Determining IR35 Status - EU clients

[WordIsBond]

What part of “read the legislation” don’t you understand? This scribble on an HMRC website is worthless and, as you can see, there isn’t even agreement about the worthless scribble.

This.

My take of this text is that it does exempt overseas companies. But as you say, this text is worthless, what matters is legislation.

Just to waste our time further on this worthless text, the Simplified Test is a subheading under Who the Rules Apply To, as evidenced both by the links at the top of the page and the size of the font. Therefore, saying "You must apply the rules if you have an annual turnover of £10.2M and are not: ... an overseas company" clearly suggests that overseas companies do not have to apply the rules.

It does not say, "Overseas companies fall under the small companies regime" or "overseas companies fall under the large/medium companies regime," it says you don't have to apply the rules. The simplified test is not a simplified test of small/big, it is a simplified test of who has to apply the rules.

If this were in the legislation, I would say overseas companies are exempt.

The draft legislation does not say that, though. It says overseas companies are liable (if they are large/medium). Therefore, if it passes without change, overseas clients will be liable, even though that liability will be completely unenforceable.

I would read it as this document indicates HMRC's intent that the rules should not apply to overseas clients, and that rather those contractors with overseas clients will be liable for proper handling of IR35, as they always have been. If that's the case, I'd expect the legislation to be amended in the near future, perhaps before implementation, to reflect that.

It's probably not important because those of us with foreign clients aren't going to be inside IR35, 99% of the time.

[jamesbrown]

WiB, agree that we should wait for the final legislation.

Personally, I don't think they will amend the legislation in this regard, even though it would be an obvious thing to clarify. They aren't on top of the implications for majority situations, let alone minority situations. Either way, 10(2)61R(7) isn't a mistake. The existing public sector legislation introduced that concept of deemed UK residence.

If they were going to retain the "status quo", I think the easiest way to do this would be to apply the small companies regime. I think you're arguing the opposite of that based on your interpretation of the website and the draft legislation certainly says the opposite of that. It would be a significant change to exempt overseas supply chains altogether. Why start now, especially when the small companies rules could maintain the status quo?

We'll see. My money is on a continuing lack of clarity, but a legal interpretation (or majority opinion about it) as I've described.

[WordIsBond]

WiB, agree that we should wait for the final legislation.

Personally, I don't think they will amend the legislation in this regard, even though it would be an obvious thing to clarify. They aren't on top of the implications for majority situations, let alone minority situations. Either way, 10(2)61R(7) isn't a mistake. The existing public sector legislation introduced that concept of deemed UK residence.

If they were going to retain the "status quo", I think the easiest way to do this would be to apply the small companies regime. I think you're arguing the opposite of that based on your interpretation of the website and the draft legislation certainly says the opposite of that. It would be a significant change to exempt overseas supply chains altogether. Why start now, especially when the small companies rules could maintain the status quo?

We'll see. My money is on a continuing lack of clarity, but a legal interpretation (or majority opinion about it) as I've described.

I think the text we are discussing would effectively mean "small companies regime applies to overseas companies." It's talking about who has to apply the new rules. Small companies don't have to. It's saying overseas companies don't, either (if I'm interpreting it right). So they'd be the same.

They'll amend it about the time they try to tell someone with an overseas client that they should be inside IR35, and they lose the case because the liability lies with the overseas client according to the legislation. If that ever happens, they'll get it amended. Either that or some bright spark at HMRC reads our discussion here and says, "Hey!"

[jamesbrown]

I think the text we are discussing would effectively mean "small companies regime applies to overseas companies." It's talking about who has to apply the new rules. Small companies don't have to. It's saying overseas companies don't, either (if I'm interpreting it right). So they'd be the same.

They'll amend it about the time they try to tell someone with an overseas client that they should be inside IR35, and they lose the case because the liability lies with the overseas client according to the legislation. If that ever happens, they'll get it amended. Either that or some bright spark at HMRC reads our discussion here and says, "Hey!"

