Is previous tax paid taken into account on an IR35 assessment?

[BlueSharp]

Snip..

Thanks for that it looks very informative and positive. For those who income split as well I guess it becomes even more complex as a refund is due on a spouses self-assessment.

If HMRC charge interest on money owed does that mean interest is due on the corporation & div tax already paid or would a settlement be reached where interest is due on the difference?

[Paralytic]

Re. HRMC accepting previously paid corporation tax offsetting any future IR35 personal tax bill, note the footnote on the home page article on this site:


(my bolding)

HMRC scrapes IR35 win against BBC presenter trio who owe GBP920,000

Editor's Note: It is understood that the presenters do not owe £920,000 in practice, although this was the figure HMRC was pursuing. Two-thirds of this sum has been paid (largely in the form of corporation tax which the presenters will now get back), and most of the remainder is Employer's NICs. Meanwhile, a figure between £200,000 and £300,000 has reportedly been settled on and agreed by the presenters. This figure is that which the BBC has signalled its intention to help the presenters pay.

There's also comments on this article

Three BBC presenters lose IR35 case | AccountingWEB

An iterative calculation is then needed to calculate the employers' NI plus salary from which income tax plus employees' NI is deducted. So the contractor is liable for income tax plus a total of 25.8% NI reducing to 15.8% as salary is increased. Any corporation tax paid is deducted from assessments. Interest on monies owed to HMRC is also payable and liable to be substantive.

"With it being a Ltd company, any profit after payroll and other tax deductible expenditure would be taxed at corporation rates - will they get that back as an offset?"
Yes.

Not the same, but I also found this interesting BBC memo from back in March detailing how they're approaching cases where the enforced people to work via a PSC

BBC - Update on HMRC discussions - Media Centre

We have put in place a set of principles we intend to use to ensure fairness and consistency in how we calculate our contribution to any outstanding amounts sought by HMRC. These would apply either to an overall settlement with HMRC or resolving individual cases where presenters are being investigated. This will include covering the difference between the PAYE and National Insurance contributions due from the PSC on BBC income under IR35 and the corporation tax payable by the PSC and dividend tax payable by the shareholders of the PSC on BBC income. It will not cover any income tax the PSC has yet to pay out on BBC fees as a result of its own tax planning.

Nothing conclusive, but there's certainly some talk of already paid CT being taken into account.

[jamesbrown]

The problem with the scheme folk is their fees never went on any tax let alone the wrong tax.

My understanding is if you can show due diligence i.e. contract reviews that can be used to prevent penalties being applied or even having the liability transferred from PSC to personal tax, there is no LTD protection for the scheme users. IMO a worse case scenario where the PSC has been diligent and then lost at a tribunal it would be liable for the contract length or 4 years which ever is shorter worth of back tax for the corrected amount.

I agree, but with the caveat that it's untested in this particular area of tax law, AFAIK. There is a high bar for transfer of debt, but that's another way of saying there is a bar. Certainly, if you've had contract reviews and you are self-evidently not closing your company to try to circumvent paying tax, then it seems remote but, as always, evidence matters, so record things.

I always point to Jessica's blog on this because it's a good summary, albeit a few years old now:

IR35 and Personal Liability - can HMRC proceed against an individual? - Whitefield Tax Limited - Isle of Wight Accountants - IR35 specialists

[BlueSharp]

I think we can say with a good degree of certainty, based on the evidence available, that HMRC don't do this - look at tribunal proceedings for evidence of disputes about quantum. This isn't really surprising; it's a dispute.

However, what is perhaps more important is the ability to refer back to a tribunal judge on quantum, which should lead to a more balanced view. In practice, I think the effect will generally be as you describe, but it is far from certain - look to the scheme folks for the shenanigans there w/r to tax due (sure, these vehicles shouldn't have been used, but their treatment has been pretty brutal, to the fullest extent of the law and arguably beyond).

The problem with the scheme folk is their fees never went on any tax let alone the wrong tax.

My understanding is if you can show due diligence i.e. contract reviews that can be used to prevent penalties being applied or even having the liability transferred from PSC to personal tax, there is no LTD protection for the scheme users. IMO a worse case scenario where the PSC has been diligent and then lost at a tribunal it would be liable for the contract length or 4 years which ever is shorter worth of back tax for the corrected amount.

[jamesbrown]

so to address that one would hope that HMRC look at the amount received against what they expect to have been paid and request the balance.

I think we can say with a good degree of certainty, based on the evidence available, that HMRC don't do this - look at tribunal proceedings for evidence of disputes about quantum. This isn't really surprising; it's a dispute.

However, what is perhaps more important is the ability to refer back to a tribunal judge on quantum, which should lead to a more balanced view. In practice, I think the effect will generally be as you describe, but it is far from certain - look to the scheme folks for the shenanigans there w/r to tax due (sure, these vehicles shouldn't have been used, but their treatment has been pretty brutal, to the fullest extent of the law and arguably beyond).

[Hobosapien]

Logically HMRC are rewriting history when they make a determination that IR35 should have applied for a specific period, where the type of tax paid was wrong (corp/divi tax was paid when it should have been employee related taxes), so to address that one would hope that HMRC look at the amount received against what they expect to have been paid and request the balance.

Under normal circumstances I can't see how corp tax/divi tax could outweigh employee related taxes, otherwise IR35 wouldn't be needed, so no relief needs claiming for already paid tax as you wouldn't be getting a refund.

This is one for the accountants that have dealt with IR35 cases where the already submitted accounts need re-evaluating and likely re-submitting with the corrections to meet the type of tax being requested by HMRC, to say if logic stands up to HMRC reasoning. That's not a given.

[jamesbrown]

Not necessarily, because there are different time limits to correct mistakes related to different taxes, and that interacts with the period that has elapsed since the disputed period. So, strictly speaking, you may not be able to correct the mistake and hence claim relief.

If HMRC wants to play hardball, they can. See, the Ackroyd case, for example, where the disputed tax was vastly different according to each party. But no one knows the outcome of these cases. In principle, it can be referred back to the tribunal for a decision by the judge.

[northernladuk]

Are the interest and penalties discretionary, based on if HMRC think you were being deliberately misleading or very very naughty? Have there been any penalty cases?

IR35 enquiry by HM Revenue and Customs - GOV.UK

[Blert596]

Plus interest, plus penalties of up to 100% of tax owed a well surely?

Are the interest and penalties discretionary, based on if HMRC think you were being deliberately misleading or very very naughty? Have there been any penalty cases?

[northernladuk]

Plus interest, plus penalties of up to 100% of tax owed a well surely?

[malvolio]

I asked that question around 20 years ago. I've yet to see an answer. HMRC won't tell us because "tax affairs are strictly confidential".

[realaledrinker]

Should the Taxman ever come a-calling claiming my contract is within IR35 and raises an assessment, would all taxes already paid which were generated from the contract so far be taken into account?

I’m thinking Corporation Tax and Income Tax paid on dividends (not forgetting the 20% irrecoverable VAT on a finance industry contract but let’s exclude that).

If my contact earned say £50K fees, PSC pays circa £10K corporation tax and pays out 100% of what’s left in divis, then I calculate a total tax bill of around £11.9K. If the £50K has been earned as an employee, I would pay around £10.9K in tax and NI (oversimplification granted).

Same assumptions on £100K gives me £29.2K total tax PSC route and £32.5K employed. So would the Taxman just come after the difference?