HMRC IR35 complaints ignored for 7 months and counting

[plannercontractor]

Hello

Would appreciate if someone can tell me how to approach this.

I am a contractor with a former Ltd. company working for a local authority, got caught by IR35 last year and wrote to the HRMC in February to complain about a few things but mainly that my recruiting agency did nothing to compensate for the loss of earnings (my rate of pay stayed the same after IR35), they also controlled which umbrella company I could use by saying my preferred one was HMRC incompliant and that I should use one off their own list (their emails sent to me was provided to the HMRC in my complaints), unfair employer NI deductions, apprenticeship levy deductions (I have my own student loan of over £20k but I'm still funding apprentices to be debt free).

In shocked desperation, I used money saved to pay corporation tax and now have a £1100 S455 tax bill. I also paid personal liability tax of £913, £445 PAYE and have to pay £7000 in corporation tax with £2,250 still due in an agreement with the HMRC. I was the sole employee of my Ltd. company which made a profit of £36.690 in 18 months of trading. I also paid £1400 in self-assessment in that time (mainly due to student loan repayments).

The last tax year (working under a brolly), I earned £39,900 for 47 weeks of work but my umbrella income before tax was only £32,800 and my take home was only £23,500. I asked the HMRC for clarifications before I can take my recruiter to a tribunal but 7 months later I am still waiting with no acknowledgement or response. My calling cost to the HMRC is well over £150 since March with an average call time of over 40 mins each time, lots of unanswered calls and false promises of a call back from managers or my case worker, who was identified by a HMRC agent but has never been in touch since February. I even managed to get her email address and have cc'd her in emails to my MP and recruiter but she has never answered or acknowledged them.

I am not sure what to do as I don't think that the HMRC is neither interested or care about my complaints and I feel that since IR35, I have been doubled taxed. I have been exploring the option of insolvency to get some fairness out of this since I am unable to pay my corporation tax as a direct result of loss of earnings caused by IR35. I have recently been offered a permanent role with the local authority (not yet in post) and the salary they have offered is more than what I earned last year before tax and after umbrella deductions. I feel I am entitled to some compensation from my recruiter and/or the HMRC whom I have asked to write off the rest of my debts of CT (just over £2k). The HMRC ignorance and lack of consideration is indeed shocking and I feel powerless to challenge them.

Any help/advice would be great.

Thanks in advance.

[NotAllThere]

Do not deal with HMRC yourself. Get an experienced accountant to do it.

Working for a brolly, employer's NI and the apprenticeship levy fee will come out of the fee that the umbrella company charge the agency. That's normal and not unfair. Any umbrella company that's legitimate works in the same way. See here: https://forums.contractoruk.com/umbr...yers-ni-2.html

Your issues with your agency and umbrella company are of no interest to HMRC. Quite rightly, it's nothing to do with them, and there's nothing they can do about it.

It is possible to end up double taxed if you don't do your accounts properly. Do you have an accountant?

Given the information you've provided, I really think it unlikely you've a case against anyone. Your problems are caused by your own lack of understanding and confusion. You need to go an see a professional, experienced accountant.

[WTFH]

my recruiting agency did nothing to compensate for the loss of earnings (my rate of pay stayed the same after IR35),

That's an issue between you and your agent. HMRC do not agree or negotiate your rate with your agent, you do.

they also controlled which umbrella company I could use by saying my preferred one was HMRC incompliant and that I should use one off their own list (their emails sent to me was provided to the HMRC in my complaints),

That's an issue between you and your agent. HMRC do not dictate which umbrella you use or if you go Ltd.

unfair employer NI deductions, apprenticeship levy deductions (I have my own student loan of over £20k but I'm still funding apprentices to be debt free).

That's an issue between you and your umbrella company. HMRC did not force you to sign with them, nor did they agree the contract.

I'm sorry, but HMRC are not a support organisation for contractors. Organisations like IPSE might have been able to help and advise you at the start to review your contract, on here would could have advised you about umbrella companies, etc. But it's a bit late for that now.

HMRC do not owe you any compensation for the contract you agreed with your agent. Your best bet on reducing costs is seeing what your accountant can do in tidying up your figures. Your accountant (and we) would also advise that when you contact HMRC you do so by email or letter, not by phone, that way you have a written record of what was said. If HMRC respond, it will be in writing, never just by phone, again that way you have evidence of what was said.

