Reply to: New to ltd company and have a few questions

[DonaldG]

The point I took exception to, and maybe I was a bit harsh, was the fact that one of your earlier posts implied that financial risk was the most important factor in an IR35 defence and that substitution was a secondary factor. Control and MOO weren't mentioned.

This I felt was misleading as it is undoubtedly the case that substitution, control and MOO are the three most important factors whereas financial risk in itself whilst important, is not as important as the other three..

Muscat vs C&W is only one of many many cases where these three have been crucial.

Reading back, i agree, it probably was a bit misleading, i should re-read my posts before clicking submit.

Still not covinced HMRC are going to aggressively chase IR35, but then i am an optimist. PAYE audits seem to be more straightforward and more of a money spinner for them

[THEPUMA]

I didn't say there were differing opinions that substitution, MOO and control are crucial factors, you seem to have misunderstood. All i meant that each different case will have different circumstances.

The HMRC and the Accounting Institutes are still having meetings on how to interpret the Dragonfly ruling, so i would say nothing is set in stone.

Also in the Muscat v C&W case, MOO and control were crucial, but this doesn't apply to all cases.

I would suggest if you ever get the IR35 knock on the door, go an see your accountant/lawyer.

The point I took exception to, and maybe I was a bit harsh, was the fact that one of your earlier posts implied that financial risk was the most important factor in an IR35 defence and that substitution was a secondary factor. Control and MOO weren't mentioned.

This I felt was misleading as it is undoubtedly the case that substitution, control and MOO are the three most important factors whereas financial risk in itself whilst important, is not as important as the other three..

Muscat vs C&W is only one of many many cases where these three have been crucial.

[DonaldG]

Again, nonsense I am afraid. There are no differing opinions between the experts on whether or not substitution, MOO and control are crucial factors.

We have binding case law precedent which means that principles can be consistently applied in similar circumstances so it isn't dangerous to assume that these can be relied upon.

I didn't say there were differing opinions that substitution, MOO and control are crucial factors, you seem to have misunderstood. All i meant that each different case will have different circumstances.

The HMRC and the Accounting Institutes are still having meetings on how to interpret the Dragonfly ruling, so i would say nothing is set in stone.

Also in the Muscat v C&W case, MOO and control were crucial, but this doesn't apply to all cases.

I would suggest if you ever get the IR35 knock on the door, go an see your accountant/lawyer.

[THEPUMA]

Say a contract fails on ROS (due to Dragonfly ruling) but succeeds on MOO and D&C. Is this enough to win the day and be outside IR35?

QB.

Yes any one of the three is sufficient. Incidentally, Dragonfly didn't particularly tell us anything we didn't know about substitution. See http://www.accountax-ltd.com/Account...onfly-full.htm for Accountax's synopsis of the case.

[QwertyBerty]

There are no differing opinions between the experts on whether or not substitution, MOO and control are crucial factors.

Say a contract fails on ROS (due to Dragonfly ruling) but succeeds on MOO and D&C. Is this enough to win the day and be outside IR35?

QB.

[THEPUMA]

I think with all the different opinions, means that each case stands on its own merits and circumstances. Dangerous to assume if one rule saves one person then it will automatically apply to you.

Again, nonsense I am afraid. There are no differing opinions between the experts on whether or not substitution, MOO and control are crucial factors.

We have binding case law precedent which means that principles can be consistently applied in similar circumstances so it isn't dangerous to assume that these can be relied upon.

[Tingles]

Substitution

So, as I work from home on Fridays....

I email the client that my co-director will be proofing reading a long report / process documents etc. As I'm unavoidable detained elsewhere on Friday....

They agree by email - I keep the evidence, sorted?



T

[DonaldG]

I think with all the different opinions, means that each case stands on its own merits and circumstances. Dangerous to assume if one rule saves one person then it will automatically apply to you.

[THEPUMA]

It's irrelevant in the sense that just writing "I will work like this" isn't the be all and end all.

That doesn't make it irrelevant. It is a statement signed by both parties. Of course, if it is a sham, it can be overridden. But the onus is on HMRC to prove that it is a sham.

