Reply to: Outside IR35 contract ends June

[WordIsBond]

You had a contract review stating outside and you appealed the determination. That shows you had legitimate reason for believing you were outside, YOUR contract showed it, you appealed showing you still believed it.

Therefore, you were not fraudulent nor extremely negligent in operating outside. There should be no penalties, but there will be interest.

The taxes paid should apply but because Corp Tax can only be claimed back for so long, there could be a time limit on this. It depends on what the tribunal decides in your case.

If the money was all received in the same tax year, then you can just use a standard inside IR35 calculator to find the liability. ContractorCalculator has one, don't have the link to hand, google it. Take the tax due it tells you, subtract the CT you paid on that income and any dividend tax you paid, and that's what will be due.

If it was across tax years then it becomes more complicated, and you should just ask your accountant.

The best thing you can do if you are staying is close your company as quickly as you can. In my view you've done nothing wrong. The agency lied to you in giving you a contract that didn't reflect their contract with the client. That's what has put you in this situation.

So get your company closed, hold on to the evidence that you had a review from Larsen-Howie and the evidence of your appeal. They'll probably never chase you if your company is closed. but if they do you have evidence that you acted reasonably in operating outside, and they will not be likely to try to hold you personally responsible.

[Swiftly]

So I formally disputed the client's determination, and they have come back saying they would never accept a substitute, and would never hold me finacianlly liable etc. So on that basis, my working conditions have always been Inside IR35 despite me not knowing they had this stance. I'm at the point now where I am accepting this, if HMRC were to investigate me I wouldn't bother fighting back.

Now going forward, as my pre-april contract is tainted, I see no reason in leaving. I might as well just switch to Inside IR35 in April.

Is there any way to determine what the maximum taxes and penalty would be if I was investigated? My revenue for the 12 months was about £90k, this was all taken out as salary + dividend.

Also will corporation tax and dividend tax I have already paid be taken into account? Would I just be paying for employee and employers NI + penalties?

[RobScott]

quite sad

Because working practices have now trumped your contract. Your RoS was strong even though it was untested. Its now been tested and there is a definitive answer. Judge, you've said no subs, would you have allowed one before. Client Probably not. Ouch!

And that's nkt looking at other points like working from home permanently. Permies can do this as well you know.

I believe more and more firms are following the same pattern to avoid paying any penalties to HMRC

[northernladuk]

If I am determined inside on information that I have only been made aware of today (e.g. that client will refuse ALL substitutes no matter what, and that I have no financial liability), surely this is a good argument for winning a case against HMRC? As I truly believed I was outside based on all other factors. I can work from my own workplace, set my own hours, complete work the way I want etc... I thought I had the right to substitute, and I thought I was financially responsible for mistakes... Why would it be my fault if the client has only just informed me otherwise?

Because working practices have now trumped your contract. Your RoS was strong even though it was untested. Its now been tested and there is a definitive answer. Judge, you've said no subs, would you have allowed one before. Client Probably not. Ouch!

And that's nkt looking at other points like working from home permanently. Permies can do this as well you know.

[dsc]

I thought I had the right to substitute, and I thought I was financially responsible for mistakes... Why would it be my fault if the client has only just informed me otherwise?

You thought that based on what? What does your contract say re substitution and financial responsibility? I'd say that they can't just make tulip up out of thin air, so I reckon whoever made the assessment based it on smth.

[Swiftly]

One year taxes upto 100% in fines, interest and a horrible 2 years during investigation. That said, the client has admitted they wouldn't take subs and knocked a couple of other pillars down so maybe much quicker.

I bekeieve they would only insure you if there is a realistic chance of success. We don't know if clients determining inside is an easy win for HMRC as it hasn't been to court yet. If HMRC do win one comfortably because of this its going to invalidate a lot of people's insurance.

If I am determined inside on information that I have only been made aware of today (e.g. that client will refuse ALL substitutes no matter what, and that I have no financial liability), surely this is a good argument for winning a case against HMRC? As I truly believed I was outside based on all other factors. I can work from my own workplace, set my own hours, complete work the way I want etc... I thought I had the right to substitute, and I thought I was financially responsible for mistakes... Why would it be my fault if the client has only just informed me otherwise?

[northernladuk]

One year taxes upto 100% in fines, interest and a horrible 2 years during investigation. That said, the client has admitted they wouldn't take subs and knocked a couple of other pillars down so maybe much quicker.

I bekeieve they would only insure you if there is a realistic chance of success. We don't know if clients determining inside is an easy win for HMRC as it hasn't been to court yet. If HMRC do win one comfortably because of this its going to invalidate a lot of people's insurance.

[Swiftly]

Going umbrella is an admission and will be difficult and a pain in the ass to backtrack.

That said, it's the client youve got to appeal to and you are already caught on one major point so I really can't see the point. They may give in the other two but you are still caught. The other thing that could happen is they walk you for causing trouble. I really can't see a win for you here.

What you should really be doing, in my opinion, is leaving and doing everything you can to mitigate the risk you've now shafted by your client who have effectively said your entire engagement up to now has been inside.

Worse case if I stay with client and got investigated, I would have to pay back 1 year of employment taxes, and doing the maths this is something I can set aside. Would there be any additional fines if I were to be investigated? I've got IR35 insurance from Kingsbridge, would this cover me still?

Also, as I have paid corp and dividend tax, do HMRC take this into account when working out the taxes that would be owed?

[northernladuk]

P. S. I don't know one contractor yet that has had to fix mistakes in their own time. It just gets done as part of the day to day routine so I can't see you winning that one either.

