Posted on 2 May 2018
HMRC is pursuing freelance workers and contractors for substantial tax bills, as Simon Littlejohns, partner and Head of Tax at Friend Partnership explains.
As discussed in my recent post on tax avoidance, it is not just footballers and high net worth individuals who are locked in battle with HMRC over failed tax planning arrangements and substantial tax liabilities.
Hundreds of freelance workers and contractors, who used ‘personal service companies’ to provide their services to employers, are now facing huge bills from HMRC with interest and penalties heaped on the income tax HMRC say they owe.
HMRC is using the IR35 rules, which have been heavily criticised as not fit for purpose.
Many of these freelance workers were ‘duped’ into entering arrangements that saw them being ‘paid’ with loans from a trust to which their employer had contributed.
HMRC’s stance has always been that these arrangements were contrived and were simply tax avoidance.
This issue is one which has plagued many BBC presenters and highly paid staff, who were encouraged to engage with the BBC using their own personal service companies. This approach has been challenged by HMRC, leaving hundreds of BBC staff facing substantial tax bills.
HMRC is now pursuing, without fear or favour, the tax that is due.
Time to settle?
As we know, HMRC will not do ‘deals’. They will however try to agree ‘time to pay arrangements’ with taxpayers who are unable to settle their tax bills immediately – which is of course the majority.
I have heard of one example of a time to pay agreement extending over 30 years, so HMRC can be accommodating if a taxpayer can demonstrate clear financial hardship.
An HMRC spokesperson has been quoted as stating that HMRC has no wish to make anyone bankrupt but that they do need to collect the tax – I fear though that bankruptcy may be the result for some of those who are affected.
Sadly, the taxpayers concerned may have limited redress against the promoters and other supporters of the tax planning schemes. Some promoters are no longer in business and others may well be relying on the caveats in their selling documentation that no doubt indicated that the planning ‘may not work’. This is scant solace for those affected.
In the very rare instances where no caveats were given, the taxpayers may have a right of action against the promoters, if they are still in business.
Advice for those facing a large tax liability
My advice to anyone who might be in a similar position and facing a substantial claim from HMRC, is quite simple:
- Do not ignore the correspondence from HMRC!
- Engage with HMRC at the earliest opportunity to confirm your position and explore the payment possibilities.
- If you do not have an adviser, get a suitably qualified tax specialist onboard as a matter of urgency to guide you and help represent you with HMRC.