IR35: An 'easy target' victim

Freelancers and small businesses must sometimes feel they are operating in a parallel universe. On the one hand, UKTECH reports Government announcements or speeches based on how they want to encourage small businesses and promote the enterprise culture; on the other hand, we receive calls, emails and posts on the site from small businesses who have been forced to close down or feel unable to continue because of the uncertain operating environment or as a result of Inland Revenue actions. This recent correspondence with a freelancer serves to illustrate the problems and unfortunate consequences of dealing with the Revenue as a small business.

With the permission of the person concerned, I've reproduced his email and comments below, though have changed his identification and company name to respect his concerns of further action from the Revenue.

IR35 about to claim another 'easy target' victim

Susie,

"Thought you might like to hear of another innocent victim about to go to the wall as a result of an IR35 decision.

"Our company, "MyBusiness Ltd", started in 1997 (way before IR35 was even a glint in the Chancellor's eye) with a view to providing freelance IT Network support services. Services of myself were provided through our limited company to agencies. Work was carried-out quite happily under a number of contracts, these were contracts for services they did not have specific 'substitution' clauses but by the same token, they had very minor 'control' elements.

"All was well until 2000/2001 when under the advice of our accountant we ticked the box on the P35 (his view was that it would be better to say that IR35 'could' apply and back up the reasons why it didn't with a letter, he felt this would be seen as 'trying to do the right thing), this was subsequently rescinded by another P35 (we had had further advice by now) but by this time, the Revenue had got their claws into us. I should point out that our original P35 was submitted with an accompanying letter advising the IR of the accountants views and our reasons as to why IR35 did not apply. We were appointed an inspector to review the situation who visited our premises and interviewed (informally) my wife (who is company secretary this was an 'official' role with specific responsibilities).

"The inspector concluded his visit by stating that we 'fell in to the Charlotte' scenario and that he'd need to study everything in detail - he then saw this as an ideal opportunity to discuss his own personal hobbies!!

"To cut a long story short, we then proceeded on a 2.5 year exchange of letters, we felt that the original 'investigation' was flawed and that many of our detailed and specific questions were ignored or washed-over. We spoke to Accountax who said that they would take on our case, unfortunately though, we didn't have the money to employ their services. In the end, the IR got fed-up with us and issued a formal notice of decision - we wanted to appeal (and we set the wheels in motion) but in the end we just didn't have the money to do so, so had to withdraw.

"As soon as we withdrew, the IR commenced County Court proceedings against the company (due to illness, the company was not represented at the Pre-Trial Hearing). At the Pre-Trail hearing, the judge awarded against the company, despite the volume (we're talking over 240 pages of written evidence) that we submitted as a result of the claim by the IR.

"We have challenged the Judge over his reasons for awarding against the company at a 'pre-trail' hearing but his answers are enough to make you weep - he stated that "the defence submitted was vague and unparticularised" and that "he was satisfied that the Claimant (the IR) was entitled to judgement" - an absolute whitewash and the obvious end of the road for our business.

"We now sit waiting for the IR to start liquidation proceedings - there is nothing more we can do. Words cannot express how angry and upset we are over this whole matter, all our evidence has been ignored or at best misinterpreted and all because we couldn't afford to spend the thousands of pounds required to justify the legitimacy of our business. Whatever happened to 'innocent until proved guilty?"

Regards

"Joe Smith"

soon to be ex-) Director

MyBusiness Ltd"

Public Interest

It is hard to imagine how the public interest could have been served in this case. A productive company has closed down; a highly technically qualified businessman has been unable to work through illness because of the stress and worry; and the uncertainty about their future continues. Yet he finds himself in this situation because he took what he believed to be the right advice at the time.

When I asked if I could reproduce his experience here, he said: "You can use our story with pleasure - if it helps stop someone else from ending-up like we are likely to do, so much the better.

"The company I should hasten to add is solvent and has no creditors - if it wasn't for the Inland Revenue we'd still be happily in business.

"It is by the Inland Revenue's actions alone, that the company will become insolvent and only by the amount of the 'deemed' payment - when the Official Receiver goes through everything, this fact will be clear to see but sadly, there will be no repercussions for the amount of public and taxpayes money wasted on this whold matter.

"I suspect we are not alone."