Nightmare becomes reality

[jamesbrown]

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.

Continuing to be amazed.

Your emphatic presentation of the evidence to support your claims almost swayed me, but I marginally came down on the side of astonishment.

[malvolio]

Continuing to be amazed.

Your emphatic presentation of the evidence to support your claims almost swayed me, but I marginally came down on the side of astonishment.

Nevertheless, IR35 is a personal tax issue. If you have mis-declared your income on your SAR as outside IR35 and are then found to be inside, it is you personally who has not paid sufficient taxes and it is you personally who is liable for the shortfall (plus interest and any penalties, although the latter is unlikely). How you pay for it is your problem, and if YourCo has ceased to be, it is your money that will be used. And to close the loop, it is your personal tax return that will trigger an IR35 investigation, not YourCo's filed accounts.

That has always been the case. IR35 is not a corporate liability any more than PAYE is: in fact, to be entirely pedantic, IR35 is not a tax at all, it is an element in the calculation of personal PAYE and NICs owed.

[jamesbrown]

Nevertheless, IR35 is a personal tax issue. If you have mis-declared your income on your SAR as outside IR35 and are then found to be inside, it is you personally who has not paid sufficient taxes and it is you personally who is liable for the shortfall (plus interest and any penalties, although the latter is unlikely). How you pay for it is your problem, and if YourCo has ceased to be, it is your money that will be used. And to close the loop, it is your personal tax return that will trigger an IR35 investigation, not YourCo's filed accounts.

That has always been the case. IR35 is not a corporate liability any more than PAYE is: in fact, to be entirely pedantic, IR35 is not a tax at all, it is an element in the calculation of personal PAYE and NICs owed.

Tripe. You can keep asserting stuff all you'd like. Almost everything you've written there is false. An IR35 investigation could begin in a variety of ways, but generally through an Employer Compliance Review/Check of Employer Records.

Here's the PAYE 2003 Regulation 72 in original form.

The Income Tax (Pay As You Earn) Regulations 2003

[malvolio]

Tripe. You can keep asserting stuff all you'd like. Almost everything you've written there is false. An IR35 investigation could begin in a variety of ways, but generally through an Employer Compliance Review/Check of Employer Records.

Here's the PAYE 2003 Regulation 72 in original form.

The Income Tax (Pay As You Earn) Regulations 2003

a) Except we don't know what triggers an IR35 case, corporate returns are merely one route. Also, in these days of iXBRL-coded returns, correlating company and personal income and taxation is simple to achieve.

b) Your quoted section of the Regulation works beautifully in favour of your argument until you allow that the "employer" and the "employee" are one and the same. The problem then is which is liable for the wilful mis-representation of the correct tax position, and who it is that goes to court, the employer or the employee, to defend their position. In every case I've read it's been a person stood there, and their precise relationship between worker and company has never been brought into the discussion. Equally I will allow that the case has been between HMRC and the Intermediary company. Taken together that rather supports the contention (not mine, Dawn Primarola's and others' contention) that IR35 is a personal tax paid by the intermediary company.

Hence my point that we simply do not know who is going to cough up the money but we must not assume that the disappearance of the intermediary company will result in a zero liability on the controlling person who made the decisions. It may, or it may not. I know which at I would bet.

[northernladyuk]

a) Except we don't know what triggers an IR35 case, corporate returns are merely one route. Also, in these days of iXBRL-coded returns, correlating company and personal income and taxation is simple to achieve.

b) Your quoted section of the Regulation works beautifully in favour of your argument until you allow that the "employer" and the "employee" are one and the same. The problem then is which is liable for the wilful mis-representation of the correct tax position, and who it is that goes to court, the employer or the employee, to defend their position. In every case I've read it's been a person stood there, and their precise relationship between worker and company has never been brought into the discussion. Equally I will allow that the case has been between HMRC and the Intermediary company. Taken together that rather supports the contention (not mine, Dawn Primarola's and others' contention) that IR35 is a personal tax paid by the intermediary company.

Hence my point that we simply do not know who is going to cough up the money but we must not assume that the disappearance of the intermediary company will result in a zero liability on the controlling person who made the decisions. It may, or it may not. I know which at I would bet.

So how does that mean that:

Nevertheless, IR35 is a personal tax issue.

[NotAllThere]

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.

Indeed, which is why I made the statement initially. I was present at one of the first meetings leading to the founding of the PCG.

Whether that was a good thing or a bad thing, I can't say, but I did get a drink out of Andy White. I can only assume that JamesBrown is rather new to this whole contracting lark; he seems to be hiding behind arguments concerning terminology. So much for science.

Since 1999, people have been mooting phoenixing their ltd. cos as a way of getting around IR35. Since 1999, tax advisors etc. have been saying that it's not a good idea. Why? 'Cos HMRC can come after you - the worker, the director. If they can come after you and get the tax and NI money off you, I guess you'll find that pretty much a personal tax issue.

