Disputes and Concerns: Ask Andy Answers
It’s a matter of days now until the reformed IR35 legislation comes into effect, so we have a bumper crop of questions from contractors, answered by Kingsbridge’s Head of Tax Andy Vessey. As you might imagine this close to the deadline, there are lots of questions about disputes and concerns about investigations, so read on for all of the answers.
This article is for information purposes only and should not be seen as financial advice. You should always consult with your accountant for any tax advice.
If my current end client gives me a status determination of outside IR35, but I stop trading through my limited company on 5th of April and start working through an umbrella company from the 6th of April for the same end client, would this prompt an investigation by HMRC? Would it cause me problems if they subsequently investigated me? The official reason for switching would be that I no longer want the hassle of running a limited company.
Two points here. Firstly, HMRC have given a reassurance that they will not use information acquired as a result of the IR35 reforms to open new enquiries into previous tax years. This was the same commitment they gave when the off-payroll rules were introduced for the public sector and they have been true to their word as far as I am aware. Secondly, you will presumably be winding up your company? If so, HMRC have two months to object to the winding-up once it has been published in The Gazette. If they fail to do so and you successfully dissolve your company, then that is effectively the end of the matter as far as any potential HMRC enquiry is concerned, unless the Revenue suspect fraud.
I've provided services to multiple clients for 14 years through my limited company. The client is usually a large FMCG and I provide front-line engineering maintenance cover. The reason I am needed is usually because they have permanent people on sick leave, they are recruiting for permanent employees, or the factory is closing down or relocating. I have my own website to advertise for clients, I wear my own uniform at work and, when I'm taking holidays, I always offer a substitute in my place. At present the majority of my work comes via recruitment agencies. Do you believe I would be deemed to be inside or outside IR35?
When determining employment status, it is necessary to consider all the relevant tests, albeit that some of those tests are of greater importance than others. The fact that you have your own website and have multiple revenue streams is a strong pointer towards self-employment. You say that you “offer” a substitute which is not the same as actually sending a substitute and paying that replacement worker during the times you are unable to carry out the work. However, if you do this or, alternatively, have a genuine right to do so, then this will be a strong pointer towards self-employment too.
In the recent Upper Tribunal decision in HMRC v Atholl House Productions Ltd, the Tribunal confirmed that Kaye Adams was ‘outside’ IR35 by virtue of the fact of being in business on her own account despite other major status factors pointing the other way. This should therefore give you some confidence in your own IR35 assessment, although you want as many factors in your favour as possible to avoid any doubt. You should also contact your current client and ask for your Status Determination Statement (SDS), if you haven’t received this already.
I am currently working for a UK company as a contractor - they are my only clients. I have been invoicing them via my Hungarian sole trader business and paying taxes here (in Hungary). I am wondering if I will fall under the IR35 regime or if I will have a tax liability in the UK due to the changes - we use a cloud system that has an IP address in the UK and their clientele is UK based too.
If you are not a UK resident for tax purposes under the Statