Steps for volunterily moving to 'Inside' IR35 Steps for volunterily moving to 'Inside' IR35
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  1. #1

    Default Steps for volunterily moving to 'Inside' IR35

    I've seen a lot of chat around what happens or is likely to happen if you get a determination that moves you inside IR35 but what about the many people who won't even get to the determination? The people who have had the ultimatum and faced with a super crappy market are now looking to voluntarily go inside maybe at the same client site doing a similar role?

    What steps should a contractor who considers all of their previous contracts to have been outside IR but has been forced (due to market forces) to now move inside without any determination, take in order to avoid any retrospective HMRC action? From what I've read, people in this situation are inadvertently going to be at the top of the list for HMRC investigations when the dust settles.

    This is what I've come up with so far with no advice/legal insight. Interested to hear what people think.

    1) If there is any reference to a role title or description in the contract make sure that it's different in the inside contract that any previous outside contracts.

    2) Make sure that there are named deliverables in the new contract that are different to the old contract.

    3) Wind up your limited company (My understanding is that even if you have others contributing to the limited company, it would be best to close and for the other contributors to open a new company if necessary as there is less likely to be a retro investigation if there is no money in the company and it is no longer trading.)

  2. #2

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    Wind up and use umbrella probably best route - who knows though

  3. #3

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    And pay 20% or so more taxes than you actually owe plus losing the relief on expenses...
    Blog? What blog...?

  4. #4

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    Quote Originally Posted by CaptainCaveman View Post
    I've seen a lot of chat around what happens or is likely to happen if you get a determination that moves you inside IR35 but what about the many people who won't even get to the determination? The people who have had the ultimatum and faced with a super crappy market are now looking to voluntarily go inside maybe at the same client site doing a similar role?

    What steps should a contractor who considers all of their previous contracts to have been outside IR but has been forced (due to market forces) to now move inside without any determination, take in order to avoid any retrospective HMRC action? From what I've read, people in this situation are inadvertently going to be at the top of the list for HMRC investigations when the dust settles.

    This is what I've come up with so far with no advice/legal insight. Interested to hear what people think.

    1) If there is any reference to a role title or description in the contract make sure that it's different in the inside contract that any previous outside contracts.

    2) Make sure that there are named deliverables in the new contract that are different to the old contract.

    3) Wind up your limited company (My understanding is that even if you have others contributing to the limited company, it would be best to close and for the other contributors to open a new company if necessary as there is less likely to be a retro investigation if there is no money in the company and it is no longer trading.)
    It’s if HMRC consider them outside not you


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  5. #5

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    Quote Originally Posted by malvolio View Post
    And pay 20% or so more taxes than you actually owe plus losing the relief on expenses...
    I understand the need for hyperbole in a short response, but this is just not accurate.

    The difference between expenses for employees/self employed is minimal these days.

    An employee earning £100k pays around £34k in tax and NIC. His employer pays another £12,880 in employer NIC. If the employer is a company they "save" CT of £112,880 x 18% = £20,318.

    Net to HMRC is £34k + £12,880 less £20,318 = £26,562.

    Net to employee is £66,000.

    That same contractor who earns £100,000 for his company has a different take.

    He may take a salary of say £12k, (more or less equal to PA). He would pay £500 NIC.

    His company has a profit of £100,000 less £12,500 = £87,500.

    CT is due of £15,750.

    The company can distribute £87500 - £15,750 = £71,750.

    As a div he pays 7.5% on say £35,000 and 32.1% on £36,750 = £14,420 (ish)

    he has net money £71,750 - £14,420 + £11,500 = £68,830.

    (I'm managed to forget the employer NIC on the £12k salary but it will not make much difference)

    This assumes that all the money is removed from the company in a year. It is possible that this will not happen and the money will stay. Eventually however the money will leave and it will be taxed.

    (Unless a whizzy tax scheme comes along).
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  6. #6

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    And if like me he had £3k travelling (flights and hotels per month)?


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    Quote Originally Posted by GhostofTarbera View Post
    And if like me he had £3k travelling (flights and hotels per month)?
    Then he'd be daft for sitting his day rate too low

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    Quote Originally Posted by webberg View Post
    I understand the need for hyperbole in a short response, but this is just not accurate.

    The difference between expenses for employees/self employed is minimal
    Surely, the difference is that expenses will need to be paid out of post-tax versus pre-tax income. So, depending on the amounts, the difference could be quite large.

  9. #9

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    Quote Originally Posted by webberg View Post
    This assumes that all the money is removed from the company in a year. It is possible that this will not happen and the money will stay. Eventually however the money will leave and it will be taxed.
    That's where reality, certainly in my case, made a difference. I was able to only need divis up to basic tax threshold so never paid the higher tax rate in a tax year, and back then there were divi tax credits as the basic rate had already been paid in the corp tax so no additional tax to pay if drawn in future years, until the new divi tax came in to address that to an extent.

    Been a while since I've had to think about divis and tax efficiency so my recollection may be wrong!
    Maybe tomorrow, I'll want to settle down. Until tomorrow, I'll just keep moving on.

  10. #10

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    Quote Originally Posted by GhostofTarbera View Post
    And if like me he had £3k travelling (flights and hotels per month)?


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    I'll play devil's advocate for a while.

    If I was HMRC and I saw that level of expense - every month - I'd send you a letter along the lines of:

    "It seems to me that you are travelling to and from a place of work, rather than travelling in the performance of your work. Would you like to explain why that is incorrect?"

    Clearly if I was HMRC, I'd be couching that as:

    "You are clearly travelling to and from work which is not a deductible expense. I will raise an assessment on you to reflect this decision, along with penalties. You can save yourself the time and expense of an enquiry by just agreeing with me."

    In all seriousness however, you need to be building a deep and continuous audit trail of why you are travelling FOR work, rather than TO work.
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