Reply to: Working and paying inside IR35 (Ltd Co)

[malvolio]

Right now the "definition" - as in the bit int eh draft notes for the 2008 SA form - mean that anyone who provides service to a Ltd Co and who own shares in that company should tick the box. So that's everyone in a comapny share scheme for instance...

PCG are trying to get unambiguous legal advice on this whole area. However, since the source material is deliberately ambiguous in a truly NL manner, this may not be possible!

[SueEllen]

Here is the current wording of the question:-

Are you a Service Company?
If 'Yes', have you operated the Intermediaries
legislation (sometimes known as IR35) or the
Managed Service Companies legislation?

For more detailed information, see CWG2 Employer Further Guide
to PAYE and NICs.

---------------------------------------------------------

There is no legal definition of a service company either.

It is perfectly conceivable that ignoring the question could be justified on linguistic grounds, but I rather imagine it does fall very much into the "having a laugh" category.

Admittedly it would be quite comical to watch somebody argue the toss on the "I'm sorry this is unanswerable due to definitions" tack.

What will happen at some point the lack of definition will go to the House of Lords and Nu Liebour will just change the law so that every business of any type providing services to other businesses is caught.

[Fred Bloggs]

Is a plumber or a shoe repairer or a window cleaner a service company?

[pisces]

Many people have stated IR35 is on a contract to contract basis so I would guess it doesn't matter when you switch status providing you have the IR35 proof contracts to back you up.

Queue arguments that IR35 has nothing to do with contracts.......

[ASB]

There is no legal definition of a PSC nor is there a dictionary definition so no-one can tick the box as they don't exist.

Here is the current wording of the question:-

Are you a Service Company?
If 'Yes', have you operated the Intermediaries
legislation (sometimes known as IR35) or the
Managed Service Companies legislation?

For more detailed information, see CWG2 Employer Further Guide
to PAYE and NICs.

---------------------------------------------------------

There is no legal definition of a service company either.

It is perfectly conceivable that ignoring the question could be justified on linguistic grounds, but I rather imagine it does fall very much into the "having a laugh" category.

Admittedly it would be quite comical to watch somebody argue the toss on the "I'm sorry this is unanswerable due to definitions" tack.

[SueEllen]

A couple of points.

1) It was only necessary to "tick the box" if there was a deemed payment due. Thus if salary - over the year in question - at least covered 95% of the income from any contracts you accepted were caught there was no need to tick the box. The wording of the question is changing, either for this year or next, this is such that the box should be ticked if you have received any income from a "PSC", so everybody should ticke it when this happens..

There is no legal definition of a PSC nor is there a dictionary definition so no-one can tick the box as they don't exist.

[Sockpuppet]

Don't tick the box.

If you do get investigated and have paid the correct tax what are they going to do.

[ruth11]

Thanks ASB, number 3 in particular is a very helpful comment and something that I was obviously missing in my head!

[ASB]

Paying the tax doesn't bother me, should I end up inside. What bothers me is the potential flag I may raising. Despite having PCG insurance and being happy that my other contracts have all been legitimately outside, I don't want to be investigated purely as a result of admitting that this current contract is inside.
I don't suppose anyone really knows what raises the alarm bells for HMRC.
One suggestion from the PCG forum is to just pay myself a larger salary to cover the tax that would be due and not tick the box. Following any investigation, there would be no tax due and apparently therefore no penalties.
But then how would it look when I go back to small salary at the end of the contract? Nice idea, but still not sure of the effect it may have.

A couple of points.

1) It was only necessary to "tick the box" if there was a deemed payment due. Thus if salary - over the year in question - at least covered 95% of the income from any contracts you accepted were caught there was no need to tick the box. The wording of the question is changing, either for this year or next, this is such that the box should be ticked if you have received any income from a "PSC", so everybody should ticke it when this happens. [Yes, there is an argument that it is unanswerable since the entity it refers to is not legally defined but it is quite clear the question it is asking]

2) yes, penalties are calculated on a percentage of the tax owing. No tax = no penalty. Statutory penalties - like not filling in P35 etc - are a fixed value. Failure to fill in a self assessment return is 100 quid, then a %age of tax owing. It used to be the case (and may still be) that the penalty was not allowed to be charged if there was no tax owing in some cases.

3) How would they know you have gone back to a small salary at the end of contract without investigating? The information available to them is essentially what you provide. Your accounts will only show an annual salary of X. They have no idea if this was zero for 11 months and X for one month.

[ruth11]

Paying the tax doesn't bother me, should I end up inside. What bothers me is the potential flag I may raising. Despite having PCG insurance and being happy that my other contracts have all been legitimately outside, I don't want to be investigated purely as a result of admitting that this current contract is inside.
I don't suppose anyone really knows what raises the alarm bells for HMRC.
One suggestion from the PCG forum is to just pay myself a larger salary to cover the tax that would be due and not tick the box. Following any investigation, there would be no tax due and apparently therefore no penalties.
But then how would it look when I go back to small salary at the end of the contract? Nice idea, but still not sure of the effect it may have.

[AZZIK]

What's the general opinion on here?
Does working one contract inside IR35 and then the next outside IR35 raise immediate alarm bells with HMRC?
I heard something about having to tick a box on the year end accounts if ANY part of your earnings are inside, so presumably that will incur some sort of investigation into the other contracts for the year if you only pay PAYE for a few months on a single contract?
I have an IR35 caught contract. Hopefully I will be able to get it changed, but I was just wondering what people's thoughts are, just in case....
There are lots of professional reasons for wanting to do this contract, the fact that they are putting me through security clearance being one of them. But I want to run a legitimate business and don't want to put my company in any jeopardy by putting any part of my work through as caught by IR35 so am considering walking if nothing can be done...

If you are inside, then pay the tax. If you are outside, then declare you are outside. If you don't like it, then walk...simple. Don't p1ss about with HMRC, cos they will make your life a misery, whether you win or lose!

[Fred Bloggs]

The advice I've been given by the "experts" who advise me on contracts is that declaring some IR35 caught work is quite possibly a trigger factor to HMRC. Rather than be caught a few months back, a contract I had was clearly outside but it gradually became clear that the clients expectations were such that the actual role was clearly inside as part and parcel of their day to day management team. Rather than run the risk of an investigation that I knew I would lose, I terminated the contract.

[Archangel]

Don't tick the box!

Pay the tax.

[Bumfluff]

Isnt there a new question on the tax return this year about whether ypu have recieved income from a PSC ? I know its been mentioned before on this forum and the argument was there is no legal defintion of PSC so ignore it, what are people going to do tick it or not ?

[thunderlizard]

I asked Sarah Bauer that very same question - being an ex-tax inspector her guess is as good as anybody's. She reckoned it's a distinct possibility, which is as close as you get to "probably" in the IR35 world.