Reply to: being charged because I don't want to be 'tax efficient'

[psychocandy]

I believe my ir35 investigation was instigated after I made a minor error in my p35 and then corrected it. If I had not corrected it I doubt they would have picked it up.

I passed the investigation by the way, even though I had been at my sole client for 6 years. (I was direct).

Archy - Did you have PCG/QDOS insurance to take up the case on your behalf?

[Archangel]

I believe my ir35 investigation was instigated after I made a minor error in my p35 and then corrected it. If I had not corrected it I doubt they would have picked it up.

I passed the investigation by the way, even though I had been at my sole client for 6 years. (I was direct).

[SueEllen]

Which actually confirms point that the more you avoid the more likely they are to come sniffing round. This just confirms my feeling that the OP has a point. When this intelligence thing pops up targets it is pretty clear that the high divi´s low salary option will be a bigger flag than high salary low divi´s.

Of course it is speculation so everyone of us will have different view point, only a tax inspector can tell us.

Lots of people close their company down, and open up another a year later or play around with directors.

[BlasterBates]

This might help...

http://www.uk.capgemini.com/insights...C-70873BEB36BE

I left 5 years ago just as this project was starting, But it looked fascinating. Dettica is a tool used by the intelligence services to find hidden links in huge data sets. from reading other articles around the web HMRC as using it to build a whole picture of you as a taxpayer. presumable all the data frm your return... What divs you taken what your expenses are, what you submitted in previous years SA, CT, VAT. etc, I wouldnt be suprised if they have banking data in there now given theyve got the offshore countries to open up.

Its the exact logic we dont know, but i would hazard a guess it prioritises on how much tax can be collected by an individual inspector if they come to look at you. So in year 1 to 3 youll not get investigated, but if you are in year 10 and have a potential £100,000k of "things the system has flagged" you might get investigated.

Which actually confirms point that the more you avoid the more likely they are to come sniffing round. This just confirms my feeling that the OP has a point. When this intelligence thing pops up targets it is pretty clear that the high divi´s low salary option will be a bigger flag than high salary low divi´s.

Of course it is speculation so everyone of us will have different view point, only a tax inspector can tell us.

[IR35FanClub]

We don´t know the criteria by which HMRC select targets, but given the very limited information available to them in a computer search on tax records, targeting directors of Ltd companies with salaries below 8 grand year would be a very simple "search and destroy" tactic.

This might help...

http://www.uk.capgemini.com/insights...C-70873BEB36BE

I left 5 years ago just as this project was starting, But it looked fascinating. Dettica is a tool used by the intelligence services to find hidden links in huge data sets. from reading other articles around the web HMRC as using it to build a whole picture of you as a taxpayer. presumable all the data frm your return... What divs you taken what your expenses are, what you submitted in previous years SA, CT, VAT. etc, I wouldnt be suprised if they have banking data in there now given theyve got the offshore countries to open up.

Its the exact logic we dont know, but i would hazard a guess it prioritises on how much tax can be collected by an individual inspector if they come to look at you. So in year 1 to 3 youll not get investigated, but if you are in year 10 and have a potential £100,000k of "things the system has flagged" you might get investigated.

[SueEllen]

For most real small Ltd companies, actually directors pay themselves a normal salary, so by suggesting this isn´t feasible just kind of emphasises the Ltd as a tax avoidance vehicle for IT contractors.

No they don't.

Plenty of small business people who go limited are given the advice to go the small salary/dividend route.

If they employ people, have subcontractors or deal with supplies it means they can control their cash flow better.

And yes I do know accountants who deal with some of them and some of these business people.

[metageek]

RTI

RTI is definitely the spur for the change in approach. I suspect the additional cost they want to impose brings their fee up to the same as their competitors charge, so perhaps it's a good deal anyway, vertainly not worth the hassle of moving.

I suspected that was the case, but the clause is in the contract. I guess it depends on when they wrote that contract - they may have just been always trying this kind of thing.

[jamesbrown]

I'd disagree. There are as many companies where IR35 is miles away, eg builders and hairdressers, where there are low salary hi divi arrangements.

The real easy way would be a information request to one or two of the large agencies:

~ names of limited companies you've paid
~ amounts

Its a source of amazement to me this hasn't been done...

To make that more sophisticated, cross reference to the accountant they use and "mystery shop" to find out how much IR35 advice they give at the outset and how they advise clients - theres one big player, who don't post on here, who effectively advise (or were) their clients to ignore IR35.

Then go cherry picking... weak agency contract, equals weak notional contract, accountant who hasn't got their clients doing due diligence - ouch.

Allegedly, HMRC aren't as stupid as they make out , so this is more like it.....focusing on larger agencies would be sensible.

