Examples of how freelancers, contractors and consultants benefit from PCG membership

Geoff and Diana Jones

Geoff and his wife Diana had always kept their tax affairs up to date and compliant.  Or so they thought, until they received a tax bill they weren’t expecting for £42,000 on top of all the tax they had already paid over the previous six years.  This was part of an attempt by the Government to impose a retrospective and punitive reinterpretation of tax law on UK businesses.

It meant only one thing... their business would go under.

Geoff and Diana operate a consultancy business structured as a limited company called Arctic Systems Ltd.  Geoff is the fee earner, while Geoff and Diana jointly own the company and receive dividends from it.  The taxman claimed they were “income shifting” in a way that was not legitimate, in other words the dividends received by Diana should in fact have been treated as Geoff’s income.

Why would the Government try to bankrupt its citizens? The Treasury’s view was that arrangements like Geoff and Diana’s are un-commercial, in other words the money paid to Diana essentially goes to the same household.  Therefore the Treasury argued that Geoff and Diana’s arrangement gave their business an unfair advantage over competitors who didn’t have that arrangement.  

PCG disagreed, arguing that Diana shares in the risk of the business and therefore should also share in the reward.  This was a landmark case and PCG made the decision to support Geoff and Diana all the way to the House of Lords in order to campaign for the rights of freelance contractors and to preserve a body of case law.

On the 25th of July 2007 the House of Lords issued their judgment in favour of Geoff and Diana Jones, ending a six year battle.

“We couldn’t have funded the case, there’s no way we could have fought it on our own”, says Geoff.  “The case itself would have cost an absolute fortune, but PCG underwrote it with funds and provided us with legal advisers who took the case all the way through the Commons, and then the Lords to the final victory.  
Throughout the case PCG lobbied the Government on our behalf and rallied the press to publicise our situation.  It was like having a nest we could settle into”.

The day after the Jones’s victory was announced the Treasury issued a Ministerial statement vowing to bring forward proposals to introduce legislation on “income shifting” as the Government tried to call it, which would result in a new Family Business Tax.  In 2008 the proposals were deferred as the Government had to admit it was not workable.  This saved hundreds of thousands of family businesses from having to pay thousands in extra, unfair tax.

Robert Kerr

Robert is a freelance project manager and infrastructure consultant.  Out of the blue he was contacted by HM Revenue & Customs, wanting to review the PAYE records of the limited company he operates to check he was paying proper tax and NI.  As a PCG member he knew straight away what they were really interested in – checking his contracts to see if they could deem him to be ‘IR35 caught’. The tax office suggested he call them.  But instead he called the PCG help-line who advised him on his next steps. 

The tax inspector asked to see his books and records for the last six years and spent two hours going through them.  He wanted a complete breakdown of expenses and asked Robert to highlight any mobile phone calls that were personal.  Robert duly went through them and found £4 of personal phone calls out of receipts totalling hundreds of pounds.  Assuming the inspector would dismiss it as an insignificant amount, Robert was surprised to hear him say “I’ll have to think what to do about that”.

Then the request came to view his client contracts for the previous five years and announced they were being passed to the IR35 compliance department. 

PCG provided Robert with an expert adviser, Jacqui Mann from Abbey Tax Protection, herself a former tax inspector, to represent him through the IR35 investigation process, the cost of which was covered thanks to his PCG Standard membership.  In the end the case was closed without Robert being liable for additional tax or penalties.

“I felt very panicky at the beginning, but being a PCG member has definitely helped the situation”, says Robert.  “Having Jacqui to represent me was very reassuring, and on top of that I was able to discuss it on the PCG forums with others who have been through the same experience.”

Paula Mick

When Paula, a freelance contractor, received a letter from HM Revenue & Customs notifying her that an inspector of taxes wished to review her records she felt dread and panic.   She realised it was time to fall back on her membership and shortly thereafter one of PCG’s expert advisers, Jacqui Mann from Abbey Tax Protection, was on the case to represent her.

“Jacqui calmed me down straight away”, says Paula.  “When I joined PCG they had provided me with the advice to make sure I was properly set up, with the correct contracts and working practices in place.  This laid the foundations, and therefore Jacqui was able to reassure me that I hadn’t done anything wrong, and that she would help me prove that.  Even when the inspector later visited my client without informing us, she managed the process so that there was no misinterpretation, working closely with my accountant until HMRC were eventually satisfied.”

Jacqui Mann emphasises the importance of having expert representation: “Officers frequently ask to meet for an ‘informal chat’, to enable them to understand the business.  Don’t do it!  There is no legal obligation to meet in person with HMRC officers.  The danger of doing so is that they take notes during the informal chat when you are relaxed and not necessarily thinking carefully about how your words can be interpreted.  The notes made by the officer at the meeting are then open to misinterpretation and there is no other written record. We therefore advise PCG members not to agree to a meeting, but to get in touch through the link on the PCG website, whereupon we send a request to HMRC for all communications to be made in writing.  We find this is then sometimes followed up with a list of questions, typically in excess of 100 questions, which does make you wonder, how could there ever have been a genuine intention of an informal chat?”

Paula concludes: “Although these investigations are invariably stressful and time consuming, Jacqui was able to handle all the correspondence for me and I didn’t have to personally deal with any of the inspectors.  Without her help it would have been a complete nightmare, I just wouldn’t have known what to do.  I would have had to go and find a tax solicitor myself, and I find there aren’t a lot of people out there who understand contracting.”  She adds: “My PCG membership type is PCGPlus, which entitles me to support from the first letter I receive.  The case took over a year and if I’d had to pay for it myself, it would have cost me over £3000. I say this to every freelance contractor I meet, join PCG, it’s worth every penny, it’s invaluable!”

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