Retrospection

[Seahorse17]

Contractors declared as "in" are worried about the risk of retrospective tax grab.

But why aren't the PSBs worried about retrospective fines? Since 2013, all PSBs have had a duty to ensure that their off-payroll workers are paying the "right" tax. have accepted independent reviews as evidence that IR35 does not apply. Two departments (MoD and Health) were fined for getting it wrong.

https://www.gov.uk/government/news/s...ctor-published

So, if departments that are now making blanket inside decisions are now saying, "We were wrong, our off-payroll workers were not paying the right tax", perhaps they should be retrospectively fined.

[Finance]

The report says that 95% of the government including the NHS were operating the then rules correctly, which implies most of those ruled in should be out.

[jamesbrown]

What do people mean when they talk about "retrospective"? To me, retrospection only has meaning when talking about "clarifications" (ahem) to existing law, as exemplified in the recent past by anti-avoidance legislation (e.g. Section 58 of the FA 2008). All tax investigations are "retrospective". When a contract moves from nominally outside IR35 to nominally inside under the new PS rules, they either were or were not inside previously, but it's the same process of investigation, and it's for a tribunal (and ultimately the courts) to decide about the reality. Talking about an increased risk of investigation as being "retrospective" is weird use of terminology IMO.

[WordIsBond]

Talking about an increased risk of investigation as being "retrospective" is weird use of terminology IMO.

It's imprecise, but not exactly wrong, either.

You have a changed situation which has been brought about by a current legislative change, which will (theoretically, at least) be used as evidence for historical cases. That changed situation may have had no bearing on the reality of historical contracts, but probably substantively increases the risk of not just being investigated, but of losing.

They've created rules whereby the engager has a strong incentive to rule people inside IR35, and now they can use that biased ruling to argue the contractor should have been inside all along, facts/reality notwithstanding.

It's not precisely retrospective, but they've changed the rules of the game and the way they've done it can impact how historical cases are viewed and adjudged. And it is not even a case of retrospectively changing the rules to catch those who were violating the intent of the law, either. This could catch people who were well within the law as both written and intended, and now because of these new rules, those people could be investigated and potentially even lose their case when their engager's biased determination is cited as evidence.

So it seems to me the use of "retrospective", while not entirely precise and a little unusual, is fair enough.

[jamesbrown]

It's imprecise, but not exactly wrong, either.

You have a changed situation which has been brought about by a current legislative change, which will (theoretically, at least) be used as evidence for historical cases. That changed situation may have had no bearing on the reality of historical contracts, but probably substantively increases the risk of not just being investigated, but of losing.

They've created rules whereby the engager has a strong incentive to rule people inside IR35, and now they can use that biased ruling to argue the contractor should have been inside all along, facts/reality notwithstanding.

It's not precisely retrospective, but they've changed the rules of the game and the way they've done it can impact how historical cases are viewed and adjudged. And it is not even a case of retrospectively changing the rules to catch those who were violating the intent of the law, either. This could catch people who were well within the law as both written and intended, and now because of these new rules, those people could be investigated and potentially even lose their case when their engager's biased determination is cited as evidence.

So it seems to me the use of "retrospective", while not entirely precise and a little unusual, is fair enough.

Sure, it may change the risk profile for an ongoing contract, but that's completely different than old law being "clarified" (re-written and applied historically). The ITEPA has been updated to insert 10(2), which is about shifting responsibility to the PSB to determine status, going forward. Retrospection might mean, for example, that the intention had always been for the client's view to be determinative (i.e. scary stuff). It has always been possible for status to change, and it may turn out, under investigation, that a client had a different view about the requirement for personal service than the contractor. Unless that's reflected in working practices, it doesn't matter. Anyway, I know it's a technical point (and, therefore, not particularly interesting), but there's no retrospection going on here, just new legislation with consequences for ongoing contracts.

[malvolio]

It needs a court case. In fact the best way to show what a nonsense we're faced with is for someone to win an IR35 appeal using case law and destroying the "All you tax avoiding scum are caught" argument from the PS.

Of course, that needs a victim; not only that but one with enough stubbornness to take it to completion. I suspect they would get a lot of support...

[BrilloPad]

Indeed. The government should pay a fine. To the government.

Its like QE.

[centurian]

This is not retrospection - the new rules do not declare you as being "in" - just the engager is forced to pay you as if you are "in" from now on, plus also refer you to HMRC so they can investigate whether you were ever "in" before.

It has no impact on your past status. The fact you might get put under extra scrutiny - is not retrospection.

If you were confident about your position before - nothing has changed. If you were pushing your luck and hoping not to be investigated....

[WordIsBond]

Anyway, I know it's a technical point (and, therefore, not particularly interesting), but there's no retrospection going on here, just new legislation with consequences for ongoing contracts.

As I said, technically you are correct, "retrospection" is being used imprecisely.

Practically, I think there is significant reason to doubt whether you are correct.

If a current, on-going contract is deemed "inside" by the PSB, it has ramifications for how the part of the contract before 6 April is viewed. Contract terms and working practices may well have been outside, but the PSB's determination would most certainly be used by HMRC to assert that the entire contract from inception should have been inside. If HMRC doesn't try to use the PSB determination in such a case, then it's not retrospection. Or, if they try to use it and lose the case because the PSB's determination is adjudged to be not relevant, then it is not retrospection.

But I think most of us think HMRC WILL try to use the PSB's determination in such a case and will be allowed to do so, and if so, that's retrospection in regard to the portion of the contract that came before 6 April.

And most of us think it will go further than that, to prior contracts with the same PSB. We think HMRC is likely to target those contracts. We also think they are less likely to drop their investigation of those contracts after a few letters from IPSE or QDOS, that they are more likely to pursue those investigations harder because they think they have a better case. And that they are likely to try to cite the PSB's determination (even though contracts should be judged on their own merits).

If any of that happens, and they succeed, then a current change in law is being used to pursue and ultimately tax people for behaviour before that change in legislation took place. The change in law doesn't change the law to which people are historically accountable, but it drove PSBs to take action that results in evidence which may and probably will be used in historical investigations. In practical terms, that's retrospection.

[jamesbrown]

But I think most of us think HMRC WILL try to use the PSB's determination in such a case and will be allowed to do so, and if so, that's retrospection in regard to the portion of the contract that came before 6 April.

It really isn't. If the PSB has operated their assessment in a blanket fashion, it will make no difference to the actual risk that the contract was inside, historically. If they didn't, and the contract is found to be inside, the contractor should be worried, but that's the reality and would've emerged anyway. In terms of targeting, you can hardly blame HMRC for using valuable information that comes to light, which is precisely why we were warning people to move in a timely fashion. If they weren't aware or didn't listen....

It's no more retrospective than the agency reporting regulations (or any other mechanism that HMRC uses to assist in targeting).