HMRC decision tool: doubts about the selected answers, results, implications, ...

[jamesbrown]

So if you receive an erroneous outside determination from the tool which is subsequently investigated by HMRC and taken to tribunal which rules an inside status. Then:

1) Taxes would be due as if the engagement was inside?
2) The liability for paying the taxes would not rest with the contractor as the legislation has transferred that liability?
3) The liability for paying the taxes would not rest with the client because they could evidence that they took "due care" arriving at their determination?
4) The fee payer would be liable for any additional taxes owing?
5) If the fee payer had a contract with the contractor indemnifying themselves against any taxes owing from the engagement then they could try to pursue the contractor for the taxes owing? <-- not sure if this would stand up in court?
6) Is anyone else getting dizzy?

It isn't that complicated. The fee payer is ultimately liable, unless specific circumstances arise (e.g. the PSB failed to take reasonable care or didn't provide a timely determination or the PSC acted fraudulently in providing some critical information for the ESS). Sure, the fee payer could try to pursue the contractor for breach of contract, assuming there was one, but there probably wasn't. Anyway, with the PSB onside, it's unlikely to reach tribunal. The original question was about a change in status caused by a change in the ESS, and that would be an awkward situation at renewal, assuming the working practices hadn't changed.

[Finance]

How are they able to change the tool anyway? I thought all their IT contractors had left, or did some quislings stay?

[MeMeMe1966]

It isn't that complicated. The fee payer is ultimately liable, unless specific circumstances arise (e.g. the PSB failed to take reasonable care or didn't provide a timely determination or the PSC acted fraudulently in providing some critical information for the ESS). Sure, the fee payer could try to pursue the contractor for breach of contract, assuming there was one, but there probably wasn't. Anyway, with the PSB onside, it's unlikely to reach tribunal. The original question was about a change in status caused by a change in the ESS, and that would be an awkward situation at renewal, assuming the working practices hadn't changed.

I guess i'm struggling to get my head around this. A change in status because of a change in tool with no change to working practices. This to my mind means the possibility of a previous outside determination being false (I'm assuming the change to the tool is moving people into IR35 rather then outside). So if HMRC now have reason to believe that tax is due for the contract period before the renewal and are not bound by any promises to not investigate and are legally obligated to chase tax which is due then why wouldn't it get to tribunal? Even with the PSB onside?

I don't think I quite appreciated before before how much risk agencies are carrying here.

[cojak]

I don't think I quite appreciated before before how much risk agencies are carrying here.

And not just agencies - contractors are at risk as well.

We appreciated the risks but were accused of being 'too gloomy'

[jamesbrown]

I guess i'm struggling to get my head around this. A change in status because of a change in tool with no change to working practices. This to my mind means the possibility of a previous outside determination being false (I'm assuming the change to the tool is moving people into IR35 rather then outside). So if HMRC now have reason to believe that tax is due for the contract period before the renewal and are not bound by any promises to not investigate and are legally obligated to chase tax which is due then why wouldn't it get to tribunal? Even with the PSB onside?

I don't think I quite appreciated before before how much risk agencies are carrying here.

I don't think you are struggling, actually. I think you've followed through the logical consequences. You're right, it could get to tribunal, but the PSB is in an "at risk" situation w/r to claims of reasonable care if they backtrack on their earlier determination, so they are presumably standing by that determination. This is rather different than the situation of a disagreement between the PSC's earlier assessment and the PSB's current assessment (i.e. outside -> inside). Here, a PSC previously declared a contract to be outside, the WPs don't change on April 6 2017, the PSB subsequently declares it to be inside, and the contractor continues to work so that HMRC have a hook via the agency reporting regulations (or the PSB otherwise decides to inform HMRC under its statutory duty where it suspects tax avoidance). It's those cases that are more likely to be pursued urgently IMO. But you're right, anything could get to tribunal if HMRC disagrees with an assessment. They're likely to lose without the PSB onside though.

