Is Lady Gaga now one of HMRC’s ever-increasing band of external management consultants? It seems it could be so, because the latest tactic in IR35 cases appears to be for tax inspectors to put on their best ‘p-p-p poker face’ to try to bluff contractors into quitting early, despite those under investigation holding all the cards.
Texas Hold’em seems to be the current game of choice for HMRC. And, as poker players out there will know, it is the ultimate game of bluff. A common tactic is to rack up high stakes and win early, to avoid having to reveal what may turn out to be a weak hand.
Based on what we have learned about the latest IR35 victory by a Professional Contractors Group member, HMRC has tried doing just that – going in hard and early, attempting to bluff the contractor into paying out £50,000 and without revealing what turned out to be a very weak hand.
HMRC opened its case by presenting what, at face value, appeared to be compelling evidence that the contractor was a ‘disguised employee’, backed up by testimonial from the end-user client. When the contractor didn’t immediately fold, the taxman then put on his best poker face and, over several agonising years, bet with our – taxpayers’ – money to try to flush out the contractor’s £50,000.
Fortunately, the PCG brought in Accountax Consulting, who called HMRC’s bluff, insisting on seeing the taxman’s real hand. Accountax also laid the contractor’s cards on the table, highlighting that the end-user client being quoted was actually a client representative who had never actually worked with the contractor! A string of inconsistencies in HMRC’s ‘evidence’ was also laid out for all to see.
And the result? Within days, HMRC folded. The case was dropped, but with no explanations being given and certainly no apologies offered.
How can this happen? How can public servants make an innocent citizen’s life a total misery for years and then just walk away because the contractor got some smart cookies on his side who understood the game being played and wouldn’t allow the taxman to bluff £50,000 out of him?
In this case, as in so many others, it appears a huge amount of time and taxpayers’ money was wasted on an IR35 investigation that should never have been. Indeed, Accountax has confirmed that the inspector did not even properly apply the correct tests for IR35!
Understanding IR35 and keeping abreast of developments is not hard for contractors (and tax inspectors!) to do. This website, the Contractor’s Handbook and sources such as Phil Richards’ new series of IR35 videos, all contain a wealth of information about IR35. There are numerous high quality and cost-effective professional service providers who can conduct IR35 contract reviews. And contractors can also help themselves, by collecting evidence throughout their contracts and asking clients to sign confirmations of arrangements.
So the lessons for all contractors are: make sure you properly understand the rules of the game you are playing; take professional advice when you need to; ensure you always have a strong hand; and don’t be intimidated into handing over tax you don’t owe just because a taxman puts on their best p-p-p poker face.
Lady Gaga, we call your bluff!