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.

1. 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.
   
   
2. 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)

This newsletter is published by the Professional Contractors Group. Please feel free to circulate the newsletter to other independent contractors who you know, and who may be interested in joining the PCG. Some links in the newsletter will take you into the password-protected members' area of the PCG website. If you have forgotten your password, contact https://www.pcgroup.org.uk/scripts/public/access/form.pl

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