[MeMeMe1966]

I don't think you are struggling, actually. I think you've followed through the logical consequences. You're right, it could get to tribunal, but the PSB is in an "at risk" situation w/r to claims of reasonable care if they backtrack on their earlier determination, so they are presumably standing by that determination. This is rather different than the situation of a disagreement between the PSC's earlier assessment and the PSB's current assessment (i.e. outside -> inside). Here, a PSC previously declared a contract to be outside, the WPs don't change on April 6 2017, the PSB subsequently declares it to be inside, and the contractor continues to work so that HMRC have a hook via the agency reporting regulations (or the PSB otherwise decides to inform HMRC under its statutory duty where it suspects tax avoidance). It's those cases that are more likely to be pursued urgently IMO. But you're right, anything could get to tribunal if HMRC disagrees with an assessment. They're likely to lose without the PSB onside though.

Could it be argued that a PSB didn't exercise reasonable care if they faithfully entered true working practices into the much heralded HMRC tool and received two different answers?

If i was a PSB Director of HR, I would find the more defensible position would be to change my determination when the tool changes and continue to faithfully enter data into the tool rather than provide a continuing outside determination that I know is either false or at the very least no longer compliant with the tool.

As for contractor liability I guess a lot will hinge on the magic clause in contracts with agencies that states that the contractor indemnifies them against tax liabilities arising from the engagement. Unfortunately I didn't insist on the removal of this clause and am now signed up on an outside determination with this type of contract. I'm a bit worried. I am fairly confident though that my working practices are well outside IR35 based on case law and not just the tool (due to non-existent SDC), but I guess no one's safe in this brave new world until the dust settles.

[jamesbrown]

Could it be argued that a PSB didn't exercise reasonable care if they faithfully entered true working practices into the much heralded HMRC tool and received two different answers?

If i was a PSB Director of HR, I would find the more defensible position would be to change my determination when the tool changes and continue to faithfully enter data into the tool rather than provide a continuing outside determination that I know is either false or at the very least no longer compliant with the tool.

As for contractor liability I guess a lot will hinge on the magic clause in contracts with agencies that states that the contractor indemnifies them against tax liabilities arising from the engagement. Unfortunately I didn't insist on the removal of this clause and am now signed up on an outside determination with this type of contract. I'm a bit worried. I am fairly confident though that my working practices are well outside IR35 based on case law and not just the tool (due to non-existent SDC), but I guess no one's safe in this brave new world until the dust settles.

It's difficult to know what might constitute reasonable care, but I assume the use of the ESS might constitute reasonable care. OTOH, seeking professional opinion might constitute reasonable care more adequately. On your point about a PSB changing their determination when the ESS changes, I'm not arguing against that. Indeed, that's the difficult situation I mentioned. It could happen. If I were a contractor in those circumstances, I would move. On your point about transfer of liability, if the clause were written in a highly generic way, it probably wouldn't stand in that form, but it might be reinterpreted with the true intent in mind. That said, I doubt these clauses are ever likely to get exercised, especially in your situation. You know about IR35. You're confident that your WP are outside (and have presumably had these reviewed). You're ahead of the game.

[northernladuk]

You're ahead of the game.

I don't really think you can say that of anyone that's still buggering around with the PS at this stage.

[jamesbrown]

I don't really think you can say that of anyone that's still buggering around with the PS at this stage.

I think you can, if they're working outside with their eyes open (i.e. their own due diligence complete as well as PSB onboard, by definition) or working inside with a rate increase. Those people are in a better position than many numpties in the private sector that are completely clueless about IR35 and operate as BAU, BoS, permies. Stupidity doesn't discriminate between the PS and private sector, unfortunately.

[Andy Hallett]

And not just agencies - contractors are at risk as well.

We appreciated the risks but were accused of being 'too gloomy'

Even a broken clock will be right twice a day