I am a professional IT contractor who worked and lived very happily using the ‘prescribed’ and accepted method of operating through a limited company with few breaks from 1987 until 1999. Coinciding with Labour coming into power, IR35 and off-shoring came into existence both of which adversely affected, and still do, the contract market.
After an alarming and almost continuous 5-year break (containing just a 3-month contract and 6 months of factory work paying little more than minimum wage), I returned to contracting in 2006 to a very different financial and administrative landscape as off-shoring continued and IR35 ‘evolved’. As a consequence I was advised by those around me to use an arrangement rather than utilise the traditional Limited Company – I must stress I did not create or seek out the arrangement, it was created as a reaction to IR35 by providers many of whom still exist and still advertise their products today and these arrangement providers/promoters so far seem exempt from investigation despite still making huge profits.
During my brief time using the arrangement HMRC opened enquiries and said they would “let me know if something was wrong”. They did not until nearly ten years later. I eventually resigned from the arrangement soon after starting as to me, something did not seem right. Again, HMRC remained silent but early in 2016 after I questioned HMRC regarding their inactivity, they told me it was my responsibility to ask them to close their enquiries.
Now, my career is as good as over – off-shoring has seen to that. And if work does miraculously appear, “improved” IR35 makes freelancing very unattractive: we work under intense pressure, often have to relocate at our own expense but would have to pay at least as much tax as permanent employees but receive none of their benefits and could face crippling court cases and fines if we are “proved” to fall within IR35 but originally declared (and it can be strongly argued this is the correct position) outside.
I now feel it is now too dangerous to work as a freelancer even if I could. Remaining on benefits is a much better option until I am (if at all) fortunate enough to be offered a position that pays little more than minimum wage (the only work outside IT I have ever managed to secure). I was once a productive IT professional contributing to the economy by paying much tax and living expenses – not any more. I am now entering my tenth year of unemployment, claiming benefit for the third time.
To cover 10 years of HMRC inactivity, the 2019 Loan Charge has been created. If implemented is as HMRC suggest, the 2019 Loan Charge is retrospective taxation at its most aggressive. Retrospective taxation to a contractor makes working freelance itself unattractive since however much tax it is agreed I pay at the end of any given tax year, that may alter significantly in years to come as changes are made and then applied retrospectively, with fines and interest added even though at the time, the “current” rules were obeyed. Right now, I may have a fine to pay with interest accruing from this date on for a charge yet to be created – I cannot prepare for this, take alternative action or seek advice (from HMRC or other advisors) as that rule does not currently exist. Maybe it will in another ten or so years. This sounds ludicrous but that is exactly the position we are in now as retrospective taxation gathers ‘acceptance’ – rules are introduced regularly to maximise tax in ways that even tax specialists find draconian and extreme – bad accountancy in HMRC’s favour would not have produced a tax bill remotely close to the figure HMRC want from us to settle added to which will be penalties, interest and potentially Inheritance Tax (had HMRC carried out their enquiry in a timely manner (as specified in their Charter), I would have been made aware of all of these at the time, paid my tax and avoided what are now crippling additions that have accumulated during HMRC’s nearly 10 years of silence).
Like me, most of the people I have spoken with want to settle but the ludicrous amounts HMRC want and the time given to pay (often 90 days) prevents this. A mutually acceptable settlement must be reached.
HMRC’s rules stipulate an enquiry must be opened within a six year window once the tax return for that year has been submitted, the tax position resolved and the enquiry closed. Enquiries that HMRC opened (and it appears incorrectly for many I might add – this is still being investigated) based, in my case, on returns for tax years 2005-06 and 2006-07 are still open right now and I have been informed, will never close as investigation and potential litigation may be required. Furthermore, the 2019 Loan Charge now effectively opens any year during which an arrangement was used regardless of its previous status. It appears HMRC are continually moving the goalposts not just in all three physical dimensions but in time too. This also suggests to me that anyone who has ever paid tax could be investigated as there appears to be no distinction between open and closed tax enquiries within any time frame. This situation does not provide a solid work and life foundation.
Will I eventually be retrospectively taxed on my benefits I wonder?
I enjoy a simple life. I have my home and my health although the latter has been affected. And If HMRC has its way, I may lose the former too, and most of my possessions, and all to pay an alleged dept on the grounds that HMRC believes the arrangement I used simply “didn’t work”.
How can this be even remotely acceptable let alone fair?
I was no better off having used the arrangement compared with a Limited Company (where claiming for expenses was allowed but not so in the arrangement), it just simplified my tax position (so I thought) allowing me to focus on work rather than the bureaucracy. Now of course, with the continuation of off-shoring, ‘improved’ IR35 and the 2019 Loan Charge, I am fighting a stressful battle just to find work let alone keep it and to attempt to avoid or prepare for potential bankruptcy.
I have come to terms that at 54 my career is as good as over. What I cannot come to terms with is that HMRC want to penalise me with maximum tax, penalties and potentially Inheritance Tax because of that one mistake I made over ten years ago that was, and still, isn’t illegal. It’s just that HMRC don’t like it. That is all.
After I presented the above in the form of an email to my MP I received what appeared to be a template letter that addressed little. It simply repeated what I had originally pointed out but did add that the Government are grateful for the contribution we make – they then reward us with Retro Tax, ‘improved’ IR35 and continued off-shoring.