Reply to: Pay tax twice on IR35 bill?

[jamesbrown]

Simple interest and the penalty (insofar as there is one) is the penalty, not compounded.

[soyoh30298]

Thanks jamesbrown for clarification. Indeed, weird but I'll asumme it'll be a huge uproar if people would get taxed twice and would expect HMRC really to settle for the difference only.

On a side note, I haven't seen pointers to the penalty and interest. Also curious, is interest payable on the penalty?

For example, owe 10k tax, company closed. 5 years have passed, 5% interest per year. AFAIK interest is not compounded thus 30%. Suppose the penalties is 100%.

Is the total owed amount 10k * (1.3 * 2) = 26k, or it's 10k *(1 + 0.3 + 1) = 23k. Or the question can be, is the penalty applied on the amount including the interst or on the original amount? So is penalty accounted for inflation?

[jamesbrown]

Interesting take. I've read many X Vs HMRC tribunal cases, and researched this extensively but never really seen proof that this is actually the case. The closest thing I found is this on gov.uk:

See this:
https://assets.publishing.service.go...39_Relief_.pdf

Also, assuming you go to the tribunal ( which I suppose is expensive in itself without insurance, which unlikely you hold in 5 years time ). Would HMRC settle the bill considering the tax already paid without dispute? I doubt so, according to their guidance manual, although they want to avoid disputes when possible, they should maximize tax extraction.

There is inevitably a degree of speculation here about final outcomes because tribunal judgements generally contain scant details on quantum and agreement may be reached without intervention. However, it is likely that some of the deadlines to which you refer (notably for CT relief) will have passed by the time a judgement is made.

There is some insight into the mechanics from the Christa Ackroyd Media Ltd vs HMRC where HMRC did indeed play hardball with the reliefs and the judge indicated that, in the absence of agreement, it could be referred back.

https://financeandtax.decisions.trib...00/TC06334.pdf

The determinations under appeal cover tax years 2008-09 to 2012-13. The decision notices under appeal cover tax years 2006-07 to 2012-13. Together they total some £419,151 and were issued between March 2013 and October 2014. The extent to which there should be a set off of corporation tax paid by CAM Ltd and tax paid on dividends from CAM Ltd to Ms Ackroyd has not been agreed. Ms Ackroyd contends that the liability to tax and national insurance even if the appeal is not successful is approximately £207,000. At the invitation of the parties this decision will deal with the appeals in principle. The question of quantum may be referred back to the tribunal if necessary.

[soyoh30298]

Holy thread resurrection.

It probably wouldn't happen in a tribunal situation because the judge can be asked to determine quantum and that would ordinarily account for taxes paid. That isn't to say that HMRC won't play hardball (there's plenty of evidence they do), but the ordinary situation is that the eventual liabilities will be offset against taxes already paid. Interest and penalties are another matter entirely.

( To be clear, I'm talking about Chapter 8 here. Chapter 10 is a different story and double-taxation is indeed possible there, but being addressed now to some degree. )

Interesting take. I've read many X Vs HMRC tribunal cases, and researched this extensively but never really seen proof that this is actually the case. The closest thing I found is this on gov.uk:

See this:
https://assets.publishing.service.go...39_Relief_.pdf

Also, assuming you go to the tribunal ( which I suppose is expensive in itself without insurance, which unlikely you hold in 5 years time ). Would HMRC settle the bill considering the tax already paid without dispute? I doubt so, according to their guidance manual, although they want to avoid disputes when possible, they should maximize tax extraction.

[jamesbrown]

Qdos Contractor


I think you're wrong on this one. The relief is not applied but should be claimed, and there's a specific timeframe when it can be done (S58 and S139). So if the investigation is into something older than 4 years, no chance in claiming relief, so tax is paid twice. Also, the penalty and interest is not on the difference in tax owed, but on the whole NIC and PAYE.
Change my mind if I'm wrong.

Small question, did you had in your practice someone with inside IR35 determination but operating as outside. Would you reject a claim?

Holy thread resurrection.

It probably wouldn't happen in a tribunal situation because the judge can be asked to determine quantum and that would ordinarily account for taxes paid. That isn't to say that HMRC won't play hardball (there's plenty of evidence they do), but the ordinary situation is that the eventual liabilities will be offset against taxes already paid. Interest and penalties are another matter entirely.

