HMRC says IR35 probe into GSK contractors came from routine checks

The taxman has distanced himself from claims by experts that his IR35 scrutiny of 1,500 GlaxoSmithKline contractors is a targeted campaign or ‘a sign of things to come’

In a ContractorUK exclusive last week, WTT Consulting had said that HMRC’s IR35 “campaign” at GSK “will be extended very soon,” to affect PSCs at “many more companies”.

Qdos has since agreed, saying HMRC “could well contact other large…firms with a view to opening up widespread IR35 enquiries,” indicating GSK looks like “a sign of things to come.”

'HMRC is contacting hundreds of engagers'

Asked about its letter to GSK contractors, a HMRC spokesman said that the tax office was indeed “contacting hundreds of large and mid-sized” companies in relation to IR35.

But the Revenue claims it is only approaching those companies to prep them for changes to the administration of the off-payroll working rules, due to take effect from April 6th 2020.

Moreover, while HMRC says this means it is offering end-users “guidance” on “how to make [IR35] determinations for their existing contracts,” this is not what triggered the GSK probe.  

'Routine compliance activity'

In fact, seemingly removed from this sort of IR35 reform outreach programme, the Revenue’s letters to GSK contractors stem more from the tax office’s “routine compliance activity.”

“The [GSK] letters were part of [that activity]”, the HMRC spokesman also told ContractorUK, before adding an implicit warning:

“We believe there is more of a mis-categorisation risk of employment status in the pharmaceutical industry.”

'Taxman hasn't got the full facts'

However with GSK, one of the industry’s biggest players, the Revenue will not have inspected each contractor’s working practice at this stage, according to Qdos’ CEO Seb Maley.

So despite insinuating that 1,500 past or current GSK contractors are IR35-caught, HMRC has “definitely not established the full facts” of their individual engagements, he said.

When asked, a spokeswoman for GSK did not answer whether the company has opened its doors to the Revenue so officials can scrutinise contractors’ working practices.

In 2011, GSK contractor Primary Path Ltd was ruled outside IR35, after a tribunal’s scrutiny of its working practices found the services were supplied with little involvement from GSK.

In particular, other than checking standards and quality, GSK left the work of designing and building a specialist interface largely to the PSC, which the pharma handed responsibility for the project to.

'Our contractors' important contribution'

But today in 2019, GSK is yet to address whether it has recently liaised with HMRC in any other way relating to IR35, such as on the Revenue’s outreach programme to prep engagers for 2020.

The GSK spokeswoman, who was also asked if all 1,500 PSCs could really be captured by IR35, said the company is “aware” that some “agency workers” have had communications from HMRC

The pharma's spokeswoman added: “We acknowledge the important contribution these workers provide to the company.

“If individuals have concerns about this communication from HMRC, we would advise them to speak with their tax advisers.”

'Entirely your decision'

However, one such advisory Markel Tax says it is “entirely” the decision of the contractor in receipt of the IR35 nudge letter ‘whether to reply to HMRC or not.’

Partly, this is because there is no legal obligation to respond to the letter, but it’s also because contractors – and by extension their advisers – seem stuck between a rock and a hard place.

The advisory’s David Harmer said: “There are two schools of thought: [First, that] HMRC are more likely to formally investigate a company which does not respond.

"[And second] HMRC are more likely to formally investigate a company that does respond. It is not entirely surprising many contractors feel they are damned if they do, damned if they don’t.”

Practical guidance for recipients of the Revenue’s IR35 nudge letters has been provided to ContractorUK readers by WTT Consulting’s tax director Graham Webber, and by former tax inspector turned IR35 specialist Kate Cottrell.

'These letters should not be ignored'

Mark Taylor, a director at Chartergates, which also specialises in employment law, advised ContractorUK readers this morning: "The [HMRC] letters [so far] issued to 1,500 contractors using personal service companies should not be ignored. 

"HMRC are clearly on the offensive and contractors should use this opportunity to review their contracts and working arrangements to ensure they are satisfied that IR35 does not in fact apply to them. 

"The letters are certainly not enquiry letters and so unlikely to be immediately followed up by HMRC, however in the event HMRC does come knocking, it would of course be useful to provide detailed facts surrounding the IR35 assessment carried out by the contractor."