[Beefy198]

How can the contract be irrelevant? It is the prima facie piece of evidence HMRC will look at initially. Read the Dragonfly decision. There are vast swathes relating to the contractual terms.

It's irrelevant in the sense that just writing "I will work like this" isn't the be all and end all.

[THEPUMA]

Crikey you guys are supposed to be contractor specialist accountants. The ignorance on here in relation to IR35 is astonishing!

Your contract is irrelevant - its your working practices that matter. But I still wouldn't show it to the tax office.

How can the contract be irrelevant? It is the prima facie piece of evidence HMRC will look at initially. Read the Dragonfly decision. There are vast swathes relating to the contractual terms.

Having been involved with several tax investigations (from the good guy's side - ie the accountant/taxpayer), if you show that you have a fair element of financial risk - ie if the project goes belly up you don't get paid, you should be ok. Also susbstitution is a strong point - that is sending someone else in if you can't make it - this doesn't have to actually happen, only the option needs to be there.

Recently the Revenue hadven't really been chasing IR35 as it has not been too successful for them, there are going more for BN66, S660 and PAYE.

"Also, substitution is a strong point"! Substitution is, and always has been, one of three crucial factors, which on their own can will you a case. Financial risk is not one of these.

I thought recently the opposite had been shown, that having the option wasn't enough, the right of substitution had to actually be used to provide much defense.

No all that Dragonfly showed was that if the right of substitution was unreasonably fettered, it was ineffective, which we already knew.

You are right Bunk. The recent Dragonfly case proved beyond doubt that the revenue will not accept a ROS in the contract unless the contractor can prove that they could provide a substitute, qualified to perform the role, in their absence and that the client would accept said substitute without question.

Not quite right. The client can still have the right to give prior written consent, provided that consent cannot be unreasonably withheld.

[LisaContractorUmbrella]

I thought recently the opposite had been shown, that having the option wasn't enough, the right of substitution had to actually be used to provide much defense.

You are right Bunk. The recent Dragonfly case proved beyond doubt that the revenue will not accept a ROS in the contract unless the contractor can prove that they could provide a substitute, qualified to perform the role, in their absence and that the client would accept said substitute without question.

[Bunk]

You right it is the working practices that matter, but it is still important to have a good contract. Your accountant or agency should be able to provide you with one. I have a standard contract template, you can use if you can't get your hands in one. However you should never show this to the tax office unless specifically requested from them.

Having been involved with several tax investigations (from the good guy's side - ie the accountant/taxpayer), if you show that you have a fair element of financial risk - ie if the project goes belly up you don't get paid, you should be ok. Also susbstitution is a strong point - that is sending someone else in if you can't make it - this doesn't have to actually happen, only the option needs to be there.

Recently the Revenue hadven't really been chasing IR35 as it has not been too successful for them, there are going more for BN66, S660 and PAYE.

I thought recently the opposite had been shown, that having the option wasn't enough, the right of substitution had to actually be used to provide much defense.

[DonaldG]

Your contract is irrelevant - its your working practices that matter. But I still wouldn't show it to the tax office.

You right it is the working practices that matter, but it is still important to have a good contract. Your accountant or agency should be able to provide you with one. I have a standard contract template, you can use if you can't get your hands in one. However you should never show this to the tax office unless specifically requested from them.

Having been involved with several tax investigations (from the good guy's side - ie the accountant/taxpayer), if you show that you have a fair element of financial risk - ie if the project goes belly up you don't get paid, you should be ok. Also susbstitution is a strong point - that is sending someone else in if you can't make it - this doesn't have to actually happen, only the option needs to be there.

Recently the Revenue hadven't really been chasing IR35 as it has not been too successful for them, there are going more for BN66, S660 and PAYE.

[mkant]

God, don't show it to the tax office. I showed them a contract just when IR35 came out, 2001, and they instantly turned it down. I knew their decision was on the wrong side of borderline, but it took me 3 more letters and a friend's help to get the Status Team Leader to 'accept that the contract with xxx falls outside the legislation'. I keep good care of that letter .

It's just not worth the bother - I think I was lucky to get away with what happened.