Limited company hiring bans ‘traceable to taxman’s IR35 nudge letters to GSK contractors’

Nudge letters to 1,500 GlaxoSmithKline contractors were a “very clever” ploy by HMRC to get the pharma to stop hiring limited company workers altogether, a former tax official says.

Not only have the letters pressured GSK to be risk-averse by internally looking at a PSC hiring ban, they also seem to have “influenced” two big banks, says ex-inspector Kate Cottrell.

But the IR35 specialist does not sound as if she blames any of the three companies, especially not the pharma. “GSK’s actions are totally understandable,” she says.

“Any organisation that was aware that HMRC are of the view that 1,500 of its contractors have incorrectly declared their IR35 status, as outside IR35, would likely do the same.”

'No doubt influenced'

But in addition to IR35, all large companies are also subject to the law on preventing tax avoidance, on top of the fact that they must meet their Accounting Officer responsibilities.  

“No doubt the GSK nudge letters will have influenced decisions to go down this path,” said the Bauer & Cottrell co-founder, referring to Barclays and Lloyds preparing to no longer use PSC contractors.  

“Arguably, this was a very clever pre-emptive move by HMRC to add pressure to GSK leading up to April.”  

'Probably going on behind the scenes'

At the time of their issuing, HMRC denied the letters were part of a specific clampdown, by saying that the letters came out of “routine compliance activity.” But Ms Cottrell isn’t convinced.

“This HMRC approach [of nudge letters] is also probably going on behind the scenes at other big clients, with senior accounting officers in the firing line to conform to HMRC pressure, just like we saw in the public sector,” she says.

If a Revenue spokesman comments are anything to go by, such end-users could be more likely to be in the pharmaceutical industry, which HMRC identified this month as ‘high risk.’

Both the tax department and GSK have declined to comment on any discussions between them, but those inside the company are now being urged to speak up.

'Resist this'

Speaking in light of GSK’s PSC contractors (unaffected by the HMRC letters) now being told by the company that, ultimately, they all face non-renewal, Larsen Howie urged:

“If GSK is going to force contractors on to the books, in one way or another, then contractors will need to form themselves into action groups to resist this.”

The insurer contacted ContractorUK yesterday to confirm that it is recommending GSK contractors threaten, en masse, to immediately stop supplying GSK, if it is not receptive to talks to avert the ban. It said GSK was taking a “negative approach” to IR35 reform.

'Despite what HMRC's mass enquiry finds'

Seeming to refer to the ‘cease and desist’ approach to PSCs, initiated by HSBC back in May, a source last night said: “The same blanket decision is being taken by GSK.

“[That’s] despite what the mass HMRC enquiry results are [going to be], and with no effort made at individual case reviews, potentially by the end of October.”

A spokeswoman for GSK clarified that the company is yet to make any formal announcement on its future usage of personal service company contractors.

“GlaxoSmithKline acknowledges the important contribution that contract workers provide", the GSK spokeswoman said. "We have not yet made any final decisions regarding our future IR35 strategy. Any changes will be communicated internally first, in line with our values and expectations.”