This is part six of our serialisation of an IR35 enquiry. To Access the previous parts please visit our IR35 Chronicles Index.
Soon after their conversation, Mr Fiddler telephoned ProtectTax and was put through to their IR35 specialist, Mrs Dee Fender. Prior to joining ProtectTax, Mrs Fender had spent twenty years at HMRC.
She had joined the department as a higher grade tax officer and worked her way up to inspector. However, she struggled cutting it as an inspector and within a few years was moved to status inspector, which was perceived as a graveyard for failed inspectors. The last ten years of her Revenue career was spent entirely dealing with employment status matters.
She had carved out a reputation for being firm but fair and commanded respect amongst her peers and tax advisors alike. Mrs Fender had a successful track record in achieving tax yields from status enquiries and had developed an expertise in the area of IR35.
Mr Fiddler provided Mrs Fender with a brief overview of his clients' business and a synopsis of the IR35 enquiry to date. Clearly this was a matter that ProtectTax could assist with and one that Mrs Fender seemed keen to get involved with, particularly as it presented an opportunity to lock horns once more with Mr Turpin, for whom she had little time.
Mrs Fender briefly told Mr Fiddler her normal strategy for defending contractors in IR35 enquiries which suitably impressed the accountant. A fee of £120 per hour plus VAT was quoted. When Mr Fiddler asked the IR35 expert as to how long she thought the enquiry would take to conclude she simply retorted with “how long is a piece of string”.
She explained that it was really not possible to predict a time scale especially not knowing the case but based on past experience she said that thirty hours was an average yardstick. Fiddler thanked Fender for her time and told her that he would contact her again as soon as he had discussed the matter with his client.
The accountant wasted no time in relaying his conversation with Mrs Fender to his client via e-mail. Upon reading the e-mail Neil Down telephoned Mr Fiddler to discuss the matter further and seek his opinion.
Fiddler told Neil about Fender's reputation and how he had been impressed by her knowledge and professionalism and urged his client to employ her services. Although Neil's company could cope with a budget for additional professional fees of £3,600 + VAT (£120 p.h. x 30 hours), Neil's concern was that the enquiry had the potential to exceed thirty hours and subsequently erode BSOD's cash reserves further.
It was at this point that Neil had wished he had heeded his accountant's annual warnings about the cost of a Revenue enquiry and taking out fee protection insurance to safeguard against such an event. Neil also knew of many contractors that had the foresight of paying a few hundred pounds each year for a specialist insurance called 'IR35surance' that not only covered professional fees in the event of an IR35 enquiry but also indemnified against any tax arrears, interest and penalties up to a starting limit of £50,000 should the contractor end up being caught by IR35.
Those premiums seemed like piecemeal for the peace of mind it would have given Neil. He had previously asked Mr Fiddler to do a rough calculation of the tax and NIC for 2006/07, 2007/08 and 2008/09 should BSOD fall foul of IR35. That estimate came to approximately £60,000 and on top of that there would be interest and potential penalties.
Such a debt could put BSOD out of business unless Neil would be prepared to re-mortgage his own home to salvage his business. For the time being Neil did not wish to contemplate such a scenario and this only served to galvanise his determination to fight HMRC and ensure that justice prevailed. Neil therefore instructed Mr Fiddler to make the necessary arrangements to bring Mrs Fender and ProtectTax on board.
Neil had been unsuccessful in obtaining a copy of the upper level contract between Opportunity Knocks and BIG IT, from the agency. They had politely refused his request, as he knew they would, citing confidentiality reasons. Both accountant and client conceded therefore that this information could only be obtained by an approach from HMRC as Neil had told Mr Fiddler that he knew that the legal/procurement department of BIG IT would never release the document. A year ago, another contractor had sought the same documentation, as they had been the subject of an IR35 enquiry, and was flatly refused access to it.
The next day, Mr Fiddler spoke once again to Dee Fender and gave her his clients' instructions to represent BSOD Ltd, in conjunction with himself, for the duration of the IR35 enquiry. Before she could take up the appointment Neil would be required to sign, on behalf of his company, a form 64-8 (authority to HMRC) and a professional letter of engagement.
Mrs Fender asked Mr Fiddler if it was alright for her to communicate with his client direct, which it was. She said she would therefore write to Neil to introduce herself and issue him with the said documents. In the meantime she asked Fiddler to contact Mr Turpin to notify him of ProtectTax's involvement and to advise him that all future communications should be made between herself and Turpin.
Next week: Clash of the Titans; let battle commence