Nightmare becomes reality

[jamesbrown]

Technically yes, but it works like a personal tax in practice due to its nature. As webberg says:

No, it doesn't work like a personal tax in practice. Again, this is straightforwardly false, unless you or webberg can cite the legislation and case law of which I am unaware.

See also here and here. Note further that if you're suspected of shutting your company down to avoid IR35 liability, then you risk being charged with evasion and/or fraud.

So, the first point you're making is an entirely separate point. I agree that a debt cannot be avoided simply by closing a company. However, closing an indebted company does not automatically transfer the liability to a director or employee, which is the leap that you seem to be making. The company would need to be reinstated and the debt transferred. The same rules apply.

Did you read the second article you linked above? I believe it says precisely what I have been saying.

As for those contractors operating their own personal service company, if HMRC mounts a challenge under IR35, the tax authority again must show that the employer wilfully failed to deduct the tax. It is therefore essential that the contractor is able to demonstrate that, even if tax was not deducted, this was not done deliberately and that the appropriate steps had been taken to comply with IR35.

It would need to be shown, under PAYE Regulation 72, that the director/employee acted willfully. Good luck with that in the context of IR35 if the appropriate due diligence has been done. Again, happy to be corrected if you can cite the legislation or case law that contradicts this. Also, the legislation can change.

[webberg]

I think you're wrong, but I'd be happy to be corrected if you could cite the specific legislation that allows for a more straightforward transfer of PAYE debt in the context of a close company, which I agree is defined in law. The transfer of debt to an employee is dealt with in Regulation 72 of the PAYE Regulations 2003 (different for NI). Regulation 80 deals with the employer.

As far as I'm aware, the case law also shows the opposite to be true, providing the director was not acting willfully. For example:

https://www.rpc.co.uk/perspectives/t...ty-to-employee

Acting without reasonable care would be incredibly difficult to demonstrate in the context of IR35, given the subjectivity involved, especially if a professional contract review were sought.

I accept that I failed to provide context.

My assumption was that HMRC raised assessments to back up a form of disguised remuneration scheme in Part 7A and therefore have available to them the rules there to transfer liability.

However, looking at the PAYE Regulations, section 81 is of help to HMRC and they have not given up on Reg 72 and the West case which is awaiting an Upper Tier Tribunal date.

The West case is interesting in that it was a "technical knock out" for the taxpayer decided on a casting vote. Until it has reached a similar result at a higher level, it would be unwise to rely upon it.

In West, there was no suggestion of disguised remuneration and I accept that my initial post was coloured by my normal work comprising pretty much nothing but that.

[madame SasGuru]

It would need to be shown, under PAYE Regulation 72, that the director/employee acted willfully. Good luck with that in the context of IR35 if the appropriate due diligence has been done. Again, happy to be corrected if you can cite the legislation or case law that contradicts this. Also, the legislation can change.

That's the thing - most of us on here won't have a problem. There is however a very large potential market of people who haven't got said due diligence. And anyone who was here in November 2016 - Feb 2017 was warned about the possible risk and how to mitigate it. Heck even some agencies followed that mitigation advice and set things up in such a way that their clients won't be impacted.

[madame SasGuru]

I accept that I failed to provide context.

My assumption was that HMRC raised assessments to back up a form of disguised remuneration scheme in Part 7A and therefore have available to them the rules there to transfer liability.

However, looking at the PAYE Regulations, section 81 is of help to HMRC and they have not given up on Reg 72 and the West case which is awaiting an Upper Tier Tribunal date.

The West case is interesting in that it was a "technical knock out" for the taxpayer decided on a casting vote. Until it has reached a similar result at a higher level, it would be unwise to rely upon it.

In West, there was no suggestion of disguised remuneration and I accept that my initial post was coloured by my normal work comprising pretty much nothing but that.

It's only a first-tier tribunal - it doesn't really determine anything. The question is has HMRC appealed?

[malvolio]

It's only a first-tier tribunal - it doesn't really determine anything. The question is has HMRC appealed?

Which bit of "waiting on an UTT" did you miss?

FWIW IR35 has always been a personal tax paid for by YourCo (which, incidentally, HMRC deems not to exist or at least not to be a relevant legal entity in this context). I feel I agree with webberg's viewpoint about where the liability goes if the company has faded from view for some reason.

[madame SasGuru]

Which bit of "waiting on an UTT" did you miss?

FWIW IR35 has always been a personal tax paid for by YourCo (which, incidentally, HMRC deems not to exist or at least not to be a relevant legal entity in this context). I feel I agree with webberg's viewpoint about where the liability goes if the company has faded from view for some reason.

From the article

Given the dissenting view of Ms O'Neil and the concerns that she expressed that the decision might enable owner managers of small businesses that are about to go into liquidation to make preferential payments to themselves at the expense of creditors such as HMRC, it would not be surprising if HMRC seek to appeal this decision to the Upper Tribunal.

and I read webberg's comment before the link and missed that an appeal had been registered.

[jamesbrown]

I accept that I failed to provide context.

My assumption was that HMRC raised assessments to back up a form of disguised remuneration scheme in Part 7A and therefore have available to them the rules there to transfer liability.

However, looking at the PAYE Regulations, section 81 is of help to HMRC and they have not given up on Reg 72 and the West case which is awaiting an Upper Tier Tribunal date.

The West case is interesting in that it was a "technical knock out" for the taxpayer decided on a casting vote. Until it has reached a similar result at a higher level, it would be unwise to rely upon it.

In West, there was no suggestion of disguised remuneration and I accept that my initial post was coloured by my normal work comprising pretty much nothing but that.

Yes, I understand where you're coming from, but the requirement to show that the director/employee acted willfully is quite clear, and the case is illustrative in that respect. It's a high bar, especially in the context of IR35.

[jamesbrown]

That's the thing - most of us on here won't have a problem. There is however a very large potential market of people who haven't got said due diligence. And anyone who was here in November 2016 - Feb 2017 was warned about the possible risk and how to mitigate it. Heck even some agencies followed that mitigation advice and set things up in such a way that their clients won't be impacted.

Sure, the contractor would need to show that they hadn't acted willfully and deliberately.

[jamesbrown]

FWIW IR35 has always been a personal tax paid for by YourCo

Again, this is straightforwardly and demonstrably false with reference to the ITEPA. The clue's in the name: intermediary. It has never been a personal tax.

I continue to be amazed at how many people confuse the criteria for establishing whether IR35 applies - namely to construct a hypothetical contract between the contractor and the end client, as a legal device - and the presence of the intermediary as a legal fact. Nothing within the ITEPA eliminates the intermediary or in any way shifts the liability. This is achieved through separate legislation, such as PAYE Reg 72, for which there are barriers to overcome. Difficult ones.

[malvolio]

Again, this is straightforwardly and demonstrably false with reference to the ITEPA. The clue's in the name: intermediary. It has never been a personal tax.

I continue to be amazed at how many people confuse the criteria for establishing whether IR35 applies - namely to construct a hypothetical contract between the contractor and the end client, as a legal device - and the presence of the intermediary as a legal fact. Nothing within the ITEPA eliminates the intermediary or in any way shifts the liability. This is achieved through separate legislation, such as PAYE Reg 72, for which there are barriers to overcome. Difficult ones.

Continue to be amazed. I'm am merely repeating the statement that has been consistently made by both HMG and various tax advisors and other bodies since 1999. I do not think it beyond the wit of HMRC and the courts to determine that an individual who has been found to be avoiding tax by pretending to be a non-employee should be liable for the debt created by his erstwhile company.