Reply to: HMRC wins first IR35 case in 9 years

[jamesbrown]

Hi all,

Just an observation here after reading the thread and also the tribunal document.
If you were offered a nice lucrative contract for services of say 2 years (not 7) would you consider it - probably yes as good business
If you had to provide regular reports on your service delivery and perhaps had to attend a regular meeting to provide status - would you say yes (most would I suggest as the client has an interest in ensuring value for money and that services are being delivered).
If at said meeting the client expressed a strong opinion that really what you are producing should perhaps have a different focus or outcome would you take that on board, to continue the nice lucrative business engagement, or walk ? Hint : Pretty close to Editorial control I suggest.

The point I guess is that as with all of these 'holistic' HMRC judgments it can be tricky to work out what that actually really means.
If you look at your existing contracts they may well be outside IR35 but the hypothetical contract, with a holistic view, might well place you under SDC - even if you think not.

Please don't beat me up too much here as just trying to convert what happened in this case to what might actually be happening in real life to many contractors today. Might be obvious too many here but rose tinted glasses are not the required prescription these days.

That has always been the benchmark, "in the round". The subjectivity works both ways. The difficult with her particular case is that personal service was rendered less important in forming the judgement than other factors, notably D&C, because she was "the face of Look North". Given the irreducible minimum MoO, that put an awful lot of pressure on a watertight lack of D&C. This was clearly blown apart by the reality of her situation, with the client having the right to determine precisely what was delivered, day-to-day, if not precisely how it was delivered. Then you have all the circumstantial and minor pointers too. Honestly, I don't think this case was particularly revelatory (no new precedence), and the FTT made the same point. That said, if you read the FTT judgement, it wasn't as emphatic as you might expect, given the facts. But sure, some contractors are likely to operate inside IR35, while declaring themselves to be outside. Nothing new there.

[WhiteRabbit]

Accepted

If you look at the sub-forum The Future of Contracting you'll observe that there aren't many rose-tinted glasses around here.

Light beating accepted and thanks for pointer

[cojak]

Hi all,

Just an observation here after reading the thread and also the tribunal document.
If you were offered a nice lucrative contract for services of say 2 years (not 7) woulda you consider it - probably yes as good business
If you had to provide regular reports on your service delivery and perhaps had to attend a regular meeting to provide status - would you say yes (most would I suggest as the client has an interest in ensuring value for money and that services are being delivered).
If at said meeting the client expressed a strong opinion that really what you are producing should perhaps have a different focus or outcome would you take that on board, to continue the nice lucrative business engagement, or walk ? Hint : Pretty close to Editorial control I suggest.

The point I guess is that as with all of these 'holistic' HMRC judgments it can be tricky to work out what that actually really means.
If you look at your existing contracts they may well be outside IR35 but the hypothetical contract, with a holistic view, might well place you under SDC - even if you think not.

Please don't beat me up too much here as just trying to convert what happened in this case to what might actually be happening in real life to many contractors today. Might be obvious too many here but rose tinted glasses are not the required prescription these days.

If you look at the sub-forum The Future of Contracting you'll observe that there aren't many rose-tinted glasses around here.

[WhiteRabbit]

Observation

Hi all,

Just an observation here after reading the thread and also the tribunal document.
If you were offered a nice lucrative contract for services of say 2 years (not 7) would you consider it - probably yes as good business
If you had to provide regular reports on your service delivery and perhaps had to attend a regular meeting to provide status - would you say yes (most would I suggest as the client has an interest in ensuring value for money and that services are being delivered).
If at said meeting the client expressed a strong opinion that really what you are producing should perhaps have a different focus or outcome would you take that on board, to continue the nice lucrative business engagement, or walk ? Hint : Pretty close to Editorial control I suggest.

The point I guess is that as with all of these 'holistic' HMRC judgments it can be tricky to work out what that actually really means.
If you look at your existing contracts they may well be outside IR35 but the hypothetical contract, with a holistic view, might well place you under SDC - even if you think not.

Please don't beat me up too much here as just trying to convert what happened in this case to what might actually be happening in real life to many contractors today. Might be obvious too many here but rose tinted glasses are not the required prescription these days.

[Jessica@WhiteFieldTax]

This is very interesting thread - One of the best for a long time and i read the judgement

The balance sheet shows the current liabilities greater then assets which means the company is insolvent - I dont know what makes you think there is an investment property because the accounts do not show that

I wondered how they could go back as far as they did - Is PAYE not 4 year statute barred?

Previous years accounts, which were more detailed, show an investment property. In any event the balance sheet shows a large fixed asset, and the sector type is described as land and property rental.

The four years is to raise an enquiry not settle it. Once enquiry starts the timescale is potentially open ended.

[LondonPM1]

The IR35 is a corporate liability, not a personal one. HMRC need to run though another set of hoops to make it a personal liability, and its not a forgone conclusions they will be successful - we've had Accountax negotiate away personal liability on an IR35 fail case, albeit about 15 years ago, on grounds that director had reasonable belief that the outside IR35 decision was accurate.

