Reply to: Inside IR35 & I Want to Stay

[rootsnall]

I wouldn't overly worry about this.

FWIW, the consensus opinion on transfer of debt, as I understand it, is that the bar is really quite high. However, I'm not a professional working in this area. The best summary I've found comes from Jessica @ Whitefield (no connection):

IR35 and Personal Liability - can HMRC proceed against an individual? - Whitefield Tax Limited - Isle of Wight Accountants - IR35 specialists

It's a little old now, but still accurate, I think.

That old post brings you to the same document It's amazing what a bit of stress and panic does for your due diligence. Thanks for your input.

[jamesbrown]

I am building my arguments as we speak and going through old emails for evidence. Some decent pointers and also some less decent ones. I can also pass a CEST and have saved it but only recently, and it's so subjective. CEST didn't exist when I started the contract in question. So I wouldn't say its blatant, but I wouldn't would I.

This old post covers the liability issue.

https://www.contractoruk.com/forums/...35-caught.html

I wouldn't overly worry about this.

FWIW, the consensus opinion on transfer of debt, as I understand it, is that the bar is really quite high. However, I'm not a professional working in this area. The best summary I've found comes from Jessica @ Whitefield (no connection):

IR35 and Personal Liability - can HMRC proceed against an individual? - Whitefield Tax Limited - Isle of Wight Accountants - IR35 specialists

It's a little old now, but still accurate, I think.

[rootsnall]

Right, so then the risk is greater.

I mean, if a contract were blatantly inside all along and the director didn't conduct any due diligence and it can be shown (e.g., through their posts on CUK ) that the director knew about all this and suspected that the contract were inside, then a transfer of debt might be possible.

I am building my arguments as we speak and going through old emails for evidence. Some decent pointers and also some less decent ones. I can also pass a CEST and have saved it but only recently, and it's so subjective. CEST didn't exist when I started the contract in question. So I wouldn't say its blatant, but I wouldn't would I.

This old post covers the liability issue.

https://www.contractoruk.com/forums/...35-caught.html

[Paralytic]

IANAL/A but IR35 liabilities will be on the person, not the company. So the company closed and they come after you for the liabilities as they are not the companies

Did you even read the posts above?

[SimonMac]

So if someone was closing their Ltd via the <£25K route and had already distributed the funds then even if HMRC rejected the final accounts ( and opened an IR35 investigation ) they'd be struggling to claw back any IR35 liabilities down the track !?!

IANAL/A but IR35 liabilities will be on the person, not the company. So the company closed and they come after you for the liabilities as they are not the companies

[jamesbrown]

Not all Directors are diligent all of the time

Right, so then the risk is greater.

I mean, if a contract were blatantly inside all along and the director didn't conduct any due diligence and it can be shown (e.g., through their posts on CUK ) that the director knew about all this and suspected that the contract were inside, then a transfer of debt might be possible.

[rootsnall]

Whether a company is opened or closed or how it was closed isn’t the main issue here, that’s a sideshow. Yes, if the director applied due diligence in operating PAYE, such as a professional status review and evidence of working practices, it would be difficult for HMRC to transfer any PAYE debt to the director were that contract to be subsequently found inside. Likewise for NICS, but the legislation is different in each case. But if the contractor had done their due diligence, it’s extremely unlikely that they were wrong to begin with!

Not all Directors are diligent all of the time

[jamesbrown]

So if someone was closing their Ltd via the <£25K route and had already distributed the funds then even if HMRC rejected the final accounts ( and opened an IR35 investigation ) they'd be struggling to claw back any IR35 liabilities down the track !?!

Whether a company is opened or closed or how it was closed isn’t the main issue here, that’s a sideshow. Yes, if the director applied due diligence in operating PAYE, such as a professional status review and evidence of working practices, it would be difficult for HMRC to transfer any PAYE debt to the director were that contract to be subsequently found inside. Likewise for NICS, but the legislation is different in each case. But if the contractor had done their due diligence, it’s extremely unlikely that they were wrong to begin with!

[rootsnall]

In practice, probably yes. In theory, they could reopen the company, but it wouldn't get them anywhere, barring negligence.

If the company is open, then any proven liability would stand, but the same principle applies about transferring it to a director (i.e., it's hard). Obviously, if you continue trading, the debt stands. Also, for a company still trading, they may be able to claw-back any dividends paid after an IR35 investigation was opened (would need to talk to a professional about that).

So if someone was closing their Ltd via the <£25K route and had already distributed the funds then even if HMRC rejected the final accounts ( and opened an IR35 investigation ) they'd be struggling to claw back any IR35 liabilities down the track !?!

[GhostofTarbera]

Get your Clint not to assess you and just inform you they no longer take on limited compNy contractors

You then go via umbrella


Sent from my iPhone using Contractor UK Forum

[jamesbrown]

I know I should understand this but sadly don't. So if HMRC have accepted your final accounts and the company is closed you have escaped ( barring negligence ). What happens if the company is still open but not trading and has limited funds ?

In practice, probably yes. In theory, they could reopen the company, but it wouldn't get them anywhere, barring negligence.

If the company is open, then any proven liability would stand, but the same principle applies about transferring it to a director (i.e., it's hard). Obviously, if you continue trading, the debt stands. Also, for a company still trading, they may be able to claw-back any dividends paid after an IR35 investigation was opened (would need to talk to a professional about that).

[rootsnall]

No, IR35 is a company liability, not a personal liability. It is a failure to operate PAYE/NICs correctly (deemed payments). If you get it wrong, your company pays, not you personally. Transfer of debt from a company to an individual, such as a director, has a high bar (negligence).

I know I should understand this but sadly don't. So if HMRC have accepted your final accounts and the company is closed you have escaped ( barring negligence ). What happens if the company is still open but not trading and has limited funds ?

[jamesbrown]

I'm new here, but I would assume NO, otherwise everyone who was nervous would close down their company asap! The tax liability is yours personally.

No, IR35 is a company liability, not a personal liability. It is a failure to operate PAYE/NICs correctly (deemed payments). If you get it wrong, your company pays, not you personally. Transfer of debt from a company to an individual, such as a director, has a high bar (negligence).

[quantum77]

Does this situation change if you close down your LTD company? With company closure does the risk exposure on backdated tax shuts down as well?

I'm new here, but I would assume NO, otherwise everyone who was nervous would close down their company asap! The tax liability is yours personally.

[realaledrinker]

Supposing I'm investigated in the future after already having paid corporation & dividend tax on the year in which I worked the outside IR35 portion. Presumably these amounts would be deductible from the PAYE/EeNIC/ErNIC liability?

I very much doubt it, but no-one really knows.

It's a gamble/risk either way.

(But as others have said only a 6 month one in your case.)

As the general principle is that tax/NI would be recalculated based on you being an employee, whatever you paid based on erroneously assuming you were Outside would be deducted from the gross calculation amount due

At least that's what was reported as happening in the BBC cases.