Client suddenly deems you inside before April

[BlueSharp]

"If you want to continue at the client for years to come then consider closing your Ltd to draw a line under any potential future investigation and work for them inside IR35 via a brolly as they are expecting."


hobosapien, do you have any links to support this comment regarding continuing to operate with the same clinet via a brolly post april 2020??

Operating on payroll or via a brolly is the main way the public sector now operate inside contracts as it ensures the correct taxes are collected; so it stands to reason the same will happen in the private sector. Whats the alternative? Each PSC providing a declaration from an accountant the tax is taxed for employment purposes and the end client and agency having to administer such a system? It won't be worth the agents hassle when they can just put people on a PSL brolly.

Closing the PSC down and switching could be an interesting approach but will need someone with greater legal knowledge than my layman knowledge to offer an opinion. Could HMRC see the sequence of events: Inside determination >> Switch to Brolly >> Stay at same client >> Close PSC down as tax-avoidance activity at a later date and use it to open an inquiry into a dissolved company and go back and look at the previous 20 years instead of the statuary 4 years? Especially if the PSC in question had been at the same client for a long time.

[Hobosapien]

But mrdonuts asked you this:



Can you answer that question?

I added it as a later edit but include it here again for clarity:

Edit: To answer the other question about retrotax and fines post closedown of a Ltd. This is a different scenario where HMRC would have to decide to investigate a closed (dissolved) company and for IR35 purposes I'm not sure I've ever heard of that happening. So as the article I linked to above says, the risk is that HMRC start an IR35 investigation during closedown of the Ltd. Afterwards then it seems unless caught in a bigger web of fraud then there should be little risk of HMRC wanting to start an investigation for IR35 on a closed company. Again, if anyone has any personal or professional experience (liquidators/accountants/QDOS et al) then we are all ears.

Bottom line is that if you are in a situation you are not sure about and worried about the consequences, then after reading our feedback as fellow contractors it's best to seek professional advice where your exact situation (including aspects you probably don't want to disclose on a public forum) can be taken into account, and the professionals by nature should know what they're talking about and are willing to stand behind their advice.

[Hobosapien]

"If you want to continue at the client for years to come then consider closing your Ltd to draw a line under any potential future investigation and work for them inside IR35 via a brolly as they are expecting."


hobosapien, do you have any links to support this comment regarding continuing to operate with the same clinet via a brolly post april 2020??

No links just personal experience albeit in the public and not private sector.

The client is saying how they want to engage contractors regarding the changes likely in April 2020, so operating inside IR35 via a Ltd is inefficient (the tax is taken prior to the Ltd receiving payment so is a redundant entity in the relationship) and some clients may specifically only engage contractors (direct or via agency) if they use an umbrella company to ensure the contractor is operating within IR35 as an employee of the umbrella, removing the client's risk and ongoing hassle regarding IR35 and implementing change.

Personally I was in a similar position as the OP in that a long standing client (though public sector) I had worked for off and on over the years via my Ltd operating outside IR35 (with contract reviews etc) stated that I was to re-engage inside IR35 after a 6 month break that naturally occurred between projects. They used a blanket determination that I didn't feel worth trying to fight. I then engaged an umbrella company and closed my Ltd. I've had no issues from HMRC during that process and no signs of them wanting to investigate anything including IR35. Maybe I was lucky but I can only give my personal experience as feedback.

I think, though this is just my opinion, that if the client is requiring you to operate as an employee (via an umbrella or third party payroll service) then unless you anticipate needing to use the Ltd for future contracts with other clients then the Ltd is now redundant, so the logical step is to close it using the industry standard processes via an accountant or MVL service provider if required. If HMRC are going to investigate for IR35 purposes then they will anyway.

[Hobosapien]

Closing the PSC down and switching could be an interesting approach but will need someone with greater legal knowledge than my layman knowledge to offer an opinion. Could HMRC see the sequence of events: Inside determination >> Switch to Brolly >> Stay at same client >> Close PSC down as tax-avoidance activity at a later date and use it to open an inquiry into a dissolved company and go back and look at the previous 20 years instead of the statuary 4 years? Especially if the PSC in question had been at the same client for a long time.

That is the fear that rightly needs to be considered but as HMRC have already said they aren't going to concentrate on historical cases such as the above where a status changes at the same client, then as long as prior to any change in CEST or advice to clients about whether or not contractors should be deemed inside IR35 the contractor was operating outside IR35 after doing due diligence (contract review by reputable independent third party such as QDOS), then it can be shown with evidence that the situation was changed from outside to inside IR35 and the actions based around that rather than any tax evasion activity.

In my situation I made sure there was a clean break between inside and outside IR35 contracts so wasn't relying on the change in IR35 for the public sector to be the sole reason for changing from Ltd to umbrella as it was a different contract/project and working practices.

