26th June, 2001 - 23/01 Advice and Appeal
In this issue:
"Reasonable steps", penalties and in business on your
own account
Judicial ReviewAppeal Tax Investigation Insurance - Clarification
AGM and conference
Members Resolution
Real Life Meetings
PCG has been exchanging views with the Inland Revenue on
various matters since the JR. The following is an extract
from a paper, written by Kevin Miller of PCG in collaboration
with Anne Redston of Ernst & Young. The paper has been discussed
with the Revenue and incorporates their suggestions. (Link
for full paper below) Like all advice, the comments and
recommendations can only be general in nature and should
not be relied upon for specific cases � fuller information
may be found in the members' area of the PCG website, and
if necessary seek professional advice!
"Reasonable steps", penalties and in business
on your own account
If you treat your service company as outside IR35, and
the Inland Revenue subsequently disagree with the position
you have taken, you could be liable for the tax and NICs
which have not been paid, for interest on these amounts,
and also for a penalty. This penalty can be as high as 100%
of the tax and NICs unpaid, though in practice it is often
reduced to between 15-50%. The Revenue have indicated in
their IR 35 penalty statement (available at http://www.inlandrevenue.gov.uk/ir35/penalty.htm)
that:
"if you, in your capacity as employer, act prudently
by taking all reasonable steps to understand and ensure
that your intermediary service company or partnership meets
its obligations under the service company legislation, no
penalty will be imposed"
This means that if you, as the person running the service
company, do not believe that IR35 applies and have taken
"reasonable steps" in coming to that view, you will not
face a penalty if the Revenue subsequently disagree with
your view. You will, however, still have to pay any tax,
NICs and interest that may be owed if the Revenue is correct.
*Reasonable steps*
But not having to pay a penalty may be a significant saving.
So what constitutes "all reasonable steps"? There have been
comments made in the past by the Revenue and Government
that if you are uncertain as to your status then you can
take advantage of the Revenue�s contract opinion service.
Some commentators have interpreted this as meaning that
failure to use the service could be regarded as a failure
to take all reasonable steps.
Others have suggested that, as an alternative to using
the Revenue�s service, reasonable steps might require a
contractor to use a legal or tax specialist to review your
contracts.
However, the PCG has agreed the following points with senior
Inland Revenue officers.
- The Revenue�s contract review service is a public service.
It is not part of the Revenue�s compliance machinery although
the Revenue opinion will be on file at the Revenue should
an investigation occur at a later date. However obtaining
an opinion will not make it more or less likely that you
or your company will be the subject of an enquiry.
- It is the Revenue�s view that a taxpayer would not
be considered to have been negligent merely because he
or she failed to use either a voluntary service offered
by the Revenue or failed to consult with a legal or tax
expert on the application of tax legislation, especially
in the area of employment status case law. However the
individual would have to satisfy himself or herself that
IR35 did not apply by considering his/her position in
the context of the legislation and the relevant case law.
The PCG considers that a tax-payer, who is seeking to
take "reasonable steps", will therefore follow one or
more of 3 potential routes to determine what his position
is in relation to the application of IR35. The 3 routes
are fully explained on PCG site (link below)
*In business on own account*
When considering the issue of being in business on your
own account and other personal factors that might influence
the overall picture, issues the contractor should consider
include:
Please note this is a list of 'keywords' � the factors
are fully explained in the full paper - link below.
a. own office facilities
b. invested in office equipment
c. able to work for more than one client at a time
d. other business activities
e. The steps your company has taken to market itself to
potential clients
f. invested in training or development
g. badges of corporate identity
h. employer�s and public liability insurance and, possibly,
professional indemnity insurance?
i. registered for VAT?
j. data protection registration?
k. quality standard ISO 9000
l. nature of past contracts?
m. nature of any future contracts?
NB � This list is not exhaustive � PCG expects to release
a more comprehensive check-list of "In Business on your
own account" factors and "What information you need if the
IR come knocking" soon.
