Small Business Exemption

[JohntheBike]

How can there be less risk for the client when the risk has moved emphatically from the contractor’s intermediary pre-April 2020 to the client as a backstop post? Some risk is more than zero risk.

IPSE has been furiously peddling away from PCG for some time. Many contractors will be furiously peddling away from IPSE in the coming years.

If we consider the risks in relation to the financial penalty for either an inside or outside assessment, and not consider any other scenarios, e.g. FTC's or umbrellas, then let's take my example as to why there is a much greater financial risk in judging me inside rather than outside. I would suggest the same considerations would exist for anyone in a similar position to me.

I've been contracted to my current client since October 2005 through two different "agencies". There are too many variables in my situation to have a clear picture of what will happen, so let's look at the hypothetical possibilities.

1. I'm declared outside.
I can supply two independent professional assessments, apart from my EAT judgement, which confirm that the engagement has always been outside of IR35, and if I'm given the opportunity to put my case, before an assessment, or even after, this is the message I'll be sending.

The risks.
To me - none, other than what has previously existed, i.e. an investigation by HMRC, which given my past history of involvement with HMRC, is unlikely, but even if it were to come about, my IR35 investigation insurance would cover the cost of handling the investigation. HMRC are unlikely to win.

To the client - minimal, i.e. any shortfall in tax that the client would be liable for, i.e. the amount which is liable for the period between when the client deems me outside and when or if HMRC prove that I should have been inside. Given that it is extremely unlikely that I'll complete a full year next year, that amount will be quite small. I don't enjoy and never have enjoyed the rates that some on here seem to have enjoyed, so that sum will be minimal, even considering if a 100% penalty were imposed. The client's attitude to that sum is unknown of course. I have no idea what other implications there might be for the client.

To the wider contractual environment - none. It's just a personal issue between me, my client and HMRC.

2. I'm declared inside.
to me - significant. Because my wife and I are both employees and directors of my company, I enjoy a significant reduction in tax over what would be paid at source. However, given my limited time to work, this wouldn't bother me and may be offset with redundancy payments. Granted, this is an issue which would need clarification, and I acknowledge that there are some who claim redundancies cannot be claimed, but there are others who challenge this. What is a much larger risk is that, despite what HMRC say, it is likely they'd open an investigation into previous years, and although I'm confident that using my IR35 tax investigation insurance, HMRC are unlikely to succeed, the aggravation of such an investigation isn't an issue that I want to go through at my time of life.

To the client - significant. If I engage with the client's dispute resolution process and they maintain that they used CEST to assess my status, or fail to abide by any of the provisions of the regulations, and don't concede to my point of view, i.e. I'm outside, then I'll immediately launch a claim for employment benefits in the ET, which wouldn't be out of time. Given my past experiences with the ET, I'm confident that I could mount a strong challenge and maybe, just maybe, I'd win this time around, especially given the client's position and their written assessment that I'd use in such a case. The financial risk of my winning would be huge. Just calculate 14 years at 20 days a year for 14 years at an average day rate and even ignoring any pension issues, the figure becomes significant. The bad publicity would also be an issue the client might not want.

To the wider community - possibly significant if I win or lose. If I win, others will follow and maybe, just maybe, IR35 will be neutralised. Alternatively, contracting generally might suffer, but we will definitely suffer whatever from April 2020. If I lost, the downside to the community wouldn't be any less than it is now, i.e. the case would demonstrate the long held claim which is at the heart of IR35, that individuals can be taxed as employees with employee benefits. At least we would have clarity on this issue then.

So, what is your assessment of my hypothetical position?

The fact that IPSE has long engaged in activities which seem to be designed to distance themselves from the PCG ideology, I guess will come home to haunt those that now depend on that organisation for income. Time will tell.

[northernladuk]

They are declaring the role inside/outside not you, but what about the scenario they change the goal posts of the role to put it inside. They state that you will now not be able to substitute, they will expect you to be under D&C and it's a BAU support role anyway so should be inside and so on. This is a new inside contract with no relation to the outside determination you've been working under previously so can't claim anything historically.

Do you really want to be pissing around with going to court when you've got 15 years doing a BAU support role? Forget your old evidence, that won't carry any weight with HMRC. If they've got their sights set on you they'll be quite happy to fire in regardless. They are quite within their right to re-question the engagement 15 years later and the value of a win will egg them on further.

