Reply to: IR35, a hypothetical situation

[wurzel]

Where's that then?

Well, anywhere overseas where the IR has no jurisdiction. I don't think I'm going to get extradited because I have a large unpaid tax bill am I? I mean, I'm no criminal after all!

[expat]

Suppose I get involved in some protracted IR35 investigation that may or may not cost me tens of thousands of pounds, I may just sell up and disappear abroad somewhere out of harm's way.

Where's that then?

[ASB]

Which suggests that if you are inside IR35 you should only pay yourself once a year?

Nope. Part of the calculation of the deemed payment considers the amount of salary really paid. It is a balancing thing to ensure that at the end of the tax year - irrespective of what it has ACTUALLY paid in salaries - the company is taxed on any excess between the actual salary and 95% of the relevant income.

[Bluebird]

The link also says

"Where an engagement falls within the IR35 legislation, then the intermediary is responsible for calculating the amount of the IR35 Deemed Payment. This deemed payment normally arises at 5 April each year. "

Which suggests that if you are inside IR35 you should only pay yourself once a year?

[Jubber]

Well you've copied just the one sentence, and not the rest of the pargraph that supplies the context, but okay.

Regardless, it says "normally rests with the PSC", not always.

I agree, it does say normally, and that is good enough for this company. Have the revenue ever used any 'black and white' language with IR35?

[VectraMan]

Not out of context at all. It states quite clearly who the liability is with. If it was with the 'individual directors' then it would say that.

Well you've copied just the one sentence, and not the rest of the pargraph that supplies the context, but okay.

Regardless, it says "normally rests with the PSC", not always.

[Jubber]

That's in the section under agencies. Taken out of context as you have it does suggest the liability is with the PSC and nobody else, but in context what they're saying is the liaibility doesn't lie with the agent.

Not out of context at all. It states quite clearly who the liability is with. If it was with the 'individual directors' then it would say that.

Do you work for Sunday Solutions by any chance?

[Jubber]

If your employer pays you money that you know hasn't had the correct amount of tax paid, are you then liable for that tax? I think you are. And as a director, you can't claim not to know.

Well that's my point really, how could I possibly know that I haven't paid the correct amount of tax? I have paid the correct amount of tax. As far as I was concerned I was outside of IR35 and I have all the paperwork to prove it. How can than possibly be negligent?

If I knew that I was inside IR35 - then that is different, that is negligent, or possibly evasion, but as far as I am concerned as I sit here today, I am outside of IR35 and I have the working practices and documentation to prove it.

[VectraMan]

The liability for tax and NICs normally rests with the Personal Service Company or partnership

That's in the section under agencies. Taken out of context as you have it does suggest the liability is with the PSC and nobody else, but in context what they're saying is the liaibility doesn't lie with the agent.

[Bluebird]

I disagree



Taken from here ...

Link to HMRC

ok, I stand corrected.

I guess from the links point of view your Ltd is the "intermediary" ?

[VectraMan]

No it's not. IR35 is set to ensure that the income *your* company receives is subject to PAYE. This is subtly different. There is no point in the process at which this is actually your personal income. I personally think there is a very good chance their will be no transfer of the debt without proving negligence.

If your employer pays you money that you know hasn't had the correct amount of tax paid, are you then liable for that tax? I think you are. And as a director, you can't claim not to know.

Furthermore, if the money has been paid to you as dividends, then those dividends were paid from profit you didn't actually make (because you were subsequently found to be inside IR35). That doesn't suggest any wrong doing on your part, you paid dividends in good faith at the time, but that doesn't mean you have a right to keep them. If you have to repay dividends, then the company has enough money to pay the new tax bill. If you don't repay the dividends, but they're reclassed as income not actually coming from profit, then you're liable for the extra tax anyway. I suspect the latter is what HMRC would try.

Maybe. I doubt we'll ever know until somebody tries this defence.

[Jubber]

I'm not sure I would agree with you Jubber.

IR35 is set to prove that the income you recieve should have been subject to PAYE, your company may well have to cough for the employers NI, but employee NI and Income Tax is yours persoanally.

I disagree

The liability for tax and NICs normally rests with the Personal Service Company or partnership.

Taken from here ...

Link to HMRC

[ASB]

I'm not sure I would agree with you Jubber.

IR35 is set to prove that the income you recieve should have been subject to PAYE, your company may well have to cough for the employers NI, but employee NI and Income Tax is yours persoanally.

No it's not. IR35 is set to ensure that the income *your* company receives is subject to PAYE. This is subtly different. There is no point in the process at which this is actually your personal income. I personally think there is a very good chance their will be no transfer of the debt without proving negligence.

[Bluebird]

I'm not sure I would agree with you Jubber.

IR35 is set to prove that the income you recieve should have been subject to PAYE, your company may well have to cough for the employers NI, but employee NI and Income Tax is yours persoanally.

[Jubber]

Suppose I get involved in some protracted IR35 investigation that may or may not cost me tens of thousands of pounds, I may just sell up and disappear abroad somewhere out of harm's way. What worries me is that the IR must realise that this would be the chosen course of action for a lot of people in these circumstances so my question is could they prevent me from selling any assets (house etc) during an investigation or while appeals are pending? I assume not as it would be a breach of human rights - innocent until proven guilty etc.

Negligence is the key.

Run your business in the way it should be run, take all the money out and spend it, why not? You've earned it. If your paperwork is all in order and you have processed everything the way it should be, sit back and relax. Take your money and enjoy.

If Hector comes a knocking and spins a famous yarn that means your company has to cough, no worries, as I've said before (IMHO), hand him the empty business bank account and the office stapler. For Hector to touch you personally he would have to prove your director(s) acted with negligence. That is a much more difficult thing to prove.

Hang loose mother goose, don't let this IR35 scarey stuff get you down.