HMRC has promised to move “as soon as possible” against civil service contractors who stand out as being at high risk of IR35, with those found to have deliberately underpaid finding up to 20 years of tax records being scrutinised.
An HMRC spokesman told Exaro’s Steve Lodge [registration required] that, “where there are question marks, we shall look at those cases and take action”. The spokesman added that the taxman “will open investigations within months into the highest-risk cases of suspected tax underpayment by senior public officials”.
Up to 2,400 limited company contractors working at senior levels within the civil service are believed to be at risk of an IR35 review, although HMRC confirmed to Lodge that it “would not pursue officials if [HMRC] had sanctioned the arrangements…so long as the individuals concerned had provided the ‘correct information’.”
HMRC added that the issue was about ‘underpayment’ rather than ‘evasion’ of tax, and said it would listen to officials with a ‘reasonable excuse’ for having underpaid. It was “too early to say how many officials might be investigated or the total tax that could be recovered.”
However, HMRC warned that it would be “looking through the list” of high risk contractors and, “if they stand out as ‘high risk’, we shall be taking action as soon as possible”.
Those civil service contractors found to be inside IR35, and who have underpaid income tax and National Insurance Contributions (NICs), could be facing substantial bills for back taxes going back six years, as well as penalties and interest. Any contractors who HMRC considers to have deliberately underpaid could find their last 20 years’ tax records under scrutiny.
These moves follow Treasury Secretary Danny Alexander’s recently announced ‘off-payroll’ review. Alexander initiated the review of the use of limited company contractors in the civil service following an Exaro and BBC2 Newsnight investigation into the tax affairs of Student Loans Company boss Ed Lester. He stands accused of avoiding up to £40,000 a year by trading via a personal service company.
Despite being the original stimulus of the current moves against contractors, Lester may well have been trading legitimately outside IR35 and innocent of all allegations of tax avoidance. Indeed, Lodge concludes his article with: “There is no suggestion that the HMRC will investigate Lester’s case. Lester is standing down from his job when his contract runs out next January.”