Many contractors, especially in the IT industry will currently be pondering whether or not to reach agreement with HM Revenue and Customs under their Contractor Loans Settlement Opportunity.

The first question which springs to mind is why HMRC have put the pack together.  It may have been issued with the best intentions but to a lay person I am reliably informed that it appears bulky, daunting and technical.  It also repeats a number of points.

Secondly, it refers to the Boyle case and invites taxpayers to consider its conclusions.  Few, I suspect will manage the 29 pages of complex technical analysis and case law precedent referred to.  It is clear though that the taxpayer lost – convincingly!

Following on from this, if HMRC are comfortable with the decision in Boyle why are they offering a Settlement Opportunity with no penalty rather than just lining up the taxpayers like skittles, to collect tax, interest and penalties?

I imagine this may be because the legal team at HMRC have reached the sensible conclusion that ‘circumstances alter cases’.

Any aficionado of case law will appreciate that when a Tribunal says they ‘did not find Mr Boyle a straightforward witness’, his chances of winning are pretty much zero, and his version of key facts is unlikely to be accepted.  As the Tribunal did not find him credible as a witness, they were obviously minded to find against him.

On this analysis, a well advised IT Contractor may ponder whether their personal circumstances are sufficiently different to enable them to be distinguished from Boyle?  If so, is there an argument that they have no personal liability?

HMRC have set an interesting conundrum for affected taxpayers.  Perhaps they have had advisors in from Ladbrokes?!  Should affected punters stick or twist?

Bearing in mind the amounts involved in many of these cases, deciding what to do is not something to be done lightly.  It makes sense to ‘study the form’ and get professional advice.  I would also suggest it would be sensible for that advice to be independent of the advisors who set the scheme up.  This is to avoid the risk of there being a conflict of interest or people advising on schemes they are personally attached to.

What do other people think about the Contractor Loans Settlement Opportunity terms?

IR35 TestsFollowing a review of the effectiveness of the IR35 rules, there is to be new guidance from HMRC including what is described as 12 business entity tests.

Points are allocated to each test and if a contractor scores less than 10 points there is a high chance of them being caught by IR35; if they score more than 20 points there is low risk.

 The headings for the tests are set out below:-

  • Business Premises Test
  • PII Test
  • Efficiency Test
  • Assistance Test
  • Advertising Test
  • Previous PAYE Test
  • Business Plan Test
  • Repair at Own Expense Test
  • Client Risk Test
  • Billing Test
  • Right of substitution test
  • Actual substitution Test

 For further advice regarding IR35 contact Eaves & Co on 0113 2443502

HMRC assessed Elaine Richardson who worked via ECR Consulting Ltd for £50,000 under IR35.

The case went to tribunal where three tests were applied; mutuality of obligation, substitution and control to determine the nature of her working relationship.

In deliberating, the tribunal made the following observations about ECR:

  • It operated from a dedicated business area at her home
  • It has company a domain and website
  • It advertises its services and is a member of the Professional Contractors Group
  • There are retained reserves and invested in business development
  • Over the years ECR has taken on fixed price work for a variety of clients.

The tribunal judges concluded, “it is clear to us that ECR is a genuine business and therefore not a target of the IR35 legislation”.

From this case it is clear that IR35 is still being pursued by HMRC, and freelance arrangements must have a clear commercial trading rationale behind them.

If you have any queries about how IR35 applies to you or are thinking about going freelance, please get in touch on Leeds (0113 2443502).