Reply to: IR35 Worst Case Scenario?

[ratewhore]

Have a look here to understand the process:

http://www.hmrc.gov.uk/pdfs/ir109.htm#7

[rootsnall]

If you're going to save the money anyway, consider saving inside a pension. Pension contributions by the company count in the same way as salary paid when calculating IR35 liability. Money you put into a pension reduces your potential liability by the amount contributed.

This is another grey area at the moment, post pension A day you could theoretically pay all your Ltd Co money into a pension and pay no tax or NI at all. You can't get at the money until you are 55 but for long term contractors with money in the bank and nearing end of the gravy train it is potentially a massive tax/NI saving. But true to form the taxman backtracked by saying large payments into a pension will be at the discretion of your local tax inspector. So like most tax related matters you don't know if you can or if you can't !!!???!!!

[tim123]

If you're going to save the money anyway, consider saving inside a pension. Pension contributions by the company count in the same way as salary paid when calculating IR35 liability. Money you put into a pension reduces your potential liability by the amount contributed.

Um, pension money is inaccesable until one is 60.

Personally, I don't think that this is a good idea.

tim

[IR35 Avoider]

therefore 80%-90% of the dividends we plan to put into savings!

If you're going to save the money anyway, consider saving inside a pension. Pension contributions by the company count in the same way as salary paid when calculating IR35 liability. Money you put into a pension reduces your potential liability by the amount contributed.

[Denny]

I would imagine this works both ways, so if you had a contract that wasn't, but your working practices were (and you could proove that) then you would also be fine.

...

No that's wrong. Your contract terms are vitally important, it's just not the only criteria the IR would use to make their assessment.

Therefore, you must make sure the contract wording does reflect IR35 exempt status, otherwise you'll be stuffed, even if your client does fully expect you to work as a proper B2B business as far as working conditions are concerned.

Otherwise, the IR will just assume that your client is allowing you flexible working arrangements which they could have withdrawn at any time during the contract. After all, this is what your contract says they can do. This is not at all the same as being entitled to work where and however you choose to complete your deliverables because you're in business on your own account. Check the IR criteria for exemption from IR35 - it's well explained there.

There's a huge difference between flexible working arrangements (being allowed to work from home and coming into the officewhere you're based) and working out of your own home office (if that's where your company premises is based) and only making essential client site visits to carry out on-site work for which you may be offered a hot desk for convenience.

[kirk]

How often do these investigations actually take place (relatively speaking) and are you more susceptible when you are a newb? i.e. are the HMRC looking out for it?

[boredsenseless]

So looking at it like that even if they come a knocking and i loose, we should have the cash to be able to pay... I was more worried about if there were any criminal proceedings attached as well, glad there aren't!

We never said there weren't just that it was exceptionally unlikely. If you have the cash to pay and haven't taken the p1ss you should be okay though

[shippwreck]

Thanks guys, that was what i thought.

Basically from this contract i'm hoping to put into savings a substantial amount of it anyway, and in fact from my wifes pay actually covers 90% of our living costs ATM so looking purely at numbers the small wage that i will be taking actually will make up that last 10% of income anyway, therefore 80%-90% of the dividends we plan to put into savings!

So looking at it like that even if they come a knocking and i loose, we should have the cash to be able to pay... I was more worried about if there were any criminal proceedings attached as well, glad there aren't!


As i said i have taken out PCG + cover anyway as i think thats a very sensible precaution, plus just the advice i'll have access to being a newb! As far as IR35 insurance goes, i've looked into it, but was actually warned to be careful as a lot of companies give you cover while your paying the premium, not cover for a specific contract. So you would need the policy for upto 6-7 years after the contract as well... see what i mean.

I haven't looked into it all that well anyway so this may have been only in the cases i saw, but its just something to check IF you decide to get that insurance!

EDIT: Oh yeah and also after reading more i realised that actually the contract is only a small part of it. For instance your contract can be fully compliant, but if your actual working practices aren't and are different to those stated in the contract, then its meaningless. I would imagine this works both ways, so if you had a contract that wasn't, but your working practices were (and you could proove that) then you would also be fine.

Admittedly having a compliant contract would help A LOT, but its not the be all and end all...

[boredsenseless]

To the OP: to answer your original question of what's the worst that could happen should your original contract be deemed to be inside IR35 some years down the line and the various legal processes uphold this decision.

