IR35 defeat costs IT contractor £99,000

[malvolio]

When I closed ASBCo down I had this discussion with our accountants. Their view was that since HMRC have approved the closure they have no ability to reopen it for any sort of investigation whatsoever. I then said but what about an investigation into me for IR35. They said their belief was that they would not be able to do that due to the way status has to be determined.

Hmmm... You can't close the company without HMRC approval, which will not be forthcoming if they think an aspect enquiry is warranted, which it will be if you keep setting up and closing companies. So it is a defence for maybe three iterations. Once they start an enquiry, they can potentially re-examine any other contracts since they will also be looking at unpaid income tax. It doesn't have to be an IR35 enquiry...

[THEPUMA]

Hmmm... You can't close the company without HMRC approval, which will not be forthcoming if they think an aspect enquiry is warranted, which it will be if you keep setting up and closing companies. So it is a defence for maybe three iterations. Once they start an enquiry, they can potentially re-examine any other contracts since they will also be looking at unpaid income tax. It doesn't have to be an IR35 enquiry...

It makes no difference. You don't have to close the company down. You may have an ongoing company with no assets. HMRC still can't recover them from you personally in normal circumstances.

And you don't necessarily need HMRC approval to close down a company. They have to not object, which is different to giving approval. If you go down the capital route, they give approval but this is from the CT district and therefore IR35 is unlikely to even be considered. Certainly, I've never had any queries on it when closing down a contractor company.

[IR35 Avoider]

No, absolutely not. IR35 is a personal tax, not a corporate one, it's merely paid by the company on your behalf. The whole point is that the company is a fiction, isn't it.

Employers NI is not a personal tax and cannot be passed to the individual (except maybe if he is so obviously caught that he has been negligent as a director in not paying it.)

Also, there are rules that can prevent unpaid salary bills from being passed from employers to employees, and these apply in IR35 cases as well. HMRC cited these rules as one of the reasons for introducing the MSC legislation. People who were clearly IR35-caught could not be personally made to cough up, and the MSC provider would just let the MSC go broke without paying and start a replacement overnight. (I think if you have made your IR35 decisions in good faith then these rules may prevent the bill being passed to you, even if your decisions were wrong. Of course without heavy-duty support such as PCG membership might bring, people won't know this, so will just pay up.)

I've said before in these forums, given that there is always uncertainty associated with any IR35 decision, maybe contractors should start a different company for every contract. This is normal sound commercial practise, to isolate risks in this way. (By every contract I don't mean just one company per client, but one for each year at each client, say. After all, contract wording and working practises may not be the same from year to year.)

I've never seen anyone else suggest this as a strategy, so it may be rubbish. I would really be interested to hear comments from the accountants.

Edit: I should read the whole thread before posting, I see ThePuma has already commented about the (lack of) ability to pass the bill to the individual.

[IR35 Avoider]

And he got paid a minimum hunber of hours, even if there was no work to do.

Whatever made him believe he had a chance?

I read this as him being the same as every other contractor I've ever known; expected to come in for X hours per week, and no chance you won't be paid your standard weekly hours because of a temporary shortage of work.

Did you see the bit where the special commissioner said that the existence of a notice period implies that you will be paid for your standard hours, even if there is no work?

I read this as meaning that anyone with a notice period is caught, or at least has a strong indicator against him.

HMRC have always said MOO must apply on a day-to-day basis, meaning that unless the client is free to tell you from day-to-day whether or not you're wanted tomorrow, you are caught. (I'm not saying they're right - just stating their position - I've never bothered to become an expert on the criteria.)

[VectraMan]

Elsewhere in the SC's ruling, it was found that there was not a time during Mr Bessell’s work at AA when “he took a holiday at a seriously inconvenient time for the project on which he was engaged."

That points to control does it?

[Ardesco]

That points to control does it?

Madness TBH.

So we now have to seriously inconveniance our clients to be outside IR35??? How do they think we as businesses are going to get any work if we do this?

[ASB]

That points to control does it?

Yes. wonderful world we live in isn't it.

Practice sound management (i.e. don't piss the client off) and they are in control, giving strong caught indicator.

Manage your business to actively piss off client and this is a not caught indicator. But probably largely irrelevant since it is very likely an ex-client by this time.

[BoredBloke]

The whole thing is designed to make us unattractive to the end client. So you either work as you would normally, trying to get renewals and repeat work but get taxed via IR35 or you act like an @rse and get to keep a bigger percentage of fecc all. I think I see the governments thinking. WHat I can't understand is why nobody is jumping up and down about this. Yes the guy had pointers which looked similar to employment, but those which would obviously not point to employment were completely ignored.

[BrilloPad]

The whole thing is designed to make us unattractive to the end client.

and then the end client can use Accenture! sorted...

[Denny]

Yes. wonderful world we live in isn't it.

Practice sound management (i.e. don't piss the client off) and they are in control, giving strong caught indicator.

Manage your business to actively piss off client and this is a not caught indicator. But probably largely irrelevant since it is very likely an ex-client by this time.

That pretty much sums it up.