Reply to: IR35 - What happens if previous ClientCo has closed\staff moved on

[ChimpMaster]

Wow. Guilty until proven innocent! Not sure whether to be surprised though.

One of my previous clients went bust, leaving MyCo with an unpaid invoice. The contract was direct (no agency) using PCG template and mostly WFH. According to LinkedIn the guy who ran that company is now in Australia.

That unpaid invoice is probably the best pointer you have to being outside of IR35.

[Contreras]

If HMRC believe they have a strong enough case, which would include the conviction of their own interpretations & arguments, then they would be prepared to progress a case to tribunal and not only for the reason of tax yield. Even where tax yield is not significant, if there is a point of principle at stake, HMRC will have no hesitation in advancing a case to tribunal.

If a contractor does not have the necessary evidence to support their claims & leave facts open to interpretation, then a tribunal judge is quite likely to be persuaded by the Revenue's arguments.

Wow. Guilty until proven innocent! Not sure whether to be surprised though.

One of my previous clients went bust, leaving MyCo with an unpaid invoice. The contract was direct (no agency) using PCG template and mostly WFH. According to LinkedIn the guy who ran that company is now in Australia.

[Qdos Contractor]

I'm finding it a little hard to reconcile how HMRC, with only the contract as hard evidence, could be so sure of their position to want to defend it at a tax tribunal.

- The contract was already expert reviewed (say, by QDOS) so at worst it would be only borderline IR35.
- Client Co. has ceased to exist for whatever legitimate reason, i.e. no suspicion of tax evasion.
- The working practices are based on statements from the contractor alone.
- Contractor has repesentation (say, QDOS), very unlikely that anything stated would put him inside IR35.

Surely this is a lost cause for HMRC? They can speculate all they like about the contractor's working practices but are they really going want to defend this position when the contractor takes them to tribunal?

If HMRC believe they have a strong enough case, which would include the conviction of their own interpretations & arguments, then they would be prepared to progress a case to tribunal and not only for the reason of tax yield. Even where tax yield is not significant, if there is a point of principle at stake, HMRC will have no hesitation in advancing a case to tribunal.

If a contractor does not have the necessary evidence to support their claims & leave facts open to interpretation, then a tribunal judge is quite likely to be persuaded by the Revenue's arguments.

[northernladuk]

Such as?

HMRC can arbitarilly declare the contract inside IR35 and demand taxes. Problem for them is that's not the end of it because the contractor will take them to tribunal. HMRC then have to defend their position with more than just hearsay and speculation.

Hmm possibly. I think the situation is far to hypothetical to come up with a reasonable answer either way TBH.

[Zero Liability]

Thumbscrews probably.

Why wouldn't they though - your IR35 status will have no impact on ClientCo

But am I right in thinking HMRC have no powers to compel them to meet with it, and they can decline to do so?

[Contreras]

But if HMRC have something viable to chew on and you cannot defend it won't the converse be true?

Such as?

HMRC can arbitarilly declare the contract inside IR35 and demand taxes. Problem for them is that's not the end of it because the contractor will take them to tribunal. HMRC then have to defend their position with more than just hearsay and speculation.

[northernladuk]

But if HMRC have something viable to chew on and you cannot defend it won't the converse be true?

[Contreras]

It would be a question of the contractor trying to make contact with those individuals to ascertain if they would be prepared to provide evidence, assuming that the contractor did not have sufficient evidence in the first instance to settle an IR35 enquiry.

Should it not be possible to track any of these people down then it will be a question of settling the enquiry based upon the evidence readily available. This, of course, could leave a contractor at the mercy of the HMRC if such evidence is not conclusive, as the Revenue may well interpret it in their favour and if neither party could agree then an appeal would need to be progressed to the tax tribunal. This could be cost prohibitive depending on the amount of tax & NIC at stake.

This is why it is so important to gather evidence in real time, e.g. confirmation of arrangements.

I'm finding it a little hard to reconcile how HMRC, with only the contract as hard evidence, could be so sure of their position to want to defend it at a tax tribunal.

- The contract was already expert reviewed (say, by QDOS) so at worst it would be only borderline IR35.
- Client Co. has ceased to exist for whatever legitimate reason, i.e. no suspicion of tax evasion.
- The working practices are based on statements from the contractor alone.
- Contractor has repesentation (say, QDOS), very unlikely that anything stated would put him inside IR35.

Surely this is a lost cause for HMRC? They can speculate all they like about the contractor's working practices but are they really going want to defend this position when the contractor takes them to tribunal?

[TheFaQQer]

Must confess I've always had my doubts about a CoA letter. The question it would raise in HMRC's (and possibly the court's) mind is why is it necessary; does the contract not truly reflect the nature of the working arrangements? If not, why not? What are you trying to conceal...?

The contract between agency and contractor doesn't necessarily reflect the contract between agency and client, and you won't have sight of that contract. A CoA may help resolve any of those differences, or at least (if the client says that they won't sign because it isn't true) flag up where you would have issues if investigated.

[malvolio]

Must confess I've always had my doubts about a CoA letter. The question it would raise in HMRC's (and possibly the court's) mind is why is it necessary; does the contract not truly reflect the nature of the working arrangements? If not, why not? What are you trying to conceal...?

Two edged sword, IMVHO, better to get the contract right. CoAs only really add value in that they clarify the relationship between you and your line manager, they are a potential risk to the overall contract.

[Fandango]

Cheers for the replies

I've not had an investigation, nor am I currently in the process of receiving one it was more out of curiosity as I'd heard that a former ClientCo had lost some fairly substantial government contracts and the office where I'd previously worked had been closed and pretty much all the staff I'd worked with had moved on to new companies. So if at any point in the future I have an investigation I was just wondering what sort of lengths HMRC goes to to try and ascertain your working practices if its not initially easily obtained. I don't feel I have anything to worry about, as I said its was more from a curiosity point of view.

I've always had my contracts checked by QDOS but I've not as yet had a CoA however I'll certainly be looking to get one signed on future contracts

[LisaContractorUmbrella]

So what powers do the HMRC have to make former managers, etc. at ClientCo help them with their enquiries?

Thumbscrews probably.

Why wouldn't they though - your IR35 status will have no impact on ClientCo

[SussexSeagull]

So what powers do the HMRC have to make former managers, etc. at ClientCo help them with their enquiries?

[northernladuk]

Excellent, thanks for the CoA documents guys. I will get these signed by the client management (I am direct, no agency).

Just make sure the people that sign it are the ones that have authority to do so. I am sure you know but the client manager signing it when HR are the ones that ultimately decide is worthless. Best bet is to get them all to sign it.

[ChimpMaster]

Excellent, thanks for the CoA documents guys. I will get these signed by the client management (I am direct, no agency).