[jamesbrown]

We don´t know the criteria by which HMRC select targets, but given the very limited information available to them in a computer search on tax records, targeting directors of Ltd companies with salaries below 8 grand year would be a very simple "search and destroy" tactic.

I completely disagree with this because: 1) it is going to be a useless predictor of whether one or more contracts are caught; and 2) it is only a weak discriminator of potential liability. There are better ways to estimate liability.

[Jessica@WhiteFieldTax]

We don´t know the criteria by which HMRC select targets, but given the very limited information available to them in a computer search on tax records, targeting directors of Ltd companies with salaries below 8 grand year would be a very simple "search and destroy" tactic.

I'd disagree. There are as many companies where IR35 is miles away, eg builders and hairdressers, where there are low salary hi divi arrangements.

The real easy way would be a information request to one or two of the large agencies:

~ names of limited companies you've paid
~ amounts

Its a source of amazement to me this hasn't been done...

To make that more sophisticated, cross reference to the accountant they use and "mystery shop" to find out how much IR35 advice they give at the outset and how they advise clients - theres one big player, who don't post on here, who effectively advise (or were) their clients to ignore IR35.

Then go cherry picking... weak agency contract, equals weak notional contract, accountant who hasn't got their clients doing due diligence - ouch.

[BlasterBates]

Really?

If they wanted to maximise tax take they would go after larger companies.

If you are a tax inspector in an IR35 avoidance group (which is how they´re organising themselves) then you are targeting IR35 avoidance. That obviously excludes large companies. But there are other groups that target large companies, and I think it´s safe to assume that HMRC does indeed audit large companies regularly. It´s the small companies where HMRC doesn´t have sufficient resources.

They would become unstuck.

Simply because there are people who get seriously ill, pregnant etc and so have legit reasons for not working a full year on a higher salary.

I'm sure the broadsheets would love a story of a small business person who is terminally ill being chased by HRMC.

That wouldn´t be a problem. You can terminate your own employment, adjust your own salary. You don´t get taxed on income you don´t have. HMRC do not demand tax for salary that wasn´t paid.

In any case if you are doing this you would pay yourself less than the turnover so you can continue to pay your salary when there´s no work, but this would just make the admin easier rather than putting your salary up and down which you can legitimately do provided you can mutually agree it with yourself.

For most real small Ltd companies, actually directors pay themselves a normal salary, so by suggesting this isn´t feasible just kind of emphasises the Ltd as a tax avoidance vehicle for IT contractors.

[SueEllen]

I agree it´ll make you less of a target. HMRC have limited resources. Given a contractor who would yield 100,000 or a contractor who would yield 10,000 they´ll go after the 100,000. Tax inspectors are not policeman after scalps they´re maximising the tax take.

Really?

If they wanted to maximise tax take they would go after larger companies.

If I was going to work in the UK that is exactly what I would do, i.e. save a bit of tax, and if I get caught it´s an annoying pin prick rather than being mutilated with a machete. One particularly sees this where contractors have decided if they´re going down the tax avoidance route they might as well go the whole hog and go into an offshore scheme.

We don´t know the criteria by which HMRC select targets, but given the very limited information available to them in a computer search on tax records, targeting directors of Ltd companies with salaries below 8 grand year would be a very simple "search and destroy" tactic.

They would become unstuck.

Simply because there are people who get seriously ill, pregnant etc and so have legit reasons for not working a full year on a higher salary.

I'm sure the broadsheets would love a story of a small business person who is terminally ill being chased by HRMC.

[BlasterBates]

I agree it´ll make you less of a target. HMRC have limited resources. Given a contractor who would yield 100,000 or a contractor who would yield 10,000 they´ll go after the 100,000. Tax inspectors are not policeman after scalps they´re maximising the tax take.

If I was going to work in the UK that is exactly what I would do, i.e. save a bit of tax, and if I get caught it´s an annoying pin prick rather than being mutilated with a machete. One particularly sees this where contractors have decided if they´re going down the tax avoidance route they might as well go the whole hog and go into an offshore scheme.

We don´t know the criteria by which HMRC select targets, but given the very limited information available to them in a computer search on tax records, targeting directors of Ltd companies with salaries below 8 grand year would be a very simple "search and destroy" tactic.

[TheFaQQer]

I'll bet it's because of the new RTI changes http://forums.contractoruk.com/accou...l-changes.html - they're passing their admin costs onto you.

I suspected that was the case, but the clause is in the contract. I guess it depends on when they wrote that contract - they may have just been always trying this kind of thing.

[TheFaQQer]

In that case, surely most of my accountant's clients are laying themselves wide open to an investigation by folloiwng the accountant's recommendation

Salary is not an indicator of IR35 status. You could pay £0 salary if you wanted to and it wouldn't make a difference as far as IR35 status is concerned - but you'd be daft to do that.