Who pays IR35 tax and NI - Director or intemediary?

[thomast]

If a contract in a previous tax year has been established to be inside IR35 by HMRC, who is liable to pay the Employer's NI, Income tax and employee's NI on the deemed employment income for that year? The director or the intermediary? I mean , the payments go from the directors personal bank account or the company bank account?

Update:

https://www.gov.uk/ir35-what-to-do-if-it-applies says this:
The intermediary is responsible for paying the tax and both the employer and employee Class 1 National Insurance contributions due on the deemed employment payment.

What if the company does not have the funds pay? Does the responsibility get transferred to the director?

[malvolio]

If a contract in a previous tax year has been established to be inside IR35 by HMRC, who is liable to pay the Employer's NI, Income tax and employee's NI on the deemed employment income for that year? The director or the intermediary? I mean , the payments go from the directors personal bank account or the company bank account?

Update:

https://www.gov.uk/ir35-what-to-do-if-it-applies says this:
The intermediary is responsible for paying the tax and both the employer and employee Class 1 National Insurance contributions due on the deemed employment payment.

What if the company does not have the funds pay? Does the responsibility get transferred to the director?

Worst case, you get sued for trading while insolvent...

As far as I know it's never happened, so there's no precedent. Most likely will be some sort of on-going arrangement to recover the "unpaid" taxes, but it's unlikely to be very pleasant.

[mudskipper]

HMRC have the ability to transfer liability to the individual.

It this a hypothetical situation? If so, get your contract reviewed and take out insurance against an investigation.

[borderreiver]

What if the company does not have the funds pay? Does the responsibility get transferred to the director?

From what I have read on other business boards, it appears not (unless HMRC can prove negligence or worse). A company's debt remains a company's debt. That's the main point of limited liability IMHO.

You might end up having to wind up the company, of course, and HMRC would probably object, but I don't think they can recover a debt from a director in this case.

[malvolio]

From what I have read on other business boards, it appears not (unless HMRC can prove negligence or worse). A company's debt remains a company's debt. That's the main point of limited liability IMHO.

You might end up having to wind up the company, of course, and HMRC would probably object, but I don't think they can recover a debt from a director in this case.

Except...

Look at it from HMRC's viewpoint. A director's primary legal requirement is to ensure the company is solvent. If you have ignored IR35 liability, or made an unsupportable conclusion about your status, and therefore used the money that IR35 requires to be paid, then you have failed in that duty and can be prosecuted as a director. Limited liability does not extend to what is essentially criminal behaviour.

Also, who authorises the closure of a company? That's HMRC, who are looking to recover the unpaid tax...

And finally, IR35 is a tax on the individual, not the company.

[mudskipper]

From what I have read on other business boards, it appears not (unless HMRC can prove negligence or worse). A company's debt remains a company's debt. That's the main point of limited liability IMHO.

You might end up having to wind up the company, of course, and HMRC would probably object, but I don't think they can recover a debt from a director in this case.

HMRC can transfer liability.

Optimum PAYE - June 2012 - Transfer of Employer PAYE & National Insurance liabilities to Directors

[borderreiver]

A director's primary legal requirement is to ensure the company is solvent. If you have ignored IR35 liability, or made an unsupportable conclusion about your status, and therefore used the money that IR35 requires to be paid, then you have failed in that duty and can be prosecuted as a director. Limited liability does not extend to what is essentially criminal behaviour.

I don't think anyone is talking about criminal behaviour here.

Again, I'm just reporting what I've read, but while I appreciate it's a director's duty to keep a business solvent, what happens to businesses that simply can't pay CT because a major customer let them down? It happens (maybe not in IT contracting, I admit). Are you saying those directors should be prosecuted?

I agree that HMRC is likely to vigorously pursue such debts, as it should, but if a company has no assets HMRC can't just transfer liability, though it may stamp its foot and threaten to do so.

[borderreiver]

HMRC can transfer liability.

Optimum PAYE - June 2012 - Transfer of Employer PAYE & National Insurance liabilities to Directors

Interesting link. I think the important bit is this:

It is clear that an employee or director has received payments knowing that the employer had deliberately failed to deduct the correct amount of PAYE from their earnings

Proving the non-payment was deliberate is key, surely?

[malvolio]

Interesting link. I think the important bit is this:

QUOTE=mudskipper;2097860]It is clear that an employee or director has received payments knowing that the employer had deliberately failed to deduct the correct amount of PAYE from their earnings

Proving the non-payment was deliberate is key, surely?

Not catering for IR35 liability if you are not certain it is not due would count...

[borderreiver]

Not catering for IR35 liability if you are not certain it is not due would count...

If that's true then almost all of us need to worry, since certainty and IR35 are a pretty bad mix ...