the resounding defeat HMRC received in the FTT (delivered by Chartergates’ Matt Boddington) in the case of Primary Path, would have given them pause for thought.

Alas, it appears not – so how should PSCs or their accountants respond to HMRC?

HMRC’s intention

The letters are riddled with errors, short on detail and light on facts. However, these shortcomings have not prevented HMRC from drafting them in a threatening and scaremongering tone.

The letters will likely cause concern for those that have received them and make no mistake, that is by HMRC’s design.

HMRC has, for many years now, followed a simple but effective method:

  1. Select a target group
  2. Send target group threatening but vague letter
  3. Wait for the majority of recipients to innocently believe HMRC’s unsubstantiated claims
  4. Collect additional taxes from those that innocently believe HMRC’s unsubstantiated claims – unchallenged and with minimal effort
  5. Potentially enquire into those that do not take HMRC at face value

The tactics employed by HMRC achieve maximum gains for minimal effort. That does not make it right, but it is important to recognise the tactics so that we can scrutinise the current letter in the correct light.

What should you do?

The letters from HMRC are a common tactic from what is known as the “nudge unit”. That does not mean that they should be ignored. The Primary Path case was decided on its facts and the contracts in place at the time, so agents for the PSCs should review the facts and contracts of their particular case as well.

HMRC’s letter may be light on detail, but PSCs should be exploring and embracing the detail so that they are able to adequately defend their position should HMRC follow up on its threat.

The letters we have seen fall short of a full enquiry letter or a formal information request (although you could treat it as one and put the ball back in HMRC’s court), and therefore there is, in our opinion, no compulsion to respond.

What PSCs should be doing as a matter of priority is getting their ducks in a row and assessing their contract and facts for IR35.

Replies (28)

Please login or register to join the discussion.

avatar
By Trethi Teg
10th Sep 2019 16:12

The way HMRC has treated those involved in what is known as "tax avoidance" strategies i.e. Advance Payment Notices, Follower Notices and the 2019 Loan Charge (which has been diabolical) has been largely ignored by the majority of accountants on the basis that the individuals "deserve all they get" etc and climb on their moral high horses. They have not seen the heavy handed way matters have been handled, the lies and half truths HMRC has indulged in etc etc (I could go on for hours).

HMRC has now become so powerfull they feel they can do anything without any fear of being held to account.

The accountancy profession, including the t*****s in the ICAEW, have allowed this to happen and now it is going to come back and haunt all practicing accountants. In this case it's IR35, but there will be many many more.

It is time every member of the accountancy profession "grew a pair" and stood up to bullies of HMRC, if necessary by radical action, to remind them that they are the servants of the taxpayer and not the masters.

Thanks (6)
Replying to Trethi Teg:
avatar
By meadowsaw227
11th Sep 2019 10:23

I "grew" a pair a while ago and got rid of any client even remotely coming under the IR35 regime.
As for loans instead of income do not get me started ! .

Thanks (3)
Replying to Trethi Teg:
Lone Wolf
By Lone_Wolf
11th Sep 2019 11:03

What "radical action" do you propose?

I presume radical action would include the female members of our profession "growing a pair". That would be pretty radical.

Thanks (1)
Replying to Lone_Wolf:
avatar
By Trethi Teg
11th Sep 2019 16:43

If, collectively, accountants gave some thought on how to best to cause HMRC the maximum inconvenienve, without effecting their clients, this would cause HMRC significant problems.

There are many possibilities with a little thought. For instance SAR's every two months for each client would send them into meltdown. Nothing illegal in keeping client records up to date!

With regard to growing a pair I think anyone reading my post will have understood what was meant so your comments regarding female members was pretty lame.

Thanks (1)
Replying to Trethi Teg:
Lone Wolf
By Lone_Wolf
12th Sep 2019 10:19

You got that kind of I-don't-care-what-nobody-thinks-of-me thing. I like that. I respect that Teg. You all right.

Vive la révolution!

Thanks (0)
Replying to Trethi Teg:
avatar
By AnnAccountant
11th Sep 2019 12:28

As an adviser, may remit isn't to fight for legislative or HMRC change. I just give the advice and fight the battles that clients specifically pay me for.

Anyway, instead of grandstanding on here and telling everyone what to do, why don't you spend some time getting your own life in order?

Thanks (1)
Replying to AnnAccountant:
avatar
By Trethi Teg
11th Sep 2019 13:07

Hello Ann. Havent been trolled by you for a while.

You are quite clearly one of those accountants who is not interested in providing a proper service to your clients but simply complying with whatever legislation the Governement and HMRC put in front of you. Probably no constructive advice to clients. Probably more of a case of "sorry there you are, that's what the rules say - oh and by the way here is my bill". In my experience such accountants are rarely succesful.

