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Concern is growing as to the implications for unrepresented taxpayers engaged on certain types of "temporary" work contracts.

Nice to be back! A number of matters developed towards the tail end of the week, with more news on Personal Service Companies, and HMRC apparently leading a(nother) investigation into persons with offshore accounts at a household name bank. Of course it is important to recognise that the mere ownership of an offshore account is not of itself a crime, or even indicative of anything untoward.

But quickly to the re-introduction of Business Records Checks, which HM Revenue & Customs announced at the beginning of November. While HMRC is keen to point out that they have consulted extensively with stakeholders during the hiatus, and that the programme “now involves a new step-by-step approach, with a much greater emphasis on education and support”, Anthony Thomas, Chairman of the Low Incomes Tax Reform Group, (LITRG), said in response,

“We continue to be extremely concerned that HMRC are creating an impression, wrongly in our view, that these records checks are mainly for educational purposes. It is critical that businesses understand that these are serious compliance checks with potentially large penalties being levied on those who keep poor business records.”

The Chartered Institute of Taxation (amongst others) awaits confirmation of the legal basis for HMRC being able to charge penalties for poor record keeping, when those records haven’t yet been used to make a tax return. (In other words, how can HMRC demonstrate the records are inadequate to make a return, and a penalty is due, if the return hasn’t yet been made?)

To me, there is another area which is developing, out of the spotlight and, to its credit, LITRG is trying to raise awareness: the use of “umbrella companies” in employment agency scenarios to avoid Employers’ National Insurance Contributions. As we mentioned a couple of weeks ago, the problem is the potential risk to employees who do not appreciate the implications of the arrangement, and that they may end up being chased for tax and NICs when they had no benefit in the first place. The issue is complex and, as we said at the time, some of these arrangements may well have a stronger case than HMRC would like to admit.

As Robin Williamson, LITRG's Technical Director put it,

“The dilemma of the low-income worker is they either take the job on the terms offered, or lose the opportunity for employment and possibly face benefit sanctions. If they take the job on the terms offered, they face the possibility of an HMRC investigation.”

I’ll admit it’s overly simplistic, and HMRC clearly is looking into the matter but in a nutshell, and given a choice between more Business Records Checks and getting to the bottom of some of these pay arrangements, I know where I’d rather HMRC applied its scarce resources.

Regards all,

TW Ed