Well, the value of your original contact will be subject to an IR35 calculation (total amount, less 5%, less allowable expenses) and PAYE/NI calculated on that as if you were an employee. There will also be employers' NI to pay.

Interest will also be charged on that amount from the day it became due (the rate is rather high, well above the BoE base rate, possibly 8% or so).

Then there is the matter of penalties. HMRC have stated in the past that they would not seek penalty payments (which can be as much as 100% of the tax due) during a bedding in period for IR35 in cases where the taxpayer acted in good faith and had taken steps that led them to believe they were not caught by IR35.

Criminal charges are highly, highly unlikely to materialise, unless you were involved in a highly concerted effort to brutally defraud the state and/or were involved in VAT fraud.

Agree with the emperor.

The worst that should happen is that they find you to be IR35 and recalculate the tax due accordingly. They'll then apply interest to the outstanding amount for the period it has been deemed to be owed.

You'll probably also get a small penalty to make an example and disuade others, however if you don't co-operate or they discover that you wilfully attempted to avoid tax rather than believing you were ok and operating legitametly that way the penalty will be very harsh.

Visits to the government prison will be extremely unlikely unless of course you owe loads and you can't pay and can't agree a repayment schedule, even then though the best chance they have of getting their money is if you go to work so they may decide instead to put a charge on your income similar to that used in bankruptcy cases.

HOWEVER and I can't stress this enough, I only speak from a position of having read numerous threads on this before, if you are really concerned I'd speak to an expert - they'll pop up soon enough on here.

[Emperor Dalek]

To the OP: to answer your original question of what's the worst that could happen should your original contract be deemed to be inside IR35 some years down the line and the various legal processes uphold this decision.

Well, the value of your original contact will be subject to an IR35 calculation (total amount, less 5%, less allowable expenses) and PAYE/NI calculated on that as if you were an employee. There will also be employers' NI to pay.

Interest will also be charged on that amount from the day it became due (the rate is rather high, well above the BoE base rate, possibly 8% or so).

Then there is the matter of penalties. HMRC have stated in the past that they would not seek penalty payments (which can be as much as 100% of the tax due) during a bedding in period for IR35 in cases where the taxpayer acted in good faith and had taken steps that led them to believe they were not caught by IR35.

Criminal charges are highly, highly unlikely to materialise, unless you were involved in a highly concerted effort to brutally defraud the state and/or were involved in VAT fraud.

[rootsnall]

The advice above is silly and dangerous. If you're working conditions are clearly inside IR35 but your contract terms with the EB outside, and you've done nothing to ensure or check before starting that the contract was back-to-back with the client as well as the EB, I doubt whether any insurance company would honour the claim.

Insurance for IR35 is no different than any other. If you're seen to be negligent or haven't put reasonable steps in place to ensure your contract terms are realised once the role starts, the insurers will simply refuse to pay out.

If I understand it correctly then the PCG+ 'Insurance' is just a policy to cover your legal costs in any IR35/NI investigation, it will not pay your tax if you lose. I did see some schemes saying they would pay your tax on loss but I'd be very wary of this if the IR35 tide turns and the taxman starts winning cases. I have tried to keep tabs on how much I would owe in the worst case scenario ( but no idea on fines !? ) but this gets increasingly difficult as time goes by.

[Denny]

The advice above is silly and dangerous. If you're working conditions are clearly inside IR35 but your contract terms with the EB outside, and you've done nothing to ensure or check before starting that the contract was back-to-back with the client as well as the EB, I doubt whether any insurance company would honour the claim.

Insurance for IR35 is no different than any other. If you're seen to be negligent or haven't put reasonable steps in place to ensure your contract terms are realised once the role starts, the insurers will simply refuse to pay out.

[Mordac]

Hmmm, what's stopping any contractor taking out PCG+ insurance and claiming to be outside IR35 even when it's fairly obvious that they're disguised employee?

I'm not sure, but if you're a blatant insider (as in inside IR35) I doubt they'll bust a gut to try and prove otherwise. Quite the opposite in fact, thay have a very good winning streak going at the moment, and I assume they want to keep it that way.

[TheMonkey]

Works for me.

You ain't seen me - right!

[kirk]

Hmmm, what's stopping any contractor taking out PCG+ insurance and claiming to be outside IR35 even when it's fairly obvious that they're disguised employee?