IR35: Client determination and mitigating the risk of an HMRC investigation

[Scoooby]

I appreciate that some of this has already been covered and apologies for the lengthy post, but I wanted to focus on a couple of specific points to understand the differences, which I couldn’t find sufficient details on.

My situation

I’ve been contracting outside IR35 with the same bank client (on various different projects and funded by different programmes) for the past 3.5 years. My contract ends at the end of March and I’ve already had conversations with the client manager about them completing the questionnaire for the company they have brought in to determine my current role status. Currently awaiting the determination.

When I completed the CEST tool I was coming outside and I went through my responses with the client. They pretty much agreed with all my responses, bar one. The one about them being able to reject a substitute (never tested in practice). They seemed to understand my reasoning when I went through the contract my company has with the agency and my interpretation (such as them only being able to reject on reasonable grounds, and not if the person being substituted is equally qualified and skilled etc). Ultimately, however, I suspect the bank will determine my role as inside along with probably every other contractor to protect themselves.

I’ve not been offered a new contract yet, but I suspect I possibly will nearer the time, probably in a slightly different role and project, likely being 6 months inside and probably needing to go through an umbrella.


Risk of being investigated from client determination

Naively, in hindsight based on reading all the comments on here. I had assumed that this would only become an issue by staying with the current client if and when I either got paid for the current contract beyond the 6th of April (currently get paid weekly, so can easily avoid this by not working last couple of days in March) or I signed up to a new inside contract from April.

I suspect that I’ve already increased my risk of being flagged on HMRC’s radar by putting the wheels in motion for a client determination.

However, surely there is a significant difference in the probability of an investigation based on the following 3 scenarios (split out the first one in case it might make a difference)?
- 1) Request that I do not receive a determination for my role even though the client manager has already submitted his questionnaire to the company dealing with these. Might be too late anyway to stop this. And leave before I get paid before the 6th of April (1 week notice required).
- 2) Await the determination (you never know, they might decide the role is outside after all, but probably unlikely now) and then leave before I get paid before the 6th of April.
- 3) Ride it out come what may and accept a new inside contract from April. Appealing as I think I’ll struggle to find as good a contract (in the new world) on the same rate and preferred location with flexibility to WFH a couple of days per week.

I get that option 3) obviously increases my risk and makes it easier for HMRC as my NI number will be submitted when getting paid etc.

However, surely options 1) and 2) reduce that likelihood to a more acceptable level?


I’m trying to work out if it’s actually worth me trying to reduce the risk now compared with the appeal of option 3), as I’m unlikely to find a suitable contract outside for a while by the looks of it. Trying to make the best of a difficult and complex situation!

[northernladuk]

Read this and have a poke around in teh IR35 Reform part of the forums. A vast majoirty of contractors in your position and it's discussed a lot.

https://www.contractoruk.com/forums/...ould-i-go.html

[Scoooby]

I read this before posting, but I couldn't find any specific comments regarding this extra option I mentioned, which I'm considering based on my above situation.

I know a number of other people considering this specific option as well, which is (by editing OP on that other thread):

Leave by 24th March (weekly payment), if your client hasn't said anything to you about assessments has already assessed you as inside

Surely this is a safer option than just sticking around come what may? (the next option on the OP in that other thread)

[Lance]

Option 3 says "I'm OK with you changing my Ts and Cs to whatever you fancy"

surely that simply confirms HMRC's view that you're just a bum on seat who should always have been inside?

[Scoooby]

Option 3 says "I'm OK with you changing my Ts and Cs to whatever you fancy"

surely that simply confirms HMRC's view that you're just a bum on seat who should always have been inside?

Does it? I suspect the reality in the banking sector at least anyway is that clients will do anything to protect themselves where there is any doubt (probably also coming from their lack of understanding around the regulations and only basing their decisions on the totally flawed CEST tool) and is open to interpretation. Regardless of the contractors specific situation.

The reality is that the vast majority of contractors in the banking sector will need to go inside IR35 because of this risk averse approach from most banks.

My point is if you've already had that assessment made as inside or are about to receive it (rightly or wrongly), is it best to leave before 24th March (if paid weekly), or is your risk already heightened at this point to the extent you might as well just stick it out and earn a guaranteed income from April?

[Lance]

Does it? I suspect the reality in the banking sector at least anyway is that clients will do anything to protect themselves where there is any doubt (probably also coming from their lack of understanding around the regulations and only basing their decisions on the totally flawed CEST tool) and is open to interpretation. Regardless of the contractors specific situation.

The reality is that the vast majority of contractors in the banking sector will need to go inside IR35 because of this risk averse approach from most banks.

My point is if you've already had that assessment made as inside or are about to receive it (rightly or wrongly), is it best to leave before 24th March (if paid weekly), or is your risk already heightened at this point to the extent you might as well just stick it out and earn a guaranteed income from April?

Nobody knows what the risks would be.
Although it seems reasonable that if you've been moved to inside by the client then HMRC's view may be that there is history there. And the longer the history the higher the finanical risk. And HMRC would not be looking to prove anything around the current (post April) working, so make sure you have your historic evidence prepared.

But I would suggest that the language of 'stick around and earn a guaranteed income' is permie thinking anyway. I'd leave and take my chances. But I've got a decent war chest and three clients, 2 of whom aren't going to declare me inside, and the 3rd is very much discrete pieces of migration work.

Why not move in advance? That way if you start a new one, and are declared inside end March the risk is far lower.

[Cirrus]

clients will do anything to protect themselves where there is any doubt (probably also coming from their lack of understanding around the regulations and only basing their decisions on the totally flawed CEST tool) and is open to interpretation. Regardless of the contractors specific situation.

The game was like this: 99.9% of contractors were IR35-caught. However 99.9% of contractors got away with flouting IR35. A tiny few took a hit, which could have been crippling but all the rest of us took the risk because we needed the inflated income. Now the risk has switched to big employers. Who knows whether the Revenue could have any more success than they did before but the problem is that risk is now multiplied for any given client. At the same time, the benefit to them of ignoring IR35 is massively less than it is to us individual contractors. It was transformational for us but hardly makes any difference to them. So it is hardly surprising they are opting for the low hassle route.

[Finance Contractor]

Why are some contractors planning to voluntarily end contracts at the point where a payment cannot be made post rule change? Surely if the client determines a contractor to be inside IR35 then the client will need to provide relevant documents and terminate the current contract as payment terms and billing process should have been explicit in the contract therefore the client can’t just withhold funds. If the client misses the boat on this then surely it is their problem and not the contractor’s.

[Lance]

Why are some contractors planning to voluntarily end contracts at the point where a payment cannot be made post rule change? Surely if the client determines a contractor to be inside IR35 then the client will need to provide relevant documents and terminate the current contract as payment terms and billing process should have been explicit in the contract therefore the client can’t just withhold funds. If the client misses the boat on this then surely it is their problem and not the contractor’s.

Most contracts end in March.... for this reason.

KUATB

[Finance Contractor]

Most contracts end in March.... for this reason.

KUATB

For a contractor, what difference does it make when the contract ends? If the client determines the contract to be inside IR35 then they have to terminate the current contract. The time of payment has no relevance whatsoever to the contractor. That is the client’s problem.

I’m none the wiser as to why contractors are discussing when they should work and not work in the lead up to the change.