Contract has been retrospectively declared inside IR35

[ComplianceLady]

Um, any statute, law, case law or anything else to actually back that up?

As far as I'm aware every rate I'm seeing for inside IR35 contracts are Umbrella / Assignment rates where Employer NI / Pension / Apprenticeship Levy / Holiday Pay is rolled up into a single figure.

Chapter 10 of ITEPA states the PAYE regs apply, which state that costs for the employer must be on top of. You're talking about employed solutions i.e. umbrella. The rate quoted to the worker is min wage in those assignments - that's what's in the contract, the advertised gross rate has no bearing as the worker signs a contract with the umbrella for minimum wage.

In a true inside IR35 role i.e. deemed employment payment then the rate must be exclusive of employers NIC's. As this has already been quoted and the client is reliant on switching to an inside IR35 payment mechanism they can't retrospectively reduce the rate

[eek]

Chapter 10 of ITEPA states the PAYE regs apply, which state that costs for the employer must be on top of. You're talking about employed solutions i.e. umbrella. The rate quoted to the worker is min wage in those assignments - that's what's in the contract, the advertised gross rate has no bearing as the worker signs a contract with the umbrella for minimum wage.

In a true inside IR35 role i.e. deemed employment payment then the rate must be exclusive of employers NIC's. As this has already been quoted and the client is reliant on switching to an inside IR35 payment mechanism they can't retrospectively reduce the rate

I would suggest you find HMRC's education team then, as that doesn't reflect their Feb / March workshops... Nor anything in the current marketplace.

Heck even Hays has started to use something called an enhanced payment rate to allow them to add holiday pay into their advertised rates.

[ComplianceLady]

I would suggest you find HMRC's education team then, as that doesn't reflect their Feb / March workshops... Nor anything in the current marketplace.

Heck even Hays has started to use something called an enhanced payment rate to allow them to add holiday pay into their advertised rates.

There is no real 'inside IR35 marketplace' - I worked through thousands of assessments and converted contractors and ended up with 1 contractor working inside IR35. We offered them a new contract on a rate that took account of the new costs in the chain. All the remaining who were told 'you will be assessed as inside IR35 if you continue' opted to terminate their limited co. contract and accept a new contract via umbrella, the advertised rate didn't change, the amount we paid to the umbrella didn't change, but the contractual rate with the worker changed to minimum wage plus 'commission'. Advertised rates aren't the same as the contractual rate. Inside IR35 is rare. Umbrella is not. Inside IR35 will always have employer costs taken off the rate in the contract.

In this instance the client can't do that, their only option is to either deduct from the payment to the worker OR add them on. Deducting employer costs from the payment to the worker is illegal and doesn't generally happen. What does happen is murkiness around the 'rate' - is it the pay rate or the contracting rate or the gross rate etc. In this instance the worker benefits from there being no murkiness, the rate is already agreed and either when paying the client deducts employer costs or they don't. If they do it is very clearly illegal.

[jamesbrown]

In this instance the client can't do that, their only option is to either deduct from the payment to the worker OR add them on. Deducting employer costs from the payment to the worker is illegal and doesn't generally happen. What does happen is murkiness around the 'rate' - is it the pay rate or the contracting rate or the gross rate etc. In this instance the worker benefits from there being no murkiness, the rate is already agreed and either when paying the client deducts employer costs or they don't. If they do it is very clearly illegal.

I'm not sure it's that clear cut. Mistakes can be made in contracts and corrected and that can lead to contractual dispute and litigation, of course. But there isn't automatic illegality w/r to the PAYE regs if the originally quoted rate was a mistake and they now want to correct that mistake.

[eek]

There is no real 'inside IR35 marketplace' - I worked through thousands of assessments and converted contractors and ended up with 1 contractor working inside IR35. We offered them a new contract on a rate that took account of the new costs in the chain. All the remaining who were told 'you will be assessed as inside IR35 if you continue' opted to terminate their limited co. contract and accept a new contract via umbrella, the advertised rate didn't change, the amount we paid to the umbrella didn't change, but the contractual rate with the worker changed to minimum wage plus 'commission'. Advertised rates aren't the same as the contractual rate. Inside IR35 is rare. Umbrella is not. Inside IR35 will always have employer costs taken off the rate in the contract.

In this instance the client can't do that, their only option is to either deduct from the payment to the worker OR add them on. Deducting employer costs from the payment to the worker is illegal and doesn't generally happen. What does happen is murkiness around the 'rate' - is it the pay rate or the contracting rate or the gross rate etc. In this instance the worker benefits from there being no murkiness, the rate is already agreed and either when paying the client deducts employer costs or they don't. If they do it is very clearly illegal.

And yet in this example that isn't happening and because the OP hasn't got IPSE membership no one is going to go and bat for him.

Which means what you are posting is once again the ideal world and not reality because as you don't seem to have noticed you posted what anyone sane would do which is they walk away or they use an umbrella (and use I know ALLL the issues that relate to umbrellas).

What I find interesting is that you are arguing theory with one of the real IR35 experts on this site - and one how attended the HMRC seminars and forced HMRC to agree that what they were proposing (which is exactly what is happening to the OP) was 100% correct for tax but 100% incorrect as regards to law.

