Back in the depths of 2007, HMRC had somewhat lost control of contractor pay.
Many had moved to Managed Service Companies or MSCs which generally led to paying much less National Insurance and Tax, legally. Reforming this area was clearly going to be a challenge. So, they didn’t, they simply decided just to scrap the tax relief aspects and move on.
However, elements of the MSC set-up were popular. Every time changes are made, new routes to minimise tax is found, such as under IR35. Well, HMRC have now decided to go after a range of organisations for what they think is supporting their customers to operate as MSCs.
One is Boox Accountancy, and they are not impressed. The App Accounting Group which owns Boox are definitely on the offensive. They feel that HMRC has made errors in judgement leading to unfounded claims.
They have found inaccuracies between what HMRC thinks to be true and what they see as the reality. However, there seems to be quite a number of their clients affected by this and they are supporting and actively encouraging them to appeal. HMRC have somewhat of a track record with this.
They have also approached other firms with similar issues of MSC breaches including Churchill Knight. Success could mean additional tens of millions of pounds of revenue for HMRC. This will come directly from the pockets of these accountancy firms and contractors, all who will say they believe they have followed procedures set out by HMRC and already done what is required of them.
It is likely that there are more accusations to come. Not just for Boox, but for many other accountancy firms. While there is a clear definition of MSCs, there is obviously something HMRC feels is an issue.
Boox will move their appeal forward, but we are likely to see other firms affected. These could additionally lead to issues with IR35 and challenges there. Depending on the set-up, it is possible that any contractor or accountancy firm could be the next that HMRC investigates. The main consideration is to be aware that it could happen and be ready for it to come.
One thing is for sure. If you receive a letter from HMRC about this, then take action on it. This is not something to ignore – it must be dealt with. Do check the basic facts.
People have been receiving letters who do not hold an appropriate position in the company. Also, letters have been sent to dissolved companies and those who have only been incorporated quite recently.
Finally, get some advice and appeal. Disputing the claims is an important part of the process or you could be liable for a huge amount of money. The only way to succeed is to fight it. Watch this space, but there may well be a lot of unhappy contractors yet to come.
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IR35 Reform is Having a Negative Impact on Businesses
A year has passed since IR35 reforms came into play, extending responsibility to large and medium sized businesses. In that time businesses have created processes to deal with this added responsibility.
A recent poll conducted by You Gov for IPSE discovered some far reaching and interesting issues. It polled over 500 businesses, asking a variety of questions about the reforms and the effects these have made.
The first is that over 40% of businesses said that these specific reforms had impacted on their finances in a negative way. It is hardly unexpected even just taking on a new complex task is time consuming. This has been seen in so many businesses.
Even more stated that IR35 was a significant burden for them. Surely, this was not really what the IR35 reform was meant to be about.
Actually, 20% admitted to doing blanket assessments. While this seems like a time-effective and cost-effective method of working, it is actually non-compliant. Placing all contractors within IR35 is risky as it is very likely to be incorrect and could lead to investigation.
An investigation from HMRC may lead to significant additional cost to a business and contractors. While 22% of businesses are using no tool at all to help with assessments, 26% are using the government CEST tool.
However, as we have previously reported, in a significant number of cases, it gives no result and sometimes gives an inaccurate one. Reported use of the tool suggests it leads to a vast decrease in the number of contractors engaged by businesses.
There has been much in the media about the self-employed and contractors losing out due to IR35 reform. This gives us evidence for the other side of things. It shows that businesses are struggling with the reforms too.
From the impact on finances to the reduction of contractor use this is significant. Equally, the risk of investigation from blanket assessment is of further concern. Almost half of the UK businesses surveyed stated that contractors are essential for the level of outcome and growth they planned for.
This is an important figure as it shows how valuable contractors are to these UK businesses. Yet, 28% reported there has been a reduction in the freelancers they worked with since April 2021. There is a mismatch here that leads to both contractors and businesses suffering.
Contractors do such an important job to support UK businesses. In return, businesses seem to enjoy working with contractors and value what they offer. Yet it seems obvious that IR35 reform is somewhat standing in the way of this. It is having a negative impact on these businesses.
Whether the impact is financial, or a change in the way of working or both, depends on the individual business. However, what seems obvious is that this is not good for businesses or contractors. With a poor tool in CEST and added stresses trying to follow difficult guidance that sometimes leads to inaccuracies, things are not easy for businesses these days.
Hopefully the tide will turn over time and businesses will feel more confident to employ contractors once again.
