Liability in case of wrong IR35 determinaton

[pscont]

We all kind of assume/know that in case of HMRC callenging and winning an IR35 determination, the liability for any taxes/fines/interest will be with the paying link (agency, PSB).

Where is this stated in any legislation?

[northernladuk]

Couple of mentions in past discussions about this...

https://www.google.co.uk/search?q=li...-sector-ir35&*

It's alluded to here...

http://forums.contractoruk.com/publi...ml#post2376558

Also something about S3's offering mentions it.

http://forums.contractoruk.com/publi...5-product.html

[jamesbrown]

We all kind of assume/know that in case of HMRC callenging and winning an IR35 determination, the liability for any taxes/fines/interest will be with the paying link (agency, PSB).

Where is this stated in any legislation?

It's in 10(2) of the ITEPA (draft Finance Bill 2017), which deals with IR35, notably draft Clause 61N(3): "The fee-payer is treated as making to the worker, and the worker is treated as receiving, a payment which is to be treated as earnings from an employment". This is all subject to the fraud clauses though.

[MeMeMe1966]

I think PAYE regulations apply to liability?

Hi,

I think that:

since the legislation directs them to withhold PAYE then liability for not doing so when the relationship is one of deemed employment would fall under the PAYE regulations which is clear that it sits with the "employer".

The Income Tax (Pay As You Earn) Regulations 2003

Section 72 allows for liability to fall to the "employee" if either of two conditions are true:

Condition A is that the employer took reasonable care to comply with these Regulations, and that the failure to deduct the excess was due to an error made in good faith.

Condition B is that the Inland Revenue are of the opinion that the employee has received relevant payments knowing that the employer wilfully failed to deduct the amount of tax which should have been deducted from those payments.

[pscont]

Hi,

I think that:

since the legislation directs them to withhold PAYE then liability for not doing so when the relationship is one of deemed employment would fall under the PAYE regulations which is clear that it sits with the "employer".

The Income Tax (Pay As You Earn) Regulations 2003

Section 72 allows for liability to fall to the "employee" if either of two conditions are true:

Condition A is that the employer took reasonable care to comply with these Regulations, and that the failure to deduct the excess was due to an error made in good faith.

Condition B is that the Inland Revenue are of the opinion that the employee has received relevant payments knowing that the employer wilfully failed to deduct the amount of tax which should have been deducted from those payments.

Hmm, does this mean that the agency can say 'we've taken reasonable care but we failed to deduct taxes' and it is up to the contractor to pay to HMRC?

[MrMarkyMark]

Hmm, does this mean that the agency can say 'we've taken reasonable care but we failed to deduct taxes' and it is up to the contractor to pay to HMRC?

What do you think

[jamesbrown]

since the legislation directs them to withhold PAYE then liability for not doing so when the relationship is one of deemed employment would fall under the PAYE regulations which is clear that it sits with the "employer".

Correct. The Intermediaries legislation establishes the situation where earnings are treated as coming from employment, and the resulting operation of the deemed payment procedure, and the PAYE and NIC requirements are dealt with in the appropriate legislation elsewhere.

[jamesbrown]

Hmm, does this mean that the agency can say 'we've taken reasonable care but we failed to deduct taxes' and it is up to the contractor to pay to HMRC?

There are various transfer of liability provisions in the draft 10(2) of the ITEPA. Look for terms "and reference to the fee-payer were substituted a reference to X" where X is the new point of liability. Anyway, no, the fee payer is responsible for dealing with earnings from employment correctly, subject to the conditions in the draft legislation about the requirement of the PSB to notify and w/r to dealing with fraudulent information (clauses 61S and 61T).

[RonBW]

We all kind of assume/know that in case of HMRC callenging and winning an IR35 determination, the liability for any taxes/fines/interest will be with the paying link (agency, PSB).

Where is this stated in any legislation?

I refer you to the answer I gave some time ago

https://www.gov.uk/government/public...technical-note

"35.The public sector client must reply to the written requests for a decision on whether the off-payroll rules are applicable or for the reasons why the client reached a conclusion within 31 days of receiving the request. If the public sector client does not reply to the request as to whether the off-payroll rules apply within 31 days they become responsible for accounting for PAYE."