However if the PSC is stuffed full of asset / warchest then HMRCs task is easier.

Its common sense - keep investment and trading separate. Short term cost on drawing funds as dividend, but long term protection of assets.

PS - relying on HMRC not being able to prove personal liability isn't first line planning. Its a backup. Do due diligence on every contract, which is what the guy I refer to above had done and could prove.

This is very interesting thread - One of the best for a long time and i read the judgement

The balance sheet shows the current liabilities greater then assets which means the company is insolvent - I dont know what makes you think there is an investment property because the accounts do not show that

I wondered how they could go back as far as they did - Is PAYE not 4 year statute barred?

[Jessica@WhiteFieldTax]

Curious if they offset any reversed Corporation tax and dividend tax payments before they arrive at 419,151 owed.

Maybe, maybe not. Thats largely by negotiation, or at least was last time I had to deal with it which was a few years back. You kick up a stink if they don't.

Of course how anything offset fits in with £419k, you won't know as it will be taxpayer confidential.

[northernladuk]

Arguably an arduous interview process could mean that an unfettered RoS is unlikely.

Hmmm. But conversely how arduous is it for a supplier to sell their service for a bid to a client. That has multiple touch points and reams of paperwork. No supplier got a gig off the back of one interview.

If what you say could be true then any gig that requires a technical test as part of the interview should be inside. In fact any gig that is won off the CV of the applicant would be a problem.

Anyway, interview process has never been mentioned in any case or IR35 article so best to say it's a misunderstanding by the OP that mentioned it.

[jamesbrown]

OK I was mistaken, you're right they go further than one exchange but the fact remains that of the several thousand enquiries which involves a number of exchanges, most don't get to a tribunal.

https://www.qdoscontractor.com/ir35/...gation-process

Lets face it if you've been in one place for 6 years it is far more worthwhile chasing it up than one 6 month contract or trying to build evidence from multiple contracts.

I very much suspect that a key objective in the to-ing and fro-ing is the hope that the contractor puts his foot in it.

Right, I agree with that. Most do not go as far as tribunal, but I think the evidence (especially recent evidence) points to their keeping cases open for quite some time, and pursuing them aggressively. I expect they lose a significant amount of money on almost all cases, i.e. they see their enforcement activity as primarily a deterrent, especially these high profile ones that involve TV personalities (which are also tougher to defend, of course, given the degree of editorial control over a presenter).

[mudskipper]

Since when did the interview process have any bearing on IR35??

Arguably an arduous interview process could mean that an unfettered RoS is unlikely.

[Scary]

Curious if they offset any reversed Corporation tax and dividend tax payments before they arrive at 419,151 owed.

[piebaps]

Wise advice from the report

"This case should serve as a reminder to contractors to carry out their due diligence before and during a contract. Lip service from an end client, or assurances from anybody other than a legal IR35 expert, won’t be enough to guarantee safety from IR35.”

[Fred Bloggs]

The IR35 is a corporate liability, not a personal one. HMRC need to run though another set of hoops to make it a personal liability, and its not a forgone conclusions they will be successful - we've had Accountax negotiate away personal liability on an IR35 fail case, albeit about 15 years ago, on grounds that director had reasonable belief that the outside IR35 decision was accurate.

However if the PSC is stuffed full of asset / warchest then HMRCs task is easier.

Its common sense - keep investment and trading separate. Short term cost on drawing funds as dividend, but long term protection of assets.

PS - relying on HMRC not being able to prove personal liability isn't first line planning. Its a backup. Do due diligence on every contract, which is what the guy I refer to above had done and could prove.

Thank you, clarification is appreciated.

[BlasterBates]

Genuinely curious about your evidence for that....? The anecdotal evidence I've over the years seen suggests that they rake over all the details and do not conclude an investigation quickly, even when it might appear clear-cut to the average bystander (e.g. a valid substitution clause demonstrably invoked). I appreciate that it's difficult to understand their strategy, and it's likely to change over time, but I don't recognize what you're describing.

OK I was mistaken, you're right they go further than one exchange but the fact remains that of the several thousand enquiries which involves a number of exchanges, most don't get to a tribunal.

https://www.qdoscontractor.com/ir35/...gation-process

Lets face it if you've been in one place for 6 years it is far more worthwhile chasing it up than one 6 month contract or trying to build evidence from multiple contracts.

I very much suspect that a key objective in the to-ing and fro-ing is the hope that the contractor puts his foot in it.

[jamesbrown]

Most IR35 enquiries end after the first request for information, that's why everything depends mainly on your first response.

Genuinely curious about your evidence for that....? The anecdotal evidence I've over the years seen suggests that they rake over all the details and do not conclude an investigation quickly, even when it might appear clear-cut to the average bystander (e.g. a valid substitution clause demonstrably invoked). I appreciate that it's difficult to understand their strategy, and it's likely to change over time, but I don't recognize what you're describing.