Contractors IR35 Fear HMRC Will Chase Them for Back Tax and Penalties

Contractors IR35 Fear

Contractors IR35 fear is that if they take the new inside IR35 roles at their client companies this is tantamount to saying that they were always inside IR35 and HMRC will come after them for back tax, penalties and interest.

This is even more so at companies like Sainsbury’s where they are testing their contractors using HMRC’s Check Employment Status for Tax and failing virtually them all for virtually the same three reasons.

Questions on Contractors IR35 Fears

1. What danger are companies like Sainsbury’s putting their contractors in?
2. Will HMRC chase contractors for back tax, interest and penalties?
3. What is HMRC’s promise on contractors using their CEST IR35 test?
4. Is HMRC’s IR35 test tool fit for purpose?
5. Are companies declaring contractors inside IR35 setting them up for an investigation?
6. Contractors IR35 Fear – Which Contractors are in most danger?

What danger are companies like Sainsbury’s putting their contractors in

What Sainsbury’s and other companies are really saying is that all the time that their contractors have been at the company they have been operating outside IR35 when they really should have been declaring themselves inside IR35 and paying PAYE and National Insurance,

Contractors IR35 fear is that if they accept this and taking one of Sainsbury’s new inside IR35 contracts they are virtually admitting they were wrongfully claiming to be outside IR35.

Will HMRC chase contractors for back tax, interest and penalties

So, is this correct? Will HMRC go after them for back tax, penalties and interest?

According to a spokesman for HMRC:-

“HMRC have taken the decision that they will only use information resulting from these changes to open a new enquiry into earlier years if there is reason to suspect fraud or criminal behaviour”.

“That seems to cover it – unless of course, they reckon that declaring as inside IR35 when you are really outside is fraudulent.

They say that they want to focus on getting future tax from contractors rather than previous tax.

However there is wriggle room here for HMRC. Since this statement HMRC have sent a letter to 1,500 contractors at GlaxoSmithKline telling them that they are all inside IR35 and to send them the PAYE and National Insurance that they should be paying.

What is HMRC’s promise on contractors using their CEST IR35 test

Also, HMRC had made a promise that if a contractor sat their Check Employment Status for Tax test and passed it they would not come after the company in yhe future for the contractor’s tax even if it was later shown that the contractor was really inside IR35.

The one proviso is that it is provided the data was entered properly.

So, the NHS used the CEST tool to test all of their contractors.

Now HMRC have decided to fine them £4.3m for misuse of the CEST tool.

Who decides whether the IR35 tool is misused or not?

Why it is HMRC.

Is HMRC’s IR35 test tool fit for purpose

Most experts say that this tool is extremely dodgy. It does not reflect IR35 but only HMRC’s views of it. And HMRC have lost 80% of the tribunal cases they have taken out against contractors. That’s even though they have the choice of all the contractors in the land to investigate.

Sainsbury’s even used as one of their three reasons that their contractors are inside IR35 that they had never used a substitute.

According to the verdict in the HMRC v Lime-IT case the burden of proof here is with HMRC. The assumption should be that the contractor would use a substitute. The contractor would have had to transgress and not offer a substitute for HMRC to have won the case which they lost. Yet that result does not appear to have been incorporated into the tool.

HMRC have promised that they will only chase contractors for back tax “if there is reason to suspect fraud or criminal behaviour”.

Isn’t tax evasion a crime?

Are companies declaring contractors inside IR35 setting them up for an investigation

And aren’t companies who are testing contractors and declaring them inside IR35 virtually saying that the contractors have been evading tax since they have been at the company?

One other issue is that companies who use the CEST test on contractors must send the results of those tests to HMRC “for further reference”.

That could mean that HMRC could potentially look back over the contractor’s whole career at all the contracts he or she has done.

This is a legal minefield for contractors. It is fraught with danger. They have to rely on the goodwill of HMRC which the NHS did to their cost.

Contractors IR35 Fear – Which Contractors are in most danger

It’s especially dangerous for those contractors whose current client companies test them and then say they are inside IR35. There is absolutely nothing to stop HMRC going after them for back tax. And they will get the results of the tests from the companies.

The only protection contractors have is this statement from HMRC:-

“HMRC have taken the decision that they will only use information resulting from these changes to open a new enquiry into earlier years if there is reason to suspect fraud or criminal behaviour”.

And HMRC have a get out here as tax evasion is fraud and a criminal offence.

And contractors IR35 fear is that HMRC will use this get out to go after them for tens of thousands of back tax.

Is this fear justified?

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