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Inside IR35 tax Liability

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    #81
    Well I've spoken to HMRC

    Given the scenario - contract was supposedly outside, worker has now left and I have an SDS saying inside - the answer was go back to the worker and reclaim the money.

    Not something I suspect anyone would want to hear.

    In reality it does seem that the PAYE debt should be being paid by the deemed employer and the recovery mentioned above is a separate process to ensure the agency is not left out of pocket paying the PAYE tax bill but I'm not 100% sure how you (as the poor contractor / worker) would go about ensuring the feepayer actually pays the bill.

    Mind you I can see why your agency is annoyed because according to ESM10031 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk) as the debt is prior to April 2021, the debt doesn't move up and down the chain it sits with the feepayer.

    Sorry for the news not being great - let's hope that WTT is of use and if not see what Merkel say (I'm wouldn't recommend ETC for reasons connected with Felicitas and the mess they seem to have made there).
    Last edited by eek; 11 October 2021, 10:57.
    merely at clientco for the entertainment

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      #82
      And what the above does emphasis is how important it is to find out the exact IR35 status and get the SDS determination before starting work as otherwise you are working at risk of a very large tax bill.
      merely at clientco for the entertainment

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        #83
        Which is completely at odds with the ‘concession’ IPSE pushed for and got.



        Be careful what you wish for…
        "I can put any old tat in my sig, put quotes around it and attribute to someone of whom I've heard, to make it sound true."
        - Voltaire/Benjamin Franklin/Anne Frank...

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          #84
          Originally posted by eek View Post

          Given the scenario - contract was supposedly outside, worker has now left and I have an SDS saying inside - the answer was go back to the worker and reclaim the money.
          Which demonstrates how little taxman does care about everything which is not concern of their wallet. On which basis the "reclaiming" shoud happen if contract with worker was signed on "outside IR35" basis? Contract is fulfilled, money paid, fact that client/agency got rules wrong and hit with the tax bill does not cancel the contract, nor enable them to 'reclaim' anything.

          In the specific scenario it feels that agency, got it wrong and make mistake then have taken calculated approach of making things fixed with HMRC as it is not something you want to mess with and now hoping that contractor will just swallow it. I am quite sure that if they face perspective of legal action where sh*t will also fly to big agency and client they currently in business with, they will come up with some sort of settlement.

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            #85
            Originally posted by Sub View Post

            Which demonstrates how little taxman does care about everything which is not concern of their wallet. On which basis the "reclaiming" shoud happen if contract with worker was signed on "outside IR35" basis? Contract is fulfilled, money paid, fact that client/agency got rules wrong and hit with the tax bill does not cancel the contract, nor enable them to 'reclaim' anything.
            There is no reason but it shows that there is a big risk contained in all Outside IR35 contracts that currently no-one is solving. As contractors who have received the short straw, we really do need to find a means of finding suitable cases that will eventually create appropriate case law.

            Originally posted by Sub View Post
            In the specific scenario it feels that agency, got it wrong and make mistake then have taken calculated approach of making things fixed with HMRC as it is not something you want to mess with and now hoping that contractor will just swallow it. I am quite sure that if they face perspective of legal action where sh*t will also fly to big agency and client they currently in business with, they will come up with some sort of settlement.
            In this case the agency at the bottom of the chain has a right to be very annoyed. They are working on the information provided to them from the agency above them in the chain but (because all this occurred for work / a contract that started prior to April 2021) they are the people caught with a large tax bill for little to no fault themselves.

            My biggest takeaway from this is as an agency you either need contractors to agree to work "at risk" or ensure you have a valid SDS stating that the contract is outside IR35 sat on your desk before the contractor starts work...
            merely at clientco for the entertainment

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              #86
              Originally posted by eek View Post

              There is no reason but it shows that there is a big risk contained in all Outside IR35 contracts that currently no-one is solving. As contractors who have received the short straw, we really do need to find a means of finding suitable cases that will eventually create appropriate case law.
              Absolutely, the risk is there since 2017 reform in public sector (which is just got wider scope now) as regrdless of rules around SDS and the 'challenge process' the client can change determination at any time and at will - there is nothing contractor can do about it. If combined with 'IR35 indemntity clause' probably present in many 'outside' contracts at the moment it is actually gives client quite full freedom of action too. I would probably look into contract terms as only defence against that scenario, only question is how many clients will sign these terms.

