Reply to: Public Sector - Extention offered inside IR35

[WordIsBond]

• 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

I wouldn't put any reliance on that. The verb 'trust' and the object 'HMRC' only go together when the subject of the sentence is 'Fools'.

[Hobosapien]

there is a case that being inside or being a permie is ultimately where HMRC wants you to be, so it won’t be their first priority when enforcing the new rules, even if the change does point to you having being inside all along.

Indeed the budget statement said that HMRC will focus on assisting business prepare and conform to the new rules rather than target retrospective investigations:

Budget 2018: Off-payroll working in the private sector (IR35) policy paper

• 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

So while there is an indication that 'in-flight' contracts that move inside IR35 will not be investigated there is no guarantee they won't go after them at some point in the future. As long as all liability remains with the client that made the determination then all is good, carry on invoicing.

[jamesbrown]

Agree with the above if it’s a real change in WP and not window dressing in the contract. Moving from outside to inside is logical if it reflects a real change in WP that has a real explanation (e.g., different project with different requirements). That said, we are all guessing about the real risk; there is a case that being inside or being a permie is ultimately where HMRC wants you to be, so it won’t be their first priority when enforcing the new rules, even if the change does point to you having being inside all along.

[WordIsBond]

If you want to remain at the client, one possible route to mitigate the risk is to not accept renewal as such but request a new contract with sufficient difference in terms to make it obviously inside IR35 at the higher negotiated rate, then there is a clear distinction between old and new contracts and even less risk to worry about.

Interesting. I just had the same thought in reading his response.

For instance, if the old contract had the right of substitution, you could have it removed in the new contract. Then if asked why the change from outside to inside, the response will be that the right of substitution was removed.

I would think they'd be glad to make adjustments. It's for their protection, more than for yours.

[Hobosapien]

Many thanks for all your replies. My initial thoughts were the same as WordIsBond, in that it is a Public Sector body that has been through 'reform' and therefore any liability would lie with them (esp. seeing that they used CEST to make the initial determination), but the more I read the more unsure I am.

In terms of the increase to my day rate - we haven't discussed numbers as I wanted to clarify my position in advance of sitting down with them. To be honest, I am confident that they will increase the day rate to a sufficient amount that will soften the move to 'inside', it's the risk of a future investigation / liability that concerns me.

Do you have the CEST 'outside IR35' determination in writing with maybe a print-out of the answers they gave to reach that determination? Do you want to rock the boat by pursuing a reason why they are now ignoring their own determination process that should still stand unless something has changed with the circumstances at the client?

If it was me I'd get as much evidence as you can to back up your original determination so even if the client changes to inside via blanket determination you have something to show how they have not implemented the process properly and any risk and financial penalty will reside with them as per the public sector rules. Even better if you can get someone at client to sign off a letter stating such.

Unless anyone has evidence or heard of a case where HMRC have taken an outside to inside determination to court or pursued back taxes (from the client one would presume until case law shows otherwise) then the actual risk and effect is a bit unknown, but going by HMRC's own rules the client should be the one getting all the hassle and potential financial hit.

If you want to remain at the client, one possible route to mitigate the risk is to not accept renewal as such but request a new contract with sufficient difference in terms to make it obviously inside IR35 at the higher negotiated rate, then there is a clear distinction between old and new contracts and even less risk to worry about.

[GhostofTarbera]

Public Sector - Extention offered inside IR35

Many thanks for all your replies. My initial thoughts were the same as WordIsBond, in that it is a Public Sector body that has been through 'reform' and therefore any liability would lie with them (esp. seeing that they used CEST to make the initial determination), but the more I read the more unsure I am.

In terms of the increase to my day rate - we haven't discussed numbers as I wanted to clarify my position in advance of sitting down with them. To be honest, I am confident that they will increase the day rate to a sufficient amount that will soften the move to 'inside', it's the risk of a future investigation / liability that concerns me.

