PDA

View Full Version : The Great Tax Rip-Off



NetContractor
10th May 2018, 11:21
Ok...I have been with the same "public sector" client since 2014. (By the way I have been a contractor since 2002)

When the IR35 regulations came about last year, I got hit with a sudden curve-ball because I was oblivious to the fact that my client fell under the description of "public sector". They are not public sector, but fall under the freedom of information act which (as I now know) makes them the same thing.

I went through a short period of denial, whereby I agreed I was outside, my clients on the project agreed I was outside, but the HR office claimed I was under their "control" and therefore inside. So, I put my rate up by 30% to cover the additional taxation, and thought all was good. We renewed my contract, under suitable terms and I was happy for the next 12 months. My agency failed to send me through payslips, but I didn't worry about it because I knew my tax was being deducted. There had been a mess up with them taxing my VAT but I had that corrected.

Last month my accountant asked for my P60 and payslips. I am still using an accountant as I operate through a limited company, and intend to continue to do so (hopefully outside IR35) following this gig. I received the documentation from the agencies accountant, which was when I found out that I have been having too little tax deducted for the past 12 months; the tax code was wrong. It would appear I will owe an additional £14,000 in tax come January. Not a problem; I put that to one side and carry on.

Then, HMRC issues a new ('K') tax code; that gets passed to my agency, their accountants, who issued this months payslip, this morning. My tax and NI bill has exceeded 40% of my net invoice, and my take home pay has dropped considerably. wow!

My client has asked me to extend (again) on this project, this time well into 2019.

I have just run my situation through the current version of the CEST tool, and under my current working practices am inside IR35, clearly; as I am office based and have not questioned that since I was inside and put my rate up accordingly. But , if I change a few things about my working practices, which where apparent prior to IR35, such as choosing when and where I conduct the work, the CEST tool puts me outside IR35.

Assuming my client would be in agreement to make this concession (which I believe they would be), is it feasible to terminate my current IR35 accepting contract, change my working practices and generate a new outside IR35 contract for the remaining term of the contract and into the new extended period?

Anyone know the legalities?

Thanks. (what a mess IR35 is)

malvolio
10th May 2018, 11:45
First things first - read this guide (https://www.ipse.co.uk/our/news-listing/guide-to-ir35-in-the-public-sector.html) from IPSE which should answer most of your questions.

But basically the client makes the determination. If they've used the (hopelessly inaccurate) CEST tool, then they will have to be persuaded to re-run their assessment. Good luck with that one.

As for taxes paid, it's a pain, but can be sorted at year end through your SAR, whichever status you end up with.

NetContractor
10th May 2018, 12:00
First things first - read this guide (https://www.ipse.co.uk/our/news-listing/guide-to-ir35-in-the-public-sector.html) from IPSE which should answer most of your questions.

But basically the client makes the determination. If they've used the (hopelessly inaccurate) CEST tool, then they will have to be persuaded to re-run their assessment. Good luck with that one.

As for taxes paid, it's a pain, but can be sorted at year end through your SAR, whichever status you end up with.

Thanks for the reply. I DID read that document, sometime ago, albeit not cover to cover (its a bit dry).

As for the clients determination, it was made based on "control". ie. They provide me with a requirement (tell me what to do) and I go away and do it. They considered that to be controlling what I do. Admittedly most of my work is completed in the office, because I connect to a database for development purposes, but I had previously worked from home, and while this is not currently setup, I could provide that at relatively short notice.

As for the client being "persuaded" to re-evaluate the assessment, the CEST tool was pretty clear on the outside assessment, all things remaining the same, if I decide when and where I work. As I have been on this project for 3 years (2015, not 2014 as previously stated), I have proven I complete requirements quickly, and efficiently. Plus I am quite instrumental to the completion of this project so "we need to change the contract or I am afraid I am going to be unable to continue on the project", is a pretty powerful statement.

As for the SAR, yes; my accountant will deal with that another day. I am unsure if my new tax code is taking the underpayment into account, or if I will still need to pay that in January. That is a question for my accountant and one which I have fired over to THEM.

Thanks!

Graham1967
12th May 2018, 07:19
Can you advise, if you have been with the client since 2014, why have you allowed yourself to stay after the IR35 determination rules changed.

