IR35 Victory After Five Years
Despite the significant evidence of his business set up and the definite lack of control as to how he worked, the Contractor had been subject to HMRC’s gruelling fact-finding and questioning for five years – despite the fact the company had ceased trading with no way of paying the liability!
As with many IT contractors HMRC didn’t understand what the member was doing, how he worked, what the various projects were or how he interacted with the end client – yet they apparently knew enough to decide IR35 applied.
see “IR35-contractor-tax-demystified”
The previous advisers had been arguing with HMRC since the compliance visit in December 2004. The case had seen delays in responding for up to five months from HMRC.
David Harmer of Accountax Consulting took over the case in January 2009. In June 2009 the case went to independent review. Accountax compiled a six page letter to the reviewing officer detailing precisely what the services were and how the company interacted with the main client, the fundamental HMRC failings in fact-finding and failure to apply the correct tests. On the 12th August 2009, Accountax received a call from HMRC confirming they were dropping the case!
This case demonstrates the fundamental importance in arguing IR35 enquiries forcefully and applying the pressure on HMRC. Over four years worth of distress and painstaking delays neatly tidied up within 9 months, simply because the pressure was put on the inspector to reply to all points, on time.
Needless to say the Contractor in question is delighted the nightmare is finally over and can resume living his life.
“I can’t believe it’s all over after so long. I am absolutely convinced that the recent efforts from all in David Harmer’s team at Accountax made all the difference, and I’d like to extend a huge thanks to them.”
How do you register your contractor company for corporation tax?
If you are a limited liability company contractor, your company will be liable to pay corporation tax on any profits.
If you have hired a contractor accountant, they will most likely deal with all affairs related to HMRC and your corporation tax requirements.
How to register to pay corporation tax
Once you have formed a limited company, Companies House will inform HMRC of the company’s existence.
Within a few weeks, HMRC will send you an introductory pack, including information on how corporation tax works and how it applies to your new company.
You should complete form CT41G (which contains details on your new company), and return this to HMRC. If you have not yet started trading, just complete the dormant company insert in the same form.
Most contractors will use an accountant to take care of their limited company tax affairs. Your ‘agent’ will act on your behalf and file your annual corporation tax return.
These days, more and more tax information is submitted online (PAYE and VAT as well as Corporation Tax), so you can either authorise your agency online, or download Form 64-8 from the HMRC site.
More information
Complete the enquiry form or telephone us for confidential advice
IR35 Tax Huge Failure
Under the Freedom of Information Act, the Professional Contractors Group has been able to find out how much tax the British government has raised from IR35.
IR35 was introduced in 2000, as a means for the Government to stamp out what it considered to be “disguised employer” arrangements, which reduced tax and national insurance payment of supposed freelancers by 25 per cent.
The introduction of the tax caused uproar among UK contractors, especially in the tech and engineering industries, who operated alone as one-person companies or as two-person companies in partnership with wives or husbands.
Through its FOI request, the PCG has established that the Government raised just £9.2m from IR35 in the tax years 2002/3 to 2007/8. No wonder the Government said it didn’t know how much revenue it earned from IR35 when asked in Parliament and elsewhere.
It is raising just £1.5m a year from the tax, a tiny amount in terms of the overall tax burden. The Government had expected to raise £220m a year in National Insurance contributions alone, without even taking the extra income tax into account.
The Government must have noticed the big disparity between what it expected to raise and what it is getting – a fraction of one per cent of what it anticipated from the introduction of IR35. How many contractors can be paying this tax – a couple of thousand?
HMRC is spending an extra £1bn in chasing up tax evasion and you can see what a paltry amount it is collecting for its trouble. All the cases being fought in the High Court and at the Special and General Commissioners over IR35 have just been a monumental waste of effort.
According to the PCG, HMRC has won just a handful of tax investigations out of thousands. Indeed, of the 1,468 IR35 investigations PCG has been involved with, HMRC proved additional tax was owed just six times. The Government can’t continue to waste its own time, and that of HMRC and countless IT contractors, over a tax that probably costs more to collect, with sundry litigation costs, than it brings in
When opposition MPs get a hold of this information, IR35 must be doomed. One cannot see the Conservatives deciding this tax is worth retaining when there is an opportunity promise its abolition and grab the votes of thousands of contractors across the country.
Surely the Government will have to drop IR35, now that the cat is out of the bag. The PCG has proved that the system as it stands is a miserable failure. It would be both obstinate and stupid to keep it.
Watch the pressure for its abolition to mount.
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