Client "no longer using PCSs" vs "role is now inside IR35" - risk of investigation?

[mrrossi]

Hi all

Is there a difference in the risk of HMRC IR35 investigation after staying on at a client post Apr 20 (switching to an Umbrella at contract renewal on the 2nd March) between the client saying (end of Jan likely) either:

a) they will no longer use PSCs and all contracts will be via Umbrella companies
b) they declaring that the role is 'inside' IR35

With the latter, I would have thought the risk was far higher as the client would now be saying the role is 'inside' and we've always said it was 'outside' so the taxman can say 'well surely it has always been inside then' and investigate and claim back tax etc.

However if the client simply says you must use an Umbrella, no one has 'flagged' that the role is 'inside' and raise HMRCs suspicions.

True, as pointed out in another post, you will be in the same role and same company but suddenly start paying more NI and HMRC will see this, but IR35 is for Ltd companies and surely many people will switch to Umbrellas so it's not an admission of saying 'oops our role has been classed as inside IR35' its just a 'the client needs me to work this way'. You could argue that's a subtle difference though. IR35 isn't really applicable to Umbrellas as you are operating on PAYE, plus I will have ensured the company is shutdown before April...

I think it's more likely the client will just say they will not longer use PSCs - it's a large client and they can't just blanket state 'inside', and it would be a ridiculous amount of effort for them to do individual assessments for all the contractors in many different roles across the business.

I've done the CEST test and my evaluation of it and my contract is that I'm outside of IR35, but there's always the risk HMRC won't see it that way.

Really would prefer not to leave the role (as per several colleagues) and just trying to understand risks. Happy to continue using an Umbrella company.

I understand that in the public sector there were some contractors who switched from Ltd to Umbrella and HMRC immediately send them a tax bill saying that they'd been inside all the time. Anyone know what exactly the client had started then? Did they determine that the roles were inside IR35 or just make a business policy change stating they'd only operate via Umbrellas?

Thanks

[GhostofTarbera]

What’s your question ?


Sent from my iPhone using Contractor UK Forum

[LondonManc]

I understand that in the public sector there were some contractors who switched from Ltd to Umbrella and HMRC immediately send them a tax bill saying that they'd been inside all the time. Anyone know what exactly the client had started then? Did they determine that the roles were inside IR35 or just make a business policy change stating they'd only operate via Umbrellas?

What’s your question ?

I'm guessing that you gave up before the end?

[northernladuk]

However if the client simply says you must use an Umbrella, no one has 'flagged' that the role is 'inside' and raise HMRCs suspicions.

True, as pointed out in another post, you will be in the same role and same company but suddenly start paying more NI and HMRC will see this, but IR35 is for Ltd companies and surely many people will switch to Umbrellas so it's not an admission of saying 'oops our role has been classed as inside IR35' its just a 'the client needs me to work this way'. You could argue that's a subtle difference though. IR35 isn't really applicable to Umbrellas as you are operating on PAYE, plus I will have ensured the company is shutdown before April...

It might not be an admission but from what I see the main players that have taken the blanket no PSC approach also happen to be the honey pots I'd be happy to have a sniff at if I was HMRC.

I think it's more likely the client will just say they will not longer use PSCs - it's a large client and they can't just blanket state 'inside', and it would be a ridiculous amount of effort for them to do individual assessments for all the contractors in many different roles across the business.

It shouldn't. They touch every role as part of the resourcing process so an extra step shouldn't be difficult or time consuming. It will also reap rewards in the longer run with better quality resources. They'd have the pick of the market if they have an outside role.

I've done the CEST test and my evaluation of it and my contract is that I'm outside of IR35, but there's always the risk HMRC won't see it that way.

But you put in the answers you want to think are right. Would they really stand up in court and say they were happy to accept a sub? Some clients in previous cases have said they wouldn't in reality. Doing your own CEST isn't a cast iron guide.

Really would prefer not to leave the role (as per several colleagues) and just trying to understand risks. Happy to continue using an Umbrella company.