The simple reality is that you are talking about theory and theory does not in the case match reality. So I would love to know how you propose the OP fixes the forthcoming issue that his next 2 payments are going to be taken to pay the tax the inside IR35 status has resulted in needing to be paid. Could you tell us how he should go about doing so as I know an employment tribunal will not accept the case?

[ComplianceLady]

And yet in this example that isn't happening and because the OP hasn't got IPSE membership no one is going to go and bat for him.

Which means what you are posting is once again the ideal world and not reality because as you don't seem to have noticed you posted what anyone sane would do which is they walk away or they use an umbrella (and use I know ALLL the issues that relate to umbrellas).

What I find interesting is that you are arguing theory with one of the real IR35 experts on this site - and one how attended the HMRC seminars and forced HMRC to agree that what they were proposing (which is exactly what is happening to the OP) was 100% correct for tax but 100% incorrect as regards to law.

The simple reality is that you are talking about theory and theory does not in the case match reality. So I would love to know how you propose the OP fixes the forthcoming issue that his next 2 payments are going to be taken to pay the tax the inside IR35 status has resulted in needing to be paid. Could you tell us how he should go about doing so as I know an employment tribunal will not accept the case?

What I was suggesting was about the real world - point out to the consultancy that they cannot deduct ER NIC's from the contractual rate. They need to change his rate or pay it on top. Point to the illegality of deducting it. The consultancy may not care (nor may the client) but there's every chance they will care, they'll realise they waited too long and whilst anything going forward can be done under a new rate they can't change it retrospectively.

If they deduct use the claims court. I'm not suggesting the tax doesn't need to be paid and I know HMRC's view - their view is not law and that doesn't give the client carte blanche to change the rate or allow them to deduct costs they aren't legally allowed to deduct.

The contractor is able to bat for himself and I'm not sure why you're suggesting he doesn't push back? It's got feck all to do with IR35 really - the client is going to break the law, just telling them that may make them re-think.

[ComplianceLady]

I'm not sure it's that clear cut. Mistakes can be made in contracts and corrected and that can lead to contractual dispute and litigation, of course. But there isn't automatic illegality w/r to the PAYE regs if the originally quoted rate was a mistake and they now want to correct that mistake.

Yeah I get that - but will the client? If he explains that they can't take the deduction and won't agree to a change in rate will they say - apologies that rate was an error - or will they back off or deduct anyway. The interesting thing is if they don't change the rate and just deduct, which is what I suspect they'll do. Then it becomes illegal.

[eek]

What I was suggesting was about the real world - point out to the consultancy that they cannot deduct ER NIC's from the contractual rate. They need to change his rate or pay it on top. Point to the illegality of deducting it. The consultancy may not care (nor may the client) but there's every chance they will care, they'll realise they waited too long and whilst anything going forward can be done under a new rate they can't change it retrospectively.

If they deduct use the claims court. I'm not suggesting the tax doesn't need to be paid and I know HMRC's view - their view is not law and that doesn't give the client carte blanche to change the rate or allow them to deduct costs they aren't legally allowed to deduct.

The contractor is able to bat for himself and I'm not sure why you're suggesting he doesn't push back? It's got feck all to do with IR35 really - the client is going to break the law, just telling them that may make them re-think.

What version of Chapter 10 of ITEPA are you using? As the current version is not available online and the only version I can find is the 2017 version where IR35 status had to be determined prior to work beginning rather than the new 2021 when status can be determined up to the moment the end client makes their first payment.

Put it this way - the only person out of the IR35 experts on this forum that seems to think a law has been broken is you - my viewpoint is that I cannot see if the law has been broken as the go to version of the legislation Income Tax (Earnings and Pensions) Act 2003 (legislation.gov.uk) is telling me that it's out of date and it's this exact area where the changes are being made.

And again how do you use the claims court for what is actually an employment issue? We both know that the end client / agency should be paying the difference for the period where the OP thought he was outside but the reality is no court is going to go near it as it immediately crossing into another courts remit (which I suspect was HMRC's entire aim here).

[northernladuk]

There is no real 'inside IR35 marketplace' - I worked through thousands of assessments and converted contractors and ended up with 1 contractor working inside IR35. We offered them a new contract on a rate that took account of the new costs in the chain. All the remaining who were told 'you will be assessed as inside IR35 if you continue' opted to terminate their limited co. contract and accept a new contract via umbrella,

Did you make it clear to them all the time they've spent at the client will now be considered inside and they are at risk of retro inspection?

[jamesbrown]

Yeah I get that - but will the client? If he explains that they can't take the deduction and won't agree to a change in rate will they say - apologies that rate was an error - or will they back off or deduct anyway. The interesting thing is if they don't change the rate and just deduct, which is what I suspect they'll do. Then it becomes illegal.

At this point, it has probably been flagged as a flustercluck and, assuming they have legal staff (it can't be a small company, afterall), those staff are probably involved by now. The balance of power is firmly with the supply chain above the PSC in these situations, I'm afraid.