So if HMRC comes calling how will you defend yourself, if you are now agreeing to work inside IR35, in the same role which you previously said was outside. What has changed?

Personally I would have gone for the exit when the rules changed.

Hector will a case loads floor to ceiling of so-called permietractors who he can ask the very same question to.

NetContractor
12th May 2018, 07:33
Can you advise, if you have been with the client since 2014, why have you allowed yourself to stay after the IR35 determination rules changed.

So if HMRC comes calling how will you defend yourself, if you are now agreeing to work inside IR35, in the same role which you previously said was outside. What has changed?

Personally I would have gone for the exit when the rules changed.

Hector will a case loads floor to ceiling of so-called permietractors who he can ask the very same question to. Thanks for your comment.

Firstly, yes; I have been on this same project since 2014.

Why did I stay? It is a good job, with a good client, on a good project, 5 miles from my door. I set my own hours, and get to do the daily school run when I like. It's hard to leave a project like that. Also I have never left a project before completion; the client and project would have suffered.

When I first realised ir35 was an issue, it was 6 weeks before the deadline. After looking into all things concerned, and arguing my case with hr for the client, it looked like a blanket inside verdict was inevitable. We cancelled the old contract and started a new one as of 5th April 2017, which stipulated direction and control. I increased my rate and thought all things would be equal. I was only expecting the project to last another 6 months anyway. Realistically nothing changed and I was still dictating hours, how work was done etc. So technically was still outside ir35. (It could be argued)

The project had major changes which meant it extended. There have also been major issue with the state of how public sector ir35 has played out. And with the agency's accountant using the wrong tax code has made gong forward untenable. But that is why I stayed, and how I don't think a retrospective ir35 review will be an issue.

Thanks.

NetContractor
12th May 2018, 07:42
Ok. I may have a solution which I would like to sound out here. No gimmicks or scams; just a documented change to working practice that might just help.

Since I have been declared inside ir35 I have accepted a certain element of control from the client. To be honest it has been nice NOT being responsible for many decisions this year. But the project has suffered in a certain amount of miss-direction.

I would like to take back control, resolve the clients issues, and get myself out of ir35.

For the past year I have been office based; I set hours that suited me and my family, butt I have worked 7 hours a day in the office.

I do however have a home office, and have ensured I can access necessary resources to work on my project from my own office at times which suit me.

I have run my situation through CREST and according to it; all thin hs being equal, if I choose my hours and location of work, I am outside ir35. I will obviously print this determination off.

On top of that I want to bring in some resource, occasionally, at my expense, to assist with my work.

The client will accept the new terms, and change to working practice from 1st June. The contract can be terminated and re-written.

How do we inform HMRC about the changes?

NetContractor
12th May 2018, 07:54
Personally I would have gone for the exit when the rules changed.

Oh... and you can SAY you would have walked. But given the same situation, 5miles from note, working on a project where you come and go as you please, apart from providing requirements no one tells you what to do or how to do it, when you think the 35% rate increase will cover any issues; I doubt anyone would have walked.

Cheers.

Graham1967
12th May 2018, 10:31
Listen it's not for me to decide where and when you work that's your decision.

But from what I can see you have been on a project since 2014 contracting through your own ltdco.

The determination made at the time was the role was.outside the scope of ir35. When the determination was then changed by the engager rather than jumping out you decided you wanted a rate increase.

So my question is what changed in your working practices before and after April. 2017. Try explaining that to HMRC if you get an investigation.

To me that rate increase location, doesn't come into the equation. Once HMRC have their claws into you they want their pound of flesh. I've see first hand what the stress does to people.

If you are happy to stay remember it's pay upfront then appeal. I would take some advice on your situation. Not your accountant by the way. He does your books.

By the way is it the same agent you have contracted through because since 2015 and a change to the intermediatea legislation they will have reported your details of you being paid off the books. Now same agent has you on PAYE.

Can you not see what may in future keep you awake at night.

NetContractor
12th May 2018, 10:45
Listen it's not for me to decide where and when you work that's your decision.

But from what I can see you have been on a project since 2014 contracting through your own ltdco.