The situation that needs careful management is where you are currently operating outside IR35 and client deems the same contract will be inside at the next renewal as next Aprll approaches. It may be argued that the rules have changed (which they will when implemented in private sector to bring in line with existing rules in public sector for IR35) but I wouldn't rely on that to fight any investigation if there's the opportunity to protect yourself further by ensuring a contract doesn't cross that line where currently the contractor determines IR35 status but then it is down to the client.

[cojak]

The situation that needs careful management is where you are currently operating outside IR35 and client deems the same contract will be inside at the next renewal as next Aprll approaches. It may be argued that the rules have changed (which they will when implemented in private sector to bring in line with existing rules in public sector for IR35) but I wouldn't rely on that to fight any investigation if there's the opportunity to protect yourself further by ensuring a contract doesn't cross that line where currently the contractor determines IR35 status but then it is down to the client.

I completely agree HS, which is why I pointed to my post https://www.contractoruk.com/forums/...ould-i-go.html

I would close my Ltd, but at a new client while using a brolly.

[BABABlackSheep]

There are 250 IR35 investigations a year.

If I was HMRC I would do exactly what its doing now with Glaxo, shake the tree and see what falls out.

Come April 2020....then go after some ripe fruit there, and then shake the tree again in other places.

I would say the chances of HMRC looking at historic cases as slim to none, as they simply don't have the resource, and will have plenty on their plates at that time.

Also, there must be thousands of limited companies closing every year for legitimate reasons, so again, very low risk of anything sparking their interest even if pre-2020 they find out from clients that x contractor's role going forward will be inside IR35. I simply don't believe they will pull this information together at this time.

I'll probably do what cojak suggests. Wait till I get my next contract and if it appears to be inside IR35, go Umbrella and MVL my business. I should know in the next few weeks what my current client is planning so that will help me decide. Anyway, I'm out of the door in the next couple of months, so planning my exit.

I'm still in discussions with others starting our own company. Lots to consider currently, and that's why I appreciate this forum(apart from the wind-up merchants).

[WordIsBond]

I would say the chances of HMRC looking at historic cases as slim to none, as they simply don't have the resource, and will have plenty on their plates at that time.

I am of the opinion that is not a wise view to take on the matter.

Why will they have 'plenty on their plates at that time?' All of a sudden, they will have thousands of contractors that don't need investigated any longer because they'll be inside, declared so by their clients. The biggest reason for this 'reform' is to get a lot of people inside without HMRC having to do anything.

So what then will these inspectors that have been chasing 250 IR35 investigations every year do?

1. They can go after clients who declare contractors outside. They will do a few of these just to keep the fear in clients. But it only takes a few to hit the news to accomplish that. They don't even have to win these cases, just drag a few clients through the mud and rack up some tens of thousands or more in legal costs.
2. They can go after clients who declare a mix of inside and outside. That's a pain because they'll have to evaluate on a case by case basis, exactly what they hoped to stop having to do because of this 'reform'. So, they'll do a few just to keep the fear up, but that's not going to be where they will focus.
3. Target contractors with small company clients. That's a pain for the same reason as #2, and they are going to solve that problem by removing the small company exemption in a year or two. Why do the work themselves when they can force companies to do it for them? They won't do much of this.
4. Target historical cases -- especially by matching up client determinations with pre-'reform' service providers.

And there's a chance they've already ring-fenced some of the 'extra money' that 'reform' will bring in for extra resources to pursue 'historical avoidance.'

February is my cutoff point. As of February, I'll not do anything with any previous UK client without at least a 3 year gap from the last time I was with them. There's not going to be even a remote chance of there appearing to be a bridge between pre- and post-'reform' contracts. I know I'd easily win any IR35 case with any of those contracts, the only one that's remotely borderline I'm already operating inside IR35. But I just don't want the hassle. I've got too much to do.

And my trust that HMRC isn't going to target historical contracts is virtually nil. My expectation is that they'll hire new inspectors and that they will certainly go after historical contracts with people who don't even know that much what they are doing, who won't know case law, and will default to assuming every contract is inside. And they'll be a nightmare to work with. If I'm pleasantly surprised, that will be great.

[northernladuk]

Totally agree with WiB. Definitely not the way to be thinking IMO.

[BABABlackSheep]

4. Target historical cases -- especially by matching up client determinations with pre-'reform' service providers.

Has there been a lot of investigations where this has happened in the Public Sector that we are aware of?

If there has been, then of course I accept the point.

Logic tells me this won’t happen as its massive resources needed to conduct an IR35 investigation, and I still maintain I think there will be more than enough work for them looking forward and not back. They have also said they won’t be doing this, and I’m not sure why they would say this, no need to say anything is there?

Anyway, just to be clear, I will definitely be taking action to protect myself in the next few months. I’m just expressing an opinion.

Your response has given more to think on. Some good points. Thanks.

[northernladuk]

Might have been a lot of resource required in the past but now they have a benchmark which is CEST and clients having to determine status. OK ok forget how useless CEST is, focus on the fact there is now a tool and a list of contractor status.

In theory it should be much easier investigating than before. God forbid they win one fairly early on in which case they will have precedent.

Too much is changing to just sit there and say in the old days this and that.