Reply to: Inside/outside tax turning into another Loan Charge debacle?

[eek]

Just for the record I gave up on IPSE as a force for change some time ago.

As far as I can make out, their concept of "double taxation" is the fee payer having to cough to HMRC the taxes now due from a corrected wrong assessment while not repaying the taxes already paid by the contractor believing they were outside IR35. If so, that is really the other side of the transfer of liability argument.

Both, imvho, need addressing.

But there won't be any double taxation in most cases.

If the contractor's company ends up repaying the agency - the company will run a loss for that period which would be reflected in a future corporation tax bill

If the contractor doesn't end up paying the tax then the tax paid will be correct at a company level but wrong on a personal level (depending on how that plays out may or may not impact the contractor personally - there are multiple options here so I'm not running through all of them).

If that's the IPSE's concern then they are even more clueless than they used to be.

[malvolio]

What double taxation? The entire problem is the tax bill sits with the Fee Payer and the Fee Payer is trying to offload it to the poor contractor.

If IPSE are talking about double taxation then (once again) they haven't got the first clue what the issue is..

Mind you, that's obvious from the utter crap they posted about umbrellas following their last meetup see February’s Member Meet-Up: A call for views on regulating the umbrella market | IPSE

1) Its not a surprise that some umbrellas charge extra to process SIPP payments. The ones that do are usually £30 cheaper than the ones that process SIPP payments within their fees. 30 seconds of research would tell you that
2) some SIPP providers won't deal with umbrella firms (because their legal advice says it needs to be directors) and some umbrellas won't deal with SIPP providers who insist on direct debits.
3) training costs - again do some research and you would know that what they are asking for just isn't legally possible...

I could come up with a whole set of issues regarding umbrellas and none of the items IPSE care about would feature in the top 10....

Just for the record I gave up on IPSE as a force for change some time ago.

As far as I can make out, their concept of "double taxation" is the fee payer having to cough to HMRC the taxes now due from a corrected wrong assessment while not repaying the taxes already paid by the contractor believing they were outside IR35. If so, that is really the other side of the transfer of liability argument.

Both, imvho, need addressing.

[jamesbrown]

I think I would use HMRC favourite term actually: carelessness. End Client did SDS and sent it to agent, agents failed to apply.

On MP, no, I haven’t written yet. I was (and still am) chasing an answer through another route. But months and got nowhere so far and not for lack of trying. Which is why wondering what next step is, to who, and if it should be co-ordinated. A letter to MP’s would be more powerful if either from a body of some type (IPSE?) or a group of people was my thinking.

Yeah, so I think your situation would not make a very good test case, unfortunately, both because it fell under the old PS rules and, more importantly, because it probably was (or could be reasonably argued to be) a genuine administrative error by the Fee Payer. As noted earlier, there are already mechanisms to fix PAYE errors (Reg. 72). That said, I don't think this is what the legislation intended (but then it was all about HMRC getting their money, not about the downstream consequences, which were largely ignored as "commercial decisions" to which eek and I both expressed amazement when we first learned about that interpretation).

Really, the best thing you can do is to write to your MP. This is precisely the sort of constituency casework that MPs engage with, day to day, so that really is your best avenue.

Forget about IPSE or other membership organisations or some sort of coordinated effort (for now) because organisations like IPSE are ships - they take too long to turn and they often crash into the dock.

[ShandyDrinker]

Write to your MP by all means, in your own words. They will ignore templated letters (quite rightly imo) but I guarantee you will get a template letter back in due course. And as I said above, UK justice doesn't really do group actions, it has to start with a single litigant, and therein lies the biggest problem.

I agree with Mal's comment here. Having written to and seen my local MP numerous times about the off-payroll rules since the public sector version was first announced, all you are likely to get is a templated letter in return for your troubles, whether from the Treasury or HMRC, depending on the query. As a casual observation over the years, MPs of all parties are mostly indifferent to IR35/off-payroll and in fact a number think it's right that entitled contractors get it stuck to them being the tax dodgers that they all allegedly are. I sincerely hope that this could become a vote losing issue for all parties but until the contracting sector comes together and forms some kind of group that everyone gets behind (crikey, couldn't the PCG or the IPSE be such a vehicle), it'll never happen.

[eek]

I think I would use HMRC favourite term actually: carelessness. End Client did SDS and sent it to agent, agents failed to apply.

On MP, no, I haven’t written yet. I was (and still am) chasing an answer through another route. But months and got nowhere so far and not for lack of trying. Which is why wondering what next step is, to who, and if it should be co-ordinated. A letter to MP’s would be more powerful if either from a body of some type (IPSE?) or a group of people was my thinking.

Nope a letter to your MP to ask for help with HMRC relating to your case is about the only way you will solve it with HMRC - no industrial group can help here because sadly your case is completely unique (albeit one that foreshadows what is going to happen when HMRC stop their softly, softly approach).