The determination made at the time was the role was.outside the scope of ir35. When the determination was then changed by the engager rather than jumping out you decided you wanted a rate increase.

So my question is what changed in your working practices before and after April. 2017. Try explaining that to HMRC if you get an investigation.

To me that rate increase location, doesn't come into the equation. Once HMRC have their claws into you they want their pound of flesh. I've see first hand what the stress does to people.

If you are happy to stay remember it's pay upfront then appeal. I would take some advice on your situation. Not your accountant by the way. He does your books.

By the way is it the same agent you have contracted through because since 2015 and a change to the intermediatea legislation they will have reported your details of you being paid off the books. Now same agent has you on PAYE.

Can you not see what may in future keep you awake at night. No. The contract was different before the legislation. The client and I disagreed with the level of control, so I terminated the contact, and agreed a new contract providing them with a level of control and accepting ir35.

Had I walked, HMRC would have had the same argument re my previous contract.

What I am suggesting now is a change to the working arrangements again, to explicitly put in place steps to avoid ir35. And not just on a contractual basis but in practice too. HMRC would not have a case; it is irrelevant that the client and agency have remained the same.

I was hoping to come on here to find someone who would comment KNOWING the facts, not just conjecture. It is what it is.

Thank you.

madame SasGuru
13th May 2018, 08:58
No had you walked you wouldn’t be appearing on the Hmrc report called “people who clearly were working inside ir35 prior to April 2017” which is a simple query listing those working inside ir35 from April 2017 yet were outside in March 2017 as reported by the monthly agency payment reporting regulations.

The entire reason for leaving in March 2017 was to ensure you were not on any report Hmrc would use to generate their list to investigate. That’s why I said as much back in December 2016 when it became clear what contractors at HMRC had determined to be their best course of action.

Yes you may be able to show that things are different between then and now but the entire point was to ensure you weren’t placed in a position where you had to demonstrate those differences

NetContractor
13th May 2018, 09:00
No had you walked you wouldn’t be appearing on the Hmrc report called “people who clearly were working inside ir35 prior to April 2017” which is a simple query listing those working inside ir35 from April 2017 yet were outside in March 2017 as reported by the monthly agency payment reporting regulations.

The entire reason for leaving in March 2017 was to ensure you were not on any report Hmrc would use to generate their list to investigate. That’s why I said as much back in December 2016 when it became clear what contractors at HMRC had determined to be their best course of action.

Yes you may be able to show that things are different between then and now but the entire point was to ensure you weren’t placed in a position where you had to demonstrate those differences


Out of curiosity, is this conjecture? Or do you know for a FACT that there is a report called "people who clearly were working inside ir35 prior to April 2017"? No disrespect, but I am expecting the former.

thanks.

Fred Bloggs
13th May 2018, 09:28
Ok. I may have a solution which I would like to sound out here. No gimmicks or scams; just a documented change to working practice that might just help.

Since I have been declared inside ir35 I have accepted a certain element of control from the client. To be honest it has been nice NOT being responsible for many decisions this year. But the project has suffered in a certain amount of miss-direction.

I would like to take back control, resolve the clients issues, and get myself out of ir35.

For the past year I have been office based; I set hours that suited me and my family, butt I have worked 7 hours a day in the office.

I do however have a home office, and have ensured I can access necessary resources to work on my project from my own office at times which suit me.

I have run my situation through CREST and according to it; all thin hs being equal, if I choose my hours and location of work, I am outside ir35. I will obviously print this determination off.

On top of that I want to bring in some resource, occasionally, at my expense, to assist with my work.

The client will accept the new terms, and change to working practice from 1st June. The contract can be terminated and re-written.

How do we inform HMRC about the changes?
I am not a tax expert but what you are proposing is to change an existing inside IR35 role into an outside one? With the tools now available to HMRC, I really think that any move that has only one purpose, to mitigate tax, is almost certain to be set aside as a sham and IR35 applied to the whole contract. The only solution I can see is to leave the job and find a new one that is genuinely outside the legislation.

madame SasGuru
13th May 2018, 10:02
Out of curiosity, is this conjecture? Or do you know for a FACT that there is a report called "people who clearly were working inside ir35 prior to April 2017"? No disrespect, but I am expecting the former.

thanks.

