Interesting IR35 Problem

[eek]

thinking about it - B0redom posted elsewhere last night the all important question

“Can I argue that this is necessary (business expense) with a straight face if (the tax man) asked about it?”

And I think that is the important question here about the security clearance.

“Can I argue that the security clearance is valid with a straight face given that the company isn't managing / responsible for the work (as it is inside IR35 and the client retains responsibility / management control)?”

Because unless the company is responsible for the work (i.e. the work is outside IR35) you couldn't truthfully answer the question about the use of the security clearance - so I would be going back and saying that the clearance people say that the company has to be responsible for the work or you can't take it on...

[willendure]

I would go back to them and say make the whole thing outside IR-35 or no deal. Maybe once they realize they are asking for an arrangement that just doesn't work, they will see sense and take on your business properly.

[eek]

Accountants do accounts, not IR35 (at least, you should steer clear of their advice on IR35, beyond the very basics).

This sounds like an obviously artificial arrangement. The point of IR35, whether under Chapter 8 or Chapter 10 (by implication, the latter in your case) is that the overall fee for the engagement should be taxed in an analogous way to employment income. In practice, this involves a deemed payment if the overall fee is not paid as salary. You can try to evade this clear purpose/intent, but my expectation would be that you and/or the fee payer would be on the hook for both the taxes owed and significant penalties too, as this would not be a simple mistake, rather a very careful calculation.

But I agree that this is not a typical IR35 question and, if you want this confirmed by an expert, please talk to an expert and not your accountant.

Got to say - James's viewpoint is identical to mine.

If you are subject to IR35 under Chapter 10 (i.e. the end client is determining the status) the payment to both workers is subject to PAYE / deemed payments.

And that workaround sounds completely contrived as it doesn't reflect the fact the agency is providing workers who have been deemed to be inside IR35...

There is however something I don't get - given that it's inside IR35 you are being treated as employees - so how can they (and you) justify using the security clearances held by your company? (Edit to add - I see this is the same issue NLUK picked up on).

[NotAllThere]

if you want free advice, i've given it.
otherwise spend some money on a taxation expert.
or not.
your call.

Please be constructive on the professional forums. Your last two responses have not been. jamesbrown was correct.

And we only need one NLUK

[fatJock]

Hi All,

I have an interesting IR35 query. A few years ago, I grew my Limited Company to employ four permanent staff, during which time I secured certain security clearances that my business still holds.

Holding several clearances myself absolutely nothing you are suggesting about said clearances sounds right (if you're talking about SC/DV etc).

[sadkingbilly]

sadkingbilly, I haven’t spoken to my accountant yet, as I wanted to gather some insights from others who might have experience with this type of situation first. This setup involves security clearances and a payment structure tied to the number of days worked for the use of that clearance, making it a bit more complex than a standard IR35 case.

If you have any constructive input or relevant advice to share, I’d genuinely appreciate it. Otherwise, it might be best to hold off on commenting unnecessarily.

Thanks.

if you want free advice, i've given it.
otherwise spend some money on a taxation expert.
or not.
your call.

[northernladuk]

Just on the security aspect. Are you sure you still hold it? Many security, or even just stringent contracts require full disclosure on changes to the company structure. I you get clearance, sell the company to someone in China/Afghanistan/whatever you can't expect the security company to still consider your clearance valid. A rather extreme example but you get me. The position of the company that was vetted has now changed so I'd be surprised if you shouldn't be going back to whoever vetted you to disclose the change in situation. Is there any chance you may no longer meet criteria? Is time an issue as well. It is for SC/DV etc.

On the contract structure. Something seems very odd here. How can they take on someone inside if that person needs clearance only a company can hold? How can the business clearance be applied when you are engaged outside the company and nothing to do with it. So they use the clearance as per the company but then having nothing else to do with it. That sounds totally wrong on so many levels. Fudging it with retainers or whatever is a very poor approach to security and can't believe it would pass. Like we've said. You and the company are totally separate. You can't be employed by an umbrella yet claim you are working on behalf of the LTD to utilise the clearance.

We haven't even touched on the taxation issue either. First thoughts would be you have to separate them. They are paying for your work, so inside. Any payments to the company for the licence should completely separate and documented. Hiding payment for your inside work through the LTD is evasion. I'd be very surprised if I client would be comfortable with that.

I'd say devil is in the details and you need very clear SOW's for what is happening to be anywhere near safe on both the clearance and tax situation.

[jamesbrown]

you need a better one then.

Accountants do accounts, not IR35 (at least, you should steer clear of their advice on IR35, beyond the very basics).

This sounds like an obviously artificial arrangement. The point of IR35, whether under Chapter 8 or Chapter 10 (by implication, the latter in your case) is that the overall fee for the engagement should be taxed in an analogous way to employment income. In practice, this involves a deemed payment if the overall fee is not paid as salary. You can try to evade this clear purpose/intent, but my expectation would be that you and/or the fee payer would be on the hook for both the taxes owed and significant penalties too, as this would not be a simple mistake, rather a very careful calculation.

But I agree that this is not a typical IR35 question and, if you want this confirmed by an expert, please talk to an expert and not your accountant.

[eddie1507]

sadkingbilly, I haven’t spoken to my accountant yet, as I wanted to gather some insights from others who might have experience with this type of situation first. This setup involves security clearances and a payment structure tied to the number of days worked for the use of that clearance, making it a bit more complex than a standard IR35 case.

If you have any constructive input or relevant advice to share, I’d genuinely appreciate it. Otherwise, it might be best to hold off on commenting unnecessarily.

Thanks.

[sadkingbilly]

I’ll give them a try as well, but this likely isn’t an area of specialization for most accountants.

you need a better one then.

[eddie1507]

I’ll give them a try as well, but this likely isn’t an area of specialization for most accountants.

[sadkingbilly]

and your accountant says what?

[eddie1507]

Hi All,

I have an interesting IR35 query. A few years ago, I grew my Limited Company to employ four permanent staff, during which time I secured certain security clearances that my business still holds.

Fast forward two years, those employees have since left, and I’m now operating as a one-man band again, with a contractor currently working for one of my clients.

An interesting opportunity has arisen that requires the security clearances my business holds . The end client is interested in engaging both myself and a former employee who previously worked for me. The role is classified as inside IR35, but the agency has proposed a structure where part of the payment can be allocated as a referral fee to my Limited Company. Additionally, a portion of the payment would be for the use of the security clearances held by my business.

This payment arrangement to the Limited Company would be tied to the number of days the resources work, effectively reducing the inside IR35 rate for my self.

I’d appreciate any advice or insights on how best to approach this arrangement and ensure compliance with IR35 regulations and tax requirements.