HMRC Uses One-to-Many Approach to Target Engagers
HMRC appears to have recently committed substantial resource into reviewing the employment status of workers with engagers being targeted with IR35 compliance letters. In a recent letter seen by Qdos, HMRC has commented as follows:
I am based within the Senior Technical Team of ‘Employment Status and Intermediaries’, which has been created with the specific task of reviewing the employment status of workers. Our team has approximately 250 officers nationwide.
You will appreciate the growing commitment for everyone: businesses, workers and the Government, to make sure that the often-complex area of employment status is given proper attention. The creation of this specific HMRC line of business demonstrates the Government’s commitment to tackling this area.”
This statement leaves us in no doubt as to HMRC’s intention of becoming far more active in its pursuit of engagers, who use the services of off payroll (self-employed) individuals. It is abundantly clear from the language used that HMRC perceives that there is an issue in this area where workers are, in their opinion, being incorrectly classed as self-employed.
We have already begun to see evidence of HMRC activity in this area with the issue of what is termed as ‘one to many’ letters to engagers and advisors within the construction, IT, and optometrist industries. We fully expect this approach to be extended to other areas of trade in the near future.
It should also be noted that these letters are also being sent to both self-employed workers and workers operating through their own personal service company (PSC) – in the case of the PSCs, the letter makes no reference to IR35.
What is the ‘One-to-Many’ Approach?
A ‘one-to-many’ approach is where HMRC decides to send one standard message to a particular group of taxpayers to influence their behaviour and to ensure compliance. In other words, one message to many taxpayers.
These letters are effectively questioning whether the off-payroll workers should be on the payroll as employees and asks that the recipient of the letter checks the status of the self-employed workers. For this purpose, HMRC suggest that the online Check Employment Status for Tax (CEST) tool is utilised within 30 days of receipt of the letter and warns that contact will be made to check what action has been taken.
In our opinion, and a view widely shared within the accountancy profession, the CEST tool is not robust enough and does not cover all aspects of the engagement in order to accurately reach a decision as to the worker’s status.
It would appear to us that the main purpose of these letters is to bring more workers within the PAYE regulations. HMRC’s actions are likely to have arisen as a result of a policy decision from the Treasury and in line with the most recent statement from HMRC referred to earlier.
There is a danger that the ‘one size fits all’ approach will exert pressure on businesses to treat self-employed workers as employees without full consideration being given to the engagement as a whole.
We believe it is essential that businesses take a considered view rather than being pressured into a certain approach simply because this is favoured by HMRC. Furthermore, we believe it is in the organisation’s best interests to seek specialist advice to ensure that each case is judged on its own merits and circumstances.
Additionally, if it is decided that the worker’s status should be changed, consideration should be given as to whether there is a danger that HMRC may seize the opportunity to undertake a formal review for earlier years. The argument being that if the terms and conditions of an engagement are unchanged then the status of the workers has been incorrect in prior years also. This could lead to the business being exposed to significant tax liabilities for PAYE/NIC, interest, and tax-geared penalties.
It is important to recognise that the letter is a form of intervention and not a formal request issued using any statutory legislation, and as such compliance with the request is on a voluntary basis. Apart from a warning that HMRC will follow up the letter in 30 days, there is no reference to what specific action, if any, will be taken should the business decide not to comply with the letter.
In our view, any decision to change a worker’s status should be carefully considered because of the implications on the past, the present, and the future. On a positive note, the letter could be considered a warning shot to businesses to check they are tax compliant.
We believe that it is vital for businesses and their advisors to consider carefully all aspects of the engagement between the business and worker. We always advise that businesses check that the written contractual terms accurately reflect the day-to-day working reality. The next step is to check this information against the status tests.
How can Qdos help?
Qdos Contractor has a wealth of experience in this specialist area. The tax consultancy team is made up of experienced tax professionals and ex-HMRC Inspectors. They specialise in assisting businesses that either wish to check the status of their workers or are under investigation. They have a proven track record of successfully resolving disputes and have built up a wealth of experience in this specialist area.
For further information on how to protect your clients, and how we can assist you with issues surrounding tax status, please contact us on 0116 478 3390.