Inside IR35 tax Liability

[Sub]

Sorry to hear you went into troubles with that.

If I understand that correctly that you signed contract with agency as an 'Outside IR35' one and received payments accordingly? What happned after you was made aware about it is now being paid as inside IR35, was it finished or you continued to work for the client and got any "deemed payments"?

What I cannot understand is how is it possible for agency to change the contract unilaterily. Relationships in the upper chain is not your problem, agency signed a contract with you on outside basis and must follow terms of that contract, which means payments must be made to your limited company in full. Unless there are special provisions in the contract allowing the agency to deduct something or mess with your tax code, it seems like agency actions causing you damages (by misrepresentaion of the contract terms) and you should be able to recover them via legal action.

That is obvioisly not ideal, but at least that is what make sense, otherwise that means that 'outside ir35' stamp in SDS means nothing to contrator, as at any time it can be dropped and you will be liable for additional taxes.

[eek]

That is obvioisly not ideal, but at least that is what make sense, otherwise that means that 'outside ir35' stamp in SDS means nothing to contrator, as at any time it can be dropped and you will be liable for additional taxes.

Yep, it means nothing and yesterday through the OP we discovered the actual cost of it being wrong....

[Keanu2020]

Unless there are special provisions in the contract allowing the agency to deduct something or mess with your tax code, it seems like agency actions causing you damages (by misrepresentaion of the contract terms) and you should be able to recover them via legal action.

Thanks for support. There were no special provisions. Retrospectively changing the contract after it’s been paid and completed as well. Legal action around the contract terms and / or employment law have been mentioned (I was never their employee, never agreed to be, and put that in writing as well before this). Seems wrong they can in essence just add me as an employee with no starter form or contract and leave me with a tax bill. But need the right legal help to unpack that and challenge.

[Sub]

Retrospectively changing the contract after it’s been paid and completed as well. Legal action around the contract terms and / or employment law have been mentioned (I was never their employee, never agreed to be, and put that in writing as well before this). Seems wrong they can in essence just add me as an employee with no starter form or contract and leave me with a tax bill. But need the right legal help to unpack that and challenge.

Yes, it does not seem to be IR35 issue anymore, but rather breach of contract one. What I would personally would be aiming to (but please treat this as legally low-competent stranger's suggestion) I would calculate all the material damages (in form of additional taxes, solicitor costs), all non-material ones (like relationship with end-client, if that was hit, for example contract cut short etc.) and sent the agency demand (properly worded by a professional) followed by legal action.

Also, as this is small agency I would explore possibility take director(s) into court personally, in case it will come out that they acted with knowledge of wrongdoing.

Probably a lot of that depending on sums involved too, but personally I would not let it go in any case.

[cojak]

Yep, it means nothing and yesterday through the OP we discovered the actual cost of it being wrong....

Yes, this could be massive for many contractors as all of our advice regarding this will be sidelined (I’m loathe to say ‘wrong’ as it was there in black and white).

I still don’t understand how this has happened though.

[eek]

Yes, this could be massive for many contractors as all of our advice regarding this will be sidelined (I’m loathe to say ‘wrong’ as it was there in black and white).

I still don’t understand how this has happened though.

I'm trying to find out - as oh boy it's a surprise to me (and will, I suspect, be a surprise to everyone else in the industry as well). We literally haven't been here before because it's never happened until now - mainly because it couldn't happen before April.

[eek]

Yes, it does not seem to be IR35 issue anymore, but rather breach of contract one. What I would personally would be aiming to (but please treat this as legally low-competent stranger's suggestion) I would calculate all the material damages (in form of additional taxes, solicitor costs), all non-material ones (like relationship with end-client, if that was hit, for example contract cut short etc.) and sent the agency demand (properly worded by a professional) followed by legal action.

Also, as this is small agency I would explore possibility take director(s) into court personally, in case it will come out that they acted with knowledge of wrongdoing.

Probably a lot of that depending on sums involved too, but personally I would not let it go in any case.

I don't know - I suspect it's completely unavoidable as it's just the way everything comes together in that particular circumstance (remember the fee payer pays the Employer NI, but the Employee NI and income tax isn't paid by the feepayer directly, it's paid by the feepayer on behalf of the limited company who employs the worker / contractor).

I do need to speak to HMRC to find out exactly what is going on but I don't want to do that until Monday because I want to think things through over the weekend first to be prepared with scenarios I can cover.

[Keanu2020]

Just to put some more colour to this. My accountant gave me some initial rough sums of what I will have to pay. If you look at the total amount HMRC now expects (Tax, NIC’s, apprentice levy), then 50% of the total cost will have to be met by me. This is a situation where the fee payer got the determination wrong and is fixing it as per the new rules (advertised as feepayer / end client is liable). Putting a side that there is something very wrong with the messaging around the rules and where the liability sits, the implications for any outside determined role are somewhat concerning.

[malvolio]

Just to put some more colour to this. My accountant gave me some initial rough sums of what I will have to pay. If you look at the total amount HMRC now expects (Tax, NIC’s, apprentice levy), then 50% of the total cost will have to be met by me. This is a situation where the fee payer got the determination wrong and is fixing it as per the new rules (advertised as feepayer / end client is liable). Putting a side that there is something very wrong with the messaging around the rules and where the liability sits, the implications for any outside determined role are somewhat concerning.

I've raised exact; that same point elsewhere, since there are potentially thousands of people at the same risk, especially if HMRC start chasing the private sector the same way that they have the public one*. So far, no response. At all. I find that very dispiriting


'v
* Then again, chasing other departments is actually utterly pointless other than making a political point about how clever they are, since all it is doing is moving money between pockets.

[eek]

I've raised exact; that same point elsewhere, since there are potentially thousands of people at the same risk, especially if HMRC start chasing the private sector the same way that they have the public one*. So far, no response. At all. I find that very dispiriting


'v
* Then again, chasing other departments is actually utterly pointless other than making a political point about how clever they are, since all it is doing is moving money between pockets.

This wasn’t an issue previously it’s brand new since April (under the old rules SDS was always done before the contract began) but as I said before I want to investigate things before I go panicking people.