Perhaps. Either way, I would strongly deprecate the guidance and promote the draft legislation in any discussion. There's a long history of HMRC not understanding UK tax legislation and, hence, their guidance being extremely optimistic or false.

[shookshiver]

I think the text we are discussing would effectively mean "small companies regime applies to overseas companies." It's talking about who has to apply the new rules. Small companies don't have to. It's saying overseas companies don't, either (if I'm interpreting it right). So they'd be the same.

They'll amend it about the time they try to tell someone with an overseas client that they should be inside IR35, and they lose the case because the liability lies with the overseas client according to the legislation. If that ever happens, they'll get it amended. Either that or some bright spark at HMRC reads our discussion here and says, "Hey!"

My understanding to the rules is that the small company definition comes from the Companies Act 2006 legislation which does not apply to a non uk company. ir35 is therefore is determined by either the employment agency if there is one or the non uk company. If agency does not exist then all the better the consultant is responsible for his ir35 status

So the Companies Act 2006 determines whether the company is small, medium or large. If company does not reside here then Companies Act legislation does not apply. If agency however is in the loop as in they pay the Contractor/Consultant then legislation applies to the agency.

[jamesbrown]

My understanding to the rules is that the small company definition comes from the Companies Act 2006 legislation which does not apply to a non uk company. ir35 is therefore is determined by either the employment agency if there is one or the non uk company. If agency does not exist then all the better the consultant is responsible for his ir35 status

So the Companies Act 2006 determines whether the company is small, medium or large. If company does not reside here then Companies Act legislation does not apply. If agency however is in the loop as in they pay the Contractor/Consultant then legislation applies to the agency.

But the tests apply and the draft legislation includes a deemed residency provision for overseas companies in operating deemed payments.

[simes]

Please could someone provide a link to the actual Draft Legislation.

My searches on here and via Google are proving fruitless. Many an article on the subject, but not the actual document.

I would like to search the legislation for overseas companies. Mainly because I cannot believe that the Treasury can extend their tentacles across the Channel in any meaningful way.

And yes, the wording IS a bit second rate in respect to such.

[jamesbrown]

Please could someone provide a link to the actual Draft Legislation.

My searches on here and via Google are proving fruitless. Many an article on the subject, but not the actual document.

I would like to search the legislation for overseas companies. Mainly because I cannot believe that the Treasury can extend their tentacles across the Channel in any meaningful way.

And yes, the wording IS a bit second rate in respect to such.

Rules for off-payroll working from April 2020 - GOV.UK

But bear in mind that this amends and extends existing legislation. So you need to add all these changes back and then read the entire thing in full, alongside any earlier amendments (which are usually not incorporated into the online legislation). It's actually quite hard to piece together, even before you get to interpretation.

[jamesbrown]

Oh, and you need to read alongside other pieces of legislation too, notably on PAYE and NICs, including the draft secondary legislation that changes that.

To some degree, I have done this, and I can tell you now that it's a massive PITA to even begin to see what is going on. So, in general, you're better off searching for good analysis from legal experts that are used to reading legislation.

[simes]

Many thanks James.

Ok, I Had actually found that doc and performed a search on it for overseas companies. Nothing. Words searched include International, Overseas, Foreign.

Looking at the wording again from the site;

A simplified test also applies to some clients and considers annual turnover. You must apply the rules if you have an annual turnover of more than £10.2 million and are not:
•a company
•a limited liability partnership
•an unregistered company
•an overseas company

There are also rules which cover connected and associated companies. If the parent of a group is medium or large, their subsidiaries will also have to apply the off-payroll working rules.

1. So, what and where is the Simplified Test?
2. What are the other rules in the 'There are also rules which cover...'

It really is a shambles and I do pity the end clients who have to get their heads around this. No wonder they are going down the Blanket approach. I would!

Anyway, irrespective of the lack of wording, I am going to tell my client that International Companies are of course outside of the scope, here are the words, and how to interpret them. And hope for the best.