Working in the public sector? An FAQ about IR35

[jamesbrown]

New section added above about retrospective changes of status and clients attempting to deduct tax and NI from future invoices, based on anecdotal evidence of this happening.

Thanks for doing this thread, it's great

You provide ample caveats above, but on this point:

My feeling would be that the past tax must fall to the client / fee payer because they did not take reasonable care and the error was not made in good faith, so the dividends already paid would be allowed, the fee payer should pay the tax, but from this point on future invoices will be paid net of income tax and NI.

The issue with a retrospective change is, I believe, that the fee payer has now made an assessment, as is their (new) responsibility, whereas the old assessment (and corresponding action) was the responsibility of the PSC (and by extension, its director/s). I assume that's what you mean by "retrospective", i.e. an engagement that straddles the old and new legislation. If you mean a retrospective change post April 2016 (i.e. post the new 10(2) of the ITEPA), then I agree. At the very least, I think it's worth making this distinction. Post April-2016, it's the responsibility of the fee payer, end of story, and any attempt to claw this back, even with a contractual clause that might allow this in principle, is, in my opinion, likely to fail.

If you're referring to a change in assessment that straddles the change in legislation, I would view the situation as being for the PSC to correct any historical error, assuming it needs to be corrected at all (because this could be disputed). Further, I would view any attempt by the client to operate a deemed payment, retrospectively, when it was the responsibility of the PSC to do so would be not in keeping with the ITEPA and hence unlawful. But if the old assessment by the PSC was, in fact, incorrect, the responsibility would rest with the PSC to correct the old accounts and pay any tax/penalties due for their incorrect assessment. Again, my opinion is not worth any more than yours, since I'm not an expert, but the above seems more logical to me.

[TheFaQQer]

The issue with a retrospective change is, I believe, that the fee payer has now made an assessment, as is their (new) responsibility, whereas the old assessment (and corresponding action) was the responsibility of the PSC (and by extension, its director/s). I assume that's what you mean by "retrospective", i.e. an engagement that straddles the old and new legislation. If you mean a retrospective change post April 2016 (i.e. post the new 10(2) of the ITEPA), then I agree. At the very least, I think it's worth making this distinction. Post April-2016, it's the responsibility of the fee payer, end of story, and any attempt to claw this back, even with a contractual clause that might allow this in principle, is, in my opinion, likely to fail.

I meant a change post April. I've heard some stories of clients now saying "we've looked at the situation and you're inside IR35 now, you always have been, and so we are going to take the PAYE and NICs that we haven't taken since April from you now".

My belief is that in that situation, while the fee payer might try to recoup that tax, they would fall foul of the guidance from HMRC even though it references employer / employee. As ever, if there are useful test cases to take on to clarify the legislation for the benefit of contractors, there are groups out there willing and able to take that fight on.

[jamesbrown]

I meant a change post April.

Thanks, then I agree. Liability rests with the fee payer. As an armchair lawyer, I don’t think clauses that say differently would be enforceable, if they were tested, because there are terms implied by law / statute on where the liability falls. In general, they probably aren’t drafted adequately either.

[ireland2013]

If you are contracting to a client who is not in UK but the client subject to the Freedom of Information Act ( therefore public sector)

How and does the new public sector ruling apply?

In all honesty I believe it would apply - but I cannot find anything to confirm.


can anyone help?

[jamesbrown]

If you are contracting to a client who is not in UK but the client subject to the Freedom of Information Act ( therefore public sector)

How and does the new public sector ruling apply?

In all honesty I believe it would apply - but I cannot find anything to confirm.


can anyone help?

Legislation here:

http://www.legislation.gov.uk/ukpga/...edule/1/part/2

Public sector is defined in 61L(1). Yes, FOI Act 2000, essentially.

In terms of a client that has no UK tax presence, note 61R(7)

Where—
(a)the client is the person treated as making the deemed direct payment,
(b)the worker is resident in the United Kingdom,
(c)the services are provided in the United Kingdom,
(d)the client is not resident in the United Kingdom, and
(e)the client does not have a place of business in the United Kingdom,the client is treated as resident in the United Kingdom.

So, I concur with your assessment. Out of curiosity, what is the special case that you're envisaging, i.e. a PS client that does not have a place of business in the UK?

[J3ster]

I have never worked an IR35 contract however it does now look likely that I will. One question i have that I have not been able to find an answer to is.

If my contract is IR35 do i still need an accountant and if so what for?

[malvolio]

I have never worked an IR35 contract however it does now look likely that I will. One question i have that I have not been able to find an answer to is.

If my contract is IR35 do i still need an accountant and if so what for?

Probably not, if you aren't using YourCo any more, although you may need one to cover off your next year end. However if YourCo continues to operate - even without any income for a while - it will still need to be serviced.

Also, it's affected by how you are getting paid. If it's net of taxes then probably not. If it's gross to YourCo and you are liable for the deemed calculations and payments, then almost certainly yes, unless you go the umbrella route.

So as always, it depends....

[TonyF]

I have never worked an IR35 contract however it does now look likely that I will. One question i have that I have not been able to find an answer to is.

If my contract is IR35 do i still need an accountant and if so what for?

If HMRC get the sums wrong and you end up paying more NICs or tax than you should do (because your tax code is based on a full year income and you only work 7 months) then who will sort the mess out for you?

[Confounded]

What about my contract?

I'm inside now, and the client says I'm inside. What should I do?

Because the client / agency has to deduct tax and NI from your invoice before paying you net.

What happens when my invoice to the end client includes 20% VAT? Is VAT still paid? By whom? Is it included in the total "deemed payment" to work out NI and income tax?

Thanks

[northernladuk]

What happens when my invoice to the end client includes 20% VAT? Is VAT still paid? By whom? Is it included in the total "deemed payment" to work out NI and income tax?

Thanks

Why are you invoicing your client if you are inside IR35? Aren't you via PAYE or brolly?