I understand that in the public sector there were some contractors who switched from Ltd to Umbrella and HMRC immediately send them a tax bill saying that they'd been inside all the time. Anyone know what exactly the client had started then? Did they determine that the roles were inside IR35 or just make a business policy change stating they'd only operate via Umbrellas?

Thanks

I don't think the bold bit above is true. I haven't heard of it. ComplanceLady says shes heard of a few starting to go out but I'm not sure. I wouldn't take this as a yard stick either. HMRC didn't pick on any depts for mass investigation letters like they did with GSK so past history may not dictate what will happen going forward.

I agree the whole thing is an utter crock but I find it difficult to believe HMRC would pass up the low hanging fruit which are the 2 years in a gig outside now inside. It's money for old rope.

[Paralytic]

What’s your question ?

I'm not sure what it is either, but the answer is "no-one here can tell you if HMRC is going to investigate you"

[Snooky]

I will have ensured the company is shutdown before April...

How long ago did you start that process? If you haven't already started it, I wish you luck getting it done before April, especially via the MVL route.

In addition to the time it normally takes, being an old cynic I have a niggling feeling that HMRC - who have to give the nod to any company closure before it can be completed - may decide to take it slow with the many hundreds or thousands of extra company closure requests which will pass across their desk from March this year, particularly where the company's structure and tax history fits a certain profile. I do hope not because I'm probably going to end up shutting down my company, but if I were in their shoes it'd be like a red rag to a bull.

[Liberator]

I agree the whole thing is an utter crock but I find it difficult to believe HMRC would pass up the low hanging fruit which are the 2 years in a gig outside now inside. It's money for old rope.

This is my fear too. Practically though, how would HMRC be flagged to this type of behaviour? There are loads of big companies now abandoning outside IR35 contractors and going Umbrella / PAYE avoiding having to determine the status of the role.

[Snooky]

This is my fear too. Practically though, how would HMRC be flagged to this type of behaviour? There are loads of big companies now abandoning outside IR35 contractors and going Umbrella / PAYE avoiding having to determine the status of the role.

• A director of a company which pays him a low salary but he takes high dividends, with at most one other employee who is also a shareholder.
• That company was engaged to provide work at Client X, possibly through agency Y.
• That director is now an employee of a well known umbrella company.
• A number of other directors of similarly-structured companies fit exactly that same profile at Client X / Agency Y

Bonus points: the company has now moved to dormant state or applied for closure / liquidation.

It's not hard to join the dots and send a few scary letters to agencies / clients, who will happily spill the beans about whether you worked at Client X prior to April 2020 and are still working there now.

The only questions are (a) do HMRC have enough staff to do this and (b) is the reward worth the effort?

I think the answer to (b) is definitely yes. Hopefully the answer to (a) is no, but then they just have to sit on the closure request for 12 months in order to get around to you.

God, I'm depressing myself today

[eek]

• A director of a company which pays him a low salary but he takes high dividends, with at most one other employee who is also a shareholder.
• That company was engaged to provide work at Client X, possibly through agency Y.
• That director is now an employee of a well known umbrella company.
• A number of other directors of similarly-structured companies fit exactly that same profile at Client X / Agency Y

Bonus points: the company has now moved to dormant state or applied for closure / liquidation.

It's not hard to join the dots and send a few scary letters to agencies / clients, who will happily spill the beans about whether you worked at Client X prior to April 2020 and are still working there now.

The only questions are (a) do HMRC have enough staff to do this and (b) is the reward worth the effort?

I think the answer to (b) is definitely yes. Hopefully the answer to (a) is no, but then they just have to sit on the closure request for 12 months in order to get around to you.

God, I'm depressing myself today

Why would HMRC look at any of that.

Agencies legally have to report all payments for work that are made to third parties including the name of the third party.
Where that third party changes but the NI / UTC code remains the same - you lookup the address of the NI / UTC account and send them a query letter. The result in a lot of cases will be a large cheque being sent in for the tax year 2019/20 with little work required.

[northernladuk]

Or just send blanket mails like they did with GSK.