IR35 inspectors to probe public PSCs retrospectively

Personal service companies deemed inside the public sector’s April 6th off-payroll rules risk having their entire history of contracts probed under IR35, not just those after the date.

Most at risk of being investigated under IR35 retrospectively are the ‘pre-April 6th’ contracts the PSC has with the public client, who deems the rules to apply to the PSC ‘post-April 6th.’    

This was the assessment yesterday from three separate experts on the incoming rules; status advisory Bauer & Cottrell, IR35 reviewer Qdos Contractor and contractor trade group IPSE.

‘All your pre-April work’

But the risk of retrospective IR35 investigation isn’t confined only to the contracts with the public sector body the PSC is supplying at the time of a ‘caught’ decision. In fact, Qdos said:  

“If you’re declared inside IR35 by your public sector employer…[HMRC] could then knock at your door with a frightening tax bill for all the work you carried out before April.”

This deeper probe into a PSC’s history is not ‘automatic’ however, and will depend on HMRC’s risk assessment and its resources (it can run only up to 250 new enquiries a year).

‘Better understanding of your working relationship’

Andy Vessey, senior tax consultant at Qdos added: “Past projects [either in the public sector or the private sector for that matter] aren’t automatically included in HMRC’s review.”

It will, it seems, come down to the individual inspector and what he or she deems necessary to “get a better understanding of your working relationship and agreements,” Vessey said.

There is already one HMRC inspector with such a mindset -- the inspector who brought to bear what might be IR35’s most high-profile victims, implied status specialist Kate Cottrell.

“If it transpires that public authorities apply an inside IR35 position in April to those that were previously outside IR35, then there is a very real risk that HMRC will open an IR35 investigation. 

“This is what has happened to all the BBC newsreaders who have been on the payroll of the BBC for more than two years”, she said.

More BBCs?

But Cottrell adds that HMRC thought it would be “easy” to apply IR35 to the newsreaders, like Tim Wilcox and Joanna Gosling, yet many of the cases are ongoing or set for tribunal.

In light of HMRC retrospectively applying 2016/17 assessments to work done previously by the same PSCs at the same client, IPSE is urging contractors to take action.

“We strongly recommend that, if you want to continue with a public sector client, you arrange for a completely new, properly worded contract to be in force from 6 April 2017,” the group said.

‘Don't merely extend’

And this should not merely be an extension of the existing contract, emphasises Chris Bryce, chief executive of the Association of Independent Professionals and the Self-Employed. (IPSE).

Like Bauer & Cottrell, which first asked about retrospection at a HMRC meeting, the association has received no assurance from tax staff that they will not probe into PSCs’ past, where PSCs are caught under the new rules from April 6^th.

ContractorUK posed a question to the Revenue on retrospection; alongside queries about the appeals process, and the reactions that end-users are having to the rules. The department did not respond.

‘No PSCs staying on’

However, IPSE’s Mr Bryce warned: “The threat of retrospective investigation on contracts which are deemed to be inside IR35 after April, is likely to encourage more contractors to turn their backs on the public sector.”

One IT contractor at an organisation affected by the incoming framework confirmed to ContractorUK: “The lack of answers, the fear of being inside IR35 and [now] retrospective HMRC assessments? [No wonder] I don't know of any PSC who is prepared to commit to stay.”

Edior's Note: Related --

Contractors' Questions: Where are the off-payrolll rules retrospective?

IR35 reforms: where consultancies are caught

Contractors' Questions: Where do the off-payroll rules catch consultancies?