Employment Tax Expert

HM Revenue & Customs has confirmed it is taking on an extra 100 officers to target tax abuses in the construction industry.

HMRC said it is doubling the number of specialist officers cracking down on labour providers who fail to pay tax.They are expected to bring in an additional half a billion pounds of tax across all business sectors over the next four years. Labour providers found guilty of tax evasion could face jail.

David Gauke, exchequer secretary to the Treasury, said: “This government has invested £900m in HMRC to crack down on people who break the rules. Expanding these teams will help make sure that we bring in the additional money that the UK needs. Labour providers who think they can exploit their staff and the tax system need to think again.”

Mike Eland, HMRC’s director general of enforcement and compliance, said: “Building on HMRC’s successful approach to tackling fraud in the labour provider industry, these teams will make it even harder for fraudsters.

“Labour providers are traditionally found in agriculture and construction where they supply workers to other businesses. But HMRC will also continue to focus its efforts on all sectors where there is a demand for a flexible workforce to meet seasonal and market demand such as leisure, food, transport, security and cleaning.

“We will tackle fraud by those employers who don’t play by the rules and the organised crime gangs who exploit their workers. We will also work collaboratively with labour users and businesses in these sectors to help them use legitimate providers. This will help to create a level playing field for compliant businesses to compete in the market place.”

This employment tax expert warns companies that there are many labour providers in the Construction Industry who are not legitimate and will cause you more problems than if you engaged the subcontractors on truly self employed terms

HM Revenue & Customs (HMRC) has launched a campaign to target and crack down on suspected fraudulent tax credit claims from the self-employed.

Letters have started to land on the doorsteps of 12,000 self-employed people who are claiming tax credits. HMRC teams have been examining tax credit awards being paid to the self-employed and are writing to any whose claims may not be genuine or accurate. They are asked to contact the department and supply evidence to support their claims.

Failure to tell HMRC promptly of any changes in income can result in overpayment, which means that claimants have to pay back the money. They could also face a penalty and, in the case of deliberate fraud, criminal prosecution and imprisonment.

As part of a wider government crackdown, HMRC and the Department for Work and Pensions (DWP) have published a strategy designed to tackle error and fraud in benefits and credits.

Exchequer Secretary to the Treasury David Gauke said:

“HMRC is determined to take a tough approach to targeting possible fraud among tax credit claimants. Last year the Government launched radical proposals to reduce the billions lost to tax credit error and fraud every year. These losses are unaffordable and unacceptable.”
HMRC will now use credit reference agencies and data-matching to spot patterns of fraud. The department is also employing additional investigators and are examining each claim in high-fraud areas.

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.

HMRC have issued an apology noting that the turnaround times for newly self-employed people to register will increase to eight weeks, between now and October 31 2010.

It seems that processing times for paper form 64-8 and registrations for self-assessment will also increase over the next two months.

HMRC staff are being moved to “higher priority work”, hence the delays in processing these forms.

Be very careful during this time to ensure that you are genuinely self employed, whether it be in the construction industry or elsewhere – if in doubt contact us today

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