Inside/outside tax turning into another Loan Charge debacle?

[eek]

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

How do you quit in week 2 when you start an "outside IR35" contract on say April 1st 2022 and get presented with the "appealed" inside IR35 determination on July 28th 2022. (first invoice sent on May 1st, 90 day terms means payment by July 29th).

And this only covers scenarios 1 and 2. How do you quit after 2 weeks when the HMRC comes calling in March 2023 and asks the end client for the tax on your outside IR35 contract that HMRC feel is inside.

[Fred Bloggs]

How do you quit in week 2 when you start an "outside IR35" contract on say April 1st 2022 and get presented with the "appealed" inside IR35 determination on July 28th 2022. (first invoice sent on May 1st, 90 day terms means payment by July 29th).

And this only covers scenarios 1 and 2. How do you quit after 2 weeks when the HMRC comes calling in March 2023 and asks the end client for the tax on your outside IR35 contract that HMRC feel is inside.

Thanks for taking the trouble to explain. That's enough for now.

Best regards.

[ShandyDrinker]

Crikey. Go out for a few hours and see quite a few replies.

The other thread that was linked to https://forums.contractoruk.com/acco...r-outside.html is certainly interesting and initially seemed to cover the specific case when a contract went from outside to inside.

However, I can certainly see the link between the 2 and I'd completely forgotten about the whole debacle of a client changing status later on. I do like to look on the bright side and believe that many clients truly believe they are doing the right thing in involving the likes of QDOS in the SDS process. However, I still think that, as many others seem to, if HMRC comes knocking that many will quickly fold, regardless of any policies they may have with QDOS because they don't want to suffer the reputational risk, even if it's the agencies and ultimately the poor contractor that will get stung.

While I really want to believe I can still work in outside IR35 contracts, I agree with others that the harsh reality is that unless it's under chapter 8 rules outside, the risk under the new chapter 10 rules are more than they were under chapter 8. At least under chapter 8 the contractor was more in control. Under chapter 10, third parties can really screw you over.

I still think that what beggars belief is that this legislation was supposed to push the liability up the contract chain whereas in reality, it is typical Great Britain where the little guy will ultimately carry the tax liability without having the authority to influence what's going to happen. In my opinion the only way to even consider chapter 10 contracting is to open a new company for each contract and close once done but that could be quite an additional admin burden and carry its own challenges.

While I'd like to support more local clients, the sad reality is that for the coming few years, until this plays out, it will probably pay me to continue to work with city based clients who seem to accept the reality and be upping their rates on inside contracts accordingly.

If agencies, clients and fee-payers are being advised by HMRC to maintain liability transfer clauses, then chapter 10 contracting may well kill off limited company contracting for good. It's only going to take a few very public and high profile cases to bring private sector clients (as has happened with MOJ, NHS Digital, DWP, and so on) into line before we see the true extent of the fallout.

[eek]

Crikey. Go out for a few hours and see quite a few replies.

That's because this conversation was less stress than the other options:

1) an international marketplace categorically saying they don't see the need for umbrellas when they both use umbrellas (I have the evidence) and don't understand the need for them (heck you are British so you should know how the local labour market works even if you are in sales).
2) some actual coding that is more annoying than I hoped it would be.

If agencies, clients and fee-payers are being advised by HMRC to maintain liability transfer clauses, then chapter 10 contracting may well kill off limited company contracting for good. It's only going to take a few very public and high profile cases to bring private sector clients (as has happened with MOJ, NHS Digital, DWP, and so on) into line before we see the true extent of the fallout.

That may not be HMRC's corporate policy - it just happens to be the advice their workers are given when the fee payer asks htf will they pay the bill they've just been presented with.

[ShandyDrinker]

That may not be HMRC's corporate policy - it just happens to be the advice their workers are given when the fee payer asks htf will they pay the bill they've just been presented with.

This is the crux of the matter. The liability should always belong to the client and not the fee payer.

This is typical of legislation in Britain. You can't punish business so someone else has to carry the can. In a similar manner to all other western democracies, there has been a taxation trend to reduce corporate taxes and push as much of the burden onto individuals as possible. I see the poor implementation of the off-payroll rules of just another example of that.

