PDA

View Full Version : Make sure your tax investigation cover is in order



WordIsBond
4th September 2015, 17:40
Don't Be Outlaws (http://www.contractoruk.com/news/0012208contractors_dont_be_outlaws_robin_hood_dire ctors.html)
This may not seem like it is all that relevant to most of us, we aren't going to keep trading if our business is out of money. But it actually could matter.

It appears to me they've just made it easier to "pierce the corporate veil" and hold directors liable for the debts of the corporation. Now, you have to prove that you've taken every step to minimise losses to creditors. If you can't prove that, you can be held personally liable.

So suppose HMRC comes along five years from now and says, "Your contract back in 2015 was inside IR35, and you didn't operate it properly." If you lose the case, you've got a very large bill, including interest and penalties. It's a company liability, of course, so if your company has no money, well, you're off the hook -- unless they are able to "pierce the corporate veil".

Now, all they have to do is say, "Well, you could have operated IR35, so you clearly didn't take every step to protect your creditor, HMRC." How are you going to prove that you did take "every step" to protect creditors in that case?

Has this been applied to IR35 claims yet? No. But don't be surprised if we hear before long that HMRC has started to go after directors personally, and is using this argument.

Acme Thunderer
4th September 2015, 17:58
Don't Be Outlaws (http://www.contractoruk.com/news/0012208contractors_dont_be_outlaws_robin_hood_dire ctors.html)
This may not seem like it is all that relevant to most of us, we aren't going to keep trading if our business is out of money. But it actually could matter.

It appears to me they've just made it easier to "pierce the corporate veil" and hold directors liable for the debts of the corporation. Now, you have to prove that you've taken every step to minimise losses to creditors. If you can't prove that, you can be held personally liable.

So suppose HMRC comes along five years from now and says, "Your contract back in 2015 was inside IR35, and you didn't operate it properly." If you lose the case, you've got a very large bill, including interest and penalties. It's a company liability, of course, so if your company has no money, well, you're off the hook -- unless they are able to "pierce the corporate veil".

Now, all they have to do is say, "Well, you could have operated IR35, so you clearly didn't take every step to protect your creditor, HMRC." How are you going to prove that you did take "every step" to protect creditors in that case?

Has this been applied to IR35 claims yet? No. But don't be surprised if we hear before long that HMRC has started to go after directors personally, and is using this argument.

The defence against this is fairly simple - Did you have an IR35 review carried out, can you prove it? If yes to both then your safe as you considered IR35 and found, in good faith, that it didn't apply. Of course if the review said fail (or you told some serious porkies to the reviewers) your could be in serious trouble.

northernladuk
4th September 2015, 18:27
Don't Be Outlaws (http://www.contractoruk.com/news/0012208contractors_dont_be_outlaws_robin_hood_dire ctors.html)
This may not seem like it is all that relevant to most of us, we aren't going to keep trading if our business is out of money. But it actually could matter.

It appears to me they've just made it easier to "pierce the corporate veil" and hold directors liable for the debts of the corporation. Now, you have to prove that you've taken every step to minimise losses to creditors. If you can't prove that, you can be held personally liable.

So suppose HMRC comes along five years from now and says, "Your contract back in 2015 was inside IR35, and you didn't operate it properly." If you lose the case, you've got a very large bill, including interest and penalties. It's a company liability, of course, so if your company has no money, well, you're off the hook -- unless they are able to "pierce the corporate veil".

Now, all they have to do is say, "Well, you could have operated IR35, so you clearly didn't take every step to protect your creditor, HMRC." How are you going to prove that you did take "every step" to protect creditors in that case?

Has this been applied to IR35 claims yet? No. But don't be surprised if we hear before long that HMRC has started to go after directors personally, and is using this argument.

I'm no legal eagle but I don't think what you are saying is the case at all. IR35 is different piece of legislation and reading that I don't see any relevance in that article to IR35. They article is about the company running at a loss and the negligence of the directors to do the right thing. Deciding you are inside IR35 and HMRC disagreeing isn't the same.

WordIsBond
5th September 2015, 10:07
Hey, NLUK, if you haven't read this, you might want to do so: IR35 and Personal Liability (https://www.whitefieldtax.co.uk/web/ir35-and-personal-liability-can-hmrc-proceed-against-a-individual/).

Note that "this is a less than clear area of tax practice, and one which hasn't been litigated to give any certainty." Now, we'd never expect HMRC to take advantage of something like that, would we?

The point of the Robin Hood case is that the burden of proof for corporate directors has shifted, making it easier to transfer liability to the individuals. In the absence of clear legislation, we have case law, and case law has just moved in favour of creditors and against directors.

Is that case about IR35 at all? Of course not. But it is about transferring liability to directors, and that can be done in IR35 cases just like in other cases, if the directors have been negligent. But now the burden of proof has shifted to the director to prove he wasn't negligent.

Not likely to be an issue for you if you have your contracts reviewed, keep an IR35 dossier, etc.

But someone can't take refuge in just "Deciding you are inside IR35 and HMRC disagreeing." HMRC won't treat it as a mere disagreement. They will claim you should have been operating IR35 and are negligent.

cojak
5th September 2015, 10:16
Keep your IPSE+ membership up and running for 6 years after your last contract.

That will sort it.

BolshieBastard
5th September 2015, 11:40
Keep your IPSE+ membership up and running for 6 years after your last contract.

That will sort it.

The thing with hmrc is, can you be certain 6 years is enough? They can go back a lot longer but they wouldnt do that, would they?

northernladuk
5th September 2015, 13:49
The thing with hmrc is, can you be certain 6 years is enough? They can go back a lot longer but they wouldnt do that, would they?

Only in cases they suspect fraud is involved. It would have to be exceptional to go 6 years and beyond.

SueEllen
5th September 2015, 18:08
The thing with hmrc is, can you be certain 6 years is enough? They can go back a lot longer but they wouldnt do that, would they?

Problem is you aren't expected to keep records that long, and for different legal reasons you do need to dispose of those records as soon as you don't need them.