Welcome to Contractor Corner, the series written specifically for accountants with clients who are contractors
Changes in the public sector
The changes to the way IR35 is being handled in the public sector are almost upon us. While there will no doubt be some of you who are at least aware of what is happening, it may be prudent to remind yourselves about what’s happening.
Come 6 April 2017, contractors will no longer be the ones responsible for determining their status while on a public sector engagement – that dubious pleasure goes to the public sector body to whom the contractor is engaged.
Once the public sector body has determined the status of the contract (by way of either HMRC’s online tool that is being developed or another method of the client’s choosing) they will then instruct the ‘fee payer’ (who in most cases will be the agency sat between the contractor and the public sector body) as to the contractor’s status, who will then deduct the relevant tax from the contractor before the contractor even receives the payment.
It may be worth mentioning, however, that as the responsibility for determining IR35 status is being shifted to the client, so too is the responsibility for any tax liabilities should the contractor be investigated and found inside of IR35 being shifted to the fee payer. Do note that this is only for liabilities generated after 6 April – any tax found owing for periods before 6 April will still be the contractor’s responsibility.
If you are a contractor operating in the public sector it may be worth your while getting in touch with your client and asking them directly what their intention is come 6 April. It is entirely possible that a public sector body may decide that they do not wish to deal with the administrative headache of determining status on all their contractors and may opt for a blanket ‘Inside of IR35’ arrangement for all their contractors. If this is the case it is worth knowing ahead of time so plans can be made accordingly!
If you have any uncertainty as to the new rules around the public sector and IR35, it is always advisable to seek expert help.
- Matthew Tyler Qdos Contractor
Do new rules pose threat of retrospective IR35 enquiries?
The new guidelines are imminent and at Qdos we have been inundated with questions from contractors understandably concerned about the introduction of the new rules.
One of the most common questions we’ve been asked is whether or the not the new rules will allow HMRC (where a contractor’s status is deemed to be inside of IR35 by their public sector body) to make enquiries into the period prior to the new guidelines where the contract was operated on an outside of IR35 basis.
While a valid concern, it is our opinion that such action would be unlikely due to HMRC’s limited resources.
HMRC had previously committed to undertaking 250 IR35 enquiries a year and do not appear to have any additional resources at their fingertips to commit to such an undertaking and to enquire into every contractor who may be considered an employee under the new public sector rules.
- Kate Hardy Qdos Contractor
Casual lorry drivers found to be employees even with a right of substitution
In the case of RS Dhillon and GP Dhillon Partnership v HMRC  TC 05583, the First-Tier Tribunal (FTT) found that lorry drivers were employees rather than self-employed, even though there was a right of substitution.
The business trading as London Goods Transport, a haulage company, had a pool of lorry drivers that it used to deliver asphalt, tarmac and other aggregates for its customers within the construction industry.
London Goods Transport provided the lorries, although the lorry drivers themselves provided personal protective equipment. Lorry drivers by the very nature of the work will have limited control, due to the fact that the will be always be a pre-agreed destination, and although the drivers did operate under very little supervision, London Goods Transport did have certain rules and requirements that the lorry drivers were required to follow. HMRC, however, concluded, that control was not a determinative factor of employment or self-employment due to the nature of the services.
The lorry drivers did have a right to provide a substitute, although HMRC argued that this right was limited and was subject to approval by the haulage business and by their customers, and therefore that there was no genuine right of substitution.
HMRC argued that there was very little evidence of the lorry drivers taking a financial risk or of being in business on their own account.
The circumstances overall led HMRC to conclude that the arrangement was one of employment, and that the lorry drivers were integrated into London Goods Transport’s organisation.
Whilst it certainly seems as though there were some grounds upon which to defend the lorry drivers as self-employed contractors, the case serves to highlight the importance of an unfettered right of substitution, in addition to ensuring that there are clear indicators of operating a genuine business.
- Kate Hardy Qdos Contractor
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