IR35 "fines"?

[Diablo]

Hi everyone, bit of a newbie here but l have a quick question regarding the inside/outside IR35.

Am I right in saying that even if you do get caught being outside IR35 when you should be inside, the maximum penalty is recovering 100% of the tax you would have already paid had you been inside IR35??

Thanks!

[centurian]

Firstly it's the difference between whatever tax (in all it's combined forms) you actually paid and whatever tax you should have paid. Although the calculation can be quite complicated, it will broadly be the national insurance.

The 100% penalty is basically a doubling of this amount. Then interest gets added on - I believe to both the back tax and the penalty - and this interest rate is normally well above base rate.

So it you are 'caught' after 5 years, you could easily end up paying 2.5 - 3.0 times the original amount.

The 100% is supposed to be a maximum penalty for the most extreme cases, but my accountant has said that HMRC seem to have a pretty low tolerance lately for the 100% penalty.


Given this chap overpaid on tax - and was fined 70% when he got his sums wrong trying to correct the error (even though HMRC agreed that he had overpaid), it doesn't surprise me

Taxman penalises someone for paying too much - Telegraph

[Wanderer]

The 100% is supposed to be a maximum penalty for the most extreme cases, but my accountant has said that HMRC seem to have a pretty low tolerance lately for the 100% penalty.

I get the impression that if you've had a contract review and you have legal representation (eg, via the PCG) then you have a pretty good chance of winning. Even if you lose, IR35 is such a grey area that they are going to have a hard time penalising you.

Does anyone have any real world cases of IR35 investigations which have gone against the tax payer and the amounts of penalties?

What if your company has ceased trading?

A big part of IR35 about scaremongering. If it keeps people working through brollies rather than LTD then they are happy to leave it as a grey area and operate their Fear Uncertainty and Doubt method of enforcement.

[centurian]

I get the impression that if you've had a contract review

That's what I have heard as well - and it may well be correct. The problem is, no-one knows for sure. AFAIK, there's nothing in written law to say this protects contractors against the fines. Which means until it's tested in court, that view is merely a well informed opinion.

This is a common danger with tax matters - that long held opinions become treated, and repeated as hard facts (to your credit, you did qualify it correctly).

Does anyone have any real world cases of IR35 investigations which have gone against the tax payer and the amounts of penalties?

Dragonfly - 99K in total, believed to include interest and penalties.

A big part of IR35 about scaremongering. If it keeps people working through brollies rather than LTD then they are happy to leave it as a grey area and operate their Fear Uncertainty and Doubt method of enforcement.

Correct - and while we should avoid spreading the fear, that doesn't mean we should encourage people to ignore the risks completely. Going outside IR35 does carry a risk, maybe a small risk, but it's still a risk nonetheless - and people need to make their own, informed decision about this.

[Emmie Noughton]

Hi everyone, bit of a newbie here but l have a quick question regarding the inside/outside IR35.

Am I right in saying that even if you do get caught being outside IR35 when you should be inside, the maximum penalty is recovering 100% of the tax you would have already paid had you been inside IR35??

Thanks!

I'm a newbie too - IR35 has frightened me so much that I've decided to use an umbrella company initially. I was told that if you're caught you could be charged 100% of the tax due in penalties plus interest on top of this. This is scary. I'm planning on turning Ltd at some point in the future but I'm going to get myself 'IR35 educated' beforehand!

[Jog On]

What I don't get is how do they open an investigation for contracts that were completed years ago when the people who signed the timesheets have moved on and in some cases the actual clientco companies have ceased trading?

[Emmie Noughton]

What I don't get is how do they open an investigation for contracts that were completed years ago when the people who signed the timesheets have moved on and in some cases the actual clientco companies have ceased trading?

Well this is surely how they get their results. If you can't find anyone to confirm your working relationship (anyone who can truly and honestly confirm it) you're pretty stuffed. HMRC can take anyone's answer as long as they are the "end client". You really have to cover every angle. An ex colleague of mine now gets each client to sign a kind of working confirmation sheet that she keeps with her contract paperwork and she plans to use this a confirmation of her working relationship - it's signed by each of her clients. I don't know how useful this would actually be but it could be worth it!