[JohntheBike]

They are declaring the role inside/outside not you, but what about the scenario they change the goal posts of the role to put it inside. They state that you will now not be able to substitute, they will expect you to be under D&C and it's a BAU support role anyway so should be inside and so on. This is a new inside contract with no relation to the outside determination you've been working under previously so can't claim anything historically.

Do you really want to be pissing around with going to court when you've got 15 years doing a BAU support role? Forget your old evidence, that won't carry any weight with HMRC. If they've got their sights set on you they'll be quite happy to fire in regardless. They are quite within their right to re-question the engagement 15 years later and the value of a win will egg them on further.

I did say these were hypothetical scenarios. Clearly, there is a number of other issues which will determine my fate as it were, e.g. I'm retired, for whatever reason prior to April 2020.

I think you underestimate the value of negative publicity. Hewlett Packard tried to buy me off before the ET, but given the possible financial implications of the whole IR35 environment, as it might have applied to me, I chose to decline the offer and proceed. Although the ultimate result was exactly what I was seeking, I hadn't bargained for the establishment skulduggery that accompanied the case.

Similarly, do you really think HMRC would want to risk a detrimental outcome, to them that is, of any action anyone might want to take in the ET? The Winchester case should answer that for you.

[northernladuk]

I think you underestimate the value of negative publicity. Hewlett Packard tried to buy me off before the ET, but given the possible financial implications of the whole IR35 environment, as it might have applied to me, I chose to decline the offer and proceed. Although the ultimate result was exactly what I was seeking, I hadn't bargained for the establishment skulduggery that accompanied the case.

Similarly, do you really think HMRC would want to risk a detrimental outcome, to them that is, of any action anyone might want to take in the ET? The Winchester case should answer that for you.

I think you overestimate the power of a decision made over 15 years ago AND HMRC being bothered about detrimental outcomes. And no, the Winchester case doesn't answer it at all.

[jamesbrown]

.

Sorry, not reading that word collage.

If you want a response, try to post succinctly.

[northernladuk]

Sorry, not reading that word collage.

If you want a response, try to post succinctly.

Nah, you should. It's quite interesting.

[JohntheBike]

I think you overestimate the power of a decision made over 15 years ago AND HMRC being bothered about detrimental outcomes. And no, the Winchester case doesn't answer it at all.

OK, that's as valid as an opinion as mine. Only time will tell whose is the more accurate.

edit -

but let me confirm that I'd be very happy to accede to any opinion about a client approach which demonstrated a benefit to the contracting community.

[JohntheBike]

Sorry, not reading that word collage.

If you want a response, try to post succinctly.

? as I said, these were hypothetical scenarios!

[webberg]

A lot of the above is "old think" and far too historical and personal to have much relevance in the real world.

In that real world, HMRC will have its hands full with cases where the IR35 position pre April 2020 is extremely debatable and which will almost certainly yield them tax money (interest + penalty).

Further HMRC will not give two hoots about "negative publicity". They are firmly in the camp of all publicity being good. They are playing a long game with IR35 cases and whilst I know it's an unpopular view, I think the present losing streak for them in status cases is establishing a base line of cases where the boundaries will become clear.

Further, HMRC will care nothing for possible damage or consequences for an Employment Tribunal. Do not make the mistake of thinking that Government is joined up - it's very much not. HMRC has an agenda - "maximise tax" - and that is the be all and end all. They do not care if the DWP then has to make a claim for a bigger slice of the pie in order to pay people holiday pay or whatever. That has not, is not and will not be part of the equation they assemble.

[webberg]

And no, the Winchester case doesn't answer it at all.

There is no "Winchester case".

The claim brought by Winchester was settled out of Court and the only commentary we have is from the potential claimant and those who put the case together. Both have reason for saying that the employer caved in because of the precedent it set.

That might be true, but it may not.

The employer may have decided to settle for a vast number of reasons including de minimus amounts, not wishing to open doors to claims, particular circumstances of the potential claimant, etc. Nobody knows.

And nobody will know unless and until a case is brought before both an employment and tax tribunal and we see if the Judges are willing to consider judgments in the "other place".

There is no evidence that this has or will happen.

So the "Winchester" situation is a red herring and has no impact upon the post reform periods.