This is part four of our serialisation of a typical IR35 enquiry. To Access the previous parts please visit our IR35 Chronicles Index.
Last week, the meeting between HMRC and Neil and his accountant was concluded. Soon after the Revenue officers had departed Neil asked Mr Fiddler for his opinion of how he thought the meeting went.
Mr Fiddler believed that the meeting had gone well. The pair briefly discussed the potential tax and NIC arrears for the earlier years that HMRC had discovered.
Whilst Neil accepted that he was responsible for the non-payment of Class 1A NIC on the private medical insurance benefit-in-kind, he queried why Mr Fiddler had not provided him with advice on the 24 month rule. After all, Neil provided his accountant with a copy of the original contract with BIG IT when he initially sought Fiddler's opinion on his company's IR35 position and subsequently provided all business records to enable the company's annual accounts to be drawn up.
Neil pointed out that the records included his monthly claim for travelling expenses from home to BIG IT's site, so why had not the accountant alerted him to the potential tax and NIC pitfall after seeing two years’ worth of these expense claims? Mr Fiddler was rather taken aback and defended his position by pointing out that it was not necessary to examine all invoices and receipts in preparation of the accounts but rather only a sample test.
They agreed to disagree for the time being and Neil asked Mr Fiddler to compute the potential PAYE tax and NIC liabilities which he agreed to do.
With regard to the IR35 position Neil enquired of Mr Fiddler what he thought the likely outcome would be. The accountant had been impressed by Neil's performance in front of the Revenue officers and thought that whilst the status inspector may want to clarify a few points with Neil, overall they would probably not pursue the IR35 issue over any great period of time. When pressed by Neil as to how long the whole episode would take to conclude, Mr Fiddler estimated 6 months but said he could give no guarantees and Neil was not to hold him to this.
Two weeks after the meeting, Mr Raider wrote to Neil explaining that the IR35 matter had been passed to the local status inspector, a Mr D Turpin, who would be contacting Neil in due course. Enclosed with the letter was a copy of the notes of the meeting for Neil's approval. The letter informed Neil that if he wished to make any amendments to the notes, then he should do so by either making the appropriate alterations on the notes themselves or by advising of the amendments in a separate letter.
Once he was happy that the notes of meeting represented a true reflection of their discussions, Neil was invited to sign and date them and return to HMRC. Mr Fiddler had also been issued with a copy of the same letter and Neil therefore contacted him to ascertain how they should respond. In the main they were both agreed that the notes were an accurate reflection of what had been discussed but between them they had both highlighted a few inaccuracies that were in need of correction, viz:
• HMRC inferred that before Neil got the “job” he had to submit his CV and attend an “interview”.
• It was inferred that the six monthly contracts simply flowed into each other to form a seamless contract.
• It was a condition of his “employment” that Neil underwent Health & Safety training.
• The importance of timesheets was overstated as if to imply they were a form of control; and
• Neil's name appeared on BIG IT's internal listings, neglecting to mention that the word “contractor” appeared beside his name.
Mr Fiddler told Neil that he would write to Mr Raider requesting that the relevant changes be made to the notes of meeting and that Neil would not be signing the notes as there was no statutory requirement to do so. The accountant had explained to Neil that by abstaining from signing the notes this gave them a position to manoeuvre should any subsequent facts come to light that had been overlooked.
Mr Raider's letter went on to say that Ms Fleece would be writing to Neil separately regarding the PAYE and NIC issues.
Approximately four weeks after Raider's letter came correspondence from Mr D Turpin, status inspector. The letter informed Neil that the inspector was still considering the information provided to his colleagues at the recent meeting but it was likely that he would need to ask Neil further questions about his working relationship with BIG IT.
In the meantime he would like to see a copy of the contract between the agency and BIG IT and enquired if Neil had a copy of this. If not, then Neil was asked to provide a contact name and address and telephone number of a responsible person at both the agency and BIG IT whom Turpin could contact to obtain not only a copy of said contract but also to seek information about the contractual and working practices.
Alarm bells started to ring in Neil's head at reading Turpin's letter and he immediately contacted Mr Fiddler to seek advice and some sort of explanation as to why the status inspector was broadening his enquiries. Mr Fiddler, not having dealt with many employment status and, in particular IR35 enquiries before, was a little puzzled himself but knew that HMRC had the right to obtain information from third parties.
He also needed to protect his client's interests and therefore wrote back to Turpin explaining that he was concerned that by acceding to the status inspector’s request would put his client in a vulnerable position in that HMRC would be free to ask any number and any type of question without Neil's knowledge. As a compromise therefore, Mr Fiddler suggested that Turpin channel all his requests for information through himself and Neil would then pass the same onto the relevant contacts.
Next week: What the status inspector did next.