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                #87
                Originally posted by Sub View Post

                Absolutely, the risk is there since 2017 reform in public sector (which is just got wider scope now) as regrdless of rules around SDS and the 'challenge process' the client can change determination at any time and at will - there is nothing contractor can do about it. If combined with 'IR35 indemntity clause' probably present in many 'outside' contracts at the moment it is actually gives client quite full freedom of action too. I would probably look into contract terms as only defence against that scenario, only question is how many clients will sign these terms.
                Nope, because prior to April 2021 it required a Grade 1 screw up (such as the OP experienced) to create the mess the OP is currently in. And the biggest issue is because the screw up was prior to April 2021 the end agency can't blame the agency above them in the chain for the mess.

                Post April its way easier for this screw up to occur but it would only occur in a couple of circumstances

                1) No SDS at the start, contractor is happy to be working at risk - here those indemnity clauses just about make sense...
                2) variations where there is an outside SDS but an agency "appeals" the Determination (yes, completely insane but part of HMRC's courses). In this case you really don't want the clauses there.

                The first takehome from this thread - is don't accept 1 unless you absolutely have to.

                But in reality I'm not sure what difference it would make if the agency is facing a £50k bill and wants to transfer the pain elsewhere - any agency presented with that scale of a problem is going to try and pass the bill in any direction it can and that would be very expensive for the contractor regardless of whether clawback clauses exist in the contract.

                The biggest issue here is that, to escape the very large bill, the feepayer needs to prove that the party above them failed to send an SDS determination - which is going to be hard when there are 50,000 reasons for the client above to deny screwing up.

                I'm actually surprised someone hasn't got a blockchain or similar solution here as to me this seems to be an issue where tracking who saw / received the SDS determination when seems to be rather essential / fundamental.
                Last edited by eek; 11 October 2021, 13:44.
                merely at clientco for the entertainment

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                  #88
                  Originally posted by eek View Post

                  In this case the agency at the bottom of the chain has a right to be very annoyed. They are working on the information provided to them from the agency above them in the chain but (because all this occurred for work / a contract that started prior to April 2021) they are the people caught with a large tax bill for little to no fault themselves.
                  ..
                  They already said to me twice they believe party above them was in the wrong but didn't want to fight them as get work from them. Fine. But don't then try to push it my way to mitigate the hit.

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                    #89
                    First off, gratefully for checking my homework even if got the same result. At least I know it’s not a simple misunderstanding.

                    Second, my layman’s reading is that I may have grounds to fight. I’m following up with possible legal options and will report back in due course.

                    Third – Without any doubt is the agent trying to off load their issue to me. Every chance they get to use letters HMR and C they do, in the hope that somehow, I will be worried and run away. Vague words of ‘will report issue to HMRC’.

                    Finally – I know you mention MP follow up and similar. Is there anything like that to action?

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                      #90
                      Your local MP may do surgery days so you could make an appointment to see them to discuss. I'd probably email them first with a summary of what's happening and then suggest meeting to talk in more detail. You may find you only get 15 minutes initially so you need to be focussed.

                      Decide first off what you want your MP to do. I think they should ask a question of HMT / HMRC to determine if the changes to IR35 is having the desired effect in this scenario. Based on what eek says the answer may be a yes. With a bit of luck your MP may be outraged on your behalf (check their IR35 voting record to see the likelihood of that) and may be willing to raise questions in parliament.

                      Another option is to approach IPSE and see if they'd be willing to take the case on if you do go legal. You don't necessarily have to be a member to get their backing - it's more about the case and whether the result will advance things for the greater good. This is less likely with the more commercial and less activist approach they now have but you've nothing to lose by asking. See if Andy Chamberlain there will talk to you as he might be a good advocate.
                      Click here to come to the CUK Xmas do on 10 Dec! Meet your board heroes!

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