Your fight should be with your agent and umbrella company - check what you signed up to in the contracts. Also make sure that your accountant has gone through your figures correctly.

Sorry if that isn't what you wanted to hear.

[plannercontractor]

Hi and thanks for your prompt response. Yes, I have accountants, in fact a very pretigious company which wasn't cheap. They're still working on closing my Ltd. company although I stopped paying them since last year, the contract I signed dictates that they must assist me in shutting down the company. All my figures came from them.

The thing is regardless of whether the HMRC can help me or not, as a taxpayer I have made a formal compliant to them since February and it's been allocated to one of their caseworkers. So out of common courtesy, decency and duty, they should provide me with a response. I'm in this mess partly due to them as they did not put in place a mean for people like me who were operating through a ltd. company and who got caught by IR35.

They have very vague guidance about whose responsibility it is to pay NI employer contributions for pre-IR35 contractors who did not get their pay uplifted. I have a mortgage that I was paying comfortably before April 2017 and has since been struggling to pay due to loss of earnings which I never expected. They can also confirm that my preferred umbrella doesn't comply with them and whether agencies can force contractors to go with umbrellas off their list of suppliers. Like I said, I have a tribunal case pending against my agency, these confirmations from the HMRC would help me argue a better case.

[northernladuk]

Hello

I am a contractor with a former Ltd. company working for a local authority, got caught by IR35 last year and wrote to the HRMC in February to complain about a few things but mainly that my recruiting agency did nothing to compensate for the loss of earnings (my rate of pay stayed the same after IR35), they also controlled which umbrella company I could use by saying my preferred one was HMRC incompliant and that I should use one off their own list (their emails sent to me was provided to the HMRC in my complaints), unfair employer NI deductions, apprenticeship levy deductions (I have my own student loan of over £20k but I'm still funding apprentices to be debt free).

You are a business. It's up to you to negotiate an increase to compensate. Unlikely to happen as most PS are on strict rate cards so difficult to get an uplift but it's not unknown. The loss you are complaining about is your tax situation, why would the agency care?

Having an agreed set of umbrella's is common. They get kick backs from them but they'll say they've done their diligence on them and they are only prepared to work with them. Some of them are OK so shouldn't be an issue.

I guess everyone thinks tax is unfair but it is what it is. Dem's da rulez.

In shocked desperation, I used money saved to pay corporation tax and now have a £1100 S455 tax bill. I also paid personal liability tax of £913, £445 PAYE and have to pay £7000 in corporation tax with £2,250 still due in an agreement with the HMRC. I was the sole employee of my Ltd. company which made a profit of £36.690 in 18 months of trading. I also paid £1400 in self-assessment in that time (mainly due to student loan repayments).

Where is your warchest? You went from a very well remunerated LTD set up to a still pretty well paid inside IR35 job. How come one change and you are on your back. Either way that's your cash flow issue. No one elses.

The last tax year (working under a brolly), I earned £39,900 for 47 weeks of work but my umbrella income before tax was only £32,800 and my take home was only £23,500. I asked the HMRC for clarifications before I can take my recruiter to a tribunal but 7 months later I am still waiting with no acknowledgement or response. My calling cost to the HMRC is well over £150 since March with an average call time of over 40 mins each time, lots of unanswered calls and false promises of a call back from managers or my case worker, who was identified by a HMRC agent but has never been in touch since February. I even managed to get her email address and have cc'd her in emails to my MP and recruiter but she has never answered or acknowledged them.

That's HMRC for you. Not sure what you want us to say. That said you have an employer now and they should be clarifying exactly what is on your time sheet. HMRC are just collecting tax.

And exactly why do you think you can take you recruiter to a tribunal. I can't work out if you are just too angry to see the wood for the trees or there is a questionable level of naivety going on here.

I am not sure what to do as I don't think that the HMRC is neither interested or care about my complaints and I feel that since IR35, I have been doubled taxed. I have been exploring the option of insolvency to get some fairness out of this since I am unable to pay my corporation tax as a direct result of loss of earnings caused by IR35.

Well at last you got something right. HMRC gather tax from whatever situation you work under. Why would they be interested in anything else? You didn't have to stay.

Believe me, insolvency isn't the option. You'll never recover from that and have a horrible time trying to get basic stuff like mortgages, bank accounts etc. I'm erring on the naivety line the more I read.

