IR35 caught contactor wins holiday pay from HMRC

[ladymuck]

Bingo! It's a sticky wicket if CEST deems someone inside IR35 after they were previously operating outside.

On one hand HMRC can argue the case for IR35 back taxes, on the other the client may have to stump up employee rights compo.

I doubt the latter would offset the former from a contractor's financial perspective, so it my be better to keep quiet and carry on while gripping the pre-CEST contract review and insurance if HMRC come knocking.

That is going to be the next interesting evolution of this. HMRC has form in digging back into the archives to scrape a few quid together.

[malvolio]

There is proof out there that CEST gets it wrong in a huge proportion of cases. HMRC will not want its results testing in court; where it has been touched on, the usual response from the court was not favourable.

Susan's case rests on CEST saying she was inside. HMRC have said they will stick to CEST answers. However, if CEST is demonstrably wrong, there's a whole other can of worms to come...

[ladymuck]

...HMRC have said they will stick to CEST answers. However, if CEST is demonstrably wrong, there's a whole other can of worms to come...

Now that is a can I'd like to see opened. (Obvs those deemed outside by CEST may be less keen...)

[mudskipper]

There is proof out there that CEST gets it wrong in a huge proportion of cases. HMRC will not want its results testing in court; where it has been touched on, the usual response from the court was not favourable.

Susan's case rests on CEST saying she was inside. HMRC have said they will stick to CEST answers. However, if CEST is demonstrably wrong, there's a whole other can of worms to come...

Multiple experts felt Susan's "inside" assessment was wrong - see here, but there was no route to challenge it, which is why the 'holiday pay' route was the best.

"That same July, IPSE partner, Abbey Tax, assessed Susan’s working practices and found her engagement with HMRC was indicative of self-employment. IR35, therefore, should not have applied. In September, IPSE asked Travers Smith LLP – a leading corporate, financial and commercial law firm – to look at the paper work. They too said that the evidence clearly showed that the contract should be with Susan’s limited company, not Susan herself. A case was building. "

I wouldn't wish it upon her, but if HMRC did choose to go down that road, they'd be very likely to come off worse.

[fidot]

I wouldn't wish it upon her, but if HMRC did choose to go down that road, they'd be very likely to come off worse.

Completely agree about not wishing one on her.
Wouldn't a loss for HMRC in an IR35 case under these circumstances be a triple whammy as it would expose CEST's inadequacies and the lack of an appeal process (would they have to pay back the deductions already made?) on top of the normal loss.

[simes]

Completely agree about not wishing one on her.
Wouldn't a loss for HMRC in an IR35 case under these circumstances be a triple whammy as it would expose CEST's inadequacies and the lack of an appeal process (would they have to pay back the deductions already made?) on top of the normal loss.

Unless I have misunderstood, but there are already cases out there exposing CEST limitations incurring wins for the contractors bringing the case.

Or, if you're talking about Susan taking on this case, am pretty sure she couldn't otherwise this would nullify the holiday pay case.

Again, apologies if I have misunderstood.

[Hobosapien]

Indeed. Fight CEST if the client uses it to deem you inside IR35 and you think they are wrong. Accept CEST if it deems you outside IR35 and HMRC continue to stand by its decision.

[fidot]

Unless I have misunderstood, but there are already cases out there exposing CEST limitations incurring wins for the contractors bringing the case.

Or, if you're talking about Susan taking on this case, am pretty sure she couldn't otherwise this would nullify the holiday pay case.

Again, apologies if I have misunderstood.

Sorry if I wasn't clear. I am talking about HMRC coming after Susan for IR35 on the pre-April2018 contract (as suggested earlier in the thread). I am suggesting that it would be too risky for HMRC because a loss would be greater than a normal IR35 loss.

[simes]

Sorry if I wasn't clear. I am talking about HMRC coming after Susan for IR35 on the pre-April2018 contract (as suggested earlier in the thread). I am suggesting that it would be too risky for HMRC because a loss would be greater than a normal IR35 loss.

Ah, I see. Yes, quite.

That said, there is a case exemplified elsewhere of the HMRC having had a second bite at the one contractor cherry.

Having lost the first time, they had a second go. And lost a second time. Jensal Software.

It might be fun to see if they wanted a second go at Susan...

[plannercontractor]

I recently posted about a similar situation and from the responses I got, it looked like Susan's case stood no chance with the HMRC. I got similar responses to this post, like I should have been within IR35 from the beginning and the HMRC might come after me for unpaid tax, I should have packed in my job & leave when IR35 kicked in (since my rate of pay wasn't uplifted to factor that in) or that the HMRC didn't cause my situation but my employer did etc.

The way I see it is:

1. The HMRC has no grounds to come after anyone who was caught by IR35 from April 2017 since prior to that date, as the tax collector, they hadn't devised a system to classify how contractors/agency workers should pay tax when they aren't entitled to the same benefits as employees. Although this hasn't change much, they have confirmed, rather informally (since February 2018) that secondary NI contribution should be the responsibility of the agency or the client but this is indeed still unenforceable.

My agency advice was that being outside IR35 would be the best way to make up for not getting paid holidays, sick pay, pension etc. which is exactly what Susan's case proved, i.e. her umbrella rate made her salary almost comparable to employees except without employee benefits whereas her Ltd. Comp salary set her above other employees. In the sense that even after taking 4/5 weeks off a year, unpaid, her higher income settles that fact that she wasn't being paid whilst she was off, when compared to employees salary at her level. The holiday pay she received somehow put her back in a similar financial position she was in prior to IR35.

2. Also, despite many saying that this sets no precedent, I don't see how someone in exactly the same situation as Susan could be treated any differently (say this was another HMRC contractor) or how a court/tribunal case can just dismiss the outcome of events from hers. If they do, HMRC could be accused of discriminating between her and others.