Furloughed contractors, will your LinkedIn posts land you in hot water with HMRC?
In a potential sign of a toughening taxman, the official Coronavirus Job Retention Scheme guidance was updated yesterday to make clear that there is “no right of appeal” to those who the Revenue deems ineligible for furlough.
We are dealing with a number of CJRS enquiries already, despite it still being too early to tell how much detail HMRC will look at to gauge if a furloughed worker who was notified of their designation continued to work, writes Naseerah Mussa, a consultant at employment law specialists Chartergates.
We suspect that, where it is able to, HMRC will select a sample of the employer’s workers to interview to establish whether they were required to work while on furlough.
When the Revenue will do more digging
Then we would expect that if both the employer and the furloughed worker provided the same information to HMRC, and the employer was able to provide some evidence that the worker did not in fact work, HMRC would be unlikely to enquire further. That said, where a complaint has been lodged to the taxman by a worker, we expect officers will do more digging.
For Personal Service Companies (PSCs), we suspect the starting point for HMRC will be to establish whether the business had any ongoing contracts with clients during the period of furlough. And then to establish whether any work was required under those contracts during that time.
This may be evidenced by HMRC reviewing the detail of any invoices issued by the PSC or analysing bank records to see whether payment for services was made by clients and the period to which the payment relates.
The position of one-person companies
Of course, as far as single-person PSCs are concerned, the position may not be as easy for HMRC to assess, as furloughed directors can still continue to meet any statutory duties, so some activities may well be carried out.
However, where a CJRS enquiry is undertaken, it is unlikely, in the first instance, that HMRC can justify requesting phone records of employees to establish whether work was carried out during a period of furlough.
Contractors should know that HMRC’s information-gathering powers for CJRS enquiries are governed by Schedule 36 Finance Act 2008. The Revenue has the power to request information that it considers to be ‘reasonably required’ in order to check a taxpayer’s tax position. Given the extent and personal nature of phone records, in most cases, it is unlikely that such records could be considered to be ‘reasonably required.’
Ringing in the changes to how HMRC will probe
That said, with more and more innovative ways to work and communicate popping up, it is hard not to see how various technology-related methods might be used by HMRC to determine whether or not an individual was providing services or generating income during a period of furlough.
The easiest method for HMRC would be to visit publicly accessible social media profiles and monitor the posting activity, as this would not require HMRC to issue a request for information from the taxpayer. We are also aware that HMRC may access ‘open source’ material during a CJRS enquiry. Related to this, HMRC has published a statement regarding its use of publicly available information, including social media.
The public statement, is as follows:
“HMRC may observe, monitor, record and retain Internet data which is available to anyone. This is known as ‘Open Source’ material and includes news report Internet sites, Companies House and Land Registry records, blogs and social networking sites where no privacy settings have been applied.”
Looking at LinkedIn
In days past, most posting on social media was only ever to be seen as a forum to be social. But over the years, it has provided a platform for businesses and individuals to grow their brand/following, as well as reach out to customers by using a relatively inexpensive marketing method.
LinkedIn is a social platform which is a good example of this, as it allow individuals to promote their own business. In larger businesses with sales staff, HMRC’s focus could well be on whether LinkedIn enabled an employee to make a direct sales approach through their network, via their on-site personal profile, in activity which could be deemed ‘work-related duties’ on behalf of their employer.
Similarly, where an employee is placed on furlough but is using their social platform to stay relevant in their industry, or to showcase their own skills, they may also be unconsciously providing a service or generating income for their employer’s organisation (or their own organisation), especially in instances where they are personally naming or mentioning the organisation.
Clear guidance but clearly still a debate to be had
Interestingly, HMRC’s guidance on the CJRS is clear -- it is the employer who cannot ask the employee to do any work for them (‘work’ being activity that will make money or provide a service from that organisation). Yet there is clearly still a debate to be had here, i.e. at what point does updating followers on social media become ‘work,’ particularly in the case of those staff for whom if it is not required under their duties of employment.
The above is a prominent consideration for PSCs too, as generally a PSC will have a shareholder/director who will be responsible for the entire business, and may well inadvertently do some work for the business such as administration (beyond the statutory duties), like marketing or sales. These activities could well be considered to be ‘work’ by HMRC.
At the time of writing, whether HMRC will use social media posts to argue that furloughed workers were actually working is yet to be seen. But of course historically, HMRC officers (assuming the rumours are true) have been known to camp outside of workplaces to ensure work vehicles are returned and not taken home by employees! They’ve also been known to carry out numerous 'mystery shopper' exercises.
Being prepared if an inspector calls
To keep yourself safe from the possible result of such HMRC activity in relation to the furlough scheme, we repeat our recommendation -- anyone claiming under the scheme needs to ensure that they have all relevant evidence to hand (a copy of CJRS agreements for a period of five years, and copies of any claims/adjustments for a period of six years.)
Our experience of HMRC enquiries has shown us that it is significantly harder to obtain evidence years after the event (when enquiries may take place) and, therefore, we are available to assist clients now, in obtaining, preparing and scrutinising the information relevant to an enquiry, in order to be in the best possible position if HMRC does knock the door.