The complete version of this paper is available to PCG
members at: https://www.pcgroup.org.uk/threads/showpost.pl?f=legalandaccount-37&p;=0&v;=c&s;=5
and/or https://www.pcgroup.org.uk/members/resources/Reasonable_Steps.pdf
Judicial Review - Appeal
Members are encouraged to respond to the appeal for legal
funds. Members who pledge now � or who have pledged in the
past � are invited to indicate their support for either
an appeal of the JR or the case law strategy. Although the
High Court ruled against PCG in April, there was sufficient
positive comment for our lawyers to predict an 'evens' chance
of success in a future appeal. However, we should be aware
that there are no 'quick-fixes' and PCG members should be
prepared to see this through to its legal conclusion, which
could take a couple of years if there was to be referrals
to the European Court or subsequent domestic appeals, but
the prize at the end could be the abolition of IR35. This
is ground-breaking legal territory and it comes with no
guarantees.
Members are reminded that the average donation is significantly
lower than the expected cost of IR35 tax payments! In order
to continue the appeal we need to collect money and pledges
into the legal appeal fund. The size of the fund will determine
whether we are able to continue with the appeal.
See here for more information:
https://www.pcgroup.org.uk/members/legal/index.html
Please pledge here if you wish to pursue this course of
action:
https://www.pcgroup.org.uk/scripts/members/pledge/pledge.pl
Tax Investigation Insurance - clarification
There is some uncertainty regarding the Tax Investigation
Insurance that *all* members of PCG receive. The following
"FAQ" should help clarify coverage:
"Am I covered if I submit a contract to the Revenue
who then advise me that, in their opinion, it fails IR35?"
Submitting a contract to the Revenue for an opinion does
not, by itself, exclude you from cover under the Policy.
However, the Policy does not cover a challenge against such
an opinion as it does not constitute a formal investigation
into the accounts, which is normally notified by a �Section
9a� letter. An opinion of this kind needs to be taken into
account and a member is advised to seek professional assistance
to ensure that a subsequent challenge could be defended.
If, having received such a response from the Revenue the
member is subsequently investigated the existence of the
previous Revenue opinion will be relevant. Naturally it
will be in your interest to demonstrate that you had reasonable
grounds for taking a different view from that of the Revenue,
such as taking corrective action or seeking professional
advice, as this will be reviewed by the Insurer under the
prospects of success clause.
Full details of the tax investigation insurance are at
https://www.pcgroup.org.uk/tax_invest_insurance.html
AGM and Conference
In the last newsletter members were asked to indicate likelihood
of attending the event and preferred destination. At last
year�s inaugural PCG conference, business guru Sir John
Harvey-Jones was guest speaker.
Committee member Julie Stewart is co-ordinating interest
in the 2001 conference and has set up 3 emails to collect
responses. Unfortunately there was a typo in the last newsletter,
which has been corrected below. If you haven�t already done
so please send Julie a mail indicating your preference.
"Seaside" - email [email protected] with AYE
in the subject, no text.
"City" - email [email protected] with AYE in
the subject, no text. Any questions or other thoughts -
email [email protected] with your question/thought
in the subject, if possible, no text.
Members' Resolutions
There is a members' forum on the site where members can
post their own resolutions and seek support. Current 'live'
resolutions can be viewed at: https://www.pcgroup.org.uk/threads/wwwthreads.pl?a=l&f;=28
REGIONAL NEWS
Real Life Meetings For the latest information and to start
a local group see https://www.pcgroup.org.uk/threads/wwwthreads.pl?a=l&f;=meet
To promote your local meet through the newsletter - email
[email protected]
with REGIONS in the subject matter, details of the event
and a name and email contact point/or phone number for further
information.
Thames Valley
The Thames Valley group now follow a rotating schedule:
1st Tuesday of each month - Basingstoke (3rd July � Hogshead
pub)
2nd Wednesday of each month - Farnborough (next 11th July)
3rd Thursday of each month - Wokingham (next 19th July)
Dublin
Thursday 5th July Meet at Old Porterhouse, Parliament
St. 7pm
Other meetings are proposed in central London and East Midlands.
Susie Hughes
(Head of Executive Services)
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