[eek]

IPSE are on the case, but are working about three months behind the reality... But given their unwillingness to indulge in stuff without clear legal guidance, they may well be waiting for a case of some kind to use as a lever. To be fair, they are pressing for some kind of mechanism to prevent double taxation being applied.

That said, nobody else I've seen has taken any notice of this particular aspect.

Write to your MP by all means, in your own words. They will ignore templated letters (quite rightly imo) but I guarantee you will get a template letter back in due course. And as I said above, UK justice doesn't really do group actions, it has to start with a single litigant, and therein lies the biggest problem.

What double taxation? The entire problem is the tax bill sits with the Fee Payer and the Fee Payer is trying to offload it to the poor contractor.

If IPSE are talking about double taxation then (once again) they haven't got the first clue what the issue is..

Mind you, that's obvious from the utter crap they posted about umbrellas following their last meetup see February’s Member Meet-Up: A call for views on regulating the umbrella market | IPSE

1) Its not a surprise that some umbrellas charge extra to process SIPP payments. The ones that do are usually £30 cheaper than the ones that process SIPP payments within their fees. 30 seconds of research would tell you that
2) some SIPP providers won't deal with umbrella firms (because their legal advice says it needs to be directors) and some umbrellas won't deal with SIPP providers who insist on direct debits.
3) training costs - again do some research and you would know that what they are asking for just isn't legally possible...

I could come up with a whole set of issues regarding umbrellas and none of the items IPSE care about would feature in the top 10....

[malvolio]

I think I would use HMRC favourite term actually: carelessness. End Client did SDS and sent it to agent, agents failed to apply.

On MP, no, I haven’t written yet. I was (and still am) chasing an answer through another route. But months and got nowhere so far and not for lack of trying. Which is why wondering what next step is, to who, and if it should be co-ordinated. A letter to MP’s would be more powerful if either from a body of some type (IPSE?) or a group of people was my thinking.

IPSE are on the case, but are working about three months behind the reality... But given their unwillingness to indulge in stuff without clear legal guidance, they may well be waiting for a case of some kind to use as a lever. To be fair, they are pressing for some kind of mechanism to prevent double taxation being applied.

That said, nobody else I've seen has taken any notice of this particular aspect.

Write to your MP by all means, in your own words. They will ignore templated letters (quite rightly imo) but I guarantee you will get a template letter back in due course. And as I said above, UK justice doesn't really do group actions, it has to start with a single litigant, and therein lies the biggest problem.

[Keanu2020]

Did you write to your MP, I forget?

From what I recall, your situation is probably not the best test case, because it happened under the old Public Sector rules and involved a "genuine" mistake with the determination, which is probably why they managed to recover the money easily. I could be wrong about this (and it stinks, nonetheless), but that is my recollection...

I think I would use HMRC favourite term actually: carelessness. End Client did SDS and sent it to agent, agents failed to apply.

On MP, no, I haven’t written yet. I was (and still am) chasing an answer through another route. But months and got nowhere so far and not for lack of trying. Which is why wondering what next step is, to who, and if it should be co-ordinated. A letter to MP’s would be more powerful if either from a body of some type (IPSE?) or a group of people was my thinking.

[jamesbrown]

@jamesbrown agree and the point of me asking questions is to try and get clarity. The ‘first principles’ example I gave came from three separate accountancy firms / advisors, not HMRC. I heard that description multiple times, but I’m not saying it is right. In my case, it absolutely transferred to the individual and got backed out of company accounts and nothing could do about it.

But your point stands and I agree, it is unclear and not legally tested.

For me , all this is about clarity now and helping everyone understand the position. You mentioned when the position “becomes more widely known and MPs get involved”. Can we collectively not get them involved now?

Did you write to your MP, I forget?

From what I recall, your situation is probably not the best test case, because it happened under the old Public Sector rules and involved a "genuine" mistake with the determination, which is probably why they managed to recover the money easily. I could be wrong about this (and it stinks, nonetheless), but that is my recollection...

[malvolio]

@jamesbrown agree and the point of me asking questions is to try and get clarity. The ‘first principles’ example I gave came from three separate accountancy firms / advisors, not HMRC. I heard that description multiple times, but I’m not saying it is right. In my case, it absolutely transferred to the individual and got backed out of company accounts and nothing could do about it.

But your point stands and I agree, it is unclear and not legally tested.

For me , all this is about clarity now and helping everyone understand the position. You mentioned when the position “becomes more widely known and MPs get involved”. Can we collectively not get them involved now?

We can try, but until someone is actually pulled up into litigation over it there won't be a lot of interest. It's an important point of course, but it needs a test case before we can actually tell MPs and the rest "This is wrong". Even then, it will take years to resolve.

For now all we can do is try to spread the word as widely as possible about the kind of care people need to apply to their contracts.

[Keanu2020]

@jamesbrown agree and the point of me asking questions is to try and get clarity. The ‘first principles’ example I gave came from three separate accountancy firms / advisors, not HMRC. I heard that description multiple times, but I’m not saying it is right. In my case, it absolutely transferred to the individual and got backed out of company accounts and nothing could do about it.

