Reply to: Client suddenly deems you inside before April

[webberg]

I agree. Check commercial terms very carefully post April 2020. Will the PSC be on the hook to repay the tax due if the the determination changes.

The rumour reported is not backed up by the legislative process.

If an IR35 determination is incorrect and you decide that the role was really inside, then the liability falls upon the intermediate vehicle, usually your PSC.

There is no mechanism by which an agency or end client can ask for money to pay tax to HMRC because they have no such liability.

[BlueSharp]

Wow, that's a whole new level of risk to consider when accepting outside IR35 deemed by client contracts. You need to do due diligence by getting the evidence used to make the determination so can decide if you are happy with the client's determination rather than taking it at face value that the client has made the determination properly in a way that would stand up to an investigation.

Maybe this means still using the independent contract review services to also check and back up with insurance that the contract is outside IR35.

Don't simply accept that with the client now responsible for the determination that there's no way for blowback to land you the contractor with the tax liability.

I agree. Check commercial terms very carefully post April 2020. Will the PSC be on the hook to repay the tax due if the the determination changes.

[Hobosapien]

1) Has been seen in the Public Sector. I have heard rumours that when a status does switch Clients and Agencies have tried to recoup PAYE tax from the PSC for the financial years in question. Very much along the lines of we made a mistake with the status and you need to repay the monies back to us so we can pay the tax man.

Wow, that's a whole new level of risk to consider when accepting outside IR35 deemed by client contracts. You need to do due diligence by getting the evidence used to make the determination so can decide if you are happy with the client's determination rather than taking it at face value that the client has made the determination properly in a way that would stand up to an investigation.

Maybe this means still using the independent contract review services to also check and back up with insurance that the contract is outside IR35.

Don't simply accept that with the client now responsible for the determination that there's no way for blowback to land you the contractor with the tax liability.

[WordIsBond]

It's about each person's attitude to risk WIB.

While I absolutely agree with your summation above, I don't know that this is actually going to happen, or when it might happen. I make my own determination of the situation based on previous observation of HMRC's ethics, methods and tactics, and the risk that they will be applied in the future with regard to the new world of IR35.

If people ARE in business on their own account, they should be familiar with calculating risk versus reward and determine their own manner of mitigation in light of being informed of the possibilities.

Basically - contractors are big and ugly enough to decide for themselves once they have the information. It's called making an informed decision.

I agree. I just get nervous when someone seems to minimise the risk, because I know there are people out there, lots of them, we see them commenting all the time and others are lurking, who hear what they want to hear, and I'm afraid a lot of them are sleep-walking into trouble.

But you are right, contractors should be 'big and ugly enough.' Unfortunately, LC suicides are telling us not all are....

[cojak]

...and following on from this, never fear, I WILL be asking Admin to set up a 'HMRC IR35 Enquiries' sub-forum in a year or two.

[BABABlackSheep]

It's about each person's attitude to risk WIB.

While I absolutely agree with your summation above, I don't know that this is actually going to happen, or when it might happen. I make my own determination of the situation based on previous observation of HMRC's ethics, methods and tactics, and the risk that they will be applied in the future with regard to the new world of IR35.

If people ARE in business on their own account, they should be familiar with calculating risk versus reward and determine their own manner of mitigation in light of being informed of the possibilities.

Basically - contractors are big and ugly enough to decide for themselves once they have the information. It's called making an informed decision.

This.

All I’m trying to do is gather information like many here. I’m using my own logic, which may or not be wrong, but there’s a lot of very negative attitudes on here. I’m entitled to my opinion, and in no way should anyone take any opinion with anything except a pinch of salt.

[cojak]

It's good you are planning to protect yourself. Should you be saying things that might convince others they shouldn't bother?

It's about each person's attitude to risk WIB.

While I absolutely agree with your summation above, I don't know that this is actually going to happen, or when it might happen. I make my own determination of the situation based on previous observation of HMRC's ethics, methods and tactics, and the risk that they will be applied in the future with regard to the new world of IR35.

If people ARE in business on their own account, they should be familiar with calculating risk versus reward and determine their own manner of mitigation in light of being informed of the possibilities.

Basically - contractors are big and ugly enough to decide for themselves once they have the information. It's called making an informed decision.

[BlueSharp]

I am of the opinion that is not a wise view to take on the matter.

Why will they have 'plenty on their plates at that time?' All of a sudden, they will have thousands of contractors that don't need investigated any longer because they'll be inside, declared so by their clients. The biggest reason for this 'reform' is to get a lot of people inside without HMRC having to do anything.

So what then will these inspectors that have been chasing 250 IR35 investigations every year do?

