IT contractors need to understand tax rules thoroughly, especially those related to deductibles of contractor expenses and the legal methods to reduce taxes. This knowledge can help them stay on the right side of HMRC. However, the good news is that you may come out a winner if you challenge HMRC’s decision, should the taxman’s decision be unreasonable.
The latest figures reveal that six out of ten challenges made against HMRC have resulted in the original decision being overturned or altered.
After being reviewed by another official from HMRC, about 57 per cent of cases have had their initial tax ruling altered, according to the latest figures for 2016. In these cases, the ruling was made in favour of the taxpayer, said Pinsent Masons, a law firm based in London.
Legal tax experts from Pinsent Masons stated that if tax advisers feel that it is worthwhile challenging an unfair decision by HMRC, it may be a good idea to pursue it. The experts went on to add that IT contractors can opt for a review or full appeal.
The process of review, which was introduced in 2010, lets the taxpayer challenge a decision by an HMRC official by getting another official to go through the decision with a fine-tooth comb. While there were initial doubts about the independence of the review team, the latest figures reveal that HMRC officials are not averse to finding fault with decisions taken by their colleagues.
In certain cases, challenges are taken to a tribunal where a hearing is held. Here too, taxpayers appear to be benefiting. Figures procured by Pinsent Masons show that the number of appeals won has increased to 18 per cent in 2015-16 from 13 per cent in 2014-15.
Heather Self from Pinsent Masons stated that when IT contractors and other contractors concoct complex schemes to avoid taxes, HMRC will come out on top. However, when contractors challenge their commercial planning endeavours, an HMRC review will usually favour contractors.