Two Trainline contractors investigated under IR35 stop HMRC in its tracks
Two limited company contractors at The Trainline shook off an IR35 investigation almost as quickly as it started -- but only after each answering 57 questions from HMRC.
Describing the HMRC inquisition as “very detailed and lengthy,” the advisory which represented the contractors who worked at the rail website suggested yesterday that the Revenue’s timing was significant.
“The contractors [contacted us in late April]...[and of course from early] April, contractors are no longer responsible, or liable, for IR35 if [supplying] a medium or large firm.”
'Very careful answers'
The advisory, Qdos, also said that the timely HMRC scrutiny of the PSC pair under the ‘old’ IR35 proves that, currently, “there is [still] a very real residual risk for contractors.”
It means that while PSCs are no longer liable under the new off-payroll rules, retrospective challenges for tax years prior to April 6th 2021 (where PSCs are still liable), remain a threat.
Published separately today on ContractorUK, some of the questions which HMRC posed to the two contractors required answering “very carefully,” says Qdos CEO Seb Maley.
“Anything can -- and usually will -- be used as evidence by HMRC. Our response to many of these questions, which explored all aspects of IR35, was concise, matter of fact and relayed the contractual terms.”
'Not a case of overloading'
In a statement to ContractorUK, Mr Maley further advised: “It’s not a case of overloading the taxman with information, but rather putting forward a clear and well-constructed argument that focuses on evidence.”
Evidence-wise, it cannot (at the time of writing) be put beyond doubt that the organisation which both contractors worked at – The Trainline – was not a new target for HMRC.
In August 2019, GlaxoSmithKline was the target of an HMRC status probe, which saw 1,500 of its contractors receive HMRC letters declaring them to be inside IR35 and owing taxes.
'Inquiry will close if HMRC agrees correct tax was paid'
Yet Mr Maley has been “led to believe” that the two contractors each having the same end-user was purely coincidental, not a precursor to HMRC targeting The Trainline or other transport-related or ticket booking websites.
An HMRC spokesman declined to be drawn on the case, saying that the tax authority does not comment on specific, identifiable taxpayers.
But speaking generally, the HMRC spokesman said: “We use inquiries to establish if a customer is paying the right tax and if we agree the correct tax has been paid an inquiry will close. We don’t want to collect penalties, just help customers get their tax right.”
'Fraud or criminal behaviour'
Pressed about IR35, the HMRC spokesman added: “We have also previously made a commitment that HMRC will not use information acquired from the off-payroll working rules changes to open a new compliance enquiry into returns for tax years before 2021-22, unless there is reason to suspect fraud or criminal behaviour.”
The HMRC’s spokesperson’s suggestion -- that just because there was an HMRC inquiry into two workers at a company, does not automatically mean there is a broader investigation into that company, may reassure some.
However in the particular case of ‘The Trainline two,’ the answers given by the contractor duo to the 57 questions clearly reassured HMRC -- that the two PSCs had been paying the correct amount of tax.
'Another case of HMRC targeting the wrong contractors'
Instrumental in helping the pair respond to the questions, Qdos’ Mr Maley headed off a suggestion that HMRC closing down the enquiries upon receipt of the answers implies it was just a ‘tick-box exercise.'
“These contractors were clearly outside IR35 and so HMRC had little to contest”, he insisted last night.
“Frustratingly, it’s just another case of the tax office targeting the wrong contractors. But that’s not to say HMRC won’t continue to chance its arm and investigate contractors whose engagement is obviously outside IR35.”
'A lot more than 57 questions'
Worryingly for any time-poor contractors, 57 questions is often only the opening salvo from HMRC according to another IR35 advisory, Bauer & Cottrell.
“This is standard stuff and often after the first 50-plus questions, HMRC then asks a lot more,” the IR35 advisory cautioned. “As always, it is a fact-finding exercise and it is essential that any adviser does a proper job by establishing the true facts.”
The advisory’s co-founder Kate Cottrell, a former inspector for the tax authority warned: “Contractors should remember that HMRC has a duty to continue to police IR35 as well as the new off-payroll rules.
“We still have a number of cases that were paused because of covid-19 that have started up again and have been taken over by new HMRC officers. A real pain, but we anticipate success for the contractors.”
'Likely to see more contractor IR35 investigations until April 2023'
But success for contractors against HMRC in the IR35 stakes is largely enabled by “getting a professional in your corner early,” recommends Brookson Group.
And making sure that professional doesn’t have loose lips is key, especially if contractors are to emerge unscathed from what will likely be an uptick in HMRC enquiries under the legislation of 2000, hints the group’s compliance director Matt Fryer.
“[Answers to HMRC’s questions must be] very carefully worded to avoid misinterpretation or, worse, having your words construed against you,” said Mr Fryer, who tomorrow writes about IR35 exclusively for ContractorUK.
He added: “We are likely to see HMRC continuing to enquire into a contractor’s IR35 position under the ‘old’ rules -- until April 2023 at the earliest, given income derived from pre-April 2021 contracts will be reported on the 2020/2021 self-assessment tax return, which require submission prior to April 6th 2022 from which HMRC then has 12 months to open an IR35 enquiry.”