Finance Bill 2019-20 draft legislation

[NeedTheSunshine]

Oh Lord, wasn't either. But, good effort.

No, I was asking, if in 2020, after April, one signs a contract which is deemed Inside IR35 and starts that contract on the given date, can one, a few months down the line, launch an investigation to turn that decision around to make it Outside IR35 and to claw back the tax?

Does starting an Inside IR35 contract prevent any possibility to later claw back tax if in fact, it turns out the working conditions are exactly those pertaining to being Outside?

How would you go about doing that?

[northernladuk]

How would you go about doing that?

You would open a dispute with your client... and clients love disputes with contractors....

[jamesbrown]

Oh Lord, wasn't either. But, good effort.

No, I was asking, if in 2020, after April, one signs a contract which is deemed Inside IR35 and starts that contract on the given date, can one, a few months down the line, launch an investigation to turn that decision around to make it Outside IR35 and to claw back the tax?

Does starting an Inside IR35 contract prevent any possibility to later claw back tax if in fact, it turns out the working conditions are exactly those pertaining to being Outside?

It's possible, but extremely unlikely (why would the client change their mind or do anything to support you?), and you won't get back any NI - that is lost forever.

[webberg]

Thinking out aloud a little here. If a contractor is deemed inside but the contractor can prove they are outside; say a lack of MOO (they were binned when the project was cancelled/completed). What's to stop the contractor getting an 'IR35 Expert' in for a fixed percentage to win an appeal for them? - Either via client appeals process or via the courts (I'm not sure what courts would deal with this). I'm not suggesting that employment rights, holiday pay etc should be claimed but challenging the over taxation decision.

The contractor cannot "prove" they have an outside IR35 contract. All he/she can do is present evidence to a Judge and ask they Judge to make a decision.

That in turn depends on their actually being a dispute to bring to a tax Tribunal. I cannot see any grounds for that.

The system is that the end client makes a decision and its applied. If the contractor disputes that decision but the end client declines to change their mind, there is no appeal to any other body.

So the contractor completes a tax return saying he/she was in fact outside IR35 (that would have to be a white space declaration) and that the funds received should really be his PSC's - AND - he completes his PSC accounts as though this were the case, he/she risks enquiry into incomplete or inaccurate tax returns.

HMRC's case in Tribunal would be that he was inside IR35 and failed to declare and perhaps caused accounts to be completed that were knowingly wrong. That is penalty territory. Tribunals have been very reluctant to discuss substantive tax issues when the point at Tribunal is a penalty.

So at the moment I see no mechanism to get to a tax court so hiring a specialist might be pointless.

I suppose a Judicial Review is the next step. That process requires you to find a law that (in this instance) HMRC has failed to operate correctly or which it is incapable of operating fairly or competently. Now we know that HMRC can hardly be accused of competence vis a vis IR35 but in this case they are not responsible for operating it - the client co is.

So presently I think getting to a tax tribunal or a JR is going to require a bit more creative thinking.

[jamesbrown]

So presently I think getting to a tax tribunal or a JR is going to require a bit more creative thinking.

The PCG pursued a JR in 2001.

https://www.taxation.co.uk/Articles/...view-and-after

[webberg]

The PCG pursued a JR in 2001.

https://www.taxation.co.uk/Articles/...view-and-after

Yes they did because IR35 was new then and the challenge was about whether the legislation, cutting across what was then the Sch E/Sch D divide was effectively new tax law that Parliament has not voted for.

They lost.

What we call IR35 is now part of the law and all that is happening with the reform is to change how its is operated.

I suppose you could JR the end client for not operating it correctly - I suspect that is a brave shout.

You could perhaps JR the reform as now requiring end clients (no tax training, little competence) to operate the system. The case would be that a more competent body should do that. Not much mileage there are presently it's contractors making the decision and arguably they have fewer resources than client co and are of course conflicted.

Like I said we need to be more creative.

[simes]

It's possible, but extremely unlikely (why would the client change their mind or do anything to support you?), and you won't get back any NI - that is lost forever.

The client would not necessarily Have to do anything to support me, or any contractor.

In the same way that the HMRC currently opens cases against whom it feels appropriate, in the brave new world, the case opening will fall to the contractor, and the tax claw back would come from the HMRC.

So, if I have the above right, my question still stands. It might be that no one knows but, in the Private Sector, does anyone feel it likely, or possible, or not at all possible that this clause may be popped in the contract?

'You've started Inside, you'll finish Inside and there will be no route to investigate."

Either way, this whole thing is right bloody mess.

[jamesbrown]

You could perhaps JR the reform as now requiring end clients (no tax training, little competence) to operate the system. The case would be that a more competent body should do that. Not much mileage there are presently it's contractors making the decision and arguably they have fewer resources than client co and are of course conflicted.

Like I said we need to be more creative.

Indeed, I think that would be a very tough sell. Who is better placed than the client? Surely they know the WP better than anyone. I think you agree.

You can see this iteration of IR35 as the original intention in 1999, because it was, and then they decided against it.

I don't see any basis for a JR. As you say, the original JR was comprehensively lost.

[jamesbrown]

The client would not necessarily Have to do anything to support me, or any contractor.

In the same way that the HMRC currently opens cases against whom it feels appropriate, in the brave new world, the case opening will fall to the contractor, and the tax claw back would come from the HMRC.

So, if I have the above right, my question still stands. It might be that no one knows but, in the Private Sector, does anyone feel it likely, or possible, or not at all possible that this clause may be popped in the contract?

'You've started Inside, you'll finish Inside and there will be no route to investigate."

Either way, this whole thing is right bloody mess.

Like I said, you cannot claw back NI. So suck on that one to begin with.

Next, if you think you're going to win a case against the client having made a "reasonable" assessment, as required by law, and then changing their mind later, I have a bridge to sell you. Still, more generally, I am of the opinion that clients won't really want contractors operating inside IR35 through companies fullstop. They will want FTCs and umbrellas and possibly other things that we haven't currently envisaged.

[WordIsBond]

I see the correlation and completely understand the fairness point and the apparent conflict in the situation but I guarantee that the Government will stick with the distinction for tax and employment purposes. The Big Co lobby is powerful and they do not want employees and will care about this reform ONLY if they find themselves responsible for the tax, which the current rules place elsewhere.

They may not be allowed to stick with the distinction under common law. They may be forced to legislate to preserve it -- and the optics would be horrible. I don't think they will do that.

Why do you think HMRC settled with Susan Winchester? They refuse to settle losing cases all the time, fighting it out to the bitter death even when their case is horrible. But if this distinction were entirely safe, there was absolutely no reason for them to settle. It isn't safe at all. And if they'd lost the case, it would have set a legal precedent in case law at the worst possible time for them. It would have had the Big Co lobby up in arms about IR35 'reform'. They couldn't afford that, it probably would have killed off the whole thing.

Susan Winchester's case, of course, was even stronger than what we've been discussing. They threw her inside IR35 on an existing contract. If BigCo engages a contractor in May 2020, they'll be able to say, 'You knew that it as this way when you took the contract.' That's not entirely safe but it is a strong argument. She didn't know that. She took a contract believing it to be outside, they threw her inside mid-contract, and she said, 'Ok, give me my holidays.' They settled because they knew that the principle they are pushing, that 'employed for tax does not give employment rights' is not enshrined in legislation, and that there was no way for them to argue it was just.

In a common law system, if something isn't in legislation, and the situation is different from precedents (and this will be), you can't be so sure a decision will go the way you might have thought, especially if it is perceived to be unfair.