Is the taxman adopting an aggressive new tactic against construction firms?

The taxman appears to have adopted an aggressive new tactic for policing employment status on building sites by hitting firms with large backdated bills for tax they might not owe.

Hudson Contract has seen two letters in recent months in which HMRC has issued determinations to protect its position against companies before reaching the end of time limits on compliance checks.

The six-figure judgements were made on the assumption that all self-employed subcontractors should be treated as employees unless appealed and proven otherwise.

Ian Anfield, managing director of Hudson Contract, said: “This is an aggressive new tactic that shoots first and asks questions later of people who are trying to run their businesses and stay compliant. There is a danger that companies will feel pressurised into agreeing settlements without any legal justification.”

HMRC has indicated it is stepping up compliance work after switching its priorities to support businesses during the pandemic.

Ian added: “HMRC’s approach to compliance is becoming more difficult for individual companies to manage. Five or six years ago, a tax inspector would visit a firm, interview the directors, review the documentation and then make judgements about status and other compliance breaches on the day.

“Then we saw less experienced inspectors coming out purely to gather information. Their job was to feed back their findings to a higher authority at HMRC who would decide whether there should be any further investigation or reclassification. This obviously dragged out the entire process.

“Now checks are dragging on even further, sometimes for years with a number of different HMRC keyboard warriors involved over time, usually working from home, none of whom seem to have the ability to conclude a case or gather the correct information for a higher-up to reach a verdict.

“With strict time limits in place for how far back HMRC can go, the end result in the protracted cases we have seen has been, ‘we have run out of time asking questions and swapping inspectors so here’s your tax bill, if you don’t like it, appeal’.”

Ian said: “For decades the taxman has taken an overly aggressive and unfair position on self-employment to the extent that companies find it difficult to trust the correct outcome without specialist help and this latest tactic makes things worse. With our employment status indemnification, our clients are protected from this nightmare experience.”

Meanwhile, Hudson Contract has also seen early signs that HMRC is starting to ask questions about off-payroll workers in the construction industry after concluding some longstanding cases involving IR35 legislation.

Ian said: “The taxman has investigated the celebrities Lorraine Kelly, Eamonn Holmes and Gary Lineker with a mixed set of results and has now started to look at limited company freelancers in construction. The new IR35 legislation is likely to catch the more senior people who cross the line between being consultants and senior employees. Lots of construction firms use highly skilled consultants behind the scenes and in project management so no doubt HMRC will yet again see construction as a rich vein of potential income.”