Inside/outside tax turning into another Loan Charge debacle?

[eek]

Yes, claw-back following eek's conversation with HMRC.

(Also an agency just putting the contractor on a 20% tax code and letting HMRC chase the contractor for everything if they start with an outside contract and then switch the contractor to an inside contract, although this may be a separate issue...)

It's not completely separate - it's just a very neat way of an agency halving their total tax bill in a way that would be very hard to escape.

Thankfully it's probably very hard to pull that trick off once you are no longer working with that agency and are in a new tax year

[Fred Bloggs]

It's

1) clawback clauses,
2) the risk that clawback may be possible even if no clawback clause exists AND
3) the fact you are have no means of challenging the original decision.

You then have the fact there are 4 ways that things can be screwed up resulting in the above

1) you start work without an SDS being issues
2) you start with an "outside IR35" SDS but it's "appealed" / changed to be inside IR35 befre the end client pays their first bill which could be 4-5 months after you started work
3) HMRC come calling 1-3 years later and identify that your determination was wrong
4) HMRC having found multiple examples of 3 decide that all x000 other contracts at the end client were determined incorrectly and would like the tax paid.


The IRS did step 4 for an awful lot of firms in the USA within corporate memory which is why sane multinationals have their blanket bans....

Thanks, that's helpful to know.

For me at first glance it seems rather simple.

Case 1 no start anyway.

Case 2 down tools and quit immediately. Weekly payment terms with the agency so minimal loss to contractor?

Case 3 and 4 there's an obvious counter here but perhaps best unsaid.

Perhaps I am over simplifying it a little but it doesn't seem to me any really higher risk than the old IR35?

One thing that mildly surprised me is a client company who says to me they issue the SDS completed by an outside company "to make sure it's right". But when I looked up the other company it was owned by the client company anyway. That's not really very good practice, is it?

[Fred Bloggs]

It's not completely separate - it's just a very neat way of an agency halving their total tax bill in a way that would be very hard to escape.

Thankfully it's probably very hard to pull that trick off once you are no longer working with that agency and are in a new tax year

Do I have this right? An agency signs an outside IR35 contract. But deducts 20% tax? The agency has no relationship with the person, only the person's MyCo Ltd. Astonishing. That's another case where you down tools and quit after two weeks when the first invoice is paid minus 20%.

[eek]

Downing tools isn't enough because any unpaid pay is going to end up being used to pay HMRC.

And they will use a BR code to ensure that HMRC chase you up for the Income Tax you haven't paid them - heck it wouldn't surprise me if the agency paid just the (employer and employee NI) and left the worker to pay all the income tax that was now due themselves...

As for an obvious counter - you are going to have to spell it out because unless I've missed something in the year I've been thinking about the new world I don't see any counter beyond don't do outside IR35 contracts.

[eek]

Do I have this right? An agency signs an outside IR35 contract. But deducts 20% tax? The agency has no relationship with the person, only the person's MyCo Ltd. Astonishing. That's another case where you down tools and quit after two weeks when the first invoice is paid minus 20%.

Agencies have everything they need to start paying you via PAYE from the information they need to fill in the agency reporting regulations - why do you think they ask for some details before you start working through them?

And the issue isn't that this is done with the first payment - it's done in month 4 with the payment for months 3 and 4 used to pay the tax that wasn't paid in months 1 and 2.

Now a lot of this is me being cynical but we've already seen this done by a very large agency (yes I know the agency who pulled the trick on Keanu2020) and that was under the public sector rules which weren't as bad (for contractors) as the private sector "improvements".

[Fred Bloggs]

Agencies have everything they need to start paying you via PAYE from the information they need to fill in the agency reporting regulations - why do you think they ask for some details before you start working through them?

I am afraid you have lost me there. An agency contracts with MyCo Ltd. But pays Fred Bloggs personally. That's a very, very new one on me. The agency wouldn't have my bank account. Anyway that's likely enough for now, thanks or explaining.

[eek]

I am afraid you have lost me there. An agency contracts with MyCo Ltd. But pays Fred Bloggs personally. That's a very, very new one on me. The agency wouldn't have my bank account. Anyway that's likely enough for now, thanks or explaining.

They don't pay your directly. The agency run a deemed payment payroll and pay anything that isn't due to HMRC to your company for your company to pay to you directly as your salary. It just requires an optional field on the RTI file.

And the great thing is that the VAT rules are determined so they can happily take your £10000 invoice for the month, deduct all £1000 to cover historic tax bills and pay you the £2000 in VAT.

[Fred Bloggs]

Downing tools isn't enough because any unpaid pay is going to end up being used to pay HMRC.

And they will use a BR code to ensure that HMRC chase you up for the Income Tax you haven't paid them - heck it wouldn't surprise me if the agency paid just the (employer and employee NI) and left the worker to pay all the income tax that was now due themselves...

As for an obvious counter - you are going to have to spell it out because unless I've missed something in the year I've been thinking about the new world I don't see any counter beyond don't do outside IR35 contracts.

The exposure is maximum 2 weeks work. Because on weekly terms if the first invoice isn't paid in full on the second week then you quit.

On the other point, let's say you successfully do a one year outside IR35 contract and Hector comes knocking a year or more later? A lot can happen in the intervening year or more.

Apologies if I seem incredulous here, the risk to me seems slightly different, but not really more than it was under old IR35. Any case, probably enough for now.

[Fred Bloggs]

They don't pay your directly. The agency run a deemed payment payroll and pay anything that isn't due to HMRC to your company for your company to pay to you directly as your salary. It just requires an optional field on the RTI file.

And the great thing is that the VAT rules are determined so they can happily take your £10000 invoice for the month, deduct all £1000 to cover historic tax bills and pay you the £2000 in VAT.

Understood. So like I said, second week you quit.

[eek]

The exposure is maximum 2 weeks work. Because on weekly terms if the first invoice isn't paid in full on the second week then you quit.

On the other point, let's say you successfully do a one year outside IR35 contract and Hector comes knocking a year or more later? A lot can happen in the intervening year or more.

Apologies if I seem incredulous here, the risk to me seems slightly different, but not really more than it was under old IR35. Any case, probably enough for now.

Nope the exposure isn't 2 weeks - it's from the day you start work to the day the end client pays the agency for your first week / months work. And that may be 4 months after you started work assuming the end client has 90 day terms.

The fact you find it incredulous just means you are now in the position both me and James Brown were in a year ago when we heard about the "simplification" and both went - you what.......