Very serious IR35 defeat
Discussion
Very disquieting news on the IR35 front.
Jon Bessell of Dragonfly Consulting Ltd. seems to have been running his contracts pretty much the same as I do, using the same key pointers of ensuring you are not part and parcel of your client's organisation, supplying own equipment, different pass, parallel contracts, right of substitution, yet has still lost.
This has really serious repercussions, I think.
See the article at Shout99 for full details.
The PCG are taking the decision to appeal, so there is hope yet. But if this sticks then it establishes very serious and undesirable case law.
Jon Bessell of Dragonfly Consulting Ltd. seems to have been running his contracts pretty much the same as I do, using the same key pointers of ensuring you are not part and parcel of your client's organisation, supplying own equipment, different pass, parallel contracts, right of substitution, yet has still lost.
This has really serious repercussions, I think.
See the article at Shout99 for full details.
The PCG are taking the decision to appeal, so there is hope yet. But if this sticks then it establishes very serious and undesirable case law.
I hate this statement "In my opinion he would have been an employee had he been directly engaged by the AA."
I always think "no shit" when they say that.
Anyway, Eric, can you tell us how the fines work. Is the Corp tax paid originally paid (under the assumption that the contract falls outside of IR35) deductible from the PAYE Income Tax due? I.e. can you reverse engineer the company finances to untangle it all?
I think I can guess the answer....
I always think "no shit" when they say that.
Anyway, Eric, can you tell us how the fines work. Is the Corp tax paid originally paid (under the assumption that the contract falls outside of IR35) deductible from the PAYE Income Tax due? I.e. can you reverse engineer the company finances to untangle it all?
I think I can guess the answer....
Edited by Olf on Tuesday 22 January 18:12
Well, I would say that the CT overpaid as a result of declaring higher trading profits MUST be repaid by the Revenue - with interest.
Obviously, the sum involved would be overwhelmed by the backdated liability for underpaid PAYE and NI (plus interest and penalties).
But both computations will need to be carried out.
Obviously, the sum involved would be overwhelmed by the backdated liability for underpaid PAYE and NI (plus interest and penalties).
But both computations will need to be carried out.
Ok.
Well reading those two cases it seems to me that only lip service was paid to the substitution clause.
I am on the verge of agreeing with one of my current clients an actual CV of a colleague who could easily fulfill the substitution clause. I think I will accelerate that process.
Well reading those two cases it seems to me that only lip service was paid to the substitution clause.
I am on the verge of agreeing with one of my current clients an actual CV of a colleague who could easily fulfill the substitution clause. I think I will accelerate that process.
Olf said:
Is the Corp tax paid originally paid (under the assumption that the contract falls outside of IR35) deductible from the PAYE Income Tax due? I.e. can you reverse engineer the company finances to untangle it all?
Yep. And Dipsey-Wipsey and La-La will help you fill in the paperworkOlf said:
I think I can guess the answer....
Indeed. The crowning turd on the cowpat is that, even if you are caught by this blatantly biased legislation, HMR&E will quite happily have their cake and eat it (a phrase that has always seemed nonsensical to me, but never mind) inasmuch as they'll seem you a "disguised employee" fox taxation purposes and yet happily rape you for Corporation Tax, VAT and Employer's NIC. You know what's "disguised" about it? The benefits of employment are
ing disguised but the financial penalties are in your face and in your wallet. 
kryten22uk said:
Both of these guys worked a steady set number of hours for the same client for 4 years. Isnt that just asking for trouble?!
I agree. However, in terms of what constitutes a contract, why couldn't a valid contract determine a set number of hours be carried out - perhaps even when those hours should be carried out. For example - an IT consultant working on a project to upgrade servers may be 'contracted' to work 24 hours a week in two 12 hour shifts - the shifts taking place on Saturday and Sunday. The 'client' could quite reasonably need this in order to avoid disruption to their business, but in the eyes of HMRC this could constitute employment.
It's all bo
ocks I tell thee.Not that it's going to be popular, but one could always invest in one's own business and develop a product, rather than providing a service. The bad thing about this stuff is the vaugeness IMO.
I suspect that those who hurt because of this, do so because HMG want them to. I suppose from their perspective they want business development, because it has the potential to help the economy. Presumably any tax breaks that are available are supposed to be for the purpose of nurturing business development.
It has to be debateable that business development does not include working like an employed person, and avoiding tax. I don't have a problem with that. Even slightly.
Equally, the interpretation of all this rubbish is so loose, it beggars belief.
I suspect that those who hurt because of this, do so because HMG want them to. I suppose from their perspective they want business development, because it has the potential to help the economy. Presumably any tax breaks that are available are supposed to be for the purpose of nurturing business development.
It has to be debateable that business development does not include working like an employed person, and avoiding tax. I don't have a problem with that. Even slightly.
Equally, the interpretation of all this rubbish is so loose, it beggars belief.
Edited by dilbert on Wednesday 23 January 02:07
kryten22uk said:
Both of these guys worked a steady set number of hours for the same client for 4 years. Isnt that just asking for trouble?!
