Offshore Oil & Gas Workers are Targeted in Recent HMRC Investigations
Qdos defend offshore workers in recent IR35 enquiries, usually targeted at IT workers
We have been defending contractors working via their own limited companies since IR35 was introduced in 2000.
IR35 is a piece of tax legislation put in place as a way to tackle perceived tax avoidance from workers utilising the company structure to avoid tax which they would otherwise owe, were they employed directly by their client.
In our experience, these enquiries have almost exclusively targeted IT contractors, but Qdos have recently defended three separate contractor clients who all provide their services offshore to the oil and gas industry. This could signal a change in tactic for HMRC, who are set to look to reform how the rules work (these changes have already taken place for the public sector, but are due to extend to the private sector following consultation in 2018).
The nature of the enquiries
All of the three contractors that have been selected for IR35 enquiry provided their services to Amec Foster Wheeler, a technical services company for the energy sector. We have long held the belief that in many cases HMRC will look at an end client who uses a number of limited company contractors (also referred to as PSCs - personal service companies) and select a few to investigate, with the view to opening investigations into all of their contractors if they are successful in increasing their tax revenues from these investigations. This similarity between the cases supports this theory. Qdos also interviewed a few IT contractor clients in 2016, who both also reported that a number of contractors at the same end client were being selected for investigation. With the oil and gas industry heavily reliant on their flexible workforce, it seems that this industry may be ripe for the pickings.
According to one of the oil and gas contractors selected for investigation, Amec had in fact sat down with HMRC a number of years prior to develop a compliant contract. It would be merely speculation to suggest the current investigations are a result of this interaction with HMRC, as for HMRC to target companies who have taken proactive steps to ensure their contractors are operating compliantly with the legislation does not send a favourable message.
The case of Usetech Ltd v Young
Mr Hood, a computer software specialist, provided 3D drawings of oil and gas equipment to the industry through his limited company, Usetech Ltd.
The contract between Usetech Ltd and the recruitment agency he was engaged through contained a positive clause for the right for Mr Hood to provide a substitute worker to deliver the services on behalf of his company. The right to provide a substitute is considered one of the key tests in determining IR35, as it determines whether the engagement is hypothetically,and in reality, with Usetech Ltd or Mr Hood directly. The problem for Mr Hood however, was that the contract was a standard template distributed to all contractors engaged through the agency, and therefore the clause did not exist in the contract between the recruitment agency and the end client (the upper level contract), as the end client would not have actually accepted a substitute worker.
Along with a few other unfavourable clauses in the upper level contract, Mr Hood was liable to repay the tax, NICs, and interest owed. The case of Usetech Ltd v Young became a key test for demonstrating the impact of the upper level contract and reality of an engagement in determining IR35 status.
Will HMRC be turning to oil and gas?
All of the investigations Qdos are currently defending are being worked out of the specialist IR35 unit in Edinburgh. This is one of four dedicated teams across the UK.
HMRC can go back several years in an enquiry, and as a fairly overlooked industry in terms of IR35 with usually high daily rates, could oil & gas workers be on HMRC's radar? It is too soon to tell, and with potential reform into the private sector due in the next year or so, you would expect HMRC to sit back and wait for the clients and agencies to do their work for them. On the other hand, HMRC may be making the most out of the next year, and identifying industries and companies they can target even following the reform (where contractors will still be liable for their tax status prior to the date of implementation).
Only 12% of Qdos Contractor's energy sector contractors have some sort of IR35 protection in place. We can insure both the defence costs and potential tax liabilities for as little as £17 per month. As an illustration, an oil and gas contractor on a day rate of £500 could be looking at a £150k tax liability bill for a 6 year period, if caught by the IR35 legislation in an investigation. Click here for more information on IR35 insurances, or have your contract reviewed for IR35 compliance by one of our experts. We also have a range of IR35 guides and resources available on our website if you would like to learn more about the legislation and how it can impact you.
If you are a recruiter or energy sector business who uses contractors, please get in touch directly on 0116 2690999 or email@example.com to discuss how we can assist you with the IR35 reform to the private sector which will pass these responsibilities and liabilities onto your business.
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