IR35 what happens to most people?

[the4thamigo_uk]

We hear about the few long cases of people defending an IR35 challenge by HMRC, but I assume there are many businesses who have been challenged, but have not defended themselves. Do we have any clear idea about the numbers/proportion of undefended cases?

In the event of not defending, how is the tax owed calculated? In particular, would my company be rebated the corporation tax that it has already paid on my dividends, before the dividend payments are converted to PAYE? Does anyone have a clear guide about how this is figured out and roughly what fine one might expect?

[Taxless]

HMRC do not have a very successful track record on IR35 and although figures have been released for the amount raised, I don't know that this includes cases settled.

Remember that a lot of those that failed would have had either no advice or bad advice, porly written contracts or were truly disguised employees of the end client, so don't get too worried about these.

If your particular circumstances are strong then the number of failed cases is irrelevant to you.

To put it into perspective, in my own personal experience since IR35 was introduced, I have dealt with 30 -40 potential IR35 cases, including a number who had entered the IR35 arena before I had anything to do with them.

In that time, I have dealt with only 1 specific IR35 enquiry from HMRC and although the contract provided by the client's previous adviser was not the strongest I had ever seen, we still managed to fend HMRC off.

If you did concede, you are treated as due PAYE/NIC on almost all company turnover, with a few paltry exceptions.

If you want to have some fun/really depress yourself, here is teh start of HMRC's process for working out the liability :
How to calculate the deemed payment

Put simply, you don't want to end up falling foul of IR35, it is very, very costly.

[LisaContractorUmbrella]

You would have to pay back any underpaid tax and NI contributions and you could also face a penalty which could be considerable if HMR&C consider that you knew you fell inside IR35 but chose to work outside :

HM Revenue & Customs: New penalties

[SueEllen]

We hear about the few long cases of people defending an IR35 challenge by HMRC, but I assume there are many businesses who have been challenged, but have not defended themselves. Do we have any clear idea about the numbers/proportion of undefended cases?

I'm sure Malivio will be along at some point but the advice is don't talk to HMRC yourself if they launch an inquiry into any aspect of your business but to contact a specialist first.

[backrubber]

If you had paid, say, £10,000 in corporation tax, would that be taken off the final tax/NI bill if you were caught by IR35?

[Fred Bloggs]

IR35 raises far more revenue than is commonly supposed, I believe. The number of people who have said to me that they want to go contracting but are put off from doing so by HMRC's regulations is quite high. All good for us already contracting, having said that, when I look at the tax I was paying as staff, I am actually paying far more tax as a Ltd Co contractor, but I'm earning a lot more.

[the4thamigo_uk]

If you want to have some fun/really depress yourself, here is teh start of HMRC's process for working out the liability :
How to calculate the deemed payment

Although relief is given as an adjustment in the corporation tax computation, a deduction may also have been made in the accounts of the intermediary for the tax and Class 1 NICs under normal accountancy principles. The legislation only allows relief for the deemed payment and additional NICs to be given once, as outlined above. Inspectors should be aware of this and be alert to the possibility of relief being claimed twice; once through the accounts and again as a deduction in the tax computation.

The fact that expenditure is given as a deduction in Steps Three to Seven of the Deemed Payment calculation does not affect the treatment of that expenditure in calculating the corporation tax profits of the company.

Manual

It looks like in the manual like there is a calculation of your deemed payment (i.e. your equivalent personal income before tax) and there is also a calculation of the company profits. Since the larger deemed payment means that the company's gross profit is much smaller, its corportion tax should be much smaller. So does the company get back corporation tax that it has overpaid?