I believe you can get a QC opinion that they might come after you, but won't be able to get you.

[TonyF]

There's a good blog post from Whitefield Tax here (https://www.whitefieldtax.co.uk/ir35...-a-individual/) about whether the company liability can be passed on to the individual.

Looking at that, if the director has not been negligent then there is not much chance of HMRC being able to transfer the liability from company to individual. The PAYE regulations have limited scope for shifting the liability and if the director genuinely believes that they are outside IR35 then HMRC would (IMHO only) struggle to show that the company willfully failed to deduct the tax and NI due. If the company did not willfully deduct the tax then it cannot be shifted to the individual tax payer.

If HMRC had won tribunals on this point, you'd think that they would be shouting from the rooftops about how they can do this, but I don't rememebr seeing one ever. Is there an example where the liability has successfully been passed from the company to the individual, and what laws did they use to do that?

[malvolio]

There's a good blog post from Whitefield Tax here (https://www.whitefieldtax.co.uk/ir35...-a-individual/) about whether the company liability can be passed on to the individual.

Looking at that, if the director has not been negligent then there is not much chance of HMRC being able to transfer the liability from company to individual. The PAYE regulations have limited scope for shifting the liability and if the director genuinely believes that they are outside IR35 then HMRC would (IMHO only) struggle to show that the company willfully failed to deduct the tax and NI due. If the company did not willfully deduct the tax then it cannot be shifted to the individual tax payer.

If HMRC had won tribunals on this point, you'd think that they would be shouting from the rooftops about how they can do this, but I don't rememebr seeing one ever. Is there an example where the liability has successfully been passed from the company to the individual, and what laws did they use to do that?

Except that is only an issue where the company has been closed down before the case was resolved. As far as I know that has never arisen, and if there were a case in progress you couldn't close the company anyway

[TonyF]

Except that is only an issue where the company has been closed down before the case was resolved. As far as I know that has never arisen, and if there were a case in progress you couldn't close the company anyway

Why is it only an issue where the company has been closed down before the case was resolved?

Company is trading. Director checks their working arrangements, gets reviews etc, and decides that the contract is outside IR35. As a result they pay out the profits as dividends and does not retain very much in the company (let's say it's £50k retained though, which is a nice reserve fund to have).

HMRC come calling, and win their IR35 tribunal and it's a whopper - they win £450k from the company. But the company doesnt' have the money to pay the tax and NI because they genuinely believed that the role was outside IR35. They didn't willfully avoid paying the tax, they had a difference of opinion from HMRC and the tribunal about whether they were inside or outside, but they werent negligent, they did the assessments, they checked regularly, they tried their hardest to avoid all three IR35 tests. But they still lose. The case is resolved and the company is open.

The company is now insolvent because they owe HMRC £450k and only have £50k left because the dividends were paid from the retained profit legally. The company goes bust.

The PAYE regulations only allow for the liability to shift from company to director if there was negligence or they wilfully avoided paying tax and NI. What evidence can HMRC produce to show that this was negligent? What shows that they willfully avoided the tax? The director made all sorts of checks and on the basis of that made a genuine decision that they were outside IR35.

What law can HMRC use to shift the PAYE liability to the individual from the company? Because it's not in the PAYE regulations, so which law do they use to allow this to happen?

[webberg]

I think there are two streams of process here and that there may be a degree of conflation.

The West case dealt with a situation in which a director of a company drew loans that he was accustomed to clearing via a salary/dividend process at the end of each year. He accepted that in so doing, the company owed PAYE and he owed tax on the dividend.

However business was not good and he therefore decided to close the company and to do so after declaring a salary but before the PAYE became due and/or was paid.

The question for the FTT was whether the acknowledgement that PAYE was due and the provisioning for the amount in the final accounts, amounted to "payment". On technical grounds the FTT decided (by a casting vote) that this meant the PAYE obligation was met and that it was an employer liability and that the sum had not been, to the knowledge of Mr West (sole director and shareholder), "wilfully" not paid.

So here the question of transfer from company to individual did not need to be considered as the company was liable and had "paid" the PAYE.

In a situation in which an IR35 enquiry leads to the conclusion that there was a deemed employment, then an intermediary, usually the Own Co, is required to pay the PAYE that would have fallen due. That intermediary could be in some instances an agency (Ch 7 ITEPA), or the Own Co (Ch 8 ITEPA). Perhaps in some instances a MSC provider (Ch 9) although you would hope that this would have ben sorted long before.

In most cases the Own Co. Therefore Own Co is liable to a sum deemed to be PAYE. See section 56 ITEPA. This section essentially makes the tax due from the deemed employment a PAYE liability. Although I suspect that there is a technical out if the worker/director could show that they were not aware of the PAYE liability arising until the enquiry, given that the Reg 80 will arrive at the end of the enquiry, to then declare insolvency and walk away would be difficult to avoid the "wilful" tag and liability would move to the individual.

It will interesting to see what the UTT makes of West.