Fee Protection Service
In our blog last week we announced that we have enhanced our monthly service to include professional fee protection service. In this blog, Paul Mason of Abbey Tax explains the benefits for contractors in having this service.
A bit of background may be useful to put HMRC’s enquiry regime into context. Prior to the introduction of Self Assessment, when you submitted your business or personal tax return, you would receive confirmation that it had been received and its contents accepted in all but about 90% of cases. The remaining 10% – usually businesses – would either be contacted with queries that were either minor in nature (what we refer to now as “Aspect Enquiries”) or would be subject to an investigation (“Full Enquiry”) where HMRC wanted all the books and records. It should be added that at this point, no-one had yet come up with IR35…
The problem for HMRC was that this involved a lot of administration and when they undertook a full blown investigation, they had to give a reason for their enquiry, which more often than not was hotly contested by the accountant, resulting in a long-drawn out process.
Self Assessment changed all this. Now, you only know that you won’t get an enquiry into your most recently submitted Self Assessment return if a year has elapsed since it was submitted (and even then legislation introduced in 2009 gives HMRC a subsequent bite at the cherry); and if you do get an enquiry, you may be able to guess why you were selected from the questions asked, but you won’t actually be given a reason by HMRC. They closely guard their selection criteria for fear of taxpayers changing their behaviour patterns.
If selected, then the one thing that we can guarantee: whatever the outcome of the enquiry, it is likely to be an expensive process to deal with. For many taxpayers, the cost of professional fees in dealing with the enquiry has been enough for them to ask their accountant to get the enquiry closed – even if they ended up paying more tax than they should. For others, the insult added to injury was paying several thousand pounds in fees to defend themselves, only to find that HMRC had accepted their original Self Assessment!
A good example of how expensive – and ultimately frustrating – things can get is IR35. HMRC start this process by issuing a ‘Check of Employer Records’ letter, which requests all of the contracts in the period under enquiry (usually the last tax year) and asks the following question:
“Will you please also tell me whether you have considered the possibility whether the company is subject to what is commonly referred to as the IR35 Legislation? If you have, and have concluded that the company is not subject to that IR35 Legislation, then please explain to me the basis upon which you have arrived at that conclusion. I am asking this to help me be fully aware of and understand any view you may hold on the application of the IR35 legislation”.
By the time you have reviewed the contractual terms (preferably with a professional) and spoken at length to have a detailed understanding of your working practices, and this has been carefully communicated to HMRC making it clear why we believe IR35 does not apply to your engagement(s), you could be staring at the wrong end of a £1,500 bill. If HMRC decide that they do not accept this response, they will issue you detailed questionnaires to be completed and pursue the end client for their view of the working arrangements. The resulting professional fees might easily reach£5,000. If the matter goes to Tribunal, then the costs will escalate by a further £10,000 – £15,000.
Thankfully, the fee protection service will take care of the enquiry costs. We can therefore focus on providing the best defence without you worrying about how much it is costing you.
So whether HMRC are challenging your VAT returns (checking the operation of the Flat Rate Scheme has been a high priority in recent years); or they are wanting to enquire into any travel and subsistence claims on your tax return; or decide that your engagements are caught by IR35, the fee protection service is there to help us support you when you most need it. We want to ensure that when the Inspector calls, the odds are never stacked against you.
Get the service and cover you need to contract successfully with total peace of mind. Call our advisers today on 01202 912 831 to discuss your circumstances, or take a look at last week’s blog to discover what’s included in the new fee protection service.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.