Reply to: HMRC : Prepare for changes to the off-payroll working rules (IR35)

[FK1]

HMRC signals intent to NOT launch retrospective investigations, in wake of IR35 change | IPSE


The key bit is in section ‘9’:

‘The reform is not retrospective – as it has in the public sector HMRC will focus its efforts on ensuring businesses comply with the reform rather than focusing on historic cases.’
‘HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time following the reform and businesses’ decisions about whether their workers are within the rules will not automatically trigger an enquiry into earlier years.’


Yet QUDO's Andy Vessey, has claimed they already look at PAYE/Div tax changes:


Data mining and analysis by HMRC to detect IR35 non-compliance
Vessey highlights that the days of the random IR35 inspection by HMRC are over: “Once, local tax inspectors might open a certain number of random inspections on their patch into corporation tax, VAT or Pay As You Earn (PAYE) income tax, and these had the potential to catch contractors.

“Those days are long gone, because HMRC lacks the resources and there are much more efficient methods of targeting possible IR35 offenders now available. HMRC’s risk assessment is conducted at a regional and national level using hugely sophisticated software able to analyse all public sector databases and identify discrepancies.”

Vessey warns that contractors who have filed incorrect information or different types of tax paperwork that do not tally will almost certainly be flagged by the software for an inspector to review their file and make a decision on whether to have a HMRC inspector investigate their IR35 status. A contractor business with wildly fluctuating profits or expenses may also cause HMRC to look closer.

I see no logic that could be applied on Accounts and CT600 filing re: IR35.
And in opposite, steady and stable figures should attract attention. Fluctuating attributes a real business.

A long break could create a wild profit fluctuation.
An investment to Plan B could create a wild expenses fluctuation.
A real businesses have much more more mistakes in filing than a plain permotractor.

Of course, I am not a tax expert as Andy is.
He is a rock.

Andy has been deeply involved with IR35 since its inception in the year 2000 and has personally defended more than 500 IR35 cases, winning almost every single one.

He even worked as Tax Inspector.

1 year and 9 months 38 years ago.
January 1980 – September 1981 1 year 9 months
https://www.linkedin.com/in/andy-vessey-att-857461142/

This. The taxman does not consider a contractor as a business on a first place.
I believe the more real business is the more fluctuating it is. But they do not like contractors.

“If there are exceptional figures in the accounts and tax return, such as dramatic increases or falls in sales profits or expenses, contractors should include a note in the supplementary section of the corporation tax return explaining the reasons for the change. This may convince an inspector to pass over their business for review.”

In Vessey’s experience, if an inspector’s attention is caught by another aspect of a contractor’s tax, such as corporation tax, VAT or PAYE, once the taxman knows they are dealing with a contractor it almost invariably ends up being referred to an HMRC's IR35 specialist team.

[JohntheBike]

You don't pay corp tax on the deemed salary part if tax has ir35 tax has already been removed. You used to be able to pay 95% of the inside ir35 tax rate and have the 5% - expenses difference taxed as corp and taken as a div but i think the 5% allowance has been removed as well. You could also make a pension contribution before employer NIC.

I agree though not much point in a ltd if inside especially when some Brollies can make a pension contribution before Employers NIC's are taken. I would also like to see some brollies offering new electric company cars to further reduce tax take.

"electric company cars"

this development might shake the electric car ideology -

Mazda introduces new petrol technology as Toyota aims to double hybrid models | Autovista Group

[BlueSharp]

I don't understand this, if I am going to be taxed as an employee, why would I go through a Ltd? It would mean paying Co tax on an income that is already taxed??

I think the brolly tye makes more sense... I think many agencies (AKA preferred suppliers/ contracted internal recruiters) have their own PAYE scheme for contractors without Ltd.

You don't pay corp tax on the deemed salary part if tax has ir35 tax has already been removed. You used to be able to pay 95% of the inside ir35 tax rate and have the 5% - expenses difference taxed as corp and taken as a div but i think the 5% allowance has been removed as well. You could also make a pension contribution before employer NIC.