But your point stands and I agree, it is unclear and not legally tested.

For me , all this is about clarity now and helping everyone understand the position. You mentioned when the position “becomes more widely known and MPs get involved”. Can we collectively not get them involved now?

[jamesbrown]

When the determination is changed retrospectively, then it is taken back to first principles. Meaning you were inside as an Individual and your ltd becomes a moot point. Closing ltd down or anything like that won’t remove the personal tax bill that’s coming, as the view is your ltd was never part of the arrangement.

Let's not get ahead of ourselves here. We're still in the "no one really has a clue" stage of this debacle and we'll be in that phase until there is legal clarity, which will only come from additional transparency and legal proceedings. Remember, there is a difference between the advice that HMRC may be offering, informally, to their "customers", their formal position following publicity, the ITEPA and related legislation and the evolving reality when this becomes more widely known and MPs get involved. That's a lot of moving parts.

It's also worth clarifying, in case this isn't obvious, that neither myself nor eek (nor 99% of other posters here) are legal or tax experts, rather contractors with an interest in this area, albeit over many years. We may have read the legislation, particularly the relevant parts of ITEPA, and eek and others may have a decent understanding of related PAYE and other legislation, as well as the broader landscape. I have some knowledge of it. But we're not tax experts and, crucially, there are two separate things here, commercial/contract law and tax law.

Regarding that distinction, the problem with Chapter 10 is not with how HMRC reclaims any taxes owed in future, because that is covered by explicit transfer of debt rules in the legislation. In the event of fraud, the entire supply chain, including the contractors company and the contractor, personally, are potentially liable. But absent fraud (the 99%+ situation), the Fee Payer is initially liable and, in some circumstances, entities that are further up the supply chain, including the end client. Regardless, the entity that will be paying HMRC in the first instance is not the contractor's company or the contractor personally and so any attempt to recover that debt is separate and falls outwith the legislated transfer of debt rules in Chapter 10; it may not be chronologically later (e.g., if the Fee Payer already has outstanding payments that could be withheld), but it's separate.

Regarding whether or how the debt could be successfully transferred to the contractor's company and even the contractor personally, that remains murky, but I think your assessment above is wrong/premature. There is no such thing as "inside as an individual". The way IR35 works is to "look through" intermediaries in the supply chain and establish a "hypothetical contract" between the end client and the contractor as an individual, but this is purely an exercise in determining the working relationship and any liability ultimately still falls on an intermediary in most cases (with Chapter 8, the PSC, with Chapter 10, the Fee Payer, initially).

So we need to be clear about the mechanism through which a Fee Payer could transfer this debt to a contractor's PSC or even and individual contractor. The mechanism is pretty clear if the contractual terms contain claw back clauses and the entities are still in business, even more so if they propagate down to the individual contractor. Putting aside all the murkiness of the current situation, this is the clearest thing to avoid, claw back clauses. But if the contractor's company has been closed and the contract does not bind individuals, then the principles of limited liability still stand. Regarding transferring debt through the PAYE rules to the individual, there are mechanisms for this, like Regulation 72 where an employer can transfer a PAYE debt to an employee (and other rules for NIC). However, this applies in narrow circumstances, such as an error made in good faith or an employer/employee who collaborated fraudulently. In short, I doubt this would apply, so commercial terms/claw back clauses are still the clearest mechanism.

In summary, let's not get ahead of ourselves here. I think eek and I and others are flagging the potential risks, which is why I do not accept Chapter 10 work, but there is a big difference between what HMRC are advising their "customers" informally in the present circumstances and how this will ultimately play out.

[cojak]

I’m desperately trying to draft something that will be a clear and succinct warning about this.

[Keanu2020]

And there is the problem - but most people aren't aware of it yet because there has only been 1 case so far (yours) and few people are aware of it.

Worse the 3 people who are probably most aware of the actual end result are all on this forum and don't have to explain the real reality to the rest of the world (in my case fixing how umbrellas show their compliance is way more important for multiple reasons).

Wait until recruiters start 'educating' clients as well, in rush for talent will be a lot more outside roles.

[eek]

[SIZE=16px]The fact you have no real insight as well into how diligent the client was in its determination is also not helpful. There is a lot of questionable behaviour client side in the rush to try and get talent. It’s not malicious, they just don’t really understand IR35 and under pressure to get results. As the ltd, you would get an SDS, be told its outside, and it would all look good. You won’t see they re-ran the SDS 172 times to get the ‘right’ answer and recruiter was main person advising them.

Oh, and recruiters on the other hand, I think they know exactly what they are doing.

But ultimately, if you can just pass it all back to the contractor, why would anyone else in the chain care what the right answer is?

And there is the problem - but most people aren't aware of it yet because there has only been 1 case so far (yours) and few people are aware of it.

Worse the 3 people who are probably most aware of the actual end result are all on this forum and don't have to explain the real reality to the rest of the world (in my case fixing how umbrellas show their compliance is way more important for multiple reasons).