Kate Cottrell tells sister site CUK how the Revenue's case was contested:
This case started out as an enquiry into the company’s tax return, became an Employer Compliance Review and then turned into a Section 660 enquiry. The case is nearing its two year anniversary having commenced in April 2002. It was not until late December 2002 that the IR35 issue was raised and the Inspector simply issued leaflet IR75. The Inspector gave an opinion that IR35 applied solely on the basis that the contractor had only offered services to one client for almost five years. No consideration was given to the written contracts or the working arrangements let alone case law precedent but the Inspector considered that only having one client was enough to support the issue of computations for in excess of £20,000. The computation covered only the 2000/2001 tax year and was accompanied by a request from the Inspector as to what the contractor was going to do about all the subsequent years.
Bauer & Cottrell were appointed by the contractor’s accountant and a full investigation of the terms and conditions was carried out by Kate Cottrell. The contractor offered specialist services to a Construction Management Company and this involved dealing with specific building projects all over the UK and abroad. The written contracts were renewed each year and the first contained an unfettered right to substitute but this important clause was not included in subsequent contracts. A comprehensive technical submission was put to the Revenue and directed to the Status Inspector. The Status Inspector said IR35 applied on the basis of the length of engagement as there was no financial risk, there was mutuality of obligation and that the contractor fulfilled a role which was a management position so amounted to being part and parcel of the client’s organisation.
It was at this point that questions were raised about the role of the director’s spouse and the levels of earnings and dividends paid.
Bauer & Cottrell countered all the Revenue contentions with case law, extracts from the Revenue’s own instruction manuals and quotes from the recent Special Commissioners case of Roger Tilbury. The Revenue was asked for the relevance of the questions concerning the director’s spouse.
IR35 was conceded but they then wanted to deal with the contractor’s accountant over the Section 660 issue. Bauer & Cottrell continued with the case and the Revenue has now accepted that all the earnings paid to the director’s wife are in order and NOT actually a right to the director’s income.
IR35 and Section 660 affect all industries and all contractors and again the message is to seek professional advice as soon as possible.
Sarah Bauer and Kate Cottrell are ex Revenue and have an unbeaten track record in tax/IR35 status in the UK without the need to go as far as appeal before the Tax Commissioners. www.bauerandcottrell.co.uk
Mar 3, 2004
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