Leaked letter from HMRC indicates “witch hunt against contractors”
by Alan Little
In a somewhat sinister development, public sector bodies (PSBs) are being required by HMRC to supply the personal details of contracting professionals who continue to work outside IR35 via their personal service companies, the online support service for contracting professionals, ContractorCalculator, has revealed.
ContractorCalculator has received a leaked letter which is being circulated by HMRC to all PSBs, asking for the names and addresses of outside-IR35 personal service company contractors. The letter is part of the tax authority’s compliance check for the off-payroll tax.
It requires PSBs to supply exact details of each engagement of the contracting professionals they use, including their names, addresses and a short description of the role or the nature of the work supplied by their personal service companies.
Describing the letter as another ominous indication that the reformed IR35 rules are essentially a “witch-hunt against contractors”, ContractorCalculator CEO and founder Dave Chaplin said that HMRC was “leaving no stone unturned in its pursuit of the few who have managed to secure fair tax treatment despite Off-Payroll”.
HMRC is also requiring details of how PSBs are undertaking their IR35 assessments, specifically querying whether they have used the heavily-criticised and flawed CEST tool. In addition, the tax authority is also asking for details of contractors who have switched to working via umbrella companies since the reforms were imposed, but who had previously worked through their own personal service companies.
Noting that this has mobilised concern that HMRC may pursue any named contractors for back taxes, Mr Chaplin explained that those who have adopted best practice and maintained a paper trail proving their outside-IR35 status probably have little to worry about. Even so, given the aggressive approach adopted by HMRC following the IR35 reforms, he added, it’s unlikely to prevent tax officials from “sniffing around their affairs”.
He added: “HMRC is refusing to accept that its contrived rules are forcing contractors into ‘inside IR35’ arrangements, and seems intent on interpreting instances where contractors have been forced to work under umbrellas as evidence of prior non-compliance with IR35.”
The development follows reports last week that Her Majesty’s Treasury is finalising efforts to rollout the public sector IR35 reforms to the private sector as part of a continuing clampdown on tax avoidance from private firms like personal service companies whose owners claim self-employed status.
As this new initiative to compel public sector employers to supply details of contractors working outside IR35 is real and underway, Chaplin believes that private sector employers may expect that a similar obligation will be imposed on them in the future.