Yes, that was my thought. Ridiculous that the IR would chase such 'suspects' while paying MANY BILLIONS to Northern Rock - which I think will be gone forever! Best not to confuse common sense with the IR, the two are not related.dilbert said:
Not that it's going to be popular, but one could always invest in one's own business and develop a product, rather than providing a service. The bad thing about this stuff is the vaugeness IMO.
I suspect that those who hurt because of this, do so because HMG want them to. I suppose from their perspective they want business development, because it has the potential to help the economy. Presumably any tax breaks that are available are supposed to be for the purpose of nurturing business development.
It has to be debateable that business development does not include working like an employed person, and avoiding tax. I don't have a problem with that. Even slightly.
Equally, the interpretation of all this rubbish is so loose, it beggars belief.
Specialist knowledge is a product.I suspect that those who hurt because of this, do so because HMG want them to. I suppose from their perspective they want business development, because it has the potential to help the economy. Presumably any tax breaks that are available are supposed to be for the purpose of nurturing business development.
It has to be debateable that business development does not include working like an employed person, and avoiding tax. I don't have a problem with that. Even slightly.
Equally, the interpretation of all this rubbish is so loose, it beggars belief.
Edited by dilbert on Wednesday 23 January 02:07
Eric Mc said:
(plus interest and penalties).
The penalty is fairly easy to avoid I think, as long as you got the contract reviewed and can point to the fact you took reasonable steps. Not getting a contract reviewed is not only silly from a TAX POV, it doesn't make business sense either. Or just insure against against the interest and penalties etc. Lots of products available.
Does yet again bring into focus the need to keep any contract clauses for the "big three" of MOO, Control, and Substitution in the real world, and make sure you a) have evidence b) get confirmation of arrangements.
Subsitution always seems to be the one that is hardest to "prove" - as the client is unlikely to support you. Yet if you claim lack of MOO - I am fairly certain no client of mine would say "Yes, of course we would keep him on after we canned the project".
PCG are appealing, so hopefully this will be cleared up. Special Commisioners are not known for being that able to understand things more complex than a loo seat, so there is some hope.
I'd say soNoger said:
Eric Mc said:
(plus interest and penalties).
The penalty is fairly easy to avoid I think, as long as you got the contract reviewed and can point to the fact you took reasonable steps. Not getting a contract reviewed is not only silly from a TAX POV, it doesn't make business sense either. Or just insure against against the interest and penalties etc. Lots of products available.
Does yet again bring into focus the need to keep any contract clauses for the "big three" of MOO, Control, and Substitution in the real world, and make sure you a) have evidence b) get confirmation of arrangements.
Subsitution always seems to be the one that is hardest to "prove" - as the client is unlikely to support you. Yet if you claim lack of MOO - I am fairly certain no client of mine would say "Yes, of course we would keep him on after we canned the project".
PCG are appealing, so hopefully this will be cleared up. Special Commisioners are not known for being that able to understand things more complex than a loo seat, so there is some hope.
IIRC the PCG, or someone they recommend will review contracts. The PCG also supply contracts deemed to fall outside IR35 for their members to use.
Problems also occur when the contract is through an agency as the IR also look at the contract between the agent and the client.
All the above from memory as I got out of contracting at the end of '06 after 20-odd years as an IT consultant
Problems also occur when the contract is through an agency as the IR also look at the contract between the agent and the client.
All the above from memory as I got out of contracting at the end of '06 after 20-odd years as an IT consultant
Edited by stepej on Wednesday 23 January 08:44
kryten22uk said:
Given that the HMRC must review hundreds of Ltd contractors without success, why did they succeed with these two cases? I tried reading the "whole" official release, but it got a bit boggling.
I have read a good chunk of it and it's a nightmare.The key for me is that this guy was taking precautions to ensure substitution but company mechanisms that are enshrined e.g. need to interview, need to give security card, need to give a desk will all count against you supplying a random but qualified bod in substitution.
From my reading it also seems that if you had someone lined up to substitute it would still not be acceptable because that person (if the arrangement was pre-arranged) would have to jump through the same hoops (interview etc) before they were acceptable to the client.
How many of us can win work without some kind of 'personal' interaction witht he end client prior to contract award that couldn't be construed as an interview of sorts?
If this goes through case law it will start to look very much like a national lottery for the unlucky.
stepej said:
Problems also occur when the contract is through an agency as the IR also look at the contract between the agent and the client.
Oh it's worse than that. The IR will look at those and then, if they don't like them, totally ignore them and construct a "notional contract" that, in their opinion only, reflects the "true" (sic) relationship between each end of the chain (ie. you personally and your client), effectively cutting your company and the agency out of the loop as far as their new made-up "notional contract" is concerned.How are you meant to run a business when, for taxation purposes, the contract you have worked so hard to get right can be discounted as if it doesn't exist and something that doesn't exist except in the biased heads of a Tax Inspector used instead?
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