Contractors can use HMRC’s Taxpayers’ Charter to help with tax and IR35 investigations when the taxman has stepped over the line. Several of the taxpayers’ rights listed in the charter can be used to directly help contractors being put under undue pressure.
“The charter has been around for some time, but it is often overlooked,” says Qdos Consulting’s IR35 expert Andy Vessey. “The current version was published in 2013 and in it HMRC makes certain commitments about how it will treat taxpayers, including contractors.”
Vessey has first-hand experience of how effective the charter can be when used to combat an aggressive or unreasonable tax or status inspector. But the charter works both ways, so contractors should ensure they are delivering on their obligations under it, too.
‘What you can expect from us: Respect you’
“The very first clause in the charter states that HMRC will respect contractors and that they will be courteous and listen to any concerns,” continues Vessey. “In my experience, the vast majority of HMRC inspectors do just that. But I have come across one or two status inspectors who can be particularly awkward and rude. This can be intimidating for any contractor, particularly when the status inspector is trying to oppress and suppress the taxpayer and their evidence.”
According to Vessey, his first response would be to talk to the inspector directly to avoid escalating the issue: “I would tell them that ‘I really find your behaviour to be confrontational, so I would ask you to pay heed to the charter, and if you do not I will complain’.
“If the inspector continues to be unreasonably confrontational, and there have been one or two who have, you can use this first clause in the charter to issue a complaint. If upheld, the inspector’s manager will tell them to moderate their behaviour, although they would not normally be removed from the case.”
However, Vessey has had incidences when the inspector did not moderate their behaviour, and he has made a further complaint resulting in the original inspector’s removal from the case.
HMRC will ‘Treat you even-handedly’
“The fourth clause of the charter states that HMRC will treat contractors even-handedly and be considerate in the face of financial difficulties,” says Vessey. “A logical conclusion is to expect one contractor to be treated the same way as any other contractor, or any other taxpayer for that matter.
“However, I have had cases in the past with contractors who have been providing their services to the same end-client. Both had IR35 enquiries. HMRC listened to one set of arguments for one of the contractors, but dismissed the same set of arguments for the other contractor.”
Vessey highlights that it can be an arduous but worthwhile process to convince HMRC to treat both sets of taxpayers even-handedly, particularly when working for the same set of clients.
“In fact, HMRC should treat contractors in similar circumstances the same even if they are not working for the same client. They certainly should not interpret the same circumstances and evidence differently,” he adds.
When HMRC does not treat contractors even-handedly
Vessey gives another example of a status inspector blatantly ignoring the evidence and disregarding the contractor’s rights under the charter: “I have a contractor who had been providing her services to a government client via a third party provider that was deemed to be the actual end-client, and that client was hugely supportive.
“We provided all of the information required, including a signed confirmation of arrangements from the client. I also attended a meeting HMRC had with the deemed end-client, which is almost unheard of because end clients are usually very precious and protective about ‘confidential’ information. The client said all the right things and confirmed that a substitute would have been accepted.
“You would have thought that HMRC would have accepted that the contract was outside IR35. But what we had here was a common scenario where the local compliance officers had done all of the evidence gathering and then handed it over to a status inspector. The inspector then dug her heels in, did not pay any attention to the information and evidence and just kept asking for more information.”
In this instance, Vessey admits he got to the point when he said: “‘This is nonsense. You are ignoring all of the facts and you need to explain why you are asking for even more information. If you can’t, I will lodge a complaint’.
“HMRC makes a promise that it will listen, and in this case the client was not being treated even-handedly.”
HMRC’s ‘old attitudes’ are creeping back
Vessey notes that another commitment made by HMRC back in May 2012, when it introduced the new framework for administering IR35, was to close down cases at the first available opportunity when evidence was provided that a contractor is outside of IR35.
“For a year and a half, HMRC had been true to its word and cases were swiftly closed down when we presented compelling evidence. But we are starting to see the old attitudes creeping back in, as demonstrated by another complaint I have made to HMRC recently.”
Vessey’s complaint cited the MAL Scaffolding case. This is a landmark status case from 2006 when the judge heavily criticised HMRC for its conduct.
Fitting the evidence to the ‘crime’
To paraphrase the judge’s ruling, HMRC had decided from day one that the workers involved were employees, so the taxman went out looking for the evidence to support that theory. HMRC was lambasted as operating in a premeditated way and not listening to the facts.
“I had an almost identical case,” says Vessey. “During the status inquiry, the compliance officers verbally acknowledged that the contractor was outside IR35 but the status inspector had decided otherwise.
The Taxpayers' Charter can be an effective tool during any tax investigation. It is often overlooked, but is something contractors and their advisers should consider when interacting with HMRC
Andy Vessey, Qdos Consulting
“As part of my evidence I told the status inspector that I believed him to have already decided on his verdict. We have also made a complaint, which we are taking further. This is a classic example of where the charter can help a contractor’s case.”
‘Accept that someone can represent you’
Vessey reckons HMRC is generally pretty good at complying with clause two, which is to “Help and support you to get things right”, supplying fact sheets and guidance, and when in a meeting informing contractors of their rights.
But where the taxman falls a bit short is not making it explicitly clear that contractors still don’t have to agree to meetings and that they can appoint someone to represent them.
Vessey has an excellent example of an employer compliance visit where this happened: “The client was insured and wanted Qdos to represent them. I told the client that they needed to sign an HMRC authorisation and tell the inspector that Qdos will be attending on the day of the visit.
“The client did this, but according to our client, HMRC tried very hard to dissuade them that it really was not necessary for a tax adviser to be present. Clause eight of the charter is very clear about this. Whatever the nature of the dispute or inquiry, a client has a right to be represented by a tax adviser.”
Keeping the ‘cost of dealing with us as low as possible’
The final clause in the charter says that HMRC will “Do all we can to keep the cost of dealing with us as low as possible”.
But as Vessey explains, many of the examples above do just the opposite: “In the case of the contractor working for the government client, the inspector was unnecessarily dragging out the case and completely disregarding clause nine. This contractor was not insured, so it was becoming very expensive to defend themselves.”
Vessey concludes: “The Taxpayers’ Charter can be an effective tool during any tax investigation. It is often overlooked, but is something contractors and their advisers should consider when interacting with HMRC.”