Reply to: Direct to client but non IR35 compliant contract...

[The Lone Gunman]

I think Notallthere has pointed out your best option for negotiation.

I would guess (though I am not qualified to) that an IR35 caught contract will read as an employee type contract in front of an employment tribunal. You should point this out to the client and that they should rethink their contract terms with you (and others).

If the working conditions are different to the contract then I would suggest using working practice over contract terms is an acceptable defence as the precedent has been set by HMRC in a number of investigations.
If not then tick the box and pay the tax.

If the client wont shift and you have to pay the tax when the contract ends go for broke and take them to an employment tribunal. Make sure you have had a couple of weeks holiday and a couple of weeks sick too. Ask the employees what pension rights and other perks they enjoy.

[malvolio]

An Aspect Enquiry is the initial process - something is "amiss" with one aspect of your tax returns. It could be a misatch betwen employee and employer records, an anomaly, a big change from one year to the next, a history of late or poor filing - in short anything that arouses an inspector's curiosity. Once they start looking they can choose to go through everything and one of those will be an IR35 investigation if they spot you are one of use tax-avoiding MGBs... On top of that they seem to initiate 10 new personal tax investigations a week on average but thinking about it, I think that's actually the number that get notified to the IR35 insurance people; as you say, the real number is probably a lot higher.

Incidentally the main point of PCG Plus is you get professional help with the aspect enquiry so the chances of there being an IR35 one on the back of it are greatly reduced.

[Turion]

Some aspect enquiries are non-random, triggered by something in a tax return (personal or corporate) but most - about 10 a week seems to be the average rate - are simply routine random checks. There is no evidence that any given contractual or payment behaviours act as triggers.

My understanding of how an enquiry progresses is not clear. Does it start with a PAYE investigation - is this the same as an aspect enquiry? What would they ask, and once they start, do they 'go to town' on everything or will they drop it if the PAYE enquiry part is OK. 10 seems a very low number in the context of the number of taxpayers, personal and corporate.

[malvolio]

You're assuming IR35 investigations are targetted. Evidence appears to be that they are random since they originate with aspect enquiries. Some aspect enquiries are non-random, triggered by something in a tax return (personal or corporate) but most - about 10 a week seems to be the average rate - are simply routine random checks. There is no evidence that any given contractual or payment behaviours act as triggers.

[Turion]

That's all very well being all bravado but the reality is that there is a possibility that HMRC could get you for IR35. If they do so, as the OP asked, what hit would you take? 20% of the owed tax as a penalty I understand as a minimum. Plus interest.
So just think if HMRC investigate you in 7 years. 7 years interest and they might have your house from you.

If you factor in the actual risk % of having an IR35 investigation, and then take some sensible precautions the chances for trouble are very low. Like a single terrorist incident can have repercussions/costs on society orders of magnitude greater than the act itself, a single HMRC success in the case of Arctic systems (£99k hit ) will reep the taxman maybe 100 -> 1000 times more by people simply paying up without questioning whether they should.

For example IR35 is judged on a individual contract basis, more and shorter contracts with different clients should most definitly reduce target profile in the eyes of HMRC. Case studies indicate they like to investigate big juicy contracts of over 2 yrs duration. For a contractor on a long term contract he can reduce risk simply by doing the occassional very short term contract (could be just a day or two or maintanance or scoping) whilst maintaining his main contract. If he can substitute even better.

[KentPhilip]

Too many if's, buts, and negatives on this board... Think positive, think success, and it will happen. You don't get anywhere by taking the safe cozy option. No contractor should consider himself caught by IR35 whatever the contract says.

That's all very well being all bravado but the reality is that there is a possibility that HMRC could get you for IR35. If they do so, as the OP asked, what hit would you take? 20% of the owed tax as a penalty I understand as a minimum. Plus interest.
So just think if HMRC investigate you in 7 years. 7 years interest and they might have your house from you.

