HMRC IR35 Promise to Contractors
A HMRC promise to contractors is contained in their recent IR35 update notes. With hiring companies now responsible for determining the employment status of contractors, contractors may now find themselves inside IR35 rather than outside IR35 when they self declared.
Those contractors are now worried that HMRC will chase them for back tax, interest and penalties They are afraid that this may apply not only on their current project but also on previous projects at other companies.
Questions on HMRC IR35 Promise to Contractors
- What happens to contractors who were previously operating outside IR35 but are now proved inside?
- Should those contractors now worry?
- Should Contractors at Companies operating Blanket Bans be worried?
- Could the HMRC IR35 Promise to Contractors be circumvented?
- Are contractors satisfied by this HMRC IR35 promise?
What Happens to Contractors Who Were Previously Operating Outside IR35 and are Now Proved Inside
A company can make a contractor sit HMRC’s online IR35 test Check Employment Status for Tax. If the contractor fails the test, he or she is inside IR35 and will have to pay the PAYE employee tax.
However, this contractor may have been operating previously at the company via a personal service company. They may have self declared as being outside IR35 at the company.
Indeed they may have self declared themselves to be outside IR35 at previous companies They may have been operating as an outside IR35 contractor via a personal service company for many, many years.
Should Those Contractors Now Worry
They would be worried that they may now be liable for tens of thousands of pounds worth of back tax, interest and penalties.
However, according to HMRC there is no need for them to worry.
To quote the most recent HMRC IR35 update “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.
However, this seems to be a solemn promise They say that they want to focus on getting future tax from contractors rather than previous tax.
Should Contractors at Companies Operating Blanket Bans Be Worried
Even those contractors at companies who have issued a blanket ban on contractors using personal service companies, are worried. Those at the big banks fear that if they agree to go PAYE that HMRC will potentially investigate them for IR35.
This declaration by HMRC seems to suggest that they won’t.
Could the HMRC IR35 Promise to Contractors Be Circumvented
However, that does not stop HMRC from pursuing the contractors at the big banks and other companies prior to this.
They recently sent out a letter to GlaxoSmithKline (GSK) contractors saying they are all inside IR35. They told them to pay up for the current financial year. Of course, if they do that, the contractors are more or less admitting that they were making the wrong declaration when they self declared as outside IR35.
Are Contractors Satisfied by This HMRC IR35 Promise
The big banks who are issuing a blanket ban on contractors using personal service companies may find their contractors not converting to PAYE and leaving the companies – just in case this would mean they could be chased for back tax.
Although you would think that this HMRC IR35 promise would satisfy them, they are still more than a little spooked.
Will this promise form HMRC satisfy them?
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