I agree though not much point in a ltd if inside especially when some Brollies can make a pension contribution before Employers NIC's are taken. I would also like to see some brollies offering new electric company cars to further reduce tax take.

[SandyD]

I think you can still be paid direct into a LTD if the agency/client handles the tax side of things and you can account tax has already been paid. But would an agency do that or would it make commercial sense for the agency to to push every one into brolly they have a commercial interest in? Personally I think the brolly option will become the new norm.

I don't understand this, if I am going to be taxed as an employee, why would I go through a Ltd? It would mean paying Co tax on an income that is already taxed??

I think the brolly tye makes more sense... I think many agencies (AKA preferred suppliers/ contracted internal recruiters) have their own PAYE scheme for contractors without Ltd.

[malvolio]

HMRC have put the stake in the ground and announced it.

I do not believe them. You only have to see their approach to the loan charge issue to see this.

The stake in the ground was put there in Dec 2009 when they announced the changes to the MSC rules and added that as of that point any scheme was open to challenge at some point in the future. I recall threads on here saying that using any kind of a scheme after that date was foolhardy.

But that does not make the taxation retrospective, merely delayed. Not that that is any help or comfort to anyone who's caught up in it.

As for the Loan Charge, that is a cock up of an entirely different stamp and should be and is being challenged robustly

[JohntheBike]

I had a light-touch conversation with my agency for a large blue chip about the April 2020 changes. They really didn't know much about it as they pushed me around, from one department to another. Nothing was answered. Nothing was seemingly being considered.

I have made some notes as to how I might approach each new contract but, at the end of the day, I can only see contractors attempting retrospective claims for paid tax and NI, for each and every contract.

Reading the Loose Women IR35 win on the front page, it makes me realise what an utter crapshoot we're in for. This lady had 30% earnings from sources other than the BBC. If she was newly introduced to the Beeb, would the Beeb really ask, or even care, if she had earnings from elsewhere before they plonked her inside IR35? This sort of knowledge only pops up in court cases.

For my part, I have 10% earnings from elsewhere to my LtdCo, but I am damn sure new clients will neither understand nor care.

And then there is this quote from the case...

“While the written contract is, of course, hugely important, actual working practices will often be pivotal in an IR35 case.”

At the time of writing the new contract, working practices may yet to be understood or demarcated. It is one reason why for my part, I have Never had any of my contracts reviewed for IR35. Instead ensuring the working practices demonstrate what would be needed if a court case loomed...

I feel sorry for the nation's Private Sector companies. It is seemingly utterly hopeless unless a process can be put into place to legally and retroactively claw back - Everything.

A well balanced opinion I might say.

“While the written contract is, of course, hugely important, actual working practices will often be pivotal in an IR35 case.”

and in any ET/EAT case.

[simes]

Made it clear to my client as the last 18 months I and my working practice and contract review have put me outside of IR35, if they deem it to be an inside role I will have no choice but to terminate the contract. I have no issues going inside else where if that is how the land lies and the rate reflects the client stumping up the Employers NI they have been saving. Not much difference now between Corp tax + Div tax vs PAYE. Obviously expenses now need to be negotiated if staying away.

I believe HMRC will go retrospective in such situations where a contract was outside and then placed inside.

I had a light-touch conversation with my agency for a large blue chip about the April 2020 changes. They really didn't know much about it as they pushed me around, from one department to another. Nothing was answered. Nothing was seemingly being considered.

I have made some notes as to how I might approach each new contract but, at the end of the day, I can only see contractors attempting retrospective claims for paid tax and NI, for each and every contract.

Reading the Loose Women IR35 win on the front page, it makes me realise what an utter crapshoot we're in for. This lady had 30% earnings from sources other than the BBC. If she was newly introduced to the Beeb, would the Beeb really ask, or even care, if she had earnings from elsewhere before they plonked her inside IR35? This sort of knowledge only pops up in court cases.

For my part, I have 10% earnings from elsewhere to my LtdCo, but I am damn sure new clients will neither understand nor care.

And then there is this quote from the case...