My point was rather than simply sit back and accept everything accountants and their professional bodies (who understand what is going on) should use their influence in an attepmt to change things which will prove detrimental to their clients.

Thanks (1)
Replying to Trethi Teg:
7om
By Tom 7000
11th Sep 2019 13:39

Well If I had to hire one of you 2 Ann got the Job cos she's like me and follows the rules

The institutes do what they can to influence legislation. I know, I am on the business law committee. The problem is we cannot dictate only suggest.

And you are right though, I have no Lear Jet or super yacht as I have no huge fees from Dotas schemes or EBTs or a myriad of other weird things that people charge huge fees for( that all end in tears)…. sigh

Thanks (0)
Replying to Tom 7000:
avatar
By Trethi Teg
11th Sep 2019 16:28

Tom 7000

Not quite sure why you feel I do not follow the rules? Anyway you are welcome to Ann but don't expect much excitement or useful advice.

As a matter of interest, precisely what does the Business Law Comittee do. Is it part of the ICAEW?

Thanks (0)
Replying to Tom 7000:
avatar
By Trethi Teg
11th Sep 2019 16:28

Tom 7000

Not quite sure why you feel I do not follow the rules? Anyway you are welcome to Ann but don't expect much excitement or useful advice.

As a matter of interest, precisely what does the Business Law Comittee do. Is it part of the ICAEW?

Thanks (0)
Replying to Trethi Teg:
7om
By Tom 7000
11th Sep 2019 16:58

I didn't say you didn't follow the rules....although with comments like

''including the t*****s in the ICAEW''

and

''growing a pair''

may of course be a breach of professional ethics for not behaving in a manner expected of a Chartered Accountant.... of course that's assuming you are one.

I will leave that for you to ponder

Good luck

Thanks (1)
Replying to Tom 7000:
avatar
By Trethi Teg
11th Sep 2019 17:11

Yes a member of ICAEW for 47 years now.

Not sure you answered my query on the law committee.

Thanks (1)
Replying to AnnAccountant:
avatar
By Rgab1947
11th Sep 2019 13:28

You spoil your arguments with making those 2nd para remarks.

Thanks (0)
avatar
By EnglishRose
11th Sep 2019 08:47

This is notr acceptable. If they have got things wrong in the letters they need to send a letter to the individuals apologising and setting the facts straight.
I wonder where they got the list from? not GSK so presumably they got hold of the customer list of one or several of the agencies that all the contractors used.

Thanks (1)
Replying to EnglishRose:
avatar
By norstar
11th Sep 2019 10:10

EnglishRose wrote:

This is notr acceptable. If they have got things wrong in the letters they need to send a letter to the individuals apologising and setting the facts straight.
I wonder where they got the list from? not GSK so presumably they got hold of the customer list of one or several of the agencies that all the contractors used.

Remember the intermediary reports that service provider agencies have had to submit for a while now?

https://www.gov.uk/government/publications/employment-intermediaries-rep...

This seems to be the fruits of that labour and we can expect to see many more.

Thanks (0)
Replying to norstar:
7om
By Tom 7000
11th Sep 2019 10:15

I get HMRCs position....

The thought is, if you work direct you are a genuine subby.
If you work via an agency you are really a temporary paye worker...

Thanks (2)
7om
By Tom 7000
11th Sep 2019 10:10

Clearly dividend tax wasn't enough....

Thanks (2)
avatar
By C.Y.Nical
11th Sep 2019 10:45

HMRC seem to be taking their cue from politics where lies, misleading half-truths, bullying, scaremongering, and twisted interpretations of the law are all seen as fair tactics.

Thanks (3)
Replying to C.Y.Nical:
avatar
By Trethi Teg
11th Sep 2019 10:59

I agree with Cynical. However lets not forget that if anyone tells deliberate lies of distorts the truth with a view to gaining a financial advantage they are guilty of fraud.

These "public servants" should not be above the law and their actions - in my view - are fraudulent and are guilty of abuse in a public office.

Lets find those individuals responsible for writing documents which contain lies, half truths etc plus those that instruct them to do so and ensure that they are kicked out of HMRC and face the consequences of their actions.

Or can't we be bothered?

Bruce Hornsby was right (The Way It Is).

Thanks (0)
Replying to C.Y.Nical:
avatar
By Trethi Teg
11th Sep 2019 10:59

I agree with Cynical. However lets not forget that if anyone tells deliberate lies of distorts the truth with a view to gaining a financial advantage they are guilty of fraud.

These "public servants" should not be above the law and their actions - in my view - are fraudulent and are guilty of abuse in a public office.

Lets find those individuals responsible for writing documents which contain lies, half truths etc plus those that instruct them to do so and ensure that they are kicked out of HMRC and face the consequences of their actions.