Remember the private sector is as dead as I’ve known it or 20 years - don’t burn any bridges



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[DoubleL]

How much a day extra are they offering ?


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Many thanks for all your replies. My initial thoughts were the same as WordIsBond, in that it is a Public Sector body that has been through 'reform' and therefore any liability would lie with them (esp. seeing that they used CEST to make the initial determination), but the more I read the more unsure I am.

In terms of the increase to my day rate - we haven't discussed numbers as I wanted to clarify my position in advance of sitting down with them. To be honest, I am confident that they will increase the day rate to a sufficient amount that will soften the move to 'inside', it's the risk of a future investigation / liability that concerns me.

[GhostofTarbera]

Hi,

I have a contract with a Public Sector body deemed to be outside of IR35 (as determined by the client using CEST in 2018 when my contract started) which runs out in October 2019. I have been told that any extensions will be offered inside IR35 now. I have been told that this will be applicable to all contractors in the organisation - seems as though they are making 'blanket' determinations now (this seems in correct in it's own right, but that's another story).

If I did accept the extension inside IR35 on a higher negotiated day rate, would I be a target for a HMRC investigation due to changing status on the same contract or would any liability reside with the client?

Any guidance or advice would be greatly appreciated.

How much a day extra are they offering ?


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[jamesbrown]

I understood that to be an after-the-fact use of CEST, and by the contractor. They are going to blow this 'reform' out of the water if they oppose CEST when it was timely-used by a client, because it effectively means they are giving clients no mechanism to make this assessment.

All they need to do is to advance their interpretation of the law, and CEST doesn’t appear in the law. IMHO, clients would be nuts to rely on CEST for an accurate determination, either way. These are large clients with legal departments and risk management processes, so they won’t. Also, I think the above is a straw in the wind for how HMRC will put together a case at tribunal: they will put together the strongest case possible, which will also mean ignoring CEST.

I use CEST, because I think it cannot hurt, strategically, when completed truthfully by both parties, but I don’t only use that, and if I were a legal/compliance team at a large client, I would probably take the same view. Like they say in golf: drive for show, but putt for dough.

[WordIsBond]

There’s no harm in completing and recording a supportive CEST determination (accuracy aside), but I wouldn’t rely on HRMC standing by it (i.e., not pursuing further because of it), as there’s already evidence to the contrary:

HMRC refuses to stand by “irrelevant” CEST in IR35 tribunal case[/url]

I understood that to be an after-the-fact use of CEST, and by the contractor. They are going to blow this 'reform' out of the water if they oppose CEST when it was timely-used by a client, because it effectively means they are giving clients no mechanism to make this assessment.

[jamesbrown]

But, 1) CEST was used which should be a high level of protection and 2) the liability isn't his anyway, so why should he care?

There’s no harm in completing and recording a supportive CEST determination (accuracy aside), but I wouldn’t rely on HRMC standing by it (i.e., not pursuing further because of it), as there’s already evidence to the contrary

[WordIsBond]

YES.

You are now 2+ years into IR35 for public bodies and a change now whilst doing the same job is almost certain to bring enquiry - IF THEY SPOT YOU.

But, 1) CEST was used which should be a high level of protection and 2) the liability isn't his anyway, so why should he care?

[cojak]

You might want to ask why the job suddenly moves to inside after so long outside?

A very good question. Quiet words in ears perhaps?

[webberg]

Hi,

If I did accept the extension inside IR35 on a higher negotiated day rate, would I be a target for a HMRC investigation due to changing status on the same contract or would any liability reside with the client?

Any guidance or advice would be greatly appreciated.

YES.

You are now 2+ years into IR35 for public bodies and a change now whilst doing the same job is almost certain to bring enquiry - IF THEY SPOT YOU.

Being in a herd is protection of a sort.

You might want to ask why the job suddenly moves to inside after so long outside?

[cojak]

Have you overlooked this?

Yep, I had.