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HMRC targets tax avoidance in the pharmaceutical industry

Posted on 16 December 2019

Earlier this year, contractors working for GlaxoSmithKline (GSK) received letters from HMRC questioning their employment status.

The letters, sent to nearly 1,500 self-employed staff members, stated that HMRC believe that their working arrangements may fall foul of the IR35 rules.

IR35 was introduced to prevent tax avoidance by those who, on the facts are employees, but provide services as a contractor via an intermediary (such as a limited company) thereby reducing their tax and national insurance liability.

Historically, it has been the responsibility of the individual to ensure that any tax levied is based on the correct employment status, however from April 2020 the Government has sought to bring the private sector in line with the public sector, shifting the burden onto the employer.

The new rules mean that all companies with more than 50 employees or £10.2m annual turnover will be responsible for assessing a contractor's employment status, and will also be liable for any incorrect decisions.

With less than four months to go until IR35 is introduced in the private sector, many organisations across various sectors have reportedly been reviewing the way that they engage contractors, with some companies already issuing guidance to staff and others ceasing to engage contractors altogether to avoid any exposure.

Given the widespread use of contractors within the pharmaceutical industry, companies are advised to review all relevant contractual relationships and seek professional tax advice as soon as possible.

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