1. They can go after clients who declare contractors outside. They will do a few of these just to keep the fear in clients. But it only takes a few to hit the news to accomplish that. They don't even have to win these cases, just drag a few clients through the mud and rack up some tens of thousands or more in legal costs.
2. They can go after clients who declare a mix of inside and outside. That's a pain because they'll have to evaluate on a case by case basis, exactly what they hoped to stop having to do because of this 'reform'. So, they'll do a few just to keep the fear up, but that's not going to be where they will focus.
3. Target contractors with small company clients. That's a pain for the same reason as #2, and they are going to solve that problem by removing the small company exemption in a year or two. Why do the work themselves when they can force companies to do it for them? They won't do much of this.
4. Target historical cases -- especially by matching up client determinations with pre-'reform' service providers.

And there's a chance they've already ring-fenced some of the 'extra money' that 'reform' will bring in for extra resources to pursue 'historical avoidance.'

February is my cutoff point. As of February, I'll not do anything with any previous UK client without at least a 3 year gap from the last time I was with them. There's not going to be even a remote chance of there appearing to be a bridge between pre- and post-'reform' contracts. I know I'd easily win any IR35 case with any of those contracts, the only one that's remotely borderline I'm already operating inside IR35. But I just don't want the hassle. I've got too much to do.

And my trust that HMRC isn't going to target historical contracts is virtually nil. My expectation is that they'll hire new inspectors and that they will certainly go after historical contracts with people who don't even know that much what they are doing, who won't know case law, and will default to assuming every contract is inside. And they'll be a nightmare to work with. If I'm pleasantly surprised, that will be great.

1) Has been seen in the Public Sector. I have heard rumours that when a status does switch Clients and Agencies have tried to recoup PAYE tax from the PSC for the financial years in question. Very much along the lines of we made a mistake with the status and you need to repay the monies back to us so we can pay the tax man.

[WordIsBond]

Has there been a lot of investigations where this has happened in the Private Sector that we are aware of?

If there has been, then of course I accept the point.

Logic tells me this won’t happen as its massive resources needed to conduct an IR35 investigation, and I still maintain I think there will be more than enough work for them looking forward and not back. They have also said they won’t be doing this, and I’m not sure why they would say this, no need to say anything is there?

Anyway, just to be clear, I will definitely be taking action to protect myself in the next few months. I’m just expressing an opinion.

Your response has given more to think on. Some good points. Thanks.

I think you mean 'Public Sector' in your initial question?

The answer to that is there probably haven't been. We've heard a few reports here of Public Sector contractors being targeted on historical contracts. But we're talking about a new world.

In the oldest world, HMRC had to do the full investigation on everybody if they wanted to do an IR35 investigation.

In the newer world, HMRC still had to do the full investigation on everybody in the Private Sector, so they didn't have resources.

In the newest world, they don't really have to do any investigation on contractors on current clients. They can investigate a few clients to make clients afraid to casually declare people outside, and the problem is sorted. Thousands of people, including all borderline cases and some that shouldn't even be borderline, will be declared inside, and all HMRC has to do is receive the money.

Let's assume for purposes of discussion that there are still only going to be 250 IR35 cases a year. Let's assume that 50 of those, instead of targeting individual contractors, are going to be targeting clients. Those investigators will be redirected from looking at PSCs to looking at client processes and spot-checking client determinations to see whether they consider them to have been appropriate.

Who will the other 200 investigations target? Contractors at small clients, or historical cases? It's going to be one of those. Which is going to be easier?

If I'm running HMRC and my goal is to maximise tax take (rather than fairness), I'm going to set up a system that matches inside determinations, clients, contractors, and pre-April 2020 contracts. I'm going to be looking to see if the same contractors were with the same client that has now said they are inside. And I'm going to assume that those contractors were inside before, and write them letters like were just sent to GSK, and see who pays, whose responses look like they have a strong case, and who looks vulnerable -- and I'll go after the last category, at least.

How many GSK contractors will just pay up after that letter? 5%? 10%? It's more than zero, and it cost them almost nothing. How many will pay up if it is another client, the letter goes after April, and those contractors know they've now got an inside determination against them by the client? Now, instead of 5 or 10%, it will be 25-35%, probably. And if HMRC knows there is an inside determination, the case will be quicker to investigate and more likely to win. 'The client says what you are doing now is inside. What changed? Please prove that the changes are sufficient to have moved you inside when you were outside before.'

Easy pickings. Why wouldn't they?

It's good you are planning to protect yourself. Should you be saying things that might convince others they shouldn't bother?

[cojak]

There are 250 IR35 investigations a year.

If I was HMRC I would do exactly what its doing now with Glaxo, shake the tree and see what falls out.

Come April 2020....then go after some ripe fruit there, and then shake the tree again in other places.

