Over the bank holiday, just under 1,500 contractors currently engaged by pharma group GlaxoSmithKline (or GSK) received letters from HMRC requesting that they check their IR35 employment status, and to subsequently prove that they’re genuinely self-employed. The targeted contractors worked in a variety of departments across the GSK group, including IT and biomedical science.
The letter is strongly worded and lives up to HMRC’s reputation for heavy-handedness in such matters. Naturally, GSK contractors, and indeed many private sector contractors in general, will be concerned for their future income. The letter isn’t announcing that an IR35 investigation has been opened, and the actions it requests aren’t legal requirements, so don’t panic – there’s still time to help yourself. However, it’s absolutely imperative that you don’t ignore it and get professional tax advice as soon as possible.
What exactly does the HMRC letter mean, and what can affected GSK contractors do to protect themselves?
The use of PSCs by GSK contractors
‘We’re writing to you because you told us you were self-employed when you worked for and received payments through, your own company,’ the letter starts. ‘We call this type of company a ‘Personal Service Company’ (PSC)… After looking at the information we have for the 2018 to 2019 tax year, our view is that the contract between your PSC and GlaxoSmithKline (BSK) comes under the off-payroll working rules ‘IR35’. In order to check and confirm your employment status, you can use our online tool [CEST], or seek advice from a tax expert.’
We’ve written before on why using a PSC isn’t as damning for a contractor as the taxman would have you believe. In fact, the term was coined by Gordon Brown’s government when the off-payroll rules were first announced in 2000 entirely for the purpose of IR35 determinations and still has no agreed definition. While the use of a PSC can certainly have an effect on your employment status – it was the big snag for a lot of the BBC freelancers found to be inside-IR35 – it isn’t a nail in the coffin if your contract and working practices are compliant with what a contractor-engager relationship should be.
Besides the above point, we strongly advise that you get a second opinion should you use the CEST tool as a means of testing your employment status. Results from CEST are famously unreliable, particularly when applied to more complex private sector contracts and working practices.
What determines if a GSK contractor falls inside or outside IR35?
‘Whether a worker is employed or self-employed for tax purposes is not a matter of choice,’ the letter continues. ‘Instead, you need to look at the facts of the working relationship between you and GSK. This will help you to decide if you would have been an employee of GSK had you worked for them firstly and not through your PSC.’
HMRC goes on to state that if the GSK contractor doesn’t agree that they fall under the off-payroll rules, they have to reply by 19th September 2019 explaining why and providing supporting evidence. Matt Tyler, ex-Qdos IR35 veteran and current IR35 Consultancy Manager at Larsen Howie, takes us through the basics of what the taxman will be looking for when it comes to IR35 employment status.
“Whilst there is a wide range of aspects that need to be considered when dealing with IR35, the key status tests – lack of personal service (also known as substitution), levels of control you are subject to, mutuality of obligation between the parties – should always be your first port of call,” he states. “Once you have those in a positive position, you can then look at the other more minor indicators such as whether or not your company is subject to financial risk, whether you provide your own equipment, whether your PSC gives the appearance of being a genuine business or simply looks like another employee, that sort of thing.”
“As a final parting comment, you need to ensure that you are checking any IR35-related points with the end client themselves, and not your agency. HMRC will be looking to establish the hypothetical contract between you and your end client – not your agency.”
What can GSK contractors do to protect themselves from an IR35 enquiry?
Andy Vessey ATT, also ex-Qdos and current Head of Tax at Larsen Howie, specialises in IR35 rulings. He states: “Much of protecting yourself from an IR35 investigation is common sense. Don’t take part in a work appraisal, don’t accept payment for time off sick or annual leave and don’t start contracting for a former employer immediately after making the change. Avoid anything that would make you a typical employee of a company - HMRC will be looking for you to prove that you’re NOT an employee.”
Andy also questions whether HMRC is trying to provoke premature payment from contractors through scaremongering tactics.
"A client of mine who followed me from Qdos, who is a contractor at GSK and still undergoing enquiry, told me that he knew of at least 6 fellow freelancers who had received such letters," he states. "HMRC do appear to have amassed intelligence from not only talking to GSK but also information gleaned from agencies such as Lorien."
"If the 1,500 figure [of contractors that have received letters] is accurate, then the letters may well be strategic, i.e. some contractors may be sufficiently spooked to concede to HMRC early on," he continues. "If none of the contractors accept they are caught by IR35, then HMRC have a problem because they do not have the resources to undertake 1,500 IR35 enquiries, given that they can only commit to 250 enquiries each year."
"They will then have to be selective as to who they take up for enquiry. For instance, there may be group(s) of contractors who they believe are working in a similar way and these would be easier for them to manage. Thus far, Larsen Howie has been approached by a number of these GSK contractors to represent them."
You can read more about HMRC’s determination process here to prepare for the April 2020 changes. While genuine contractors should have nothing to worry about, off-payroll investigations can be notoriously subjective; it’s highly advisable that you have a professional contract review carried out by a company that specialises in IR35 and consider IR35 insurance for full protection against an enquiry.
Larsen Howie reduced-rate IR35 consultancy for GSK contractors
Our IR35 consultancy team is available to provide rapid-turnaround help for all GSK contractors that are concerned about their employment status. In light of HMRC's targeting of GSK contractors, we've decided to offer reduced hourly consultancy fees to make the best advice and defence more accessible to those affected.
Our IR35 specialists are lead by Head of Tax Andy Vessey ATT, defender of over 500 employment status cases, of which he's won the overwhelming majority. Find out more about what we can offer you on our dedicated GSK contractors page here.
Alternatively, call us on 01163 800 400 or email us.