[thunderlizard]

I find it hard to believe that all their suppliers have to use the same IR35-like contract. How do they buy furniture, or get their windows cleaned, or rent their offices? You need to find out why changing it is "not an option", because it's not as if they'd be breaking the law.

[Archangel]

Pay 95% of the income from the contract as salary (less employers NI)

Don't tick the IR35 box.

If they investigate the tax hit will be zero, so no penalties can apply.

my £0.02

[Turion]

but if he doesn't admit to the advice he will be admitting to being negligent by not having taken advice.

It won't be fraud of course, what it will do is subject you to a higher level of penalties which the IR are ramping up for simple mistakes in any case.

tim

Too many if's, buts, and negatives on this board... Think positive, think success, and it will happen. You don't get anywhere by taking the safe cozy option. No contractor should consider himself caught by IR35 whatever the contract says.

[tim123]

Assumes the OP is daft enough to self incriminate. Shed any incriminating evidence now and close your ltd Co after the contract if you have any concerns about this. Ok, I'm ready for the ear bashing . Bring it on.

but if he doesn't admit to the advice he will be admitting to being negligent by not having taken advice.

It won't be fraud of course, what it will do is subject you to a higher level of penalties which the IR are ramping up for simple mistakes in any case.

tim

[NotAllThere]

The so-called "Nuclear Option" springs to mind. I'm surprised that a company willing to deal direct has an IR35 caught contract, as it makes it MORE likely that they'll be found to be your employer, if the Nuclear Option was invoked.

A properly drafted non-IR35 caught B2B contract would surely be far safer for them. Maybe you could express your concerns to them - that you're perfectly happy to sign their contract, but are worried it might give you employee rights that you don't want.

[Platypus]

Hi all,

I've been offered a contract direct to a client (close to home, good money, good role ) but they have a standard contract which all suppliers must use (changing it isn't an option apparently ). The thing is, the contract has failed a professional IR35 review in quite a bad way and I'm a bit stuck as to what to do.

Would HMRC jump on this and claim the contract was caught by IR35 without looking at working conditions? Or could I argue that regardless of the contract details I work in an IR35-exempt way (assuming this is the case) so should be treated as such?

And what's the worst that could happen - I claim to be outside of IR35, after an investigation I'm found to be inside and so have to pay the NI's/tax owed, is that it? In other words - I'm in no worse a situation if I claim to be outside IR35 but am found to be inside for this contract (assuming I put asside enough cash in case the worst happens!).

Or would I be liable to more investigations in the future if I'm investigated and fail the tests for one contract?

Oh and I'm hoping that the fact that if I want the work then I don't have a choice but to sign a standard contract which all suppliers must sign might go in my favour?

Any thoughts anyone?? Thanks!

Personally, I'd not tick the box and worry about it only if you get investigated.

[Turion]

You've had a professional, legal, review on the contract and that reveiw has stated it puts you inside IR35. If you chose to ignore that advice and work outside and are investigated, it could very well be considered fraud. (you know that you should be paying, but you aren't is fraud, rather than you wrongfully think/assume you shouldn't be paying but you should is negligent/a mistake/misunderstanding

Assumes the OP is daft enough to self incriminate. Shed any incriminating evidence now and close your ltd Co after the contract if you have any concerns about this. Ok, I'm ready for the ear bashing . Bring it on.

[MrRobin]

So actual working conditions only count when it's HMRC going after you, rather than when you're defending yourself? Aaah, the fairness of the system leaves you with a warm fuzzy feeling inside.....

Or not.

That's a good point you make. But why would they bother looking at the working conditions when the contract already states inside IR35... It's only fair, of course.

[malvolio]

FWIW IR35 is a contract-by-contract assssment. What you do on this one won't affect any future (or past) ones: bizarrely it may even help by proving you are willing to tick the IR35 box when it clearly applies.

Still sticks in the throat though: there is no way you are actually an employee, disguised or otherwise, nor are you getting employee benefits.