I would say the chances of HMRC looking at historic cases as slim to none, as they simply don't have the resource, and will have plenty on their plates at that time.

Also, there must be thousands of limited companies closing every year for legitimate reasons, so again, very low risk of anything sparking their interest even if pre-2020 they find out from clients that x contractor's role going forward will be inside IR35. I simply don't believe they will pull this information together at this time.

And this is exactly why I said that it depends on your attitude to risk and the probability of what you described happening.

I am more risk averse than you are.

[northernladuk]

Might have been a lot of resource required in the past but now they have a benchmark which is CEST and clients having to determine status. OK ok forget how useless CEST is, focus on the fact there is now a tool and a list of contractor status.

In theory it should be much easier investigating than before. God forbid they win one fairly early on in which case they will have precedent.

Too much is changing to just sit there and say in the old days this and that.

[BABABlackSheep]

4. Target historical cases -- especially by matching up client determinations with pre-'reform' service providers.

Has there been a lot of investigations where this has happened in the Public Sector that we are aware of?

If there has been, then of course I accept the point.

Logic tells me this won’t happen as its massive resources needed to conduct an IR35 investigation, and I still maintain I think there will be more than enough work for them looking forward and not back. They have also said they won’t be doing this, and I’m not sure why they would say this, no need to say anything is there?

Anyway, just to be clear, I will definitely be taking action to protect myself in the next few months. I’m just expressing an opinion.

Your response has given more to think on. Some good points. Thanks.

[northernladuk]

Totally agree with WiB. Definitely not the way to be thinking IMO.

[WordIsBond]

I would say the chances of HMRC looking at historic cases as slim to none, as they simply don't have the resource, and will have plenty on their plates at that time.

I am of the opinion that is not a wise view to take on the matter.

Why will they have 'plenty on their plates at that time?' All of a sudden, they will have thousands of contractors that don't need investigated any longer because they'll be inside, declared so by their clients. The biggest reason for this 'reform' is to get a lot of people inside without HMRC having to do anything.

So what then will these inspectors that have been chasing 250 IR35 investigations every year do?

1. They can go after clients who declare contractors outside. They will do a few of these just to keep the fear in clients. But it only takes a few to hit the news to accomplish that. They don't even have to win these cases, just drag a few clients through the mud and rack up some tens of thousands or more in legal costs.
2. They can go after clients who declare a mix of inside and outside. That's a pain because they'll have to evaluate on a case by case basis, exactly what they hoped to stop having to do because of this 'reform'. So, they'll do a few just to keep the fear up, but that's not going to be where they will focus.
3. Target contractors with small company clients. That's a pain for the same reason as #2, and they are going to solve that problem by removing the small company exemption in a year or two. Why do the work themselves when they can force companies to do it for them? They won't do much of this.
4. Target historical cases -- especially by matching up client determinations with pre-'reform' service providers.

And there's a chance they've already ring-fenced some of the 'extra money' that 'reform' will bring in for extra resources to pursue 'historical avoidance.'

February is my cutoff point. As of February, I'll not do anything with any previous UK client without at least a 3 year gap from the last time I was with them. There's not going to be even a remote chance of there appearing to be a bridge between pre- and post-'reform' contracts. I know I'd easily win any IR35 case with any of those contracts, the only one that's remotely borderline I'm already operating inside IR35. But I just don't want the hassle. I've got too much to do.

And my trust that HMRC isn't going to target historical contracts is virtually nil. My expectation is that they'll hire new inspectors and that they will certainly go after historical contracts with people who don't even know that much what they are doing, who won't know case law, and will default to assuming every contract is inside. And they'll be a nightmare to work with. If I'm pleasantly surprised, that will be great.

[BABABlackSheep]

There are 250 IR35 investigations a year.

If I was HMRC I would do exactly what its doing now with Glaxo, shake the tree and see what falls out.

Come April 2020....then go after some ripe fruit there, and then shake the tree again in other places.

I would say the chances of HMRC looking at historic cases as slim to none, as they simply don't have the resource, and will have plenty on their plates at that time.

Also, there must be thousands of limited companies closing every year for legitimate reasons, so again, very low risk of anything sparking their interest even if pre-2020 they find out from clients that x contractor's role going forward will be inside IR35. I simply don't believe they will pull this information together at this time.

I'll probably do what cojak suggests. Wait till I get my next contract and if it appears to be inside IR35, go Umbrella and MVL my business. I should know in the next few weeks what my current client is planning so that will help me decide. Anyway, I'm out of the door in the next couple of months, so planning my exit.

I'm still in discussions with others starting our own company. Lots to consider currently, and that's why I appreciate this forum(apart from the wind-up merchants).