IR35 tax loss insurance - yes or no?

[malvolio]

I'm saying what you pay yourself is largely irrelevant to getting investigated, but there is a school of thought that says NMW or £5.3k is a good pointer to Herctor to take a look. I disagree, I think it is much more to do with poor record keeping, late or erroneous returns, big changes in payment structure year on year and the like. Behave yourself, be consistent and hit all the deadlines and you minimise the risk of Hector taking a look.

Secondly, penalties will not apply if you show you tried to ascertain your position vis-a-vis any taxation, not just IR35, even if you lose against HMRC. You will only be liable for back tax and interest. Even then, HMRC will quite often reduce that - in the Arctic case for example, they are only after one year's worth (about £7k, which makes you wonder why they are spending over £0.5m of our money on the House of Lords appeal)

Thirdly the people who insure you against the back tax first make sure they are 99.99% certain never to have to pay out by only taking on defensible IR35-safe contracts.

Fourthly, there have been over 2000 contested cases, 3 have been lost, and all three arguably were winnable given proper representation.

Finally, if you lose an IR35 case, it's your house at risk, not the company's money. It is by definition a personal tax.

So all in all, ill-informed nonsense. Join the PCG, get PEI for free (and cheaper PI/PLI/ELI come to that) and learn how it really works. Then give advice.

[Vito]

Where did you get the info on how many contested cases have been lost and the details behind them that lead you to believe they were winnable?

I would also like to point out that I didn't give advice...I merely suggested the fella who raised the initial question look into it as an alternative to taking insurance...

[THEPUMA]

Finally, if you lose an IR35 case, it's your house at risk, not the company's money. It is by definition a personal tax.

That is simply untrue. It is the company's liability.

[Pondlife]

That is simply untrue. It is the company's liability.

If this is the case why is the 'stupid box' on the self assesment form?

TIA

PL

[malvolio]

That is simply untrue. It is the company's liability.

I thought you were an accountant. It is a personal liability, that the company should have paid on your behalf under PAYE rules. If you falsely declare your tax status on the SA form, how is it the company's liability to pay your miscalculated taxation?

I see - a new IR35 avoidance strategy. Ignore it and declare the company bankrupt if the debt falls due?

[THEPUMA]

Read point 1.10 of the attached link. The whole reason for the new debt transfer rules was that HMRC were unable to collect from the director/shareholder.

http://www.hm-treasury.gov.uk/media/...0207_pu185.pdf

It is the company's responsibility to determine its IR35 status. An individual does not have an IR35 status.

[Lewis]

Read point 1.10 of the attached link. The whole reason for the new debt transfer rules was that HMRC were unable to collect from the director/shareholder.

http://www.hm-treasury.gov.uk/media/...0207_pu185.pdf

It is the company's responsibility to determine its IR35 status. An individual does not have an IR35 status.

Just read link ... points 1.10 and 1.11 - so does that mean in the new MSC world, that if you are not an MSC you can just close down in the event of a potential IR35 loss to avoid paying tax? Surely that's too easy!

[THEPUMA]

Just read link ... points 1.10 and 1.11 - so does that mean in the new MSC world, that if you are not an MSC you can just close down in the event of a potential IR35 loss to avoid paying tax? Surely that's too easy!

HMRC can only recover taxes from an employee if the employee knew that their employer had wilfully failed to deduct tax when the payments were made. I think HMRC have found that IR35 is sufficiently ambiguous that that burden of proof has been unenforceable.

However, if you did it part way through an IR35 investigation, that may be pushing your luck and as I said earlier, notwithstanding the above, there are strong tax incentives to leave surplus cash in the company.

[Lewis]

HMRC can only recover taxes from an employee if the employee knew that their employer had wilfully failed to deduct tax when the payments were made. I think HMRC have found that IR35 is sufficiently ambiguous that that burden of proof has been unenforceable.

However, if you did it part way through an IR35 investigation, that may be pushing your luck and as I said earlier, notwithstanding the above, there are strong tax incentives to leave surplus cash in the company.

THEPUMA, you seem very knowledgable and helpful. What is your take on tax loss insurance? I believe I am outside IR35 and have had an independent contract review which agrees. I have taken out IR35 legal fees and tax loss insurance, all of which can be cancelled with a pro-rate refund. I 100% want the legal fees cover but am suddenly not so sure about tax loss part. Is it so unlikely I will have to claim on tax loss to be not worth paying for (£250 p/yr) or are there any other relevant points you can think of? Many Thanks Lewis

[Vito]

HMRC can only recover taxes from an employee if the employee knew that their employer had wilfully failed to deduct tax when the payments were made. I think HMRC have found that IR35 is sufficiently ambiguous that that burden of proof has been unenforceable.

However, if you did it part way through an IR35 investigation, that may be pushing your luck and as I said earlier, notwithstanding the above, there are strong tax incentives to leave surplus cash in the company.

So...assuming that I am not lucky enough to be able to afford leave cash in my company (or prefer to invest it elsewhere), and as such remove it via quarterly dividends...and assuming that my Accountant and Tax Specialist has advised me that my current contract is IR35 friendly (and as such consider my 'employer' to be acting correctly in the issue of dividends)...and assuming I have taken out insurance to cover the cost of any investigation...then I am safe from having to pay back any money resulting from a lost case?

I am in no way endorsing this as a tax dodge (as I said, I am assuming in this scenario that reasonable lengths have been gone to in order to ensure the contract is IR35 friendly and that the company is acting correctly) but it does remove some of the worry that one day the tax man could come knocking on my door and take 'my house'...lets face it, over a period of 6 years (which I seem to think is the amount of time they can go back over) it could be a significant hit and given the ambiguous nature of IR35 it could happen to innocent folk.