HMRC is requesting the personal details of public sector contractors continuing to work outside of IR35 through their limited companies, a letter leaked to ContractorCalculator has revealed.
The letter, which is being circulated to public sector bodies (PSBs), asks that the recipients provide the taxman with names and addresses of limited company contractors who are operating outside of IR35, as part of HMRC's compliance check for the Off-Payroll tax.
"This appears to be another ominous sign that the Off-Payroll tax is nothing but a witch hunt against contractors," comments ContractorCalculator CEO, Dave Chaplin. “HMRC is evidently leaving no stone unturned in its pursuit of the few who have managed to secure fair tax treatment despite Off-Payroll."
Limited company and umbrella contractors targeted by HMRC
The letter requests that PSBs provide precise details of each engagement of contingent labour, including: 'the names, addresses and a brief description of the worker role/nature of services provided by the PSCs'.
Alarmingly for contractors, HMRC also asks that PSBs provide details of contractors who traded via a limited company previously, but have since entered into employment contracts or umbrella company engagements. This move has prompted concern that the taxman may pursue any named individuals for back taxes.
"Contractors who have followed best practice and created a paper trail to prove their outside IR35 status shouldn't have much to worry about," notes Chaplin. “Although, given the approach that HMRC has adopted since Off-Payroll took effect, it likely won't prevent the taxman from sniffing around their affairs.
"HMRC is refusing to accept that its contrived rules are forcing contractors into 'inside IR35' arrangements, and seems intent on interpreting instances where contractors have been forced to work under umbrellas as evidence of prior non-compliance with IR35," he adds.
Is HMRC acting 'ultra vires' with CEST?
Notably, despite maintaining in public that its Check Employment Status for Tax (CEST) tool is only advisory, HMRC also seeks details of how PSBs are conducting their assessments, asking specifically whether CEST has been used.
"Considering that it is wildly inaccurate and fails to align with employment case law, the taxman is sensible enough not to claim publicly that CEST has any legal authority," says Chaplin. “But behind closed doors, HMRC is doing everything it can to ensure that its flawed tool has the final say on each contractor's employment status, as this letter attests to."
Given the indications from the leaked letter, Chaplin fears that contractors may ultimately have to take drastic action to avoid unjust punishment at the hands of the taxman:
"HMRC seems to be doing everything it can to raise more tax, regardless of the letter of the law. If contractors don't want to become a victim of HMRC's witch hunt, they need to leave the public sector to mitigate any risk of future investigation. The taxman's intentions are clear."