( To be clear, I'm talking about Chapter 8 here. Chapter 10 is a different story and double-taxation is indeed possible there, but being addressed now to some degree. )

[soyoh30298]

here would be relief applied to the final assessment based on taxes already paid.

Qdos Contractor


I think you're wrong on this one. The relief is not applied but should be claimed, and there's a specific timeframe when it can be done (S58 and S139). So if the investigation is into something older than 4 years, no chance in claiming relief, so tax is paid twice. Also, the penalty and interest is not on the difference in tax owed, but on the whole NIC and PAYE.
Change my mind if I'm wrong.

Small question, did you had in your practice someone with inside IR35 determination but operating as outside. Would you reject a claim?

[WordIsBond]

There would be relief applied to the final assessment based on taxes already paid.

Kudos for reading clearly enough to actually answer the question.

And for noting the mess they've made with their public sector fiasco.

[RichG]

Thank you qDos, thats precisely what I was wondering... is there is a state within the set of transitions where tax already paid is taken into account when retrospectively applying IR35. Sounds like my ignorance here is understandable as it doesn't seem clear cut in any regard especially where the two responsible party public sector is concerned.

[Qdos Contractor]

There would be relief applied to the final assessment based on taxes already paid.

Interestingly this isn't quite as clear cut with the off-payroll rules in the public sector, where the initial tax (CT etc) is paid by the PSC but the IR35 liability is with agency/client. Because the two are in different places, there doesn't appear to be a clear way of offsetting any liability - meaning the income could be taxed twice.

[Lance]

Yes, a breakdown of a hypothetical both in and out of IR35 would be nice...

And how they retrospectively apply IR35 to a year where you've already took dividends, been self assessed and the like.

That would be helpful if anyone cares to venture. I'm not sure of what is applied where as per my original question it would seem if they charged you on a hypothetical "calculated salary" you'd be paying tax on that, having already paid tax that year when self assessed believing you were outside IR35.

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[northernladuk]

Yes, a breakdown of a hypothetical both in and out of IR35 would be nice...

And how they retrospectively apply IR35 to a year where you've already took dividends, been self assessed and the like.

That would be helpful if anyone cares to venture. I'm not sure of what is applied where as per my original question it would seem if they charged you on a hypothetical "calculated salary" you'd be paying tax on that, having already paid tax that year when self assessed believing you were outside IR35.

Not asking for much are you? Very simple question with very complex answer, particularly when you throw the retrospective question in which will be almost impossible to answer properly without numbers.

Why do you want this?

There are plenty of calculators out there that can give you a basic numbers and highlight what you are paying and why.

Don't forget you are asking a bunch of contractors here. You 'might' get a friendly accountant to post it but I very much doubt it.

[RichG]

Yes, a breakdown of a hypothetical both in and out of IR35 would be nice...

And how they retrospectively apply IR35 to a year where you've already took dividends, been self assessed and the like.

That would be helpful if anyone cares to venture. I'm not sure of what is applied where as per my original question it would seem if they charged you on a hypothetical "calculated salary" you'd be paying tax on that, having already paid tax that year when self assessed believing you were outside IR35.

[mudskipper]

Sorry I've not been very clear...

Obviously if profit was £85,000 but the contractor only took £20,000 in dividends then got caught for IR35 and they need to work out a salary close to £85,000 and pay tax on it, then yes its a big deal, but for the contractor who is pretty much taking all money in the bank as dividends leaving just enough to keep the business running, then i'm not sure there is much of a penalty bsides the higher NIC payment on the whole amount rather than the basic minimum wage they took as a director?

Yes, the vast majority of the difference is Employer's NI.

[Fred Bloggs]

I think that sound you can hear is pennies dropping. The contracting boat sailed a couple or more years ago. Life as a UK based contractor isn't what it was. It's going to take a while before that grass doesn't look quite so green any more over there. The message will get through eventually. The industry is terminally fu**ed up now. There's no way back.

[northernladuk]

'what's the point of IR35 when I pay a sh*t load of tax anyway as I take all the divis in the same year?'

I think.

I thought it was 'Can someone give me a penny by penny breakdown around accounting for inside and outside IR35'

I hope so. I love threads with lots of numbers in.