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What to do if HMRC ask for proof of your employment (IR35) status

Crunch, What to do if HMRC ask for proof of your employment (IR35) status

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    On 25th August 2019, HMRC wrote to contractors working for the UK based multinational pharmaceutical company GlaxoSmithKline (GSK) asking them to check their employment status and to respond with information.

    While not the first targeted campaign of this kind from HMRC, the timing has raised eyebrows, coming as it did only a short time before the government was planning to introduce changes to off-payroll working (IR35) rules.

    So, what are HMRC hoping to achieve with this campaign, and what lessons can contractors learn from it?

    What happened?

    We understand around 1,500 GSK contractors received a letter from HMRC asking them to check the employment status of their contracts for the 2018/19 tax year. In the letters, HMRC say they have reviewed the contract between GSK and the Personal Service Company and believe the contract is one of employment and ‘falls within IR35 rules’. HMRC set a tight deadline to respond by 19th September 2019.

    Here’s an excerpt from the letter:

    “We’re writing to you because you told us you were self-employed when you worked for and received payments through your own company. We call this type of company a ‘Personal Service Company (PSC)’.

    “Whether a worker is employed or self-employed for tax purposes is not a matter of choice. Instead, you need to look at the facts of the working relationship between you and GSK. This will help you decide if you would have been an employee of GSK had you worked for them directly and not through your PSC.”

    The letters go on to say that if the worker accepted that the contract in question is one of employment, then (the worker) would need to calculate the PAYE tax and Class 1 National Insurance due for the 2018/19 tax year and also ensure they were paying the right tax for 2019/20 tax year.

    IR35 guide

    What if HMRC writes to you about your employment status and IR35?

    Receiving a letter out of the blue from HMRC can be worrying – especially when it suggests you owe them money.

    What’s important to remember is that a letter of this nature – while perhaps a little intimidating – is not an indication that you’ve done anything wrong, or that you’re being investigated. Such letters are usually part of a wider scoping campaign, aimed at gathering information.

    In these instances, you’re faced with a choice between doing nothing or sending HMRC the information they request. If you believe your contract is not one of employment and is therefore ‘outside of IR35 rules’, you should submit evidence to HMRC to support your position. If possible, this should include evidence of a review of your employment status for the individual assignment by a third party such as an accountant or an expert in employment contracts and working practices.

    If you don’t have anything from a third party, you can use our Knowledge article as a starting point to prepare your response. Your main objective should be to provide sufficient evidence to HMRC that you’ve acted reasonably in determining your employment status with your end-client.

    Our IR35 services

    At Crunch, we offer a range of contract review services for our clients. One of our experts can review your contract, help determine your IR35 status, and assist in helping you evidence compliance with the government’s regulations in this area. We can also offer advice on recommended changes to the contract to ensure you correctly determine your employment status.

    Check out our IR35 page for more information.