UK pharma giant GlaxoSmithKline has found itself targeted by authorities after HMRC sent nearly 1,500 of its limited company contractors identical letters. The letters stated that in HMRC’s view, their contracts were caught by IR35. Contractors who don’t agree with this assessment were informed they must either write to HMRC, supplying them with supporting evidence of why they are not caught under the rules, or else work out their appropriate PAYE tax and NICs for the 2018/19 tax year.
The letters, which were sent to contractors working in various departments including IT and biomedical science, have caused considerable confusion. Commentators have suggested that the purpose of the letters is to acquire information. The aggressive tone and ‘guilty until proven innocent’ tactic has been criticised by independent bodies such as the IPSE. This isn’t the first time that HMRC have used scare tactics to ‘fish’ for information, but it’s timing ahead of the implementation of new off-payroll rules in the Private Sector has sparked a lot of debate online.
The broad-brush approach of the letters strongly implies HMRC hasn’t done enough due diligence on assessing 1,500 contracts. When asked for an explanation by IPSE, HMRC said it had sent the letters because of evidence that contractors in the pharmaceutical industry are miscategorising their employment status. Further to this, it was pointed out by HMRC that it was not a new approach.
HMRC’s implementation of IR35 has come under fire in the past, from widespread criticism of blanket assessments to the simplistic interpretation of employment law that has seen them lose eight out of nine recent tax tribunals. There is a concern in the contracting sector that the letters are an indication of things to come, with HMRC gathering information ready for the private sector off-payroll rule reforms next year. They also raised a number of questions, such as how HMRC got hold of these individuals’ details and why GSK’s contractors have been singled out.
Not only were the letters aggressive in tone, they also gave contractors less than 30 days to respond if they didn’t agree with the assessment at a time when many were holidaying with their family and otherwise distracted. This further supports claims that the aim of the correspondence is to panic contractors into supplying HMRC with detailed information about their contracts, which they are under no legal obligation to provide. Although contractors might assume that by not submitting information they are incriminating themselves, independent tax experts are advising them not to unwittingly play into HMRC’s hands.
Instead, contractors are advised to respond to HMRC with a request in kind for further information including conformation of the deadline for their response. Experts advise against sending detailed information about contracts which could give HMRC a ‘heads up’ in the case of an investigation. Those who receive such letters should seek specialist advice while taking steps to ensure their paperwork is in order – the following guidelines are suggested:
- If you have IR35 insurance, check your policy for a probability of success clause (IR35 insurance can’t be taken out once a letter has been received)
- If you’re covered, correspondence with HMRC should be through an advisor rather than directly
- Respond to HMRC asking for corroborative proof of their assessment
- Ask for details of the law relating to their deadline
- Ask for details of law relating to reasoning and due diligence for assessments
- If you haven’t already done so, run a CEST check on your contract
- Make sure your paperwork and your accounts are in order so that any corroborating evidence can be quickly supplied in the event that HMRC launches an official inquiry.
- HMRC may follow up on their correspondence with a phone call; simply state that your advisor is dealing with it and record the call when possible.
- Hook up with other groups of contractors being targeted.
Although the liability for making IR35 assessments and associated tax deduction shifts from the contractor next year, it’s still a good idea for contractors to work with their recruitment agencies and end-clients to ensure that all parties are on the same page and that status assessments can be corroborated by contracts and working practices. For more information on the IR35 reforms taking place next April, read out article here.