Or can't we be bothered?

Bruce Hornsby was right (The Way It Is).

Thanks (0)
avatar
By mkowl
11th Sep 2019 11:00

Yep interesting one just in the final stages of an employer compliance review. They have trawled for the names of all the subcontractors used by the entity. Not quite the scale of GSK but be a couple of hundred. Did suggest to the client this could be used by HMRC in other ways - if not just to park the information for the off payroll working changes next April

Thanks (0)
avatar
By bobsto12
11th Sep 2019 12:50

And meanwhile back in ancient Egypt Fazil, a pyramid builder, claims he is a slave and doesn't get paid. The tax collector suspects otherwise...and off we go!

Thanks (0)
avatar
By Dandan
11th Sep 2019 18:21

There is something very wrong with HMRC. So much so that one cannot help equating HMRC to pure evil. Countless lives are being destroyed. Decent people ( some considered pillars of society) are being set upon with retrospective legislation . In most cases , those taxpayers were following advice of lawyers and accountants.

We have seen the witchhunt aimed at the broadcasters; e.g. Ms Ackroyd having to cough up nearly £500k. Loraine Kelly, on the other hand was lucky and won. Otherwise her life would have been destroyed as the amount claimed was much higher.

I think HMRC has crossed the red line. How can the government allow this way of treating citizens who have not knowingly done anything wrong.

The latest targets are the PSCs working with GSK. Who will be next? Doctors and dentists are already being considered as potential tax dodgers; so have actors and broadcasters. I guess the next target will be church ministers.

If the government wants more money all it has to do is scrap HS2 and save £62 billion and also scrap hundreds of other wasteful projects. Don't rip the heart out of your citizens.

Thanks (5)
avatar
By rdrtaxwizard
11th Sep 2019 17:15

This is disgraceful. Firstly the letters have no name attached and are unsigned, a fundamental lack of courtesy, and which prevents the recipient from speaking to the case handler. Second, if the letter is so riddled with errors as claimed, HMRC should be told to withdraw these letters, stop and think, and only send out fresh, properly written, letters when sure of their facts.

Thanks (0)
Replying to rdrtaxwizard:
avatar
By ruth.julian
13th Sep 2019 13:01

Amend letters? Years ago I queried why giving a taxpayer's tax reference would help HMRC improve its quality, as well as pointing out the appalling structure of the letter setting up a compliance visit to a client. I was told that it was too expensive to amend the form letter...

Thanks (0)
By coolmanwithbeard
12th Sep 2019 07:22

I have not seen these as I do not have any GSK subcontractors but I think they do show a worrying trend. The problem is that to respond robustly on behalf of a client to HMRC would appear to risk an actual enquiry. I do think Mark's advice to check the current position (which may be a simple clarification that the same contract is in place and that you have reviewed it) is wise.

However, I suspect the subcontractors are not really the target here. This is a shot across the bows of the good ship GSK (which must earn them lots of tax anyway let's be honest) for next April. Contracting businesses everywhere must be having those meetings about what to do about IR35 and the shift of decision/responsibility from the individual contractors to themselves. The thought of GSK receiving 1 letter to justify each of 1,500 contracts with someone doing work for them.

This is scaremongering on a grand scale as GSK will need to review the risk profile of this and may decide it is not worth it.

Suddenly this becomes much easier for HMRC they can send a small team into an employer and review all the contracts of all subcontractors whether through an intermediary or not as it is GSK (in this case) that makes that decision. If one is found to be wrong then that will extend (in the usual HMRC way) to presume all or a large group without individual scrutiny. Of course if these fail HMRC may well then use that as an assumption of guilt for the pre-April 2020 position.

Again with less risk on themselves sub contractors might get lazy and less assiduous at not being staff; increasing the risk of failure.

If you were advising the board of GSK which way would you suggest they jump?

Thanks (1)
Replying to coolmanwithbeard:
7om
By Tom 7000
12th Sep 2019 19:26

Yep they are all going to be put on zero hours page contracts and 200,000 contracting companies will close, with the associated knock on effect and difficulties

Thanks (0)
avatar
By AndrewV12
24th Sep 2019 13:16

Extracts above
The letters to 1,500 contractors using personal service companies (PSCs) are classic HMRC scaremongering.

Clearly HMRC has put no effort into ascertaining the facts of a particular engagement to give a firm opinion before writing to 1,500 contractor.

Worryingly, the letter states that a PSC that is caught by IR35 must operate PAYE every month. This is simply not how IR35 works in the private sector.

What makes HMRC’s actions even more nonsensical is that it has already pursued a PSC providing services to GSK.

Mark you certainly have a bee in your bonnet about this one, you really are shooting from the lip, your not holding back.

Thanks (1)