Reply to: The Daily Rumour Mill

[mjshrimpton]

Why wouldn't it? As long as the investigation wasn't in progress when you join, PEI coverage is unconditional.

You're wrong anyway. IR35 is a personally assessed tax, payable by the company and assessed on the basis that you are a disguised employee. You cannot be liable for IR35 if you are employed by anyone, an that includes Umbrellas. So your scenario won't happen.

So if it is personally assessed and then payable by the company, then all the ex-giant and other composite users can't be subject to extra tax based on a deemed salary, so going back in the Tax Tardis to december 2004, or indeed 1904 is neither here nor there?

[Bluebird]

You cannot be liable for IR35 if you are employed by anyone, an that includes Umbrellas. So your scenario won't happen.

presuming you pay full PAYE ?

[malvolio]

Why wouldn't it? As long as the investigation wasn't in progress when you join, PEI coverage is unconditional.

You're wrong anyway. IR35 is a personally assessed tax, payable by the company and assessed on the basis that you are a disguised employee. You cannot be liable for IR35 if you are employed by anyone, an that includes Umbrellas. So your scenario won't happen.

[Bluebird]

Makes you wonder though if an ex-Giant user was now a member of the PCG, whether their insurance policy would cover this....

probably not.

[mjshrimpton]

Partly true, unless the composite/umbrella are deemed to be the employers (which is not all that difficult to prove - it's certianly a lot easier than the original IR35 test) and become liable for the missing payments. Plus, of course, if that particular line of work dries up, it won't do much for their future income, will it...

I was informed by QDOS that in an IR35 investigation, it is the Employers, i.e. GIANT Powerhouse (xxxx) who are investigated for PAYE/NIC issues in the first instance, and then if the company is closed, the directors are liable for any missing money. The contractor using them was not a director so should not be part of the process.

Makes you wonder though if an ex-Giant user was now a member of the PCG, whether their insurance policy would cover this....

[bot1331]

Brookson Nightmare

Just joined today hopefully will take an active part in the debate.

I left Brookson yesterday after several weeks of misery. I may have the record having waited 50 and 60 minutes on the phone without speaking to anyone.

I still have a couple of invoices going through, I assume that if they are being paid into your new Ltd co account that money is safe. They once offered a reasonable service but now they are worse than British Gas. I would recommend if you are still with them that you dump them asap and go the traditional accountant limited company route. They do not deserve to be in business.

[malandri]

I personally do not have any sympathy for anybody that has been taking 90% of their gross income home by taking loans that were written off or by claiming expenses that were never incurred. Being greedy was never a quality anyway.

[malvolio]

Yes, isn't it. Historically, this has evolved because, since around Palmerston's day, the government has been assumed to have been composed of honourable men (and women!) who would not dream of subverting the rules to their own ends.

Sadly we no longer have an honourable government. Now we get Dim Prawn - any govenrment that puts a demonstrable tax defaulter in charge of the nation's taxation is beyond being a joke.

[Rebecca Loos]

very interesting Malvolio - so the law gives in principle the right to HMRC to collect taxes but leaves with them the criteria under which each individual/entity is to be taxed.. This is actually quite amazing. Thanks for that.

[Bookworm]

Clarity is a very good thing, but think that when anyone uses the term umbrella they need to understand that there are umbrella companies that offer the regular PAYE (Safe option) but they also offer the composite scheme which is obviously a lot more risky.

this is not about legal or illegal, merely that Hector will apply IR35, and where tax is owed in their opinion, they will go back for several years (6). This is about minimising risk. Either way if Hector has his way, which I believe he will, then anyone within a composite arrangement through an ' umbrella company' will suffer the consequences.

When will everyone wake up and smell the coffee, that Hector will close down the offshore schemes very soon, and next on the list is the composite schemes. Thats why rumours are out there about a number of companies, who offer all options, being investigated.

We all have our ear to the ground, so why cant we share what we have heard to help everyone

[malvolio]

No it's not bollocks, but sadly it is wrong. At the Pre-Budget Statement in 2004, our beloved Paymaster General took the right to backdate tax regulations to that date (14th December 2004, as I recall) and penalties can and will be retrospectively applied for situations in existence at that time and subsequently found to be against the rules.

She carefuly did not exclude the case where things become against the rules as a result of later rule changes. And since the way in which tax is collected is not defined by laws (they're actually regulations, not laws: it's the right to charge taxes that are laws, not the calculations or definitions), you won't be able to challenge it through the courts.

Hell, this is a government that has decided to do away with Parliament and Magna Carta. You don't think a little usury is beyond them, do you?

[Rebecca Loos]

In every case it would be the contractor that would be left to carry the can.

Can I ask why that is?

Let's review the situation: you (the contractor) are using a structure that is perfectly legal at the time. Perfectly legal. Yes it may be tax avoidance, but avoidance is not illegal. Evasion is. Not avoidance.

so you are using a structure that is legal. Years later, the IR decides that it is not legal any more. Fine. As long as the law backs them up, then OK, it is, from that point onwards, not legal.

What gets me, is that why is something that was deemed (and proved) legal at time A become retrospectively illegal when, at time B in the future, the law changes.

I strongly disagree with that apprach to law (it becomes actually a point of law, rather than just a point of tax), and I do believe that the IR is kidding itself if it believes that it can retrospectively charge penalties for something that was not illegal when it was used. Well actually it can try and charge penalties, but surely a court would not agree with them.

The Arctic case re S660a is different as the law didn't need to change for the IR to argue that it is right to interpret in a different way a point of law that always existed.

What is happening with some schemes is that they have been submitted to the IR for review. The IR declared them not illegal (hence legal). A few years later, they decide that it was illegal. Well, no. Sorry but that cannot work. I am waiting to such a case to go to court, even as far as the House of Lords, for the IR to be defeated and fall flat on its face. Can't wait.

PS: please note that it is Friday and I have just been to the pub and had 3 drinks and am feeling a bit merry so the above may be totally bollocks

[simondolan]

Revenue

There seems to be some mixing up of umbrellas and composites into the same bag, but they are fundamentally different.

1. An Umbrella Company treats you like an employee i.e. all income is paid out as salary and expenses. I would say that the Companies with the highest chance of investigation in this field would be those who advertise and encourage contractors to claim for expenses that they do not actually incur.

2. A Composite Company is one in which you are a minority shareholder, usually one of 26 shareholders within one Company. By giving a different class of share to each shareholder the Composite Company can pay dividends of different amounts to each individual contractor. In this way the contractor receives a mix of salary (usually very low), dividends and expenses.

I'd say that this arrangement is more likely to be investigated for a few reasons:

a) The potential tax take is higher;
b) The structure itself is artificial;
c) There are IR35 implications i.e. if a working arrangement was found to be caught by IR35 then the contractor would get caught for the PAYE on the deemed salary

In terms of offshore schemes, it is only a matter of time before these get closed down. Very much buyer beware, regardless of which tax council has approved it.

In every case it would be the contractor that would be left to carry the can.

Safest way to trade is through your own Ltd Company or an umbrella, but making sure to claim only those expenses you have incurred.

[malvolio]

Partly true, unless the composite/umbrella are deemed to be the employers (which is not all that difficult to prove - it's certianly a lot easier than the original IR35 test) and become liable for the missing payments. Plus, of course, if that particular line of work dries up, it won't do much for their future income, will it...

[Bookworm]

I think you will find that the composite providers are not really bothered, there are composite providers on this site that are advertising so they are most probably just burying their heads in the sand, afterall, it is not the umbrella that is going to have the problem, it is the contractor who is going to get hit with back taxes and fines and interest.