1,500 GSK Contractors written to by HMRC in reference to “disguised employment”
IR35 rules are designed to stop tax avoidance by workers who provide services to clients via a limited company rather than as employees. A contractor operating through a Limited company but otherwise practically operating as an employee is considered to be a “disguised employee”. HMRC stated there is evidence that contractors in the pharmaceutical industry have wrongly categorised their employment status and in vast numbers.
On August the 25th the Financial Times reported that GlaxoSmithKline has found itself at the centre of a tax crackdown. This is in no doubt ahead of the legislation changes coming into play in April 2020, following on from those implemented in public sector in 2017. HMRC are laying out its stall regarding how they will be tackling “disguised employees”. HM Revenue & Customs sent identical letters last week to 1,500 contractors working in various GSK departments including IT and biomedical sciences. The letters stated “We’re writing to you because you told us you were self-employed when you worked for, and received payments through, your own company”, also “Whether a worker is employed or self-employed for tax purposes is not a matter of choice. Instead, you need to look at the facts of the working relationship between you and GSK.” The letters told the contractors that, if they accepted their GSK contract was caught by “IR35” rules on self-employment, they should calculate their employee payroll tax and national insurance contributions for the 2018/19 tax year and make payments by September 22.
From April 2020 with the new legislation, all companies with more than 50 employees or £10.2m annual turnover will be responsible for assessing their contractors’ employment status for tax, and will be liable for incorrect assessment decisions. The rule change will bring the private sector in line with the public.
The Clinical Professionals Group has been running a series of IR35 Breakfast Meetings over the last few months to fully update current Limited Company workers on the options they have to consider should they prefer to still work in contract roles, as well as working with clients on solutions. There have been some unusual assumptions from individuals attending our meetings. As an organisation we have received feedback from multiple clients and they have made it clear they will not be uplifting rates to “compensate” workers who have been in “disguised employment” and feel their remuneration should remain the same after April 2020.
We have also spoken to Limited Company contractors who feel they will be able to continue as is and will “fly below the radar”. Clients will be assessing IR35 status and staffing companies (the payer) will also be assessing as they are liable as part of the supply chain. If a contractor is found to be inside IR35 and looking to ignore that status, simply put, no one will take the risk. Many of our larger pharma clients have already made statements indicating either all or the majority of roles, and therefore contractors, will fall within IR35 scope and therefore are taking a ‘no risk’ view and blanket approach. Another common statement was around “if the Client needs my expertise then I can demand the rates that I want”, but again, early indications are that clients wish to be compliant and not disrupt permanent staff or compliant contractors with highly inflated daily rate contractors, so are looking at more junior/less experienced contractors where possible if needs be. They are also smoother to transition into permanent Client headcount. The contract market has been quieter so far, so those who are more competitive are likely to be considered first, as clients feel the squeeze around Brexit and other market factors. All things to take into consideration as a contractor.
We are currently seeing inside IR35 contractors looking to renew 12 month contracts within their Limited Company and inside IR35, we have advised that this is not a wise course, we feel the GSK investigation is the first of many that will occur and the financial ramifications for contractors who have been working under direction and control may well find themselves in a very difficult situation. It is also simply no longer their sole choice to decide and will be lead by the end client.
For any individuals that would like to still remain contracting and are inside IR35 and who do not wish to take on the fees involved with an Umbrella Company, we at Clinical Professionals have a fully compliant and seamless solution for you. HMRC has clearly stated “At the moment only one in 10 contractors working under the off-payroll rules are paying what they should” and estimated costs are at £1.3bn a year by 2024, “Our role is to make sure that everyone pays the tax that is due and it’s only fair that two people doing the same work should broadly pay the same tax and National Insurance.”
If you wish to have a confidential talk around how you can ensure you are compliant for future contracting work, please do not hesitate to contact firstname.lastname@example.org or call in on 01189 594990 and ask to speak to one of our IR35 team.