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IR35 - Leaving a contract without SDS - back dated compliance investigation?

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    IR35 - Leaving a contract without SDS - back dated compliance investigation?

    Hi, I couldn't find this question specifically asked before, so here goes. This question is worded according to my own circumstances but I feel it could be a common suituation for other contractors.

    Since the start of the engagement, I have been conscientious to act as a supplier but as the final decision is in the hands of HMRC I would rather avoid the risk of a backdated compliance enquiry.

    A slide on a recent HMRC webinar states:


    HMRC will not open a new IR35 compliance enquiry for tax years before 6 April 2021 in circumstances where:
    • a client decides a contract is within off-payroll working rules (IR35)
    • a contractor changes the way they now work to be paid through a payroll
    • a contractor ends the contract because they disagree with a client decision on status
    My work for my Client Co. will be completed by 31st March but they have indicated that they would like me to work with them on "phase 2" (of course I would insist on a new statement of work and it would also be subject to a new contract - and they would need to determine me Outside IR35 post April for this to be agreeable).

    If I agreed to this, an SDS interview would be conducted. Client Co. has indicated that they would be "risk averse".
    From a business point of view, other equally good or better opportunities for contractual work are attainable through other clients.

    My question is therefore this:
    1. If I inform Client Co. that I am not available after 31st March, then I will refuse to partake in any kind of SDS interview leading to an SDS, and there would be no requirement or incentive for Client Co. persue any such undertaking?
    2. If the contract ends (and no new contract is made) then none of the above bullet points explictly apply as there would not have been an SDS. I would have simply left Client Co. before the rule change.

      So (taking HMRC's statement at face value) would I still be open to a compliance enquiry?


    I realise that HMRC's "commitment" is not legally binding so should therefore be taken with a huge grain of salt.
    Last edited by agile; 8 February 2021, 19:48.

    #2
    I think that's basically right. I cannot see how you would be more exposed doing as you suggest, only less or roughly the same (ahem, if you believe a word HMRC say, which I don't ).

    All that said, what HMRC don't mention (cynically) is that there are plenty of other routes to status inquiries and, if you have an assessment from the client that is against your own, then you're not in a very good situation when one of those other routes is triggered...

    The actual probability of being investigated is still extremely low, of course, so it all comes down to your risk tolerance. But if you have other work, then I wouldn't hesitate to do what you're proposing and move on.

    Comment


      #3
      You may not have found the question, but that doesn't mean that there's not a sticky about it...

      Planning for April 2021 - Should I stay or should I go?
      "I can put any old tat in my sig, put quotes around it and attribute to someone of whom I've heard, to make it sound true."
      - Voltaire/Benjamin Franklin/Anne Frank...

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        #4
        Hi, just remember though, at the moment, it is you that decides if you are inside or outside under the current rules in the private sector, nothing to do with your current client, unless they’ve already gone down the non PSC /umbrella/agency PAYE route etc. So legally you are liable for your designation until April this year.

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          #5
          Does the amount of time that passes make any difference?

          For example if you returned for the phase 2 project in 3 months time? or even in a years time? Surely then past contacts couldn't be linked, as it is not the behaviour of a disguised employee to work elsewhere for months/years?

          Comment


            #6
            I think your risk is low but not zero, much like everyone else's.

            If you can encourage the client to discuss the Phase 2 work as a new undertaking, rather than an extension of an existing undertaking, then there is an argument (whether it will stand up is another matter) that your contract ends on 31 March as per the contract and discussions for Phase 2 work are for a different contract. It's a splitting hairs thing but it happens with big consultancies all the time so it pains me that smaller firms can't do the same without being labelled a tax dodger.

            Comment


              #7
              Originally posted by quantum77 View Post
              Does the amount of time that passes make any difference?

              For example if you returned for the phase 2 project in 3 months time? or even in a years time? Surely then past contacts couldn't be linked, as it is not the behaviour of a disguised employee to work elsewhere for months/years?
              Depends on how HMRC does their investigation. If they take a snap shot on a day that you are working and then take a snapshot of the situation in say Jan then you could get a knock and have to explain the gap face to face

              A bit flippant and I'd very much doubt they are simplistic as that but it shows it 'could' happen. It's good defence for sure. The engagements are ringfenced with defined start and ends. Would be very difficult to argue is an on running piece of work you've gone outside to in. You've done one piece that is outside and ended. You started another that inside and ends. Pretty distinct so I think personally you'll be as safe as anyone can be.

              Anything over a month or long enough to not look like a poor attempted to look like circumventing the rule. Taking two weeks holiday won't work for example. More than a month is more than reasonable for a project to move on and need you back.
              'CUK forum personality of 2011 - Winner - Yes really!!!!

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