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IR35

IR35 | Why the shortage of Petrol is more than a supply issue...

In the context of the current climate and a mass of media exposure in the recruiting and contingency industries regarding ethics, exploitation and non-compliance, it has never been more vital for everyone in the supply chain to cooperate to build excellent working standards. A minority of companies have been misused, but a vast number of highly compliant organisations also work ethically and correctly to offer clients and contractors with a high standard of service. This month we are going to look at some of the developments around the IR35.

HMRC begins IR35 compliance inspections in the financial services, oil and gas industries

HM Revenue & Customs (HMRC) has acknowledged that compliance checks are being conducted in the financial services and oil and gas sectors due to concerns about how these companies are conforming to the updated IR35 tax avoidance laws. The assessments are the outcome of 'changes in commitment models' that are known to rely largely upon personal service and limited company contractors in these industries.

Consequently, in these industries they immediately call client organisations to establish their correct application of the restrictions on non-payroll work. The Institute of Chartered Accountants in England and Wales (ICAEW) published a news alert about letters that claimed HMRC has begun sending out to firms in the oil and gas and financial services sectors, seeking information about their IR35 compliance procedures. In connection with the reforms, companies within the financial services, petroleum and gas markets responded to the changes by prohibiting the recruitment of companies in limited form in order to escape the modifications to IR35.

‘Shambolic’ HMRC and delayed tribunal decision

After the opportunity to appeal a judgement outside of IR35 to the Upper Tier Tribunal (UTT) was refused after filing their application after the deadline, HMRC was labelled 'shambolic.' The UTT, which was focused on two contracts, has also revealed that the second contract was not decided until a second fiscal case (PGMOL v HMRC) was released.

George Mantides, a local doctor, is involved in both contracts. In 2019, a contract with Royal Berkshire Hospital (RBH) belongs to the First Tier Tribunal. The other one was held outside IR35 at Medway Maritime Hospital (MMH). The MMH judgement should have been appealed to the HMRC, and the RBH decision was appealed to Mr. Mantides at UTT.

The fact that the HMRC missed the deadline to challenge Mr Mantides' contract with Medway Maritime Hospital says all that about the tax office's efficiency. HMRC routinely struggles to determine whether a contract is inside or outside IR35, but is insufficiently organised to make an appeal request despite its importance as an Upper Tier Tribunal. As for the second contract concluded with the Royal Berkshire Hospital, the forthcoming PGMOL judgement is essential.

This decision is forthcoming, might affect the results of a number of cases and show that HMRC is not in agreement with one key part of IR35. The case of PGMOL involving football professionals depends on whether the individuals concerned are required to work for each other as employees. If it is discovered that there are no Mutual of Obligations, then the IR35 CEST tool of HMRC, which is crucial to defects, will be questioned and centenaries of thousands of IR35 determinations made.

Tesco and Co-op risking tax penalty

Lawyers and tax experts have warned that Tesco and Co-op might be facing a large tax settlement with HMRC if they increase their efforts to hire drivers in the face of a statewide shortage. Both supermarkets want to hire Heavy Goods Vehicle (HGV) drivers who own a limited company, a contractual setup that HMRC has tried to discourage with recent IR35 tax amendments. While hiring contractors through a limited company is not illegal, HMRC has worked to address what it considers to be a type of tax evasion in which workers give their services through an intermediary firm rather than directly to reduce their tax cost.

With supermarkets competing for HGV drivers, Tesco and Co-op's willingness to work with limited businesses may improve their appeal to drivers who might possibly exploit the structure to minimise tax and raise income. Wincanton, Culina, and Gist are among the haulage businesses doing the same. Some analysts were shocked by the action, as they expected most HGV drivers to be classed as direct workers following IR35 tax reforms in April. In a recent study, the senior traffic commissioner determined that “the tax situation of haulage drivers is equivalent to that of drivers working for taxi firms who have been deemed to be workers and not self-employed.”

Tesco and Co-op both stated that they were fully compliant with IR35 legislation, and ADR Network, their driver recruitment agency, stated that it had performed extensive due diligence to ensure that it was following the rules. According to ADR's HR director, the agency sought extensive legal advice, including from a leading QC, who provided a "strong written opinion" supporting the arrangements. In order to confirm the position, the agency also used HMRC's online employment tool.

However, if HMRC determines that the recruitment of HGV drivers through limited companies should have resulted in income tax and national insurance deductions, supermarkets and haulage companies could face a hefty settlement consisting of tax payments, penalties, and interest, this was a statement made by an expert. As a result, in addition to the potential reputational risk, they are expected to have conducted extensive due diligence prior to entering into any contractual arrangements to determine whether they need to operate PAYE for these workers. Other logistics companies have been outraged by the recruitment strategy, claiming that it will exacerbate already-rising wage inflation. Drivers can increase their earnings by around 25% by using a limited company, which means that any employer hiring a driver directly must raise wages significantly to compete.

Conclusion

The transportation and logistics industry has been through some upheaval in recent years. With Brexit and IR35, it is easy to see why businesses are struggling. With all of these issues causing driver shortages, among other issues, businesses must now adapt to the ever-changing challenges.

https://www.computerweekly.com/news/252507165/IR35-reforms-HMRC-confirms-compliance-checks-under-way-in-financial-services-oil-and-gas-sectors accessed on the 27th of September

https://www.thegrocer.co.uk/supermarkets/tesco-and-co-op-risking-tax-penalty-as-battle-for-drivers-intensifies-lawyers-warn/659900.article accessed on the 28th of September

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