What is happening in tax enforcement?

After some recent successes at tribunal with IR35 cases, HM Revenue & Customs is now stepping up its efforts to tackle tax avoidance around the use of self-employed labour by targeting users of Managed Service Companies (MSCs).

In enforcing MSC legislation, HMRC has fired off tax demands of up to £50,000 each to more than 1,000 contractors alleging their accountancy firm, Churchill Knight & Associates, is an MSC provider. But this is just the start, many other longstanding payroll schemes are in their sights.

Why is this relevant?

Because of the high numbers of self-employed people in construction, the sector is being targeted by HMRC and also by the purveyors of dubious schemes who claim to be able to pay anyone under CIS, often with no VAT added and no questions asked.

For a number of years payroll providers such as Indigo, Marquee, The Guild and many more have presented themselves as ‘commercial contractors’ to avoid agency legislation, and since March 2021, they even stopped charging VAT by incorrectly applying the domestic reverse charge (DRC).

HMRC states DRC only applies to construction services, not agencies and payroll firms.

Many of the commercial contractors use almost identical contracts which are designed to dress them up as construction companies, but the reality is easy to establish. The likes of The Guild, Marquee and Indigo won’t build you a wall, erect your scaffold or lay your drains – they pay your workers – so much like the longstanding users of MSC providers, the users of commercial contractors could be sitting on huge VAT liabilities.

What should I look out for?

Is your payroll company charging you VAT? If the contract uses the term ‘commercial contractor’ and they don’t charge VAT, you will have to pay it retrospectively.

I think I’m using an avoidance scheme, what should I do?

If something is too good to be true, it usually is. Call Hudson on 0800 054 1127 for a free compliance consultation to put your mind at ease. It is better to be safe than sorry - don’t leave yourself exposed to the taxman.