[northernladuk]

Going umbrella is an admission and will be difficult and a pain in the ass to backtrack.

That said, it's the client youve got to appeal to and you are already caught on one major point so I really can't see the point. They may give in the other two but you are still caught. The other thing that could happen is they walk you for causing trouble. I really can't see a win for you here.

What you should really be doing, in my opinion, is leaving and doing everything you can to mitigate the risk you've now shafted by your client who have effectively said your entire engagement up to now has been inside.

[Swiftly]

I got the determination through today. They have classed me as inside, which they have done for pretty much every contractor here. They say that this is on the basis of:

1. They would reject any substitute
2. I have no financial liability. Any mistakes made would not need to be fixed in my own time at my own cost. (This is the first I have heard of it, my current contract says otherwise)
3. They have a level of control and direction. (This is true in terms of the project as a whole, stakeholders set requirements. but how I complete my work is entirely up to me)

The only point I can't argue with is point 1, but that point alone shouldn't be a basis for being inside... The other two I will be appealing against.

The determination statement itself has a date of 10th December (why did they wait 10 days to send it to me), and they've put the LTD of another contractor as the company name... I've asked for a new statement with the correct details, but won't get until after 6th Jan now. So is this statement even valid at this point?

My main concern at this point is that I've been determined, but I'm going to appeal. So do I still need to take action immediately, use an umbrella etc or shall I wait a few weeks until I get a reply regarding the appeal and statement correction?

[eek]

It affects you even more than most - you're currently operating outside IR35 but the client is going to tell HMRC from April that you are working on the same contract and you are inside IR35. If that doesn't set alarm bells ringing with you, then read that bit again.

Ask the agency to see the determination and understand why the client thinks you're inside IR35. Then ask what the appeals mechanism is, explaining why you think you are outside IR35 so that they can look at it and maybe have a rethink (do not be optimistic here though).

Any payment you receive after April 6th will be subject to the client making the determination and then the fee payer deducting the right level of tax (or not). If they are insisting that you are inside IR35 then I would worry about all that lovely money you've been earning as outside and not paying employment taxes on - if you stay with them make sure you have decent cover to protect you if HMRC come calling (IPSE, Larson Howie, Qdos, Markel Tax etc etc). If you don't want to take the risk then make sure you can terminate the contract so that you can receive that last payment before the start of the tax year so that the IR35 determination sits with your company and not with the client.

Good luck, whatever you choose to do.

Sorry but if they have determined you are inside I would be looking to leave as soon as possible once I had found somewhere else to go to. This is from another post today but it shows how difficult you situation could be were you to stay

Given what Sky have said, if an enquiry arose and you went into a meeting with HMRC saying:

1. I have the right to substitution
2. I have the right to not do the work Sky want me to do
3. I have control over what I do, when, how and to what standard

and the HMRC officer across the desk has a letter with Sky's header saying:

1. Yes but we will reject - always
2. No you do not, you have to do the work offered
3. No, we control how, what, when

I suspect that it could be a short interview.

Going into a dispute, especially if it reaches FTT and beyond, without the support of the end client is a brave shout.

[DeludedKitten]

Currently contracting with a large well-known retail company through a PSC and via an agency. I've been here since September 2018 and my contract has always been (and confirmed by Larsen Howie) outside IR35.

Last week, it was just renewed for another 6 months until beginning on June, with no amendments made. Agency just announced today that all contractors have been individually assessed by end-client, and that almost all contractors have been considered inside IR35...

As my contract ends beginning of June, and is outside IR35. How does this affect me? They could very well have made a mistake, as the project manager who signed off my extension is new and may have not been fully aware.

It affects you even more than most - you're currently operating outside IR35 but the client is going to tell HMRC from April that you are working on the same contract and you are inside IR35. If that doesn't set alarm bells ringing with you, then read that bit again.

Ask the agency to see the determination and understand why the client thinks you're inside IR35. Then ask what the appeals mechanism is, explaining why you think you are outside IR35 so that they can look at it and maybe have a rethink (do not be optimistic here though).

Any payment you receive after April 6th will be subject to the client making the determination and then the fee payer deducting the right level of tax (or not). If they are insisting that you are inside IR35 then I would worry about all that lovely money you've been earning as outside and not paying employment taxes on - if you stay with them make sure you have decent cover to protect you if HMRC come calling (IPSE, Larson Howie, Qdos, Markel Tax etc etc). If you don't want to take the risk then make sure you can terminate the contract so that you can receive that last payment before the start of the tax year so that the IR35 determination sits with your company and not with the client.

Good luck, whatever you choose to do.

[dsc]

[...]and my contract has always been (and confirmed by Larsen Howie) outside IR35.

[...]all contractors have been individually assessed by end-client, and that almost all contractors have been considered inside IR35...

As my contract ends beginning of June, and is outside IR35.

You say that almost all contractors have been considered inside by the client - are you part of the lucky few who are deemed outside by the client or are you saying that you are outside only because you've had your contract assessed in the past by LH? That assessment in the past doesn't really matter at this stage, you client does the assessment now and if they deem you inside, then you are inside, end of.

If you carry on on the same contract past April 2020 (or sooner actually as it's all about when you get paid) and you've been deemed inside, then you are basically admitting you've been inside all the time and significantly increasing your chances of being investigated.

[ContractingBrit]

If an end hirer assesses an engagement as being outside and HMRC then prove that to be erroneous then any backdated tax liability would be the responsibility of the End Hirer, not you.

so you mean, if the end lcient agrees it is outside IR 35 beyond April 2020 and then for some reason HMRC disagree and pursue for back dated taxes, the end client will be responsible for tax even before April 2020?