Part two of our serialisation of a typical IR35 enquiry. To Access the previous parts please visit our IR35 Chronicles Index.
A week before the appointed meeting date with HMRC, Neil Down had met with his accountant, Mr Fiddler, to go through the modest and humble PAYE records and to discuss any potential IR35 pitfalls. After a one hour meeting Neil left the records with his accountant to examine.
On the day of the meeting, the two HMRC officers arrived at Neil's house at 10:30 in the morning. Mr Fiddler had arrived an hour earlier to go over the IR35 issues they had previously discussed and rehearsed.
The officers introduced themselves as Ms Fleece and Mr Raider and opened proceedings by explaining to Neil and his agent that a review of BSOD Ltd's PAYE records was long overdue, indeed it had never undergone one since the company was formed back in 1999.
The purpose of the visit therefore was to examine the PAYE records for the 2007/08 and 2008/09 years and also to discuss the legislation commonly referred to as IR35 and whether or not this applied to Neil's contracts.
Neil was asked to provide a background and details of his business and the associated accounting and PAYE record keeping.
After about an hour the two officers concluded their examination of the PAYE records and informed Neil and Mr Fiddler that, in the main, the records appeared to be in order except that there was an issue concerning the claiming of travelling expenses whilst Neil had been working at the site of BIG IT.
HMRC had noted that the series of contracts with BIG IT ran from 2006 – 2009. Neil had continued to claim travelling expenses to a temporary worksite for the whole period and had disregarded the 24 month rule. This being the case tax and NICs would be due on a year's worth of travelling expenses.
There was also an issue regarding an apparent non payment of Class 1A NIC for the year 2006/07 and 2007/08 on a private medical insurance benefit-in-kind. Ms Fleece said she would write to Mr Down and his accountant with the precise findings and a computation of the PAYE and NIC arrears.
Mr Raider then asked Neil if he was still happy to answer the Revenue's questions concerning his company's contract to provide services to BIG IT. Neil acknowledged that he had no objections. Mr Raider explained that his colleague would be taking notes and soon after the meeting was concluded a copy of those notes would be made available to Neil for his approval and signature. The questions and answers are given below:
Q: When and why did you first start contracting?
A: I formed the company back in 1999, following my redundancy from MBI plc. I could not find a job that paid the same level of salary that I was used to. An agency found me some temporary work with Cryptic Corporation but they would only consider me for the position if I had my own company.
Q: Did an agency find you the contract with BIG IT and were you required to submit a CV to BIG IT?
A: As with all my contracts, an agency did put me in touch with BIG IT. I did not need to submit my CV to BIG IT as the agency already had a copy of this and I assume they would have provided BIG with the same, hence that's how they got to know about me.
Q: Did you have to attend an interview with BIG IT?
A: I did attend a meeting with the IT Director and Project Manager of BIG IT. They naturally wanted to assess my skills and knowledge and ensure that I was suitable for the contract.
Q: What work were you doing for BIG IT?
A: I was brought in to provide consultancy to a large IT project for an initial period of 6 months.
Q: I note that each contract only lasted 6 months. When and how were the contracts renewed?
A: Generally, about 2 weeks before a particular contract was due to end I would meet with the Project Manager. If the particular project I was working on was still ongoing I was simply asked if I would like to carry on working on that project and, if so, a further contract would be drawn up for signature. If, however, I had finished my part in the project, BIG IT would look to retain my services in another capacity.
Q: What happened on your first day of working at BIG IT?
A: I reported to the IT Director as advised by the agency. We discussed the project requirements, a kind of refresher, and I was then given a tour of the site. After this I underwent a one hour health and safety programme, provided with my contractor ID badge and swipe card and then shown to my work station.
Q: Did you have to through an induction course or training?
A: None of that. I was engaged for my expertise. After discussing the spec. of the project I knew what needed to be done, so no training was necessary.
Q: Did you receive any ongoing training?
A: Not from BIG IT. Any personal development was provided and paid for by my own company.
Q: Did you work on your own or part of a team?
A: It's varied really but on the whole I've worked within a team on projects. Generally a team will consist of both contractors and permanent employees of BIG IT.
Q: Did you provide your own equipment?
A: No, most of the time I used a BIG IT laptop due to security reasons. My company does provide me with a mobile phone which I made all business calls on, although I was given access to a telephone on site.
Q: What else did you have access to, e.g office equipment and/or stationery?
A: I was also provided with a desk and chair to work from. There was no need for me to be provided with BIG IT stationery.
Q: Did your name appear on the internal e-mail and telephone listings?
A: Yes but beside my name, it was noted 'contractor'.
Q: Were you required to complete timesheets?
A: Yes, on a weekly basis. These were simply a record of the hours worked which had to be completed and signed by the Project Manager. A copy was then sent to the agency. Without the timesheets my company would not get paid.
Q: Did BSOD Ltd have to submit an invoice to the agency?
A: Yes, on a monthly basis but before the agency released the monies owing, they had to have a record of authentic hours worked.
Next week: The inquisition continues