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the right people the right protectionProfessional Contractors GroupRLM Manchester1 st February 2012Taxation for the FreelancerPaul Mason & Nigel NordoneAbbey Tax Protection

Tonight’s Topics• Changes to the Tax Enquiry Regime• The Importance of Keeping Records• Business Records Checks• Dealing with IR35 Investigations• Tribunal Case Studies• Where to find help

HMRC’s Enquiry Powers• 1 st April 2009• Sch 36 FA 2008 (Information and Inspection Powers)• Power to obtain Information and documents• Power to inspect business premises• Compliance Visits & Business Records Checks• If PCGPlus Member – make your claim now!

Enquiry Regime:Appeals & Tribunals•Strict adherence to deadlines or appeal will fail.• Tribunals similarly tight deadlines• Make sure that whoever is dealing with your caseknows their stuff!

Enquiry Regime:Penalties• New penalty regime applies to Income & CorporationTax, PAYE, VAT, CGT• Mistake despite reasonable care• Failure to take reasonable care• Deliberate• Deliberate and concealed

Enquiry Regime:Penalties (cont’d)After penalty range has been determined mitigationis given for:~ Telling – 30%~ Helping – 40%~ Giving access – 40%Suspended penalties~ only for ‘Careless’~ must be a genuine risk of repeating the error~ Agreed conditions (SMART)

Enquiry Regime:Penalties for late Returns• Automatic £100 penalty• Return outstanding 3 months later – dailypenalty of £10 per day for up to 90 days• Return still outstanding after 6 months thepenalty is the higher of £300 or 5% of liability• After 12 months another penalty of the higher of£300 or 5% of liability

Enquiry Regime:Assessment time limits•Old rules~ Tax Normal Time limit assessments – 6 years~ Fraud or neglect – 20 years~ VAT generally – 3 years~ VAT PN160 required to go beyond 3 years•New Rules (April 2010)~ Now 3 time limits for all taxes~ Normal time limit of 4 years~ Extended time limit 6 years - carelessness~ 20 year time limit - tax lost through deliberate action

The importance of recordsIt cannot be stressed enough the importance of maintaining accuraterecords in relation to all aspects of your business.HMRC Requirements:• The records should be complete and up to date• They should allow you to file a complete and correct Return• They should be easily accessible to enable you to comply with aninformation notice or enquiryYou will stand or fall by the quality of the records youmaintain.

More things about records• Ensure records are in place~ Mileage records/Expenses payments~ The 24-month rule~ Use of substitutes~ Financial losses• Keep records of contract negotiations• Consider the marketplace at the end of eachcontract and keep records• Retain details of failed tenders

Business RecordsChecks• These are different from Business Inspections~ Penalties for poor record keeping~ Penalties will be on a sliding scale up to £3,000• Started September 2011~ HMRC believe 40% of SME’s have poor records~ HMRC think they know who these SMEs are…~ 20,000 checks per annum6 PCG members have made claims already

Dividends• Follow the correct procedures!• Board Minutes• Dividend Vouchers• Separate Payments

Dealing with IR35 Investigations• HMRC internal review process• How investigations are started• The investigation process• How to fight• What assistance is available

HMRC Internal Review Process• Historical approach to review company accounts,directors’ personal returns and P35• Self Assessment Return~ Service Company question~ Income from a company through which youprovide your services personally~ Joint or sole shareholder~ Total employment income and dividends• Form P35 – Question 6~ Are you a Service Company?~ Have you operated IR35 or MSC legislation?

How enquiries are started• Letter or increasingly a telephone callfrom HMRC requesting a meeting• Requests that the person responsible formaintaining the records is available at themeeting. i.e. Director• Typically no Mention of IR35 is made.• Gives the impression of a ‘normal’ PAYEReview• If PCGPlus Members – make yourclaim now!

The IR35 Investigation process• HMRC are checking the operation of PAYE but themain focus is IR35• HMRC will want to question the Director regardingcontracts held and working practices• As a meeting rarely takes place this information willbe provided in writing.• Compliance Officer’s default setting for HMRC• If this suggestion is accepted, HMRC have won.• PCG Standard Members – make your claim now!

What happens next• The items supplied are then referred to a StatusInspector who will want more information, often fromthird parties e.g. Agency & End Client• Opinion is then given by the Status Inspector.• If impasse is reached, HMRC raise assessments,which can be appealed.• Local Review• Tribunal

The Key Issues• Control – What/ Where/ When/ How• Personal Service• Mutuality of Obligations (MOO)• Financial Risk/Business enterprise• Working practices

Other Factors to consider• Clarify your understanding with end client• Read your contract and consider havingcontracts reviewed• Consider insurance to cover the potentialliability that may arise• Help is available from the PCG– Contract Templates– Real Arrangements Letters– Telephone Advice Lines

Tribunal cases:MBF Design Services, ECR Consulting,Marlen, Primary Path & JLJ Services• Five long-running battles• Three supported by PCG (MBF, ECR & Primary Path)• Having the right representation• Case Law (http://www.bailii.org)• In-Business Factors

Assistance available to PCGmembers• PCG Professional Expenses Insurance• Plus Membership~ Pre-dispute (Sch36) cover~ IR35 cover~ Full & Aspect Enquiry cover• Standard Membership~ IR35 cover~ Full & Aspect Enquiry cover• Telephone Tax & VAT advice lines~ 0845 125 9252

Additional AssistanceAvailable• Contract reviewing service• £165 + VAT• contractreviews@abbeytax.co.uk• Tax Losses Insurance• From £299 incl. IPT (Plus Members)• From £329 incl. IPT (Standard Members)• survive35@abbeytax.co.uk