Reply to: Articles, blogs, pieces of interest on IR35 reform

[jamesbrown]

already more than they can handle

Right, but as you say, this will mostly be tackled at ClientCo level in future, not w/r to individual contractors. Any information on individual contractors will be aggregated. I am not saying that they will have a one-dimensional list called the HMRC IR35 ****list Think of it more as a massive multi-dimensional dataset to mine. Think of them as Ferengi, chasing gold-pressed latinum, and they've now discovered a new mining technique. Profit!

[webberg]

Really don't think HMRC need to add people to a list that is already more than they can handle and the marginal gain for them (a few months worth of salary that may have escaped a few percentage points of tax) is not worth the resource.

I see the investigation initially being at client co level.

"You have designated all contractors born between January and June as inside IR35, but those born in the second half of the year as outside IR35. Perhaps you can explain that?"

Three/four/five/ten years later client co has to concede that actually all those born in October should be inside IR35, nice little extrapolation by HMRC and there is a few million added to the coffers.

I know I'm not cynical enough.

[jamesbrown]

I agree that a literal interpretation would perhaps gather more tax, but I'm struggling with the effect that exercise would have.

It would increase the immediate tax, yes, and it would increase the pool of individuals to investigate, i.e. the size of "the list" of those whose payments are being treated as inside. It might not be an unreasonable assumption that some of those changing their status *and* those exiting their arrangements to avoid a change of status (but without realising that the determination is based on the timing of payments made, not work done) could be worried about their arrangements, for example. However, you could also place this in the bucket of "HMRC are not going to focus on a change in status, but are forward-looking". Personally, I don't believe that either, but perhaps I'm a dreadful cynic.

[webberg]

Cool

FWIW, I don't think this would come to light until an investigation were opened and resolved, so it's probably far too early and such information is unlikely to reach the public domain.

I would always place money on the interpretation that is most strict and most literal and most beneficial to HMRC, while consistent with the law.

I agree that a literal interpretation would perhaps gather more tax, but I'm struggling with the effect that exercise would have.

[northernladuk]

so, in circumstances, say, your contract ends in February and you're fully paid up in March, your client offers you an extension but says its inside IR35 (presumably because they are risk-averse) so you turn it down. What's the likelihood this would trigger an investigation into your past contract? I mean, in this scenario, does walking away get you off the hook?

The likelihood it triggers an investigation? None. Not this event alone. They don't know what you are turning down and what you aren't. They just look at your taxes. You don't declare your actions to them.

But does walking away get you off the hook? No. There is the ever present danger they can open an investigation in to the old contract using the rules in place during the contract, just as they can and do right now. Nothing has changed there.

[oliverson]

so, in circumstances, say, your contract ends in February and you're fully paid up in March, your client offers you an extension but says its inside IR35 (presumably because they are risk-averse) so you turn it down. What's the likelihood this would trigger an investigation into your past contract? I mean, in this scenario, does walking away get you off the hook?

[jamesbrown]

I'll make some enquiries.

Cool

FWIW, I don't think this would come to light until an investigation were opened and resolved, so it's probably far too early and such information is unlikely to reach the public domain.

I would always place money on the interpretation that is most strict and most literal and most beneficial to HMRC, while consistent with the law.

[NeedTheSunshine]

I think you're wrong about the intention, but it's just copied from the PS rules, so can you point to any interpretation of the PS rules that supports your assertion?

The intention is also stated alongside the technical documentation (my emphasis):

Rules for off-payroll working from April 2020 - GOV.UK

I'm with you on this. I wouldn't be taking any chances.

If you're going to be inside after April with the same client that you were previously outside with, then your whole time with them is going to come under the radar. Easy target.

If you accept that you're going to be inside in most contracts after April and aren't currently, then get your current contract settled and all payments received before April.

[webberg]

No I cannot point to anything other than general principles.

I'm assuming that in the public sector payments lag behind services performed by at least as much as private sector?

Therefore payments made post April 2017 for services rendered prior to that date, where the individual has stayed in post but is deemed to be inside IR35, have been made and the correct tax treatment is even now being discussed?

I have no such cases active so I cannot say whether HMRC is using your interpretation or not. If they were, then I would certainly be arguing about the impractibility of that view and its contrary analysis to general tax principles.

I'm perfectly prepared however for HMRC to follow your line of reasoning as at the moment it has the advantage of literal truth.

I'll make some enquiries.

[jamesbrown]

I think you're wrong about the intention, but it's just copied from the PS rules, so can you point to any interpretation of the PS rules that supports your assertion?