[eek]

This is the crux of the matter. The liability should always belong to the client and not the fee payer.

This is typical of legislation in Britain. You can't punish business so someone else has to carry the can. In a similar manner to all other western democracies, there has been a taxation trend to reduce corporate taxes and push as much of the burden onto individuals as possible. I see the poor implementation of the off-payroll rules of just another example of that.

2 things need to be fixed

1) SDS determinations need to be provided prior to work beginning (as was the case with the public sector reforms). There is no reasons why the determination needs to be later.
2) Responsibility for paying the tax should be determined based on when within the contract the tax is being requested. If the contract is still in place then the fee payer is responsible.
If however, the tax payment is retrospective due to an incorrect determination than the end client should be responsible for the tax due not the fee payer.

As you say HMRC have managed to merge 2 very different things (collecting the tax due on payment and collecting historic tax that hasn't been paid) together and they need to be completely separated.

[Keanu2020]

Crikey. Go out for a few hours and see quite a few replies.

I still think that what beggars belief is that this legislation was supposed to push the liability up the contract chain whereas in reality, it is typical Great Britain where the little guy will ultimately carry the tax liability without having the authority to influence what's going to happen. .

This.

I think most people who saw coverage on Inside / Outside IR35 thought it made the world safer and liabilbly sat elsewhere now. Its the inability to control or influence anything, yet own all the risk, that feels most unfair about how this is put together.

[Keanu2020]

A couple of points I picked up on this when going through this (note, it is just what I experienced and not necessarily right or tested legally in anyway):

1. When the determination was changed retrospectively, then it was taken back to first principles. Meaning you were inside as an Individual and your ltd became a moot point. Closing ltd down or anything like that won’t remove the personal tax bill that’s coming, as the view was your ltd was never part of the arrangement.
2. I don’t follow the whole down tools, paid weekly, minimum risk point. It can happen years later and be for the whole tax liability.
3. When unwinding the arrangement and changing the status from outside to inside, a lot of it came down to how PAYE rules work. It will surprise no one that this is not joined up with IR35 rules (although IR35 rules seems to be a lose term as there seems to be no real rules or clarity!)

As an example, going back to first principles means you had your ltd and were an employee there when you started the now determined inside gig, hence dual employment and hence a 20% BR tax code. Trying to unwind it back years later and after tax years closed to set that straight is not going to be easy. I doubt this is by design though, its just how PAYE rules work and are not joined up.

[Keanu2020]

I think most people who saw coverage on Inside / Outside IR35 thought it made the world safer and liabilbly sat elsewhere now. Its the inability to control or influence anything, yet own all the risk, that feels most unfair about how this is put together.

The fact you have no real insight as well into how diligent the client was in its determination is also not helpful. There is a lot of questionable behaviour client side in the rush to try and get talent. It’s not malicious, they just don’t really understand IR35 and under pressure to get results. As the ltd, you would get an SDS, be told its outside, and it would all look good. You won’t see they re-ran the SDS 172 times to get the ‘right’ answer and recruiter was main person advising them.

Oh, and recruiters on the other hand, I think they know exactly what they are doing.

But ultimately, if you can just pass it all back to the contractor, why would anyone else in the chain care what the right answer is?

[eek]

[SIZE=16px]The fact you have no real insight as well into how diligent the client was in its determination is also not helpful. There is a lot of questionable behaviour client side in the rush to try and get talent. It’s not malicious, they just don’t really understand IR35 and under pressure to get results. As the ltd, you would get an SDS, be told its outside, and it would all look good. You won’t see they re-ran the SDS 172 times to get the ‘right’ answer and recruiter was main person advising them.

Oh, and recruiters on the other hand, I think they know exactly what they are doing.

But ultimately, if you can just pass it all back to the contractor, why would anyone else in the chain care what the right answer is?

And there is the problem - but most people aren't aware of it yet because there has only been 1 case so far (yours) and few people are aware of it.

Worse the 3 people who are probably most aware of the actual end result are all on this forum and don't have to explain the real reality to the rest of the world (in my case fixing how umbrellas show their compliance is way more important for multiple reasons).