It has taken HMRC 12 months to come to the conclusion that a contract was outside IR35, in spite of a substitution clause that was actually implemented during the contract period several times. The freelancer company could have been facing an estimated increased tax bill of c.£100,000.
The situation was reported in Recruitment Grapevine News, indicating that the anonymous company has two directors, both of whom are contractors.
Their company was initially notified of a Corporation Tax enquiry in 2017, but then told in January 2018 that HMRC would be carrying out an IR35 enquiry into two recent contracts – one of which was provided directly and one through an agency.
After more than 12 months of correspondence, Qdos, who was representing the freelancer company directors, was notified by HMRC earlier this week (w/b 11th Feb. 2019) that the IR35 enquiry was closed.
Qdos CEO, Seb Maley, said that the length of time it took to come to a decision was worrying. “It is of real concern that despite substitution having been exercised multiple times – and HMRC being aware of that at the outset – it took so long for them to accept that IR35 didn’t apply”.
QDOS reported that this is the second IR35 case they have successfully defended this year, and is viewed as reflective of HMRC’s desire to attack contracts that on closer inspection clearly belong in the off payroll domain.
Maley went on: “We’re also left to wonder how and why HMRC jumped from a Corporation Tax enquiry to an IR35 enquiry. It could be coincidence, but it does make you question whether this is a deliberate move and if there is information sharing between departments.”
It is noted that the freelancer company had taken the care to insure against tax investigation.
Please note that as an IIM member you receive tax investigation insurance as an integral part of your membership.
“With private sector reform on the horizon, it bodes well that both end-clients were supportive of an outside IR35 status. This evidence was pivotal and shows the value of joined-up thinking when making decisions.”
As part of the IIM’s events programme this year, it is running an evening on the implications of IR35 regulations launched on the public sector in 2018 being rolled out to the private sector in 2020. This is soon after the Chancellor of the Exchequer’s Spring Statement and will set the scene for industry-wide activity to prepare effectively and avoid the problems we have seen in 2018.
Look out for the details on the IIM website in the near future.