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Case Studies

ags is a firm of accountants based in Wolverhampton. The firm specialises in tax investigation assistance and has recently achieved an exceptional result for a client in a case rare with the Inland Revenue.

Background to the case:
Malcolm Preece heads up the tax investigation team at ags and has assisted other firms of accountants whose clients are under investigation. In this case a firm had been dealing with the Inland Revenue’s local team of Inspectors on behalf of a client involved in the furnace building industry. The firm was finding the team difficult to deal with and called on Malcolm to assist.

The point of issue is a favourite with the Revenue; that of a workers “status”. In other words was this particular worker self-employed or really an employee of the client? Eighteen months prior to this investigation the furnace building company owner and his wife, a co-director, had been selected for what purported to be a routine PAYE compliance review, where all of the company’s records were subjected to checks by the tax team. No problems were found with the records, however the business owners found themselves subjected to a lengthy, detailed and at times, hostile cross-examination concerning one of their workers.

Notes of this meeting presented to the client afterwards did not appear to represent a true and fair appraisal of the facts. In essence, the Revenue did not accept that this worker was a self employed individual. They alleged that in reality he was an employee of the company and should be treated that way for tax purposes. The resulting tax effect of this decision meant that the business owners now had a tax bill for over £20,000 in PAYE and NI payments for previous years.

Preparing the case:
Malcolm assessed the case and agreed with the business owners that this particular worker in his view was self-employed. The reasons were this; the worker was far more skilled than other employees of the company and as such was hired by business owners for specialist work. The worker tendered for each separate job and negotiated accordingly with the business owners. He raised his own invoices, kept his own hours, suffered any loss on the work himself, had his own accounts prepared by his own Chartered Accountant and never received any employee benefits such as sick pay or holiday pay. If there was no work for him then he did not get paid.

Despite all this the Inland Revenue still regarded him as an employee and pushed aside every attempt to provide more evidence and explanations.

Winning the case:
Despite holding talks with the Revenue they would not change their view. They had unofficially agreed to settle for a lesser amount but threatened that if they were forced to list the case for hearing before an independent tribunal, the General Commissioners, they would seek the whole £20,000.

On the flip side Malcolm warned them they he would seek costs against them if they went ahead with the hearing before the Commissioners. This hearing lasted two and a half-hours. The parties were asked at the end of the hearing to retire for only ten minutes for the Commissioners to make their judgement, in favour of the business owners.

Results:
The short time taken to make judgement was demonstrative of the fact that the Commissioners felt that the Revenue had no case against the business owners. Soon afterwards and with little resistance, the Revenue agreed to pay all fees including the costs of the hearing and a payment to the business owners in consideration of the stress suffered as a result of the investigation.

It is extremely rare to win this type of contentious case before the Commissioners and even rarer to be awarded costs and compensation. A truly marvellous achievement.

Should you require further information, please contact us on 01384 217222.

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