Originally posted by IR35 Avoider
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Reply to: Employer's NI liability when IR35 Caught
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Previously on "Employer's NI liability when IR35 Caught"
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Google found me this link.
IR35 and Personal Liability – can HMRC proceed against an individual? | Whitefield Tax Limited
Edit: Having now read the article, it differs from what I said above in that it seems to be saying that even income tax may not be collectible from the individual. I hereby change my mind!Last edited by IR35 Avoider; 10 October 2012, 12:57.
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Originally posted by Jessica@WhiteFieldTax View PostI did a short research paper on this earlier this year, if anyone would like a link, please contact me via PM - I understand its against site rules to publish a link?
IR35Avoider just pm'd me saying he would take the rap for it so get the link up!!
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Originally posted by Jessica@WhiteFieldTax View PostAgree an employee is not liable for employers NI. However a company director can have personal liability for failed tax obligations of the company. That would include Ers.
(And if I'm wrong to think we are in agreement - your opinion is obviously better than mine.)Last edited by IR35 Avoider; 10 October 2012, 12:03.
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Originally posted by IR35 Avoider View PostAn employee is not liable for employer's NI. There are no specific provisions in IR35 that override this.
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Personal liability is a complex area. Its not clear cut, and depends in no small part on diligence of making the IR35 decision.
Put simply - someone who makes every effort to assess their IR35 status and work compliantly, can probably defend personal liability. Someone who has just assumed they are outside of IR35 and worry about it later, probably can't.
A few years ago we had just that scenario with a client. Failed status inspection (handled by Qdos), company in process of closing down and no funds, HMRC assessed the director. Client referred to Accountax who defended the position.
I did a short research paper on this earlier this year, if anyone would like a link, please contact me via PM - I understand its against site rules to publish a link?
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Originally posted by Ignis Fatuus View PostHence for example taxed as employee without any employee benefits.
IR35 creates a deemed payment, an amount on which tax is due as if there were salary of that amount. With regard to the deemed payment, the position is exactly the same as for any employee working for a company that they do not own. Income tax and employee NI is due from the individual, and employer's NI is due from the company. The company has a responsibility in the first instance to deduct all three. If it fails to, only the first two can be recovered from the individual-as-employee.
In the contractor case, although a theoretical possibility exists to go after the individual-as-director for the employer's NI, in practice this route isn't really open.Last edited by IR35 Avoider; 10 October 2012, 11:24.
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Originally posted by Kanye View PostThe problem with this is that you have to withdraw all of your earnings at a faster rate than you would otherwise. I'm almost better to take the IR35 risk than withdraw 100k+ a year from the company just to close it down.
1. 7K salary
2. 3K childcare
3. dividends up to higher-rate threshold
4. pension for the rest.
No funds in the company to pay any backlog of employers NI. Pension amounts intrinsically IR35-proof.
(Edit: the attraction of this strategy is obviously age-dependent. Makes more sense for a 45-year-old than a 25-year-old.)Last edited by IR35 Avoider; 10 October 2012, 11:23.
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Originally posted by palatino winotype View PostBut how? I'm a disguised employee. I can see how the company would be liable but not me as an individual.
Sounds like HMRC are having their cake and eating it.
I.e. yes they are eating their cake and having it. And their answer to that is that if you just accepted the status of employee in the first place then everything would be all right.
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Originally posted by palatino winotype View PostBut how? I'm a disguised employee. I can see how the company would be liable but not me as an individual.
Sounds like HMRC are having their cake and eating it.
It definitely is very difficult to transfer liability to you, I think they would have to do something like prove negligence/fraud as a director, which given intrinsic uncertainty of IR35 would be be virtually impossible. The article I mentioned definitely agreed with me on this point.
Many years ago I studied IR35-avoidance schemes, so did have reason to study the circumstances in which PAYE obligations could be transferred to employee.
The good news was that where one was not a director of the tax-avoidance vehicle, it was not even clear-cut that employee tax and NI could be transferred, even though employees are nominally liable for those. (Although not clear-cut, in practise they probably could be transferred though.)
In your case, you would be liable for those, as the failure to deduct the right amount would be an error made in good faith by the company, and in those circumstances HMRC can collect from the individual.
The reason it is not a slam-dunk that employee tax and NI can be collected from an individual is that there are specific provisions to protect employees from employers who deliberately do not make correct payments. This scenario does not help contractors who are directors though.Last edited by IR35 Avoider; 10 October 2012, 11:04.
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Originally posted by palatino winotype View PostBut how? I'm a disguised employee. I can see how the company would be liable but not me as an individual.
Sounds like HMRC are having their cake and eating it.
YourCo would be liable and if you have the retained funds you would have to pay it out of the same investigation.
[Note I'm not an expert on this but have looked at IR35 implications carefully so just my opinion.]
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Originally posted by IR35 Avoider View PostI don't think there is any realistic scenario in which you would personally be held personally liable for employer's NI. Presumably this is only an issue where the company is unable to be held liable, because it has no current assets of future earnings to pay the bill, probably because it has been wound up.
Originally posted by IR35 Avoider View PostI have for a while had a suspicion that it might be a prudent risk reduction measure to start a new company for each contract (or maybe once a year, if you switch contracts more often than that.)
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Originally posted by Kanye View PostMy understanding is that you would be liable.
Sounds like HMRC are having their cake and eating it.
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I don't think there is any realistic scenario in which you would personally be held personally liable for employer's NI. Presumably this is only an issue where the company is unable to be held liable, because it has no current assets of future earnings to pay the bill, probably because it has been wound up.
I have for a while had a suspicion that it might be a prudent risk reduction measure to start a new company for each contract (or maybe once a year, if you switch contracts more often than that.) Where IR35 is applied retrospectively there is a possibility of being taxed more than if one had treated oneself as caught at the time, so I can't see anything wrong with openly admitting IR35-risk as a reason for not combining different contract's/year's earnings into the same company. (Though if there's no positive reason to say that I obviously would say nothing.)
(I don't regard my self as not-caught, so I haven't really looked into this properly.)
Each time you wind up a company that creates a potential trigger point for an investigation, so you need to take that (slight) risk into account.
I think there was a very recent article (in contractoruk newsletter?) where an accountant discussed the merits of changing company often. I don't remember the details, but at the time I felt it confirmed my views. (I was unable to find it during a 30-second search, hopefully someone else will post a link.)
I do think that retaining funds increases your risk of being a target for investigations of any kind.Last edited by IR35 Avoider; 10 October 2012, 10:33.
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My understanding is that you would be liable.
If you fail the test then you have to make HMRC good as though it was an employment situation.
That would include everything owed with regards to company national insurance, and everything owned with regards to personal national insurance and taxes.
This would be the case even if the company was owned by someone else. If the employee is found to be inside then I assume they would chase the employer.
I wonder if they would pursue you twice though - once personally and once as the company director.
Employers NI is annoying. I have looked at the figures and would go under a brolly company but the fact that the employers NI costs are passed backed to the contractor makes it not viable.Last edited by Kanye; 10 October 2012, 10:22.
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