IR35: Client determination and mitigating the risk of an HMRC investigation

[northernladuk]

For a contractor, what difference does it make when the contract ends? If the client determines the contract to be inside IR35 then they have to terminate the current contract. The time of payment has no relevance whatsoever to the contractor. That is the client’s problem.

I’m none the wiser as to why contractors are discussing when they should work and not work in the lead up to the change.

Does this throw any light on it?

https://www.contractoruk.com/forums/...st2719326.html

[jamesbrown]

For a contractor, what difference does it make when the contract ends? If the client determines the contract to be inside IR35 then they have to terminate the current contract. The time of payment has no relevance whatsoever to the contractor. That is the client’s problem.

I’m none the wiser as to why contractors are discussing when they should work and not work in the lead up to the change.

It's the contractors problem if they've done work that is nominally outside of IR35 leading up to April 5 and the client makes a payment for that work on or after April 6 and the client treats that payment as a deemed payment, because you're now left out of pocket on work that you thought was outside IR35.

Furthermore, it creates a rather unfortunate contradiction, accompanied by an RTI record, whereby you've declared one thing and the client has deemed another.

[Finance Contractor]

It's the contractors problem if they've done work that is nominally outside of IR35 leading up to April 5 and the client makes a payment for that work on or after April 6 and the client treats that payment as a deemed payment, because you're now left out of pocket on work that you thought was outside IR35.

Furthermore, it creates a rather unfortunate contradiction, accompanied by an RTI record, whereby you've declared one thing and the client has deemed another.

How can the client withhold funds without having provided a SDS first? At the point an SDS is provided the contractor, or client, can serve notice on the current contract however the client can’t make deductions on pre SDS work. The client also cannot make deductions on work during the notice period as the client hasn’t provided a new inside IR35 contract with the terms for deductions included in it.

That is my understanding of the matter. I struggle to see how a RTI record can be created if the contractor hasn’t explicitly signed up to a inside IR35 contract as on the old contract there is only invoicing terms. I see the point that client determination creates a record whereby the contractor and client differ on the contractor’s status. But beyond that for the contractor to passively walk into RTI I don’t think is possible.

Going back to my initial point in the earlier post, from what I have read, I don’t think contractors need to voluntarily terminate their contracts to ensure pre 5 April payments if the client has not by that point provided a SDS and a draft contract for inside IR35. Even if the client does, it still needs to factor in the notice period to come back to paying pre Apr 5th otherwise it has by default created a situation where it has to pay a contractor as outside IR35 after Apr 6th.

[cojak]

How can the client withhold funds without having provided a SDS first? At the point an SDS is provided the contractor, or client, can serve notice on the current contract however the client can’t make deductions on pre SDS work. The client also cannot make deductions on work during the notice period as the client hasn’t provided a new inside IR35 contract with the terms for deductions included in it.

That is my understanding of the matter. I struggle to see how a RTI record can be created if the contractor hasn’t explicitly signed up to a inside IR35 contract as on the old contract there is only invoicing terms. I see the point that client determination creates a record whereby the contractor and client differ on the contractor’s status. But beyond that for the contractor to passively walk into RTI I don’t think is possible.

Going back to my initial point in the earlier post, from what I have read, I don’t think contractors need to voluntarily terminate their contracts to ensure pre 5 April payments if the client has not by that point provided a SDS and a draft contract for inside IR35. Even if the client does, it still needs to factor in the notice period to come back to paying pre Apr 5th otherwise it has by default created a situation where it has to pay a contractor as outside IR35 after Apr 6th.

You need to factor notice periods into your calculations- 24th Feb would be my notice date if I was in that position.

But as you don’t think it’s necessary, you have a low attitude to risk and that’s fine.

It’s all about an individual‘s risk appetite.

[adubya]

How can the client withhold funds without having provided a SDS first? At the point an SDS is provided the contractor, or client, can serve notice on the current contract however the client can’t make deductions on pre SDS work. The client also cannot make deductions on work during the notice period as the client hasn’t provided a new inside IR35 contract with the terms for deductions included in it.

That is my understanding of the matter. I struggle to see how a RTI record can be created if the contractor hasn’t explicitly signed up to a inside IR35 contract as on the old contract there is only invoicing terms. I see the point that client determination creates a record whereby the contractor and client differ on the contractor’s status. But beyond that for the contractor to passively walk into RTI I don’t think is possible.

