IR35 hypothetical - Would the end company have to co-operate?

[pippin]

Hi,

Just 'thinking' aloud and wondering if someone could help inform the uninformed.

I work for an American company operating on UK soil, involved in government contracts, some military. If I were to be investigated to see if I do/do not fall within IR35, my contract with my agency is deemed ok, and what I tell HMRC about my working practices all stacks up, but they want to check I'm telling the truth with the end employer, does that end employer have to co-operate?

As you can probably tell I'm pretty clueless, I'm sure the overriding responses will be "yes", but I thought I'd ask anyway.

Ta

[Wanderer]

If I were to be investigated to see if I do/do not fall within IR35, my contract with my agency is deemed ok, and what I tell HMRC about my working practices all stacks up, but they want to check I'm telling the truth with the end employer, does that end employer have to co-operate?

It depends on the client. I don't think there is any legal compulsion on the end client to co-operate, especially if you are working thorough an agency because you will have no contract with the client anyway.

If you are really concerned about it then I would consider taking out IR35 insurance and let the professionals fight these battles for you, especially if you are looking at 10s of thousands in tax...

[pippin]

Cheers for the reply, always appreciated.

In which case, if the contract with the agency is fine, what's to stop you saying all the right things regarding working practices, either bending the truth, or out and out lying, if HMRC can't actually check the facts with the end company?

For clarities sake, I'm not advocating the above, I'm personally not paid via a Ltd company, just posing the question.

[centurian]

Surely there has to be some regulation that compels companies to co-operate with tax enquiries - and I doubt there is a blanket exemption for defence related companies. The old "if we told you, we'd have to kill you" line is unlikely to wash - I am sure HMRC would have security vetted inspectors trained to deal with such organisations.

Whether HMRC would push whatever powers they have for the sake of investigating one contractor is another matter.

[Wanderer]

Surely there has to be some regulation that compels companies to co-operate with tax enquiries

Other than the road traffic act, I don't think there are many laws that require you to co-operate with the authorities.

[LisaContractorUmbrella]

What happens when HMRC makes an enquiry
At the start of an enquiry
When HMRC sends a notice of enquiry to your company, you - and your Corporation Tax agent if you've got one - will be told whether HMRC is making an enquiry into:
the whole of your Company Tax Return - including company accounts, tax computations and other supporting documents
one or more specific areas or aspects of your return
a claim or election you've made separately from your return
At the same time HMRC will tell you:
what information is needed
the deadline for providing this information
your company or organisation's rights and responsibilities
What information HMRC can request from your company or organisation
The information your company or organisation will need to supply during a compliance check will depend on what HMRC is enquiring into.
But HMRC can only ask you to provide information or documents that they need to check your company or organisation's Corporation Tax position.
You (or your tax adviser) should normally be able to provide any information on which your Company Tax Return was based.
Time limits for supplying information
HMRC will normally ask you to provide the documents and information it needs within 30 days. If you think you need more time it's important that you contact HMRC straightaway to discuss this. You'll find contact details on the notice of enquiry HMRC sends you.
If you don’t have the information that HMRC has requested, or you think their request is unreasonable or not relevant to the check, please let them know immediately.
What happens if your company or organisation doesn't supply the information requested
If you don't supply the information HMRC has requested, HMRC will issue a formal legal notice requiring you to provide it. If you don't then provide the information, you may have to pay a standard penalty of £300. You may also have to pay additional penalties of up to £60 per day until you supply the information.
You can appeal against this notice or any penalty charged by HMRC for not supplying the outstanding information.

I don't know for a fact but I would assume that HMR&C would consider statements from your client to be 'relevant' to an investigation which determines IR35 status. They can also request a meeting with the client but as far as I know there would be no obligation to attend

[Fred Bloggs]

In fact this thread touches on a topic I have often wondered about. Almost without exception, every contract I have had over the 8 or 9 years, there is nobody still at the client companies who worked with me or would have any knowledge of what I did or how I did it while I was in contract there. Due to most of the other people either being contractors who have left or the staff blokes have moved on or emigrated or the department has shut down. I have had no interaction with anyone at any client co in personnel departments or in the general management functions. Whilst I am sure HMRC could find somebody in the client companies who would be quite prepared to sell a "money grabbing contractor down the river to HMRC, how could any statement have any serious meaning in those circumstances?

[northernladuk]

In fact this thread touches on a topic I have often wondered about. Almost without exception, every contract I have had over the 8 or 9 years, there is nobody still at the client companies who worked with me or would have any knowledge of what I did or how I did it while I was in contract there. Due to most of the other people either being contractors who have left or the staff blokes have moved on or emigrated or the department has shut down. I have had no interaction with anyone at any client co in personnel departments or in the general management functions. Whilst I am sure HMRC could find somebody in the client companies who would be quite prepared to sell a "money grabbing contractor down the river to HMRC, how could any statement have any serious meaning in those circumstances?

Wouldn't this actually strengthen your case no end? The fact that no one else but your direct client (i.e. manager for want of a better word) knows what you are doing and you deliver seems to be a pretty dam clear sign you are outside IR35. Certainly beats everyone being your friend and you come in 9 to 5 and join in the social aspect of the office for sure!!!

They will spot someone who is all talk with no evidence a mile off so wouldn't have thought that was a problem.

[Fred Bloggs]

Wouldn't this actually strengthen your case no end? The fact that no one else but your direct client (i.e. manager for want of a better word) knows what you are doing and you deliver seems to be a pretty dam clear sign you are outside IR35. Certainly beats everyone being your friend and you come in 9 to 5 and join in the social aspect of the office for sure!!!

They will spot someone who is all talk with no evidence a mile off so wouldn't have thought that was a problem.

I have considered that angle. I have seen cases where the client co personnel department have given evidence along the lines of "Oh we'd never allow a substitute in place of Mr Bloggs" or "We'd always expect Mr Bloggs to do exactly what his manager told him or we wouldn't have employed him" and the like. That's the kind of response HMRC would be looking for when framing leading questions to a client personnel manager designed to elicit the response that serves their purpose. A personnel manager would have no idea what I did or how I did it, but it wouldn't prevent answers being given in the way I suggest, that's more my type of concern.

[ASB]

Cheers for the reply, always appreciated.

In which case, if the contract with the agency is fine, what's to stop you saying all the right things regarding working practices, either bending the truth, or out and out lying, if HMRC can't actually check the facts with the end company?

For clarities sake, I'm not advocating the above, I'm personally not paid via a Ltd company, just posing the question.

It's really simple. HMRC say "you're caught" and issue an assessment accordingly. You then have to disprove it. Potentially tricky if there is no cooperation through the chain.