“While the written contract is, of course, hugely important, actual working practices will often be pivotal in an IR35 case.”

At the time of writing the new contract, working practices may yet to be understood or demarcated. It is one reason why for my part, I have Never had any of my contracts reviewed for IR35. Instead ensuring the working practices demonstrate what would be needed if a court case loomed...

I feel sorry for the nation's Private Sector companies. It is seemingly utterly hopeless unless a process can be put into place to legally and retroactively claw back - Everything.

[BlueSharp]

How would contractors work after this ruling starts in April next year? Like Europe where we have to join a payroll agency?
In which case should we dissolve our Ltd?

I think you can still be paid direct into a LTD if the agency/client handles the tax side of things and you can account tax has already been paid. But would an agency do that or would it make commercial sense for the agency to to push every one into brolly they have a commercial interest in? Personally I think the brolly option will become the new norm.

[SandyD]

How would contractors work after this ruling starts in April next year? Like Europe where we have to join a payroll agency?
In which case should we dissolve our Ltd?

[NeedTheSunshine]

HMRC have put the stake in the ground and announced it.

I do not believe them. You only have to see their approach to the loan charge issue to see this.

I agree. According to them, the loan charge isn't retrospective.

[BlueSharp]

HMRC signals intent to NOT launch retrospective investigations, in wake of IR35 change | IPSE


The key bit is in section ‘9’:

‘The reform is not retrospective – as it has in the public sector HMRC will focus its efforts on ensuring businesses comply with the reform rather than focusing on historic cases.’
‘HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time following the reform and businesses’ decisions about whether their workers are within the rules will not automatically trigger an enquiry into earlier years.’


Yet QUDO's Andy Vessey, has claimed they already look at PAYE/Div tax changes:


Data mining and analysis by HMRC to detect IR35 non-compliance
Vessey highlights that the days of the random IR35 inspection by HMRC are over: “Once, local tax inspectors might open a certain number of random inspections on their patch into corporation tax, VAT or Pay As You Earn (PAYE) income tax, and these had the potential to catch contractors.

“Those days are long gone, because HMRC lacks the resources and there are much more efficient methods of targeting possible IR35 offenders now available. HMRC’s risk assessment is conducted at a regional and national level using hugely sophisticated software able to analyse all public sector databases and identify discrepancies.”

Vessey warns that contractors who have filed incorrect information or different types of tax paperwork that do not tally will almost certainly be flagged by the software for an inspector to review their file and make a decision on whether to have a HMRC inspector investigate their IR35 status. A contractor business with wildly fluctuating profits or expenses may also cause HMRC to look closer.

[BrilloPad]

HMRC have put the stake in the ground and announced it.

I do not believe them. You only have to see their approach to the loan charge issue to see this.

So far they have not been retrospective. That could still change.

[JohntheBike]

I'm going to do a webberg here, it will NOT be retrospective. HMRC have put the stake in the ground and announced it.

The fact that many contractors will be unaware or ignore that stake and carry on as normal, and then years down the line HMRC haul said contractors over the coals does not make it retrospective.

HMRC have put the stake in the ground and announced it.

I do not believe them. You only have to see their approach to the loan charge issue to see this.

[cojak]

Yes was reading this as well, if does go retrospective it will be a disaster !!

I'm going to do a webberg here, it will NOT be retrospective. HMRC have put the stake in the ground and announced it.

The fact that many contractors will be unaware or ignore that stake and carry on as normal, and then years down the line HMRC haul said contractors over the coals does not make it retrospective.

[JohntheBike]

Yes was reading this as well, if does go retrospective it will be a disaster !!

Yes, but I guess the mere hint that this might happen for anyone would be a very sobering issue for them. Accepting an inside contract, irrespective of the terms, could lead to major financial issues and would likely dissuade them from signing up to such a contract, even if they needed the income. Some might choose to be on the bench until they could find an outside contract.

However, I would say that the contract would have to change and this might be a limiting factor, i.e. that the new engagement didn't reflect any previous engagements as those would have had different contractual provisions. Not seen any professional opinion on this yet though.