Reply to: IR35 outside to inside, is there really a risk?

[BABABlackSheep]

But if you tax return shows you outside, HMRC feel you are inside and the limited company no longer exists?

what happens then?

Then theorecially HMRC can reopen the company. If they wanted to go after you though, it would happen when your company was being closed down(strike off). Reopening a company for IR35 avoidance .. never happened I believe.

Given the fact HMRC want everyone to go PAYE, then I see no logic in why they would go after anyone closing a limited company down. They have gotten what they want, and unless you have done something extremely foolish, then why scare people, especially when they have stated explically that they won’t.

Personally, I decided to not stay at the same client as an Umbrella employee, but most decided they would. I did it because I had been there a long time and I thought the even smallest chance of being investigated as an out to in, simply
wasn’t worth it.

Oh..also, there’s going to be a massive number of companies going through MVL and liquidation at the moment. If HMRC go after any of them, it will then be time to sweat.

[eek]

That is exactly it. The outside/inside situation can be debated and you could win or lose the case but if you believed that you were outside before and acted in good faith - I see no chance of HMRC coming close to lifting the corporate veil. There would have to be some evidence of tax fraud to do that. Disagreeing with your client about working practices is not tax fraud.

But if you tax return shows you outside, HMRC feel you are inside and the limited company no longer exists?

what happens then?

[cannon999]

If you don't have sufficient evidence to prove you honestly thought it was outside, you shouldn't have been declaring it outside in the first place.

If you have that evidence, then the fact that you chose to accept the role, with it having been declared inside by the client, is certainly not proof of historical tax evasion (and yes, I used "evasion" not "avoidance", it would have to be evasion to pierce the corporate veil). It may be proof of nothing more than, out of economic necessity, having to accept an unfair working situation. It happens to people all the time.

I believe you are at very high risk of historical investigation if you accept an inside determination on a role you've been operating outside, for the reasons you've discussed. But it's one thing to say it increases the risk of losing the case -- obviously, it does. It's quite another to say you'll also be subject to transfer of liability / piercing the corporate veil. That's a very high bar and rarely attempted on anything. As far as I know, it's never been done on an IR35 case. You'd have had to have been both blatant and stupid to make yourself vulnerable to that, I suspect.

That is exactly it. The outside/inside situation can be debated and you could win or lose the case but if you believed that you were outside before and acted in good faith - I see no chance of HMRC coming close to lifting the corporate veil. There would have to be some evidence of tax fraud to do that. Disagreeing with your client about working practices is not tax fraud.

[LondonManc]

That's pure conjecture. What you accept there is that you and the client disagree about your working practices. HMRC could come in, investigate and swing one way or the other but they can't use this disagreement as the basis to pierce the corporate veil unless there was obvious negligence going on. That obvious negligence is what would have to be proven in court even if the contractor is found to be inside IR35.

If you've got a QDOS confirmation of outside (or equivalent) for your contract and working practices then I would suggest that for your new contract, you get your contract and working practices assessed against the CEST tool.
If it's inside, then something must have changed within WP or contract since QDOS determined you to be outside;
If it's outside, then take this to your client and explain your case. You are carrying out due dilligence and HMRC have stated on their website that they'll stand by the CEST tool result. Not sure where you go if the client don't accept that - IANAL.

[jamesbrown]

You'd have had to have been both blatant and stupid to make yourself vulnerable to that, I suspect.

Arguably, going from outside to inside under the same hypothetical contract is both of those things. I wouldn't want to be the one testing it!

[WordIsBond]

As a Director who could be held liable with a transfer of risk, how will you prove, as the burden of prof is now firmly on, you accepted the inside position and nothing has changed to your working practices but you declared it was outside previously was not a deliberate attempt at tax avoidance.

If you don't have sufficient evidence to prove you honestly thought it was outside, you shouldn't have been declaring it outside in the first place.

If you have that evidence, then the fact that you chose to accept the role, with it having been declared inside by the client, is certainly not proof of historical tax evasion (and yes, I used "evasion" not "avoidance", it would have to be evasion to pierce the corporate veil). It may be proof of nothing more than, out of economic necessity, having to accept an unfair working situation. It happens to people all the time.

I believe you are at very high risk of historical investigation if you accept an inside determination on a role you've been operating outside, for the reasons you've discussed. But it's one thing to say it increases the risk of losing the case -- obviously, it does. It's quite another to say you'll also be subject to transfer of liability / piercing the corporate veil. That's a very high bar and rarely attempted on anything. As far as I know, it's never been done on an IR35 case. You'd have had to have been both blatant and stupid to make yourself vulnerable to that, I suspect.

