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Don’t be fooled by the wolf in sheep’s clothing!

HMRC are not your friends during an enquiry. There is no reason to be hostile or difficult, but do not be naive in thinking that HMRC will not punish you if they can find reason.

We spoke to a company recently who is at the start of an HMRC enquiry. The company were sent a questionnaire by HMRC about the way in which they engage self-employed individuals. The lady at HMRC proceeded to tell the company owner that she was not really interested in the answers provided because it will just be passed on elsewhere – objective achieved ü The company’s guard was down as they thought HMRC were not interested in the answers nor whether their subcontractors should have been on PAYE.

Little did the company know that the information will be passed on elsewhere within HMRC, but that “elsewhere” will be HMRC’s Employment Status and Intermediaries Team who specialise in challenging companies over employment status. The wool had been successfully pulled over their eyes.

Perhaps more worrying was that the company believed that if HMRC were successful in challenging the subcontractor’s employment status, they would be given a small slap on the wrist, might face some small penalties and HMRC will understand that it would have been a genuine mistake. This perception could not be further from the truth! 

Little Red Riding Hood ignored what big shiny teeth the wolf had, to her peril. Don’t make the same mistake. When HMRC bite, it will hurt!

It is worth spending just two minutes calculating the kind of liability HMRC would pursue if your subcontractors were deemed employees.

  • The main liability would be Employer’s NI that should have been paid which is 13.8% (less a weekly allowance). For ease, call it 10% after the allowance.
  • Multiply this by the amount you pay the various subcontractors each week then multiply it across the year.
  • HMRC can go back 6 years so multiply it by 6.
  • That rough liability would be subject to penalties (typically around 30%), plus interests (currently 7.75%).
  • 1 person earning £700 per week for 48 weeks a year would be in excess of £28,000.  20 subcontractors would fleece you of £560,000.

Do you genuinely believe HMRC will not be interested in pursuing such a liability when it relates to such a grey area of law? I can assure you that they will.

Ignorance is not bliss when facing such a liability and HMRC will not simply give you a telling off instead. From our vast experience of HMRC enquiries, companies who act early and are proactive with employment status are nearly 90% more likely to have a favourable outcome in the event of an HMRC enquiry.

Don’t build your house from straw and don’t hand over the keys to HMRC.

Our sister company, Trinity Tax are offering a limited number of free mini status reviews in September to small business owners concerned about employment status. Forewarned is forearmed, and it is better to have us at your door than the big bad wolf.