Contract has been retrospectively declared inside IR35

[consultMe]

I (through my limited company) am contracted to a consultancy and the consultancy provides a managed service to an end client. At the end of last year the consultancy stated they had worked with the end client and that my role would be outside of IR35. I went through an SDS process with QDOS and that resulted in the view that I was outside IR35. On that basis I signed the contract until the end of this month.

My contract is not based on a daily rate but on deliverables so I don’t invoice/receive payments on a regular monthly basis but more ad-hoc. However, I have received some payment from the consultancy since April, and my company has paid me my salary and made PAYE and VAT payments to HMRC.

A few days ago the end client has stated that my role is, after all, inside IR35 and that this is effective from the beginning of last April. Accordingly, the consultancy want to make arrangements to pay me on a PAYE basis. This involves making retrospective adjustments to the invoice payments that have already made this financial year meaning they will recoup the tax &NI from what I have already received and adjust this month’s PAYE payment to me. My invoice was for a substantial sum so it’ll blow out my tax free allowance and have other impacts if they do this.

If I had known this would have been an inside role then I would not have signed up for it in the first place. I can maybe reluctantly accept that once the end client had made their determination that going forward from that point I would have to carry on an inside basis (or have walked). It just seems really unfair that I signed a contract and the consultancy wants to just ignore those terms and conditions.

Maybe fairness is too much to expect in what we do. I’m going through an appeals process for my status determination but I suspect it won’t be changed. I think the consultancy won’t push the client too hard as they want to keep the client sweet. So I’m walking but it leaves me with a real mess to clean up my company and personal income since April.

I’m interested to know what others think but I’m more interested in getting some pointers on who I can potentially take this further with to try and establish whether I can do something about this or whether I just have to take it all on the chin. My accountant can’t help but maybe some kind of lawyer, tribunal service, collections agency etc?

[SussexSeagull]

A tricky one that I am sure others will offer better advice than I can, but doesn't the fact he is being paid on delivery have a massive bearing on it?

Regardless I would be extremely annoyed, especially as they are trying to change their mind retrospectively.

[LondonManc]

I'd get in touch with QDOS immediately if I were you.

[northernladuk]

I went through an SDS process with QDOS and that resulted in the view that I was outside IR35. On that basis I signed the contract until the end of this month.

When you say you went through the SDS process with QDOS did this involve the client or did you just self answer all the questions with QDOS help? Was the result an SDS from the client agreeing or was it that you and QDOS decided between yourselves that you were outside? The latter isn't an SDS as it should be, it's a self determination.

IMO this is key and your explaination is a little wooly. It's key because if you did a proper SDS the client should stand by it and can't apply inside retrospectively. You've both worked outside to the SDS in good faith. Obviously if the client wasn't involved then you've not followed the process properly and the client is within their rights to apply it retrospectively. As Eek has stated, the current process is that the determination can be made up to the first payment (or something along those lines). It's madness as it has the distinct possibility of creating this exact scenario.

So my thoughts are, if you have a proper SDS from the client stating outside then they cannot retrospectively apply inside. If you did not then the client can rightfully decide even at this late stage that the gig is inside and can force all that income from April to be taxed as inside.

It also opens another question about what to do if the client did state outside and now wants to change it mid contract which we've never encountered before.

[northernladuk]

A tricky one that I am sure others will offer better advice than I can, but doesn't the fact he is being paid on delivery have a massive bearing on it?

Regardless I would be extremely annoyed, especially as they are trying to change their mind retrospectively.

Indeed. Obviously there is further discussion to be had about why the client is saying inside when the OP is being paid adhoc to milestone deliverables but first the OP needs to getting to the bottom of what SDS's has been agreed with and with who.

[consultMe]

Yes, I acknowledge that I might be being a bit woolly as I was trying to be brief.

I received a letter from the consultancy that I'm contracted to saying that they are an outsourced supplier and are deemed the end client of my company so would be responsible for determining my status. There was a bit of woolliness in the letter but I got the impression that they had agreed this with their end client. I then received an email from QDOS (on the consultancy's instigation, not mine) to complete an IR35 assessment in their 'Status Review' portal which I duly did and eventually got notified that the assessed status (outside) was agreed and signed-off by the consultancy.

The end client (the client of the consultancy) for some reason decided to do a CEST assessment a couple of weeks ago and came up with the inside status.

[consultMe]

Although I am paid by milestones I don't know what the terms are between the consultancy and the end client. I suspect I am charged out at a daily rate and the first quarter payment by the end client has not been made yet.

[TheGreenBastard]

Do you have evidence of work / signed timesheets for your ongoing work?

Onus is on the end client, I suspect anything paid can be deemed outside, liability for tax due to wrong determination is on the end client. The problem is, future invoices will be caught by IR35.

Collect all correspondence/evidence and stick to your guns regarding tax status of paid invoices prior to them trying to retrospectively apply inside determination. Do not be "fair" regarding this, make it non-negotiable, they're screwing you over.

I'd do the above, maybe take outstanding invoices being inside IR35 on the chin, and leave immediately (depending on your circumstances).

[northernladuk]

I received a letter from the consultancy that I'm contracted to saying that they are an outsourced supplier and are deemed the end client of my company so would be responsible for determining my status. There was a bit of woolliness in the letter but I got the impression that they had agreed this with their end client.

OK and bearing in mind the comment lower down that the end client waded in to this I'd go back to the consultancy and ask exactly what is going on? They said they'd do it and now they say they say it's not them. Find out exactly why they think it's not them. I would also contact QDOS and get their take on it. Why did they not pick up the consultancy might not be the end client? Also ask QDOS if they think this new chain is correct. Can the end client be the one that dictates the status.

Need to get every step very clear here. Why is consultancy no longer making the determination and what does QDOS think about this.

I then received an email from QDOS (on the consultancy's instigation, not mine) to complete an IR35 assessment in their 'Status Review' portal which I duly did and eventually got notified that the assessed status (outside) was agreed and signed-off by the consultancy.

The end client (the client of the consultancy) for some reason decided to do a CEST assessment a couple of weeks ago and came up with the inside status.

So, already covered above, but you need to find out why the end client is doing CEST and why does their SDS trump the consultancy and if this is even true.

Get the situation with the consultancy and get back to QDOS pronto. They could also be on the hook here if they've gone through their process with the wrong party. It could be they say the consultancy is the end client in their mind and you could be clear and free if you can convince the consultancy.

But... and hopefully Eek or another poster that knows this new situation better than me will chirp in.... the SDS can be made anytime up to the first payment in which case the only problem you have is the consultancy giving you a status incorrectly. If this is the situation I think you've got a good case for getting compensation from them for the time worked.... but nothing else as the new determination has been made for going forward.

I think you've a bit of ringing around to do.

[consultMe]

Yes, I have signed timesheets.

I am due to raise my final invoice next week when my existing contract ends. I perhaps should have left immediately I was informed about the change in status but I didn't as I was a bit shell shocked. The trouble is the consultancy has said they will not be paying invoices going forward. Rather they will pay me on PAYE terms but also they will deduct fro this what I would have paid in PAYE/NI on the invoice already paid since April. I don't even know what salary they will use, I expect it will be based on the total cost of all the deliverables divided by the number of days in the contract). So it's hard for me to play hard ball as I don't have anything to negotiate with.