IR35 review

[Zero Liability]

It depends on who they viewed as the end client, but I guess they'd go for the party most favourable to winning their case.

The reviewer's view was that although the firm is operated in all respects as a ltd company, and the trappings of contracting are there, it's to do with how HMRC would view PPI as a bank project, i.e. something they resort to contracting for because they can't cope the rise in costs by employing permanent staff to do it, even if it is short term in nature, which is what he said would make it difficult to argue a case not to be treated as inside IR35. If it was the service firm in question, there would be no prospect of this because complaint handling is not something they'd ordinarily handle. So the risk involved is basically who is treated as the end client.

It's a considerable loss of prospective income, but I'd rather lose expected income than be investigated and suffer penalties on income I've already put to use. So all the downsides of contracting with none of the upsides, other than the higher than usual day rate. I'm just surprised by how few contractors I work with even seem bothered about getting this reviewed.

[TheFaQQer]

It depends on who they viewed as the end client, but I guess they'd go for the party most favourable to winning their case.

The reviewer's view was that although the firm is operated in all respects as a ltd company, and the trappings of contracting are there, it's to do with how HMRC would view PPI as a bank project, i.e. something they resort to contracting for because they can't cope the rise in costs by employing permanent staff to do it, even if it is short term in nature, which is what he said would make it difficult to argue a case not to be treated as inside IR35. If it was the service firm in question, there would be no prospect of this because complaint handling is not something they'd ordinarily handle. So the risk involved is basically who is treated as the end client.

It's a considerable loss of prospective income, but I'd rather lose expected income than be investigated and suffer penalties on income I've already put to use. So all the downsides of contracting with none of the upsides, other than the higher than usual day rate. I'm just surprised by how few contractors I work with even seem bothered about getting this reviewed.

If you fail the IR35 review, and accept that you are inside, then why not declare yourself inside for this contract and pay the right tax and NI?

Negotiate that into the new rate at renewal.

[Zero Liability]

I accept that I'd have a hard time arguing the case if HMRC were to deem the bank as the end client. I plan on instructing my accountant to prepare the accounts as inside IR35, so as to arrive at the correct tax/NIC liabilities, I just wanted to get some thought here on the implications of a failed IR35 review with respect to working practices. As it looks rather bleak, I think the answer is pretty clear.

As for negotiating a better day rate to reflect it, I'll certainly approach the agency to see what can be done about that upon renewal. The contract is still better than anything else going on the market at present within my reach. Do you have any advice as to how to go about this?

[malvolio]

I accept that I'd have a hard time arguing the case if HMRC were to deem the bank as the end client. I plan on instructing my accountant to prepare the accounts as inside IR35, so as to arrive at the correct tax/NIC liabilities, I just wanted to get some thought here on the implications of a failed IR35 review with respect to working practices. As it looks rather bleak, I think the answer is pretty clear.

As for negotiating a better day rate to reflect it, I'll certainly approach the agency to see what can be done about that upon renewal. The contract is still better than anything else going on the market at present within my reach. Do you have any advice as to how to go about this?

With difficulty. The rate for the job is the rate for the job. Your personal tax doesn't come into it. Why would it?

[LisaContractorUmbrella]

It isn't the contract that is at issue, it's the 'working practices' based on the questionnaire that was sent, and the reviewer's view of how the PPI contracts are being handled, based on whether HMRC decide to treat the bank as opposed to the service firm (the agency's client, in consultation with which I provide services) as my end client. I'm still waiting for the final document from B&C to confirm their findings in writing. The contract itself is quite clear on ROS and MOO.

This is the difference between a contract that has been written to fall outside IR35 and working practices which clearly don't. You can write what you like on a piece of paper and call it a contract but if you are investigated by HMRC they will look at what happens in reality. If you have been brought in to help out with PPI claims then that would suggest there was already a team working on them and therefore you are doing the same job, in the same way, at the same place as a permie.

[Zero Liability]

Right, so would measures like a Confirmation of Arrangements be useless in this instance? As mentioned earlier, the reviewer basically said the risk lies with who HMRC chose to view as the end client, i.e. the consultancy/professional services firm or the bank (which is their end client), with the former being very challenging to establish as a case of part & parcel, simply because PPI complaint handling is nowhere near their ordinary scope of operations. He stated it is at their discretion whom they choose to include in the investigation.

Also, looking at this from a risk POV, what actually sets off an investigation? From what I've read, HMRC randomly selects small number of firms (figure I read was 1/1000) and also targets firms with irregularities in their tax returns, or other blatantly obvious issues, even including their name. So how many firms would they catch out in a year usually?

[LisaContractorUmbrella]

Right, so would measures like a Confirmation of Arrangements be useless in this instance? As mentioned earlier, the reviewer basically said the risk lies with who HMRC chose to view as the end client, i.e. the consultancy/professional services firm or the bank (which is their end client), with the former being very challenging to establish as a case of part & parcel, simply because PPI complaint handling is nowhere near their ordinary scope of operations. He stated it is at their discretion whom they choose to include in the investigation.

Also, looking at this from a risk POV, what actually sets off an investigation? From what I've read, HMRC randomly selects small number of firms (figure I read was 1/1000) and also targets firms with irregularities in their tax returns, or other blatantly obvious issues, even including their name. So how many firms would they catch out in a year usually?

The end client will be the company that you are actually performing the work for so, in this case, the bank. HMRC investigations can be triggered by anything but from next year you will need to declare IR35 status on your SA and, if you declare yourself to be outside, you will be obliged to substantiate it.

At the end of the day if you are not risk averse then take a chance but make sure that you have more than the tax that would be owed had you worked inside available in your war chest should HMRC come calling

[northernladuk]

Also, looking at this from a risk POV, what actually sets off an investigation? From what I've read, HMRC randomly selects small number of firms (figure I read was 1/1000) and also targets firms with irregularities in their tax returns, or other blatantly obvious issues, even including their name. So how many firms would they catch out in a year usually?

Is that information really enough for you to take a chance and not do things properly?

[Zero Liability]

What would be your view on a CoA from the bank then?

but from next year you will need to declare IR35 status on your SA and, if you declare yourself to be outside, you will be obliged to substantiate it.

Is this a change that is being introduced? If so, do you know when will be applied from? Are there any links on it? It is unlikely my contract will receive another extension beyond July 2014, and I plan to seek out other client projects in the meanwhile anyway, preferably not PPI related.

[Zero Liability]

Is that information really enough for you to take a chance and not do things properly?

It isn't, and that's not my intention, since HMRC could well ramp up its investigations and target them to include the sort of contract I am on, but I'm trying to get an appreciation of the figures involved here, and what they look for specifically for their targeted investigations.