Peter Vaines looks at NHS proposals to circumvent the IR35 personal service company rules, and the rights of taxpayers and others to access HMRC information.

IR35: Personal Service Companies

It will not have escaped anybody’s attention that HMRC are seeking to crack down on the use of personal service companies and to extend the reach of the well-known IR35 rules.

HMRC have had mixed success in the Courts in seeking to apply these rules against people in the media, particularly TV presenters. The cases of Christa Ackroyd (the decision of the Upper Tribunal is awaited) and Lorraine Kelly spring immediately to mind. However there are many others, the latest of which is the decision in Kickabout Productions Ltd v HMRC [2019] UKFTT 415 involving a Mr Paul Hawksbee who broadcasted on TalkSport, where the arrangements were found not to be within IR35.

We are now all trying to get to grips with the draft legislation intended to be introduced from April 2020 which proposes to switch the responsibility onto the client for determining whether the hypothetical contract with the contractor would have been a contract of employment if the individual had been engaged directly and not by a personal service company. A difficult judgement – as clearly demonstrated by the courts – and the penalty for getting it wrong (or it seems, somebody else getting it wrong) will be pretty serious.

This is not a satisfactory trend. There is surely something not quite right for the Government to say that they are not very keen on the bona fide contract you have entered into with an independent third party, so they will pretend that you have entered into a different contract, and charge you (more) tax on that basis.

(For anybody who thinks this is an overstatement, this is already what happens with Stamp Duty Land Tax. You just have to look at FA2003 s 75A – and the litigation to which it has given rise – to see that it operates exactly in this way).

It is clear that HMRC regard personal service companies as some kind of abuse which deserves draconian counteraction because the people who are involved with them are clearly Very Bad People – or at least they are doing a Very Bad Thing.

With this mind I could not help laughing at the recent announcement that some NHS Trusts are planning to arrange for their consultants to be paid via LLPs to get round the tax issues arising on their pay and pensions.

I cannot imagine they will ever be allowed to do this, but it is instructive that the NHS are even thinking that it would be a good idea. I suppose it is a classic example of, if we do something it is “proper financial management” which is entirely sensible, but if you do it, then it is “unacceptable tax avoidance” and completely repugnant.

Once upon a time, we had a Rule of Law which applied to everybody, and attempts by the State (i.e. the Crown) to suspend or dispense with laws in its own interests caused a bit of a problem before it was put right in 1689.

I hope we don’t have to go through all that again before we get our Rule of Law back.

HMRC Enquiries

It may not really matter very much but it was interesting to read the recent case of McCabe v HMRC [2019] UKFTT 317 where the taxpayer was seeking the disclosure of information from HMRC in connection with the mutual agreement procedure under the Double Taxation Agreement with Belgium.

The taxpayer wanted to know the real reasons for the decision which was agreed between the two countries because it had a significant effect on his tax position.

HMRC did not want to provide the information and refused to do so on the grounds that the documents would not be of any material relevance. They said that the taxpayer hoped that the documents would reveal things which would be supportive of his case (Well, yes. I suppose he did) and that the request was a “fishing expedition”.

I guess this will sound kind of familiar.

The Tribunal agreed with HMRC that the information did not have to be provided - which will clearly have been a disappointment to Mr McCabe. However, I expect that the reasoning of the Tribunal will be helpful to other taxpayers in more prosaic circumstances when HMRC request information “that they hope will be supportive of their position”. (In my experience they seem to do that rather a lot).

Disclosure of Information

On the same theme the Supreme Court has recently expressed their view about how much of the written material placed before a court in a civil action should be accessible to people who are not party to the proceedings.

It may be remembered that this point came up last year in Hastings Insurance Services Limited v HMRC and KPMG LLP (thirdr party) [2018] UKFTT 478. KPMG had applied to the First Tier Tribunal for copies of HMRC’s Statement of Case and both parties’ skeletons. KPMG had a different case, but they thought that it would be useful to have sight of these documents. I bet they did.

The Tribunal said that the test is whether the non-party had a legitimate interest in the documents. This is a broad test and it was enough that KPMG was seeking access to the documents to improve their understanding of HMRC’s arguments in the appeal which were relevant to their arguments in a different case.

A similar request for access to documents recently arose in the case of Cape Intermediate Holdings Ltd v Dring [2019] UKSC 38 where the Supreme Court said that the issue was all about the principle of open justice. Lady Hale said a great deal about this principle explaining that the applicant has no right to such access, but the court has power to grant access if the applicant has a legitimate interest and if it would advance the open justice principle. Her Ladyship suggested that a clean copy of the trial bundle may be the most practical way of providing access to third parties – but it is entirely a matter for the court to decide what if any access should be permitted.

In this case, The Supreme Court concluded that there was such a legitimate interest and ordered a substantial degree of disclosure of the documents before the court.