Are Hidden Employees Costing HMRC ￡1.4 Billion?

HMRC are searching for ￡1.4 billion they say that companies have failed to pay by having hidden employees within.

Anyone working within this sector can believe that they are talking about contractors. Yet, are contractors costing HMRC this amount?

HMRC believes that self-employed workers and potentially those working through personal service companies are causing this deficit. They believe that these people are workers and should receive treatment as such. By not including them as employees, they are avoiding employer National Insurance Contributions at the very least. This is why they are known as “hidden employees”.

There is also the question of unpaid taxes which are still outstanding. This is definitely something that HMRC are concerned about at this point in time. That is evident from the direction they are going in.

Of course, most of this total that HMRC say they are pursuing as of 31 March 2021 is based on older issues. That is to say, it is what is due since before the new IR35 rules of 2021. It also comes off the back of HMRC’s successful pursuit of some working as contractors.

As an example, the?Alan Parry case?has netted them a hefty ￡356,000 to be paid. With this in mind there is a general feeling that HMRC believe there are still thousands of companies paying contractors outside IR35 when they should be employees. As we know, the test for this is complex and their own determination tool, CEST, often cannot give a complete answer.

This is something that many feel really needs attention to improve the system.

How can they expect businesses to rely on it, when the alternative is expensive professional advice?

After the IR35 rules change of April 2021, HMRC were considered to be reasonably soft on medium and large businesses.

After all, it was the first time they had been responsible for IR35 determinations. Before this it had been the responsibility, and liability, of the contractors themselves. Well, this soft touch is no more.

HMRC are going full throttle to get back what they think is owing to them. There is no hiding from them. If they think that something is due, they will be coming to claim it back.

The risk seems to be greatest for businesses that hire many off-payroll workers that fall outside IR35.?

Well, that kind of figure is doubtlessly going to leave HMRC on the hunt for blood. Much of it will be pre-2021, but it could still make an impact now. If they have concerns about this issue, they could be at the gates of current businesses and contractors as well.

This is worth bearing in mind when thinking about future contracts. Make sure the criteria are met for working outside IR35 to stay safe. As to how much of the ￡1.4 billion will be recouped, that remains to be seen. Given their current dealings, we can only wonder what will happen to it if they do.

Some reinvestment would be great though, even if only into their own CEST tool.

HS2 Facing Huge Tax Bill Due to IR35

IR35 strikes again, but this time it is potentially HS2 facing a huge tax bill.

HS2 is a new high-speed railway which will link the North-West to London, operating faster journey times for cities in the North and Midlands. It is a massive undertaking and as such requires a huge number of people to have involvement. This is hardly surprising.

What is a surprise, is the annual report of HS2 which was released recently for 2021-2022. They show a damning figure. They report that?HS2 has kept back ￡9.5 million for errors in IR35?determinations.

That is to say, where they have an incorrect determination of a worker to be outside IR35. This is a huge figure and one that deserves a little scrutiny.

HS2 openly admit that they use the government’s own CEST tool to make determinations. To use the government’s own tool and to still hold back almost ￡10 million for errors shows a phenomenal lack of trust. It also shows how little protection the CEST tool offers.

In fact, HS2 has classified over 93% workers as employees in this time, inside IR35. You might well expect this to be higher, especially with a moving workforce like HS2 have. Yet this is the service the CEST tool gives. It is likely more than 7% of the workforce who have an assessment for IR35 are actually outside IR35.

Yet there is another issue that links to this which is very much causing a stir.

Who is Sir Jon Thompson and what is his involvement with HS2 and HMRC?

The deputy chair of HS2 is called?Sir Jon Thompson?and has involvement in top line decision making. Believe it or not, he was the CEO of HMRC when the change in rules with IR35 came into force. He is now with HS2, who have specifically held money back for incorrect assessments of IR35. If he cannot get it right, then what chance does anyone else have?

Should all businesses now keep ten million pounds back to pay any additional tax bills?

This builds the case to suggest that the new IR35 legislation is just not working. It does not work for businesses, contractors or even the government. It is hard to imagine what it will take to work effectively.

Well, HS2 can add themselves to the wide range of government departments that owe HMRC additional tax revenue. Since the report of February 2022 from the National Audit Office that reveals over ￡260 million of incorrect reporting in the public sector, there has been uproar. Surely if the public sector is struggling so much, the rollout to large and medium businesses should have been delayed.

It is an indication that there are issues across the board. From the CEST tool to the clawbacks, contractors are at risk. Not just financially, but also from the perspective that they could be completely fed up with the system. Arguably life gets harder and harder for contractors – will they choose to stay?

Perhaps there is something right around the corner to help or is that just a little wishful thinking?