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Inside/outside tax turning into another Loan Charge debacle?

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    Inside/outside tax turning into another Loan Charge debacle?

    We are beginning to see ripples of the potential disaster appearing now, but this article is highlighting it.

    https://www.contractoruk.com/news/00...e_madness.html

    This quote in particular
    There are instances of companies using contrived Status Determination Statements backed up by insurance policies that won’t actually pay out, leading contractors in to a risky situation as they are not challenging an incorrect determination, and then carrying on not paying the right amount of taxes, because they believe the employer will cop the bill, or the insurance policy will cover their debt.

    “It really isn’t becoming of a government department to hand out lengths of rope with which taxpayers can hang themselves. So HMRC needs to shape up very quickly here, or there will be another Loan Charge-type disaster looming for contractors,” Ms Walsh said.
    "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...

    #2
    Originally posted by cojak View Post
    We are beginning to see ripples of the potential disaster appearing now, but this article is highlighting it.

    https://www.contractoruk.com/news/00...e_madness.html

    This quote in particular
    Why do you think I'm focussed very much on protecting umbrella workers and pointing out how risky an "outside" IR35 contract actually is?
    merely at clientco for the entertainment

    Comment


      #3
      Seen client side perm staff highlighting the insurance products to protect the org myself.

      Comment


        #4
        I think this is such an important thread and should be the hot topic among contractors now so I do find the lack of active discussion quite odd.

        As someone who has recently been in the situation of having a choice between a local outside IR35 contract paying x or a city based inside IR35 contract paying approximately 45% more I found it intriguing the approach taken on the outside contract. While fundamentally I would obviously prefer the outside contract, it isn't a case of taking one at any cost.

        While many clients and agencies are patting themselves on the backs for offering outside IR35 contracts, I don't believe they are without risk. My issue with the outside contract is twofold:
        1. Both myself and the client complete surveys for which an SDS is then provided by QDOS - in this case an outside determination. At this point many people would probably think brilliant, I'm covered in the event that HMRC storms in and says all client determinations are wrong. The client has taken out a policy with QDOS which will apparently cover them and the contract chain in the event that HMRC investigates.
        2. The agency retains the usual chapter 8 tax/NIC liability clauses meaning they aren't responsible for contractor tax/NICs. However, these should be removed or changed as under chapter 10 they are realistically no longer required as if the contract is determined as inside by HMRC, tax/NIC liability should fall further up the food chain. The agency refuses to remove these.
        If you ignore the fact that I have the choice between the much higher paying inside contract for a moment, the outside contract is still pretty risky for the contractor to take on. It is my understanding that HMRC did advise clients/agencies to retain tax/NIC liability transfer clauses in the event that determinations are wrong and someone has to carry the can.

        Although I can't find it again, I recently read a piece that effectively stated if the client can prove they've done they're due diligence, such as working with QDOS to provide an outside status determination, then the tax/NICs liability will lie with the fee-payer (agency in this case) hence why they are so keen to keep the liability transfer clauses in place. In this instance, the policy taken out by the client may well not cover the liabilities and surprise surprise, the contractor is on the hook via the contract clauses. While the legality of these clauses does need to be tested in court, they exist nonetheless. There could be substantial stress for someone years down the line for a status determination which they have little control over and even less when clients roll over due to reputational risk of being accused as being tax dodgers by HMRC.

        While I may be painting an unnecessarily downbeat picture, while I believe it is great that clients are proactively trying to maintain outside IR35 statuses for their contractors, I think that contractors are ironically now at a greater risk than they ever have been as any organistations which assess large numbers of contractors as outside IR35 will now be the first targets for investigation by HMRC.

        I am curious to know if others have had similar arguments with agencies about removing clauses since chapter 10 came into force or does no-one give a toss and will sign any old tulip put in front of them?
        Last edited by ShandyDrinker; 19 February 2022, 14:37.

        Comment


          #5
          You might have missed this thread. https://forums.contractoruk.com/acco...r-outside.html
          "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...

          Comment


            #6
            I don't think you are painting an unnecessarily downbeat picture. More discussion here:

            https://forums.contractoruk.com/acco...r-outside.html

            Comment


              #7
              Originally posted by jamesbrown View Post
              I don't think you are painting an unnecessarily downbeat picture. More discussion here:

              https://forums.contractoruk.com/acco...r-outside.html
              +2

              I'm in the middle of responding to a post on linkedIn regarding Umbrellas but it all comes down to the same issue - agencies seek to maximise profits and minimise risk. Here it's claw back clauses, for umbrella's its using an umbrella to ensure the contract remains outside Agency Regulations.

              In this case the problem we know about (and everyone else is oblivious to) is that there are only 2 parties who can decide and control whether a contract is inside IR35 and that is 1 of the end client or the contractor. And both the decision, risk and bill needs to sit with 1 or the other and not with anyone in the middle.
              merely at clientco for the entertainment

              Comment


                #8
                Apologies for being slow on the uptake here. To be clear, the potential IR35 tax risk to an outside IR35 contractor is due to the tax liability clawback clauses in the agency to contractor contract? Or something else I am not seeing? Thanks.
                Public Service Posting by the BBC - Bloggs Bulls**t Corp.
                Officially CUK certified - Thick as f**k.

                Comment


                  #9
                  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...)
                  "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...

                  Comment


                    #10
                    Originally posted by Fred Bloggs View Post
                    Apologies for being slow on the uptake here. To be clear, the potential IR35 tax risk to an outside IR35 contractor is due to the tax liability clawback clauses in the agency to contractor contract? Or something else I am not seeing? Thanks.
                    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 - just the clause being used to recover the money.

                    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 issued
                    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....
                    Last edited by eek; 19 February 2022, 15:34.
                    merely at clientco for the entertainment

                    Comment

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