Shall we just say that - I know that that report was on a backlog to be created - in the same way that I know exactly what NHS improvement said would happen to Trust directors who tried to "game" the system

And as Fred Bloggs states given that you have been inside IR35 for a while why do you think HMRC will agree that your role is outside IR35 when they have evidence that you accepted (for a while) that your work with that agency was inside.

NetContractor
13th May 2018, 17:17
Shall we just say that - I know that that report was on a backlog to be created - in the same way that I know exactly what NHS improvement said would happen to Trust directors who tried to "game" the system

And as Fred Bloggs states given that you have been inside IR35 for a while why do you think HMRC will agree that your role is outside IR35 when they have evidence that you accepted (for a while) that your work with that agency was inside.

yes, but by the logic I could argue that my contract was outside IR35 for "a while" and Human Resources (whom have no direct knowledge of my contract) insisted it "become" inside due to the new legislation, but as I was operating outside, they must have been wrong....I should be due a massive tax refund.

NetContractor
13th May 2018, 17:19
I am not a tax expert but what you are proposing is to change an existing inside IR35 role into an outside one? With the tools now available to HMRC, I really think that any move that has only one purpose, to mitigate tax, is almost certain to be set aside as a sham and IR35 applied to the whole contract. The only solution I can see is to leave the job and find a new one that is genuinely outside the legislation.


Not true at all. I am proposing a change in work practice which ensures the contract is a business to business relationship and thus clearly not covered by the legislation. This is in no was a "sham", but a genuine change in the relationship...clearly!

NetContractor
13th May 2018, 17:24
Once again, I am sorry that I posted here.

This is not a forum whereby you get an intellectual conversation between contractors wanting to help each other out. Clearly, people with any sort of actual knowledge do not frequent these forums, just people with far too much time on their hands and an opinion.

I won't post here again. I thought we were contractors and professionals coming together to help each other. clearly not. its a waste of time. Good day.

Fred Bloggs
13th May 2018, 17:54
Not true at all. I am proposing a change in work practice which ensures the contract is a business to business relationship and thus clearly not covered by the legislation. This is in no was a "sham", but a genuine change in the relationship...clearly!
Seems academic now that you have flounced anyway. But it isn't me you need to convince. I can see no commercial purpose in the arrangement you describe, hence it is purely tax motivated. Such arrangements these days are usually ruled a sham.

All I can say to you is good luck if you ever need to argue that with HMRC. Be sure to let us know how it turned out, since I really am very interested in hearing all about it.

madame SasGuru
13th May 2018, 18:09
Once again, I am sorry that I posted here.

This is not a forum whereby you get an intellectual conversation between contractors wanting to help each other out. Clearly, people with any sort of actual knowledge do not frequent these forums, just people with far too much time on their hands and an opinion.

I won't post here again. I thought we were contractors and professionals coming together to help each other. clearly not. its a waste of time. Good day.

Um - I think you will find I don't post here often anymore and only posted as you clearly didn't pay attention to the advice I happily handed out and got abused for between December 2016 and March 2017. Beyond that :wave: when it comes to HMRC there is zero point debating what they will do as their viewpoints are very fixed...

jamesbrown
13th May 2018, 18:51
Once again, I am sorry that I posted here.

This is not a forum whereby you get an intellectual conversation between contractors wanting to help each other out. Clearly, people with any sort of actual knowledge do not frequent these forums, just people with far too much time on their hands and an opinion.

I won't post here again. I thought we were contractors and professionals coming together to help each other. clearly not. its a waste of time. Good day.

You've fallen into that classic trap of hoping for answers that confirm your desired outcome and then flouncing when they don't.

They didn't, you flounced.

Happens all the time.

The IR35 status of a contract depends on the facts at any given time. Yes, the status can change, because working practices can change (cf. JLJ). No, you are not in a strong position if, at some point, it was determined (and you agreed) that the contract was inside IR35. You would need to demonstrate a very clear change in working practices, and what you propose is unlikely to be adequate. At the very least, your case will be pursued to the bitter end by HMRC if investigated, which seems quite likely, because your merry-go-round status has been within their full view.