Going back to my initial point in the earlier post, from what I have read, I don’t think contractors need to voluntarily terminate their contracts to ensure pre 5 April payments if the client has not by that point provided a SDS and a draft contract for inside IR35. Even if the client does, it still needs to factor in the notice period to come back to paying pre Apr 5th otherwise it has by default created a situation where it has to pay a contractor as outside IR35 after Apr 6th.

That's my understanding too.

[jamesbrown]

That is my understanding of the matter.

Your understanding of the matter is wrong, according to the draft legislation. The draft legislation is quite clear that the effective date of the legislation is 6 April and that the legislation applies to payments made on or after that date, even if the work was completed earlier. There is no requirement to complete an SDS before 6 April and the SDS simply determines who discharges the responsibility of the Fee Payer. The client is always the Fee Payer until they provide the supply chain with an SDS. The presence or absence of an SDS doesn’t change the responsibility of the Fee Payer for the correct operation of PAYE. I expect the entire supply chain could be nervous about payments as 6 April approaches. The client or the agency could easily withhold payments leading up to 6 April until they have the SDS. What your contract says on this point is irrelevant as primary/secondary legislation supersedes anything in your contract.

[JohntheBike]

Your understanding of the matter is wrong, according to the draft legislation. The draft legislation is quite clear that the effective date of the legislation is 6 April and that the legislation applies to payments made on or after that date, even if the work was completed earlier. There is no requirement to complete an SDS before 6 April and the SDS simply determines who discharges the responsibility of the Fee Payer. The client is always the Fee Payer until they provide the supply chain with an SDS. The presence or absence of an SDS doesn’t change the responsibility of the Fee Payer for the correct operation of PAYE. I expect the entire supply chain could be nervous about payments as 6 April approaches. The client or the agency could easily withhold payments leading up to 6 April until they have the SDS. What your contract says on this point is irrelevant as primary/secondary legislation supersedes anything in your contract.

you are overlooking the fact that the organisation making the deduction could only do so if provided with the contractor's NI number. Clearly there would be some debate as to when such information is provided. There clearly is a complication that the funds are owed to the contractor's Ltd Co. and the contractor's Ltd Co. would owe wages to the contractor, the details of which would be entered into the RTI for March by the contractor's company. If then the paying organisation also makes a deduction in April, they would be responsible for making the RTI. I'm surprised that this issue hasn't been explored in the public sector. There must have been some issues there.

[Lance]

you are overlooking the fact that the organisation making the deduction could only do so if provided with the contractor's NI number. Clearly there would be some debate as to when such information is provided. There clearly is a complication that the funds are owed to the contractor's Ltd Co. and the contractor's Ltd Co. would owe wages to the contractor, the details of which would be entered into the RTI for March by the contractor's company. If then the paying organisation also makes a deduction in April, they would be responsible for making the RTI. I'm surprised that this issue hasn't been explored in the public sector. There must have been some issues there.

you will have to have provided your NI number to prove you have the right to work. I've provided it for every contract (excopt the ones where I've had history with the client).

No the funds won't be owed to the LTD. co if the contractor is forced down PAYE.
If the LTD. is still involved the fee payer will still make the dedcutions first. And if no NI number is available the fee payer won't pay. You gonna sue for them for that as well???

Wriggle all you like, but until the legislation is actually enacted, and you have been impacted precisely as you describe, and you have the evidence of wrongdoing, this is just ill-informed, navel-gazing speculation.

[JohntheBike]

you will have to have provided your NI number to prove you have the right to work. I've provided it for every contract (excopt the ones where I've had history with the client).

No the funds won't be owed to the LTD. co if the contractor is forced down PAYE.
If the LTD. is still involved the fee payer will still make the dedcutions first. And if no NI number is available the fee payer won't pay. You gonna sue for them for that as well???

Wriggle all you like, but until the legislation is actually enacted, and you have been impacted precisely as you describe, and you have the evidence of wrongdoing, this is just ill-informed, navel-gazing speculation.

you will have to have provided your NI number to prove you have the right to work.

not so, I instructed my solicitor to advise the agency that I was legally entitled to work in the UK. No one other than previous permie organisations have my NI number.

[BR14]

this is just ill-informed, navel-gazing speculation.

normal service from JohntheBore then.