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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: status: recovery for earlier years: general approach

Note: There is no longer any separate construction industry guidance when considering recovery for earlier years in a status dispute.

Status is an inaccuracy like any other and recovery action should be taken for all years where there has been a failure to operate PAYE and/or NICs (COG907640).

To make a recovery for earlier years you should

  • establish the facts for all in date years during which there is a potential failure (even if the failure has continued for a number of years you cannot assume that the terms and conditions of the engagement will have remained the same throughout)
  • consider whether in respect of each year HMRC has a strong case
  • concede any or all years where HMRC has a weak position and document the reason(s) for the decision which has been taken.
  • The decision whether or not to settle a case and for what years must be made on the basis of an honest and realistic assessment of the strength of the case for each year. A strong case should be viewed as one in which you believe that for the year in question there is at least a 60% chance of success at the First-tier Tribunal.

Note: In establishing the chances of success you must, in conjunction with your manager,

  • make sure the guidance on fact-finding has been correctly followed
  • make a fair and reasonable judgment on the strength of the case based on

    • your knowledge of the facts of the case, thereby
    • assessing the chances of success.

In this respect you must

  • liaise with Employment Status & Intermediaries (ES&I) or Status Inspector (LBS) where they have had a major input into the case, as
  • the ES&I or Status Inspector will be in possession of the most up to date tax cases and Tribunal decisions, and

    • will be able to provide advice on the strength of the evidence, or
    • will consult with PSN (Technical) in appropriate cases (seeESM0118 & ESM0125).

If you have not followed the appropriate guidance you may

  • reduce the chances of success at the First-tier Tribunal, and
  • have to concede full retrospection.
  • this will undermine the litigation making process of HMRC’s Litigation and Settlement Strategy.

If HMRC seeks to defend full retrospection before the Tribunal where evidence in earlier years is weak, HMRC runs the risk of losing the case for all years, including those later years where evidence may be stronger.

Do not consider the engager’s ability to pay until the liabilities have been agreed.

Once you have agreed the liability you should

  • follow the settlement process at COG915245 onwards.

Where the employer has a means problem, follow the guidance at COG914550

If advice is required on the settlement process