The intention is also stated alongside the technical documentation (my emphasis):

Rules for off-payroll working from April 2020 - GOV.UK

Operative date
This measure will have effect for contracts entered into, or payments made, on or after 6 April 2020.

[webberg]

BTW, I think 10(2) of ITEPA is pretty clear about what a "payment" means, so I don't get that part of your article.



In particular, 61N(2a) and 61N(4).

In other words, the deemed payment is "made" when the "fee payer" transfers "money's worth" (to the worker's intermediary).

A reasonable position and one that may well be the way in which HMRC views the issue.

My take on this - in the absence of any explanation worth anything - is that the sections you quote deal with the meaning of making a payment and tries to stop people finding a way around that process by using money's worth etc.

My thought process is more around the interaction between start date for the "reform" and payment and performance of services.

I think the intention is that services performed after the effective date (6th April 2020) are to be subject to the new rules. That makes sense because then - in theory - all the parties have had whatever passes as a reasonable explanation for status and should be prepared tax tax/NIC deductions.

It would unreasonable for payments relating to periods prior to the new rules to be subject to terms and conditions that did not exist when the services were performed.

Further, accounting for income in a PSC is usually on an accruals basis. In other words money owed to the company is included in income and in the event it is not paid then a provision is made either in that year of account or a later one.

Accounting for earnings is usually on an arising basis, i.e. you have worked x hours this week and contractually are due £y and you are taxed as though you earned £y in that week - regardless of when you were paid.

I understand that many contractors are paid 2 to 3 months after performing the work. I understand where you are coming from in saying that if you worked in February and got paid in May, then the new rules would apply to the payment. However, I think that is not only not what the rules mean - I think they mean payment for services not just "payment".

Otherwise this will be a very difficult area to police and monitor for HMRC for frankly not much in the way of tax.

Let's hope the consultation on the draft rules can clear this up.

[jamesbrown]

BTW, I think 10(2) of ITEPA is pretty clear about what a "payment" means, so I don't get that part of your article.

61NWorker treated as receiving earnings from employment
(1) If one of Conditions A to C is met, identify the chain of two or more persons where—
(a) the highest person in the chain is the client,
(b) the lowest person in the chain is the intermediary, and
(c) each person in the chain above the lowest makes a chain payment to the person immediately below them in the chain.(See section 61U for cases where one of Conditions A to C is treated as
being met.)
(2) In this section and sections 61O to 61S—
“chain payment” means a payment, or money's worth or any other benefit, that can reasonably be taken to be for the worker's services to the client,
“make”—
(a) in relation to a chain payment that is money's worth, means transfer, and
(b) in relation to a chain payment that is a benefit other than a payment or money's worth, means provide, and
“the fee-payer” means the person in the chain immediately above the lowest.
(3) The fee-payer is treated as making to the worker, and the worker is treated as receiving, a payment which is to be treated as earnings from an employment (“the deemed direct payment”), but
this is subject to subsections (5) to (7) and sections 61T and 61V.
(4)The deemed direct payment is treated as made at the same time as the chain payment made by the fee-payer.

In particular, 61N(2a) and 61N(4).

In other words, the deemed payment is "made" when the "fee payer" transfers "money's worth" (to the worker's intermediary).

[jamesbrown]

So I hear people talking about a risk to the end client means that organisations will be more likely to make blanket 'inside IR35' decisions but I don't fully understand what the risk to those organisations is? I've only recently started fully reading up on this so apologies if there are lots of articles out there that already explain this!

If the end client is the fee payer, they are the first port of call for liability. Otherwise, they are the last port. There is possibly a risk from the contractor too if they decide to litigate where the client hasn’t taken reasonable care (not the main risk though). Either way, the end client is at risk, but I don’t think a ‘blanket’ inside decision will be the approach, because that involves more risk than creating temp employments, like FTCs.

[northernladuk]

So I hear people talking about a risk to the end client means that organisations will be more likely to make blanket 'inside IR35' decisions but I don't fully understand what the risk to those organisations is? I've only recently started fully reading up on this so apologies if there are lots of articles out there that already explain this!

Keep reading and all will become clear.

[wriggra]

Risk to end client?

At the risk of breaching some rules, I'll start the ball rolling with a piece I wrote that appeared on our blog a little earlier today.

Any more?

Finance Bill 2019-20: IR35 Off payroll working reform - WTT Consulting

So I hear people talking about a risk to the end client means that organisations will be more likely to make blanket 'inside IR35' decisions but I don't fully understand what the risk to those organisations is? I've only recently started fully reading up on this so apologies if there are lots of articles out there that already explain this!