I have recently been offered a permanent role with the local authority (not yet in post) and the salary they have offered is more than what I earned last year before tax and after umbrella deductions. I feel I am entitled to some compensation from my recruiter and/or the HMRC whom I have asked to write off the rest of my debts of CT (just over £2k). The HMRC ignorance and lack of consideration is indeed shocking and I feel powerless to challenge them.

Why do you think you are entitled to compensation. The authority makes the decision not the recruiter and they just process the gig as they have been told to. They also pay the Umbrella the same as they paid you so what have they done? You've gone through a brolly which means a lot more tax. Why do you think the recruiter owes you money? That's just silly.

Write of your debts.. Jeez.. this is getting ridiculous now.

Any help/advice would be great.

Thanks in advance.

One of the main benefits of contracting is we have the flexibility to pick and chose the gigs we do. You have all that choice but you've decided to stay and get yourself in this situation. That's all on you. If you don't like the terms of the gig, i.e. inside IR35 then don't take it. You could get involved with IPSE+ and join the campains on LinkedIn etc but really it wouldn't have made any difference.

Many many contractors, including myself, left the PS when the changes came in, partly to stick it to them and their stupid rules but mainly for income reasons. Why didn't you do your homework on how it affected you financially and then leave. Why are you a year down the line and struggling with all this?

Leave, get an outside gig, tighten your belt and pay your debts off? Doesn't seem that complicated and with a bit of time you'll sort your financial issues out.

[northernladuk]

Just noticed. Should you really be contracting on gigs paying 40k a year? Sounds more like temping territory than contracting. What do you do and what is your day rate?

[plannercontractor]

Thanks for your input everyone and yes it seems that I have been really very naive over this but I maintain that the HMRC cannot just choose to ignore a complaint from a taxpayer. They should response even to say that they can't help, it's the least I expect from them.

To answer northernladuk question, I am a town planner for a local authority in London with 5 years experience since graduating. I started the job on a fixed-term contract which paid a reasonable salary and gave me 32 days holiday (plus BH) a year; however when the fixed term contract ended in 2015, I was told that I was still needed but there was no other alternative but to work through an agency, since there was a recruitment freeze on.

To be on par with what I was getting in salary and paid holidays, I was advised to go through my own ltd. company rather than an umbrella on £25ph. I am not a typical contractor and do not like moving from job to job, I like the place and the people I worked with and was happy with the workload, so I stayed put and went to set up my own ltd. company. This paid me more than I got on a fixed-term contract and I was able to save for holidays etc. to compensate.

When IR35 kicked in, I asked for a perm role but was told that the recruitment freeze was still on and eventually when this was uplifted, it started from the top by recruiting managers, principals, seniors etc. So I had to wait my turn which only happened recently. I was in this job for the long-run and when I got the fixed term contract, I had hoped that it would soon turn into a perm role. So contracting was the only way I could keep a roof over my head and feed myself, and had it not been for the recruitment freeze, I would have steered well away from it but I had no choice as I was happy where I was. Call me old fashion but job satisfaction is more important than making more money and I absolutely hated my previous (first qualified) job and wanted to avoid a similar situation at all cost.

The research I have done include this statement from a credible contractor support website "while the contractor rightly expects to receive the quoted rate, the employment costs, including employer’s NI, must first be funded from the sum paid to the umbrella, leaving the contractor far short of their expected income. This could be construed as a legal misrepresentation, rendering the consequent deduction of the client’s or recruiter’s employment costs unlawful".

It goes on to state that “The umbrella margin and employer’s NI are overheads that need to be factored into the overall assignment rate - in addition to the advertised pay rate,” comments Julia Kermode, chief executive of the Freelancer and Contractor Services Association (FCSA).“FCSA’s position on this has always been very clear; people should not be charged for receiving their wages, nor should they be paying employer’s NI.”

Even further to mention that "Section 7 of HMRC guidance published online in March 2017 states the following concerning NI payments: ‘They [the fee payer] cannot lawfully deduct the secondary NICs from a fee that has been agreed, but could, depending on the contractual terms, negotiate a lower fee [with the intermediary]."

Corporation tax issues aside, which was highlighted to the HMRC to show that my director's loan was as a result hardship caused by IR35 and to ask that the S455 tax be refunded to contribute towards the CT payment. I have asked the HMRC to confirm the above quotes and to confirm if my preferred umbrella is not compliant with their guidelines as stated by my agency. Their answers would help me decide whether or not open a case against my agency at the tribunal.