[WordIsBond]

The initial fishing letters won't be to the limited company, it's going to be to the contractor personally... Does anyone know if the GSK letters went to the contractor's companies or were they addressed to the individual..

According to Chris Maslins, the GSK letters went to the PSC.

The couple we've seen have been addressed to the PSC, no mention of the personal name of the director/shareholder.

Which makes sense, IR35 is a company liability.

[BlueSharp]

Remember there is a whole sub section on this site for those who saw QC approved schemes as being with minimal risk.

As a Director who could be held liable with a transfer of risk, how will you prove, as the burden of prof is now firmly on, you accepted the inside position and nothing has changed to your working practices but you declared it was outside previously was not a deliberate attempt at tax avoidance. - Independent contract & working practice reviews would be an absolute minimum, but judging by some comments from new posters even these basics have not been done, and they are considering outside - inside switching!

I would at least wait to see the direction of travel for APNs before even considering doing this unless the sums I would be liable for are less than six months of back tax and I had the independent evidence to support my case.

[eek]

I think, even in the case of outside to inside at the same client, that the likelihood of an investigation at all is very low if the company is closed. They'd have to open that investigation, knowing the company is closed, with the hopes of being able to pursue debt transfer.

For the amount of money in a typical IR35 case, I'd consider that unlikely. They'd have to have some relative confidence, before the investigation even begins, that debt transfer would succeed.

If debt transfer comes into play, it would more likely come into play when the company is still open but doesn't have the funds. I think we are moving into a target-rich environment for HMRC and I don't see them chasing closed companies.

Of course, I may be mistaken but to chase closed companies would seem to be foolish.

The initial fishing letters won't be to the limited company, it's going to be to the contractor personally... Does anyone know if the GSK letters went to the contractor's companies or were they addressed to the individual..

[WordIsBond]

I think, even in the case of outside to inside at the same client, that the likelihood of an investigation at all is very low if the company is closed. They'd have to open that investigation, knowing the company is closed, with the hopes of being able to pursue debt transfer.

For the amount of money in a typical IR35 case, I'd consider that unlikely. They'd have to have some relative confidence, before the investigation even begins, that debt transfer would succeed.

If debt transfer comes into play, it would more likely come into play when the company is still open but doesn't have the funds. I think we are moving into a target-rich environment for HMRC and I don't see them chasing closed companies.

Of course, I may be mistaken but to chase closed companies would seem to be foolish.

[BR14]

To be fair, we get endless posters like this thst won't listen and keep throwing hypothetical or nonsensical arguments and the thread just goes round in circles so at some point the only useful answer to the poster is to fill their boots and get on with it.

It gets frustrating so just tell the OP to put their money with their mouth is and carry on.

and you get infractions for doing it, too

[northernladuk]

Your replies in this forum are sh1te.

If he's contending the points made it's so that the conversation's a bit more thorough. You're sarcastic and flippant, most of the time.

To be fair, we get endless posters like this thst won't listen and keep throwing hypothetical or nonsensical arguments and the thread just goes round in circles so at some point the only useful answer to the poster is to fill their boots and get on with it.

It gets frustrating so just tell the OP to put their money with their mouth is and carry on.

[Lance]

.........still beats searching for a new contract when you are happy where you are.........

and THIS ^^^^ is why the rest of the population think contractors are just tax dodgers......

Any amount of correct compliance to remain outside, is just that, compliance...... The reality is that you're just an employee who demands to be treated differently so that you can pay tax differently....

I'm not making any judgements about this. We've all done it. And the best business is repeat business.




But with April coming up fast, now is the time to ditch the warm cosy comfort of a cushy contract (alliteration not intended but I like it). Stop looking for reasons why it must be wrong just because you don't like it. Take the facts as facts.

[BABABlackSheep]

Risk, is not the only factor. The other factor is the cost associated.

(A)So you’ve been in a contract for 6 months..outside IR35, now its been determined by the client as inside. You get investigated..risk low, cost relatively low.

(B)So you’ve been in a permiecontract for 6 years. Risk low, cost very high.

If I’m A then I take a different decision on my “risk” than B..although its the same.

[BolshieBastard]

In the land of the blind, the one eyed man is King.

Let these contractors who do not 'really think there's a risk,' crack on and see where their 'good intentions' get them with the ever so decent HMRC inspectors.