Reply to: HMRC Investigation Protection

[Mister Clark]

this caught my eye , i would be interested in how you get money out at between 0% and 10%

I think s/he means after corporation tax.

0% - Below personal tax threshold for the year (drip feed any company reserves out).
10% - Entrepreneurs relief (can’t remember the HMR&C code)

[mrdonuts]

you will end up paying 25/36/46% on dividends which you could otherwise have left in the company and ultimately get out at somewhere between 0% and 10%.

Given the stats re number of IR35 enquiries, personally I would risk it for a biscuit.

this caught my eye , i would be interested in how you get money out at between 0% and 10%

[centurian]

So I take it that as long as I am doing short term contracts with short term renewals and that the projects I am working on are clearly defined (if not in the actual contract then verbally or emailed with the client) then I am in the same boat as Mr Spencer prior to 2003.

Yep, here are the main points I see from this

1. Don't stay with a client too long. A lot of "experts" stubbornly claim this has no bearing on IR35 - advice which is starting to look like unrelenting bull-tulip. All the main IR35 losses have involved long engagements.

2. Focus on specific projects, rather than being a general fixer. This may be easier said than done, especially as time goes by - refer to point 1 again.

3. It only takes a few small points to nail you. This guy wasn't generally complacent with IR35. He even paid for his own food at the Christmas dinner. The rolling contract was obviously a mistake, but I suspect he had convinced himself that it wasn't an issue. Hindsight is a wonderful thing.

[prozak]

How can you be confident when the findings call substitution a sham and question MOO?? Your two major saftey factors have gone. Even though I have tried to understand IR35 and push the issue hard this still worries me.

Because the ruling even though it questions a lot of things also said that before he started getting the 12 month contracts he was not a disguised employee.

That was based on the fact that he appeared to be in business of his own accord. The substitution is always a questionable one anyway. And the MOO for Mr Spencer became a sham when he started signing 12 month rolling contracts. Epic Fail on his part really. He should have understood IR35 better.

So I take it that as long as I am doing short term contracts with short term renewals and that the projects I am working on are clearly defined (if not in the actual contract then verbally or emailed with the client) then I am in the same boat as Mr Spencer prior to 2003.

[LisaContractorUmbrella]

It's a bit more serious than that. Potentially this case has over-ridden the original RMC case that defined what is an employee-like relationship.

Yes the reality and the contract have to be aligned, Dragonfly established that, but that reality does include Mutuality of obligation, rights of substitution and limited control. If these are to be ignored on the basis that I don't otherwise look like a business - which has no bearing on how the work is performed - then I think we kind of need to get it written down.

I agree, it is serious but this is why I have been saying that you cannot ignore IR35; tax law and employment law should be separate but, somehow, over the years HMR&C have successfully muddled them and what used to be relied on can be relied on no longer.

[northernladuk]

I'm confident there is no change I need to make in my work practices or contracts.

How can you be confident when the findings call substitution a sham and question MOO?? Your two major saftey factors have gone. Even though I have tried to understand IR35 and push the issue hard this still worries me.

[prozak]

Seems to me not much change is required at all.

The problem with this case appears to be the 12 month rolling contracts and lack of project work. Before those started the ruling was that he wasn't an employee.

I agree that once those started he looked like an employee.

I'm confident there is no change I need to make in my work practices or contracts.

[malvolio]

Yep totally agree but throwing away your contracts won't change the way that you operate which is what I have been saying all along and this case has kind of proven

It's a bit more serious than that. Potentially this case has over-ridden the original RMC case that defined what is an employee-like relationship.

Yes the reality and the contract have to be aligned, Dragonfly established that, but that reality does include Mutuality of obligation, rights of substitution and limited control. If these are to be ignored on the basis that I don't otherwise look like a business - which has no bearing on how the work is performed - then I think we kind of need to get it written down.

[LisaContractorUmbrella]

Case Law precendents are set by the last case to be tried. If the resultant precendent is perverse, as this appears to be (to my mind, at least, although varius others seem to agree) then it shouldn't be allowed to stand. That means appeals which cost money - from around £15k upwards to around £500k if taken to the extreme. I don't think Mr Spencer will be wanting to spend that money himself.

If the result is appealed and allowed to stand then fine, we then know the rules have changed and we can all throw away our contracts and start again. If the ruling is reversed, we're back where we were. Either way is a result.

So, hands up all the organsiations with the funds, the interest and the willingness to support such an appeal... Ermm...

Or Mr Spencer may well take the entirely sensible line that the case is done and he isn't interested in pursuing it further, even for free; he wouldn't be the first. In which case, RoS and MOO are dead in the water. Whic personally is what I think is going to happen.

Yep totally agree but throwing away your contracts won't change the way that you operate which is what I have been saying all along and this case has kind of proven

[THEPUMA]

No, we are in total agreement.

OK good.

[malvolio]

Yep the PCG has a magic wand that puts the imperius curse on tribunal commissioners so that they don't ever find against them and obviously all other legal representations are just pants

Case Law precendents are set by the last case to be tried. If the resultant precendent is perverse, as this appears to be (to my mind, at least, although varius others seem to agree) then it shouldn't be allowed to stand. That means appeals which cost money - from around £15k upwards to around £500k if taken to the extreme. I don't think Mr Spencer will be wanting to spend that money himself.

If the result is appealed and allowed to stand then fine, we then know the rules have changed and we can all throw away our contracts and start again. If the ruling is reversed, we're back where we were. Either way is a result.

So, hands up all the organsiations with the funds, the interest and the willingness to support such an appeal... Ermm...

Or Mr Spencer may well take the entirely sensible line that the case is done and he isn't interested in pursuing it further, even for free; he wouldn't be the first. In which case, RoS and MOO are dead in the water. Whic personally is what I think is going to happen.

[Lewis]

I'm not sure if we are talking at cross purposes. My understanding is that you were suggesting that you draw out all of your earnings on an arising basis in order to insulate yourself against IR35 liabilities. I am saying that the downside to that course of action is that you will end up paying 25/36/46% on dividends which you could otherwise have left in the company and ultimately get out at somewhere between 0% and 10%.

Given the stats re number of IR35 enquiries, personally I would risk it for a biscuit.

No, we are in total agreement.

[LisaContractorUmbrella]

Yep the PCG has a magic wand that puts the imperius curse on tribunal commissioners so that they don't ever find against them and obviously all other legal representations are just pants

[malvolio]

I bow to your wisdom then sir.

So HMRC knew they would only get 2K from this case thus did they pick an easy target knowing the big boys like the PCG defenders were not involved and he was easy pickings to set preident.?

I can imagine PCG funding the appeal though. Too many dodgy conclusions in there to let this one go unchallenged.

[tarbera]

opps

Fairly regular dealings, what with me being a tax accountant and all.

I bow to your wisdom then sir.

So HMRC knew they would only get 2K from this case thus did they pick an easy target knowing the big boys like the PCG defenders were not involved and he was easy pickings to set preident.?