I happened to be contracting out of force rather than choice as I did not want to change job after the fixed term contract ended. To say the HRMC is inculpable of this is unbelievable as they introduced PS IR35 to capture incompliant employers but the result has been more devastating to agency employees who have taken huge pay cuts with most employers refusing to increase rates to compensate, so the tax avoidance by employers has been futile and has just been shifted to the employee instead. I took out a mortgage in December 2016 on an average monthly income of just under £3,000 but by April 2017 my monthly income was just above £2,000, a loss of nearly £800 a month. When I told the bank that I was still in the same job, they didn't believe me without proof.

Can you imagine a situation whereby the government says that employees must suddenly meet both NI contributions, pay apprenticeship levy and save for holidays and sick pay out of their previously agreed salary? There would be an outcry and the HMRC would have to change the tax system to compensate. So why is this acceptable for someone who can only stay in their job through contracting as a result of recruitment freezes by the public sector with public organisations then going through the backdoor to recruit agency staff to cut cost when they clearly need the staff?

This is only being done to relieve themselves from paying their fair share to the HMRC, it's exploitation allowed by the HMRC and it is morally wrong. HRMC is not a law in itself, it exists due to taxpayers and it should allow a fair playing field when it comes to paying tax, they set the tax system and has a responsibility to ensure that it's fair for all!

[northernladuk]

Thanks for your input everyone and yes it seems that I have been really very naive over this but I maintain that the HMRC cannot just choose to ignore a complaint from a taxpayer. They should response even to say that they can't help, it's the least I expect from them.

Maybe so but would you actually be happy if they did. Judging by the length of this post I very much doubt it... so onwards..

To answer northernladuk question, I am a town planner for a local authority in London with 5 years experience since graduating. I started the job on a fixed-term contract which paid a reasonable salary and gave me 32 days holiday (plus BH) a year; however when the fixed term contract ended in 2015, I was told that I was still needed but there was no other alternative but to work through an agency, since there was a recruitment freeze on.

Hmmm I think I can see where this is going.

To be on par with what I was getting in salary and paid holidays, I was advised to go through my own ltd. company rather than an umbrella on £25ph.

Oh dear... It's only worth going through a LTD if you are outside IR35. You are clearly doing your old full time roll under a different remuneration method. Text book Friday Monday contractor. You would have need to account as inside IR35 so the savings of being LTD wouldn't have been all that much compared to the umbrella.

Did you account for yourself as INSIDE IR35??

I am not a typical contractor and do not like moving from job to job,

Then you are not a contractor at all.

I like the place and the people I worked with and was happy with the workload, so I stayed put and went to set up my own ltd. company. This paid me more than I got on a fixed-term contract and I was able to save for holidays etc. to compensate.

Oh dear. This is where your problem lies. You should have been inside so not so much extra.

When IR35 kicked in,

For you it should have never gone away. You were inside from the off.

I asked for a perm role but was told that the recruitment freeze was still on and eventually when this was uplifted, it started from the top by recruiting managers, principals, seniors etc. So I had to wait my turn which only happened recently. I was in this job for the long-run and when I got the fixed term contract, I had hoped that it would soon turn into a perm role. So contracting was the only way I could keep a roof over my head and feed myself, and had it not been for the recruitment freeze, I would have steered well away from it but I had no choice as I was happy where I was. Call me old fashion but job satisfaction is more important than making more money and I absolutely hated my previous (first qualified) job and wanted to avoid a similar situation at all cost.

Fair enough.

The research I have done include this statement from a credible contractor support website "while the contractor rightly expects to receive the quoted rate, the employment costs, including employer’s NI, must first be funded from the sum paid to the umbrella, leaving the contractor far short of their expected income. This could be construed as a legal misrepresentation, rendering the consequent deduction of the client’s or recruiter’s employment costs unlawful".

It goes on to state that “The umbrella margin and employer’s NI are overheads that need to be factored into the overall assignment rate - in addition to the advertised pay rate,” comments Julia Kermode, chief executive of the Freelancer and Contractor Services Association (FCSA).“FCSA’s position on this has always been very clear; people should not be charged for receiving their wages, nor should they be paying employer’s NI.”

