Employment Tax Expert

HMRC Tax Investigation into plumbers has begun in ernest

Five plumbers have been arrested and around 600 are under civil investigation by HM Revenue & Customs (HMRC) for failing to pay the right amount of tax.

The arrests and investigations have taken place during a campaign targeting plumbers which invited them to put their tax affairs in order. Some of those involved owe up to £150,000.

This is the start of co-ordinated action and more raids are expected to take place over the coming weeks across the UK, including Yorkshire, Kent, Cambridgeshire, Tyne & Wear, Midlands and South Wales.

John Pointing, Assistant Director, HMRC Criminal Investigation, said:

“These raids and arrests of ‘ghosts’ – people who have not declared income from the work they do – are the culmination of months of work by HMRC.

“We provided a chance for those we have arrested, and the 600 we are investigating, to come forward voluntarily and put things right. These arrests send a clear message that HMRC will take action against those who choose not to come forward and pay the tax they owe.”

Mike Wells, Director HMRC Risk & Intelligence Service, said:

“These arrests are just the start. HMRC is considering hundreds of further cases for criminal investigation in the plumbing and medical professions. Some people may have thought we were bluffing when we said we have information that we will use to prosecute tax evasion.”

Under the Plumbers Tax Safe Plan (PTSP), plumbers, gas fitters, heating engineers and members of associated trades who owe tax that they had not declared faced a penalty rate of only 10 per cent, with a maximum of 20 per cent if they disclose in full. They have until 31 August to arrange for payment.

If you are worried about these developments call us today on 0800 917 9176

An engineer working on a contract basis for Airbus UK won his appeal against HMRC’s determination that he should be taxed as an employee under IR35 rules rather than as self-employed.

Following a hearing in Bristol in November, the First Tier Tribunal found in favour of MBF Design Services, the trading company operated by Mark Fitzpatrick. In February 2009, he appealed against HMRC’s decision that his employment status for the years 2001-07 fell within the terms of the Social Security Contributions (Intermediaries) Regulations 2000 and Income Tax (Pay As You Earn) Regulations 2003.

In April 2003 Airbus took on Fitzpatrick and his company MBF under a contract via intermediaries GED-Sitec and Morson Human Resources at an hourly rate that increased if he worked more than 35 hours in a week. The tribunal noted that the “request for services” to which the contract related included a seven-day notice period and a stipulation that substandard service or attendance would give Airbus a legitimate claim to withhold payment.

The Tribunal notes that the contract agreed between Morson and Airbus named 53 individuals and appeared to be based on one normally used for the purchase of goods, with Fitzpatrick’s “quanity” indicated as 42,500 hours at his usual hourly rate.

The third contract between Morson and Airbus also included a clause setting out the client’s right to immediate cancellation of the contract, which was crucial to the tribunal’s decision that the terms were inconsistent with the mutuality of obligation that exists between employee and employer.

During the course of the hearing, one of HMRC’s witnesses, an Airbus design manager, admitted that his statement had been prepared by HMRC and for all those people shocked by this, don’t be, this employment tax expert has seen first hand evidence of HMRC manipulating circumstances to suit their agenda. The Tribunal whilst not doubting his honesty, were not impressed with his evidence.

Noting that in the theoretical circumstances of a contract existing between MBF and Airbus, the judges ruled that the arrangements were typical of a contract for services. On site working was not a conclusive indicator of employment, the judges ruled. The nature of Fitzpatrick’s design work meant it had to be done computers at Airbus’s premises computers, in a similar way that electricians or plumbers frequently work on client sites.

Airbus’s right to cancel the contract without notice indicated a lack of mutuality of obligations, as did a series of occasions during computer failures where contractors were sent home without pay and employees had to remain on-site. Rather than seeking promotions, the contractor had to renegotiate with Airbus if he wanted better terms.

The Tribunal concluded there was insufficient control to demonstrate a contract of service. Any checking and approval of design work was an inevitable necessity of the project work MBF had undertaken.

If you were reading my blog earlier in the week you will have seen that HMRC are generously doing their bit to cut the Budget deficit by having an Autumn feeding frenzy as far as employer compliance reviews, tax investigations, steal the last penny off your Gran are concerned, so how does this stack up with the following:

The FT has reported that HMRC are apparently going to adopt a less “combative approach” to resolving tax disputes with businesses.

It seems that there is a “logjam” of legal cases relating to the “contentious” issue of avoidance, which are very expensive in terms of both time and money.

Even Dave Hartnett, permanent secretary for tax at HMRC, has expressed concerns that maybe HMRC have been a tad “heavy handed”:

“HMRC is packed full of very intelligent people, but we are sometimes too black-and-white about the law.”

He went on to comment on HMRC’s litigation strategy, which was introduced in 2007:

“I think we got it a bit wrong in the way we explained it to our people. They thought it was a great sword of justice.”

Who do these people think they are, it’s ridiculous and if the likes of David Hartnett thinks that this approach is going to be changed when the very people he is talking about are having the threat of the sword being shoved where the sun don’t shine if they don’t get in the extra revenue, then he is as mad as a box of frogs!

Anyone who has a debt with HMRC, whether it be from a Tax Investigation, employer compliance review, employment status review, PAYE/NIC/CIS or Self Assessment you need to take heed of what is happening regarding HMRC debt collection agents.

To begin with, those out in the field are now not allowed to contact HMRC offices to validate the debts that they are being asked to collect. Why you may ask, well there are two very different reasons:
1.The support teams back at base do not have the time to take phone calls – this is the official explanation; or 2. That HMRC is preparing the ground for this work to be given to private debt collection agencies (The Budget announced that a further £500m of debt will be handed over to private agencies). These private agencies, will obviously not be able to phone up HMRC offices and ask for details from confidential records.

HMRC have conducted a bizarre pilot scheme to test whether going down the route of private debt collection agencies would work. Think really bizarre and then carry on reading …

The agencies were given a tranche of work to do, and a control tranche was left with HMRC teams (but was left completely untouched).

and the result, that’s right, the debt collection agencies won!

Fast forward to reality and it will be no surprise that over half of the debts that HMRC debt collectors are given to chase up are in fact incorrect but rather than the onus being on HMRC to prove the debt, these collectors are told that if they are challenged by a “customer” the onus is on the “customer” to prove that HMRC are wrong, which is morally wrong and goes against our judicial system of innocent until proven guilty. So imagine what it’s going to be like with private agencies

So in an effort to simplify the tax position of self employed individuals, the Coalition has announced that they are to review IR35, which in theory is good news. Far too much time and money has been taken up with HMRC pursuing employment status reviews that have led absolutely no where. The latest case being that of Novasoft – it only took a mere 8 years to resolve and guess how it started – readers of this blog will as this employment tax expert has warned about it since it began – that helpful little offer by HMRC to review self employed contracts free of charge. All those people who think they can get something for nothing take heed – this whole case stemmed from an unsuspecting person naively thinking that this was the route to go because of course HMRC are completely impartial aren’t they?
Well a mega lesson has been learnt here – the individual may have finally won but it cost him £’000′s and 8 years of his life – a high price to pay, so where do we go from here – well just be very careful reviews are planned, timescale not mentioned and even worse HMRC are carrying on blindly opening tax investigations into new IR35 cases so if you are concerned about your employment status contact the experts because you don’t want to be the next statistic