BN66 - A Different Outcome

Ben lived in the same town as Joe but didn’t know him. By coincidence Ben had been in the same scheme as Joe for two years, leaving it on 31st March 2003 to take up employment with a large bank.

Before joining the scheme Ben had used a limited company under his control through which he provided his IT skills to Barwest Bank via an agency called Computex. Ben’s company would invoice Computex who would in turn invoice Barwest Bank. Ben was paid a salary by his own limited company.

Ben joined the scheme because of the impact and confusion caused by legislation known as IR35 which had come into effect a year earlier. He carried on working for Barwest Bank for one year and then spent a year working from his home providing consultancy services for a small company without the involvement of an agency.

Enquiries had been opened into Ben’s 2002 and 2003 tax returns in January 2004 but nothing much had happened for over four years. Then in July 2008 Ben received a letter from H M Revenue & Customs saying they had amended his 2002 and 2003 Self Assessments to include as self employed income the whole of his trust income. The liability to tax, National Insurance and interest amounted to £80,000, and Ben had 30 days to appeal.

Ben had a word with Fred, a local accountant who he often saw in his local pub. By coincidence, Fred was the accountant who Joe had first consulted. Fred saw that Ben was in exactly the same position as Joe and so he referred him to Giles, warning him of the costs and likely outcome.

Ben arrived for his appointment with Giles and handed over a cheque for £5,000. Before jumping to conclusions, Giles spoke to Ben at length and took notes. He was surprised that rather than being self employed before joining the scheme, Ben had used a limited company. Ben explained that Computex had insisted on this. Giles then established that Ben had carried out his work at the offices of Barwest Bank and that Barwest Bank had exercised a certain amount of supervision and control over the work he did. Giles concluded that Computex were correct in requiring Ben to use a limited company rather than be self employed.

Giles then talked to Ben in more detail about the working of the scheme. He established that the scheme organisers had used a UK company called Easypay Limited to raise invoices to Computex, and that Easypay Limited had passed the funds they received to an Isle of Man organisation. Just like Joe, Ben had then received some income under self employment and the remainder as trust income (which the scheme organisers said was tax free). Giles went on to ask Ben how he came to join the scheme. Ben explained that he had attended a seminar arranged by the scheme organisers along with 20 colleagues working at Barwest Bank using Computex and their own limited companies. In total, 10 of those present had signed up and in each case Easypay Limited had replaced their own company. Ben explained that Computex were a preferred supplier to Barwest Bank which was why each of the 10 persons who joined the scheme had a contractual arrangement with Computex. Giles asked what checks Computex had made on Easypay Limited and was surprised to learn that they had simply requested copies of the VAT registration certificate and certificate of incorporation. In particular, Ben explained that he was not a director or employee of Easypay Limited, and in fact had no contractual arrangement with that company.

On a no names basis, Giles talked to Ben about Joe, explaining the impact of BN66 in that case. He then said that there were subtle differences in Ben’s case and that his liability might be substantially less than the £60,000 the Revenue were demanding. Giles said he needed to do more research and explained that his costs would be a lot higher than the £5,000 Ben had paid on account. A second meeting was arranged for one week later.

Ben arrived at the meeting 10 minutes early and was shown into a meeting room. He was greeted by Giles and introduced to Les. Giles explained that Les was the senior partner at this office. Les opened the conversation and said he was very sorry to advise that his firm couldn’t assist any further and he handed Ben his £5,000 cheque back. Ben was aghast and asked why. Les explained that his London office had felt there might be a conflict of interest if they were to act for Ben. Ben then asked where he might go to get help. Les sympathised but said he felt Ben needed the help of a large firm of accountants. The problem, Les went on to say was that any such firm would be likely to also see a similar potential conflict of interest.

Ben then consulted James at Accountants4U. Ben had used the services of Accountants4U when he had used his own limited company. James said he would like to help but he didn’t really understand the issue and besides that, Computex regularly referred new clients to him. Under no circumstances would he risk damaging that relationship.

In desperation, Ben telephoned Fred. Fred was reluctant at first, explaining that he dealt mainly with shopkeepers and small industrial concerns but as he could see this was Ben’s last chance he said he would try to help. Fred had an “off the record” chat with Giles and the penny dropped. Fred and Ben agreed a results-based fee. Ben’s tax bill was reduced by well over 50% and Fred got a £5,000 fee.

Over the following months Fred was contacted by 50 other former scheme members. 20 of those ended up paying their tax in full and they each paid Fred £1,000 for his services. In each of the other 30 cases Fred achieved results better than that he achieved for Ben and earned a big fee. Fred found that each case was unique and he had to use a host of different arguments with HMRC to win the 30 cases.

Fred was able to pay off his mortgage and has now added a number of personal service companies to his client portfolio. He still visits his local pub, and often finds that there’s a pint waiting for him courtesy of Ben.