Even further to mention that "Section 7 of HMRC guidance published online in March 2017 states the following concerning NI payments: ‘They [the fee payer] cannot lawfully deduct the secondary NICs from a fee that has been agreed, but could, depending on the contractual terms, negotiate a lower fee [with the intermediary]."

Dunno about all that. Someone who knows about that will come along shortly I guess.

Corporation tax issues aside, which was highlighted to the HMRC to show that my director's loan was as a result hardship caused by IR35 and to ask that the S455 tax be refunded to contribute towards the CT payment.

Not their problem. You can get the S455 back anyway can't you? You'll have to wait a bit though.

I have asked the HMRC to confirm the above quotes and to confirm if my preferred umbrella is not compliant with their guidelines as stated by my agency. Their answers would help me decide whether or not open a case against my agency at the tribunal.

Do a search on here with the name of the brolly. You should be able to find some information on them to give you an idea. We've called out a few not nice ones and commented on others that aren't so bad.
Search by putting the following in google.
<brolly name> site:forums.contractoruk.com

I happened to be contracting out of force rather than choice as I did not want to change job after the fixed term contract ended. To say the HRMC is inculpable of this is unbelievable as they introduced PS IR35 to capture incompliant employers but the result has been more devastating to agency employees who have taken huge pay cuts with most employers refusing to increase rates to compensate, so the tax avoidance by employers has been futile and has just been shifted to the employee instead. I took out a mortgage in December 2016 on an average monthly income of just under £3,000 but by April 2017 my monthly income was just above £2,000, a loss of nearly £800 a month. When I told the bank that I was still in the same job, they didn't believe me without proof.

You should have been inside the entire period.

Can you imagine a situation whereby the government says that employees must suddenly meet both NI contributions, pay apprenticeship levy and save for holidays and sick pay out of their previously agreed salary? There would be an outcry and the HMRC would have to change the tax system to compensate. So why is this acceptable for someone who can only stay in their job through contracting as a result of recruitment freezes by the public sector with public organisations then going through the backdoor to recruit agency staff to cut cost when they clearly need the staff?

This is only being done to relieve themselves from paying their fair share to the HMRC, it's exploitation allowed by the HMRC and it is morally wrong. HRMC is not a law in itself, it exists due to taxpayers and it should allow a fair playing field when it comes to paying tax, they set the tax system and has a responsibility to ensure that it's fair for all!

Have you tried running your day rate through calculators such as this one
https://www.contractorumbrella.com/calculator.html
CU is a well respected firm on here so I'd trust their numbers.. so much so I was with them for a short while. Problem with these calculators is they don't take in to account any other earnings so not sure the result is all that accurate. Maybe Lucy from CU could comment.

What happened about the money when you went contracting? Did they offer you a day rate? What was it. It's extremely difficult to work out what a day rate is vs permie role so has something gone wrong here?

[northernladuk]

Did the agency not offer you PAYE though them?

When you were with the LTD were you paying yourself low wage and dividends? I'm guessing so as that is the only way there would be spare money for the loan and to need corp tax?

[lucyclarityumbrella]

To answer northernladuk question, I am a town planner for a local authority in London with 5 years experience since graduating. I started the job on a fixed-term contract which paid a reasonable salary and gave me 32 days holiday (plus BH) a year; however when the fixed term contract ended in 2015, I was told that I was still needed but there was no other alternative but to work through an agency, since there was a recruitment freeze on.

First problem, doing a job that is probably also a permie role within the local authority - always would have been seen as an "employee" so more than likely have always been inside IR35 - just that the onus on who decides it has changed.

As they have all said, if you had done the research, you would have seen the difference between umbrella and Ltd take home, and it is then your choice as to whether you take it and accept it, negotiate a rate increase or walk away.

HMRC will not care about your current role as they are getting the tax take they expect (assuming the brolly is calculating it correctly), the bigger problem is if you highlight this to them and they revisit the previous years and determine that these too shuld have been paid PAYE - that is likely to hurt more if they retrospective declare an inside IR35 verdict!

As for the umbrella making deductions from you, the umbrella should always explain that the rate you are give is the contract rate and employment costs must be met before your taxable salary is available - it is not determined that you are paying this and HMRC are very aware of how compliant brollies operate.

Simplest suggest - leave it be, and either look for a higher rate or another outside IR35 assignment. Sorry to be the bearer of bad news.