Contractors shouldn’t take HMRC guidance as gospel, as it doesn’t always align with tax law and can often prove misleading or wrong. A recent blunder has shown that not even legislative gaffes are beyond the taxman’s abilities.
Recently, HMRC’s guidance surrounding salary sacrifice was called into question at an Employment Appeal Tribunal and found to be incorrect. The case of Peninsula Business Services Ltd v Donaldson was concerned with whether child care vouchers allowable in place of salary under a salary sacrifice scheme operated by the employer should continue to be paid during maternity leave.
HMRC’s guidance stipulated that childcare vouchers are non-cash benefits and therefore should be provided by the employer during maternity leave. However, the tribunal held that childcare vouchers under a salary sacrifice arrangement are remuneration, thus proving the taxman wrong.
It wouldn’t be the first time, and it presents a stern warning to contractors that they shouldn’t always take what the taxman says at face value. As compliance consultancy firm Lawspeed associate director Theresa Mimnagh explains:
“There have been many cases over the years where HMRC’s guidance has been either wrong or misleading despite the best efforts by HMRC to be helpful. The guidance is nothing more than that, guidance, and should not be mistaken for the full legal position.”
But what if even the legislation itself is flawed?
HMRC has received plenty of criticism for the ambiguity surrounding its recent guidance following travel and subsistence (T&S) restrictions, especially considering its definition of ‘supervision, direction or control’ (SDC). The likelihood is that this is an intentional ploy to generate uncertainty to deter would-be expense-claimers from doing so.
What can only be described as ineptitude, though, is a legislative gaffe where a new clause is inserted that confuses two separate pieces of legislation. This is what HMRC was forced to own up to a couple of months ago after mixing up the SDC test with the IR35 test.
As a result, HMRC’s legislation encouraged umbrella companies to consider whether the contractor would be an employee if engaged directly by the client, rather than whether or not they were under SDC.
HMRC has apologised for the “unintended consequence”, but evidently its rules and regulations are so complicated that the taxman itself can’t understand what is what.
Contractors have to jump through a lot of hoops to ensure compliance with overcomplicated regulations and procedures. The least they can hope for is to be able to look to HMRC guidance and legislation with absolute certainty.
So where does this leave contractors?
We are speaking to lots of umbrella companies at the moment who are interested in using our SDC testing tool to streamline the SDC testing process, and are discovering interpretations that range from exceptionally good to completely misunderstood.
The truth is, off the back of HMRC guidance, many have been woefully under-informed. Quite a few have assumed that the presence of any element of either ‘supervision’, ‘direction’ or ‘control’ would mean an automatic fail and subsequently concluded incorrectly that many of their workers would not be able to claim expenses.
We have explained this isn't the case. Previously, we have highlighted that SDC is still widely misunderstood. HMRC is more concerned about SDC applying ‘as to the manner’ in which the contractor carries out their work. As such, an element of supervision is fine, provided the contractor isn’t given detailed instruction as to how they carry out the task and isn't moved ad-hoc from task to task.
But this doesn’t come across clearly in the taxman’s guidance. In many instances we are finding that more contractors can take advantage of T&S relief than the umbrella previously thought.
As we know, HMRC is far from infallible. The same goes for its guidance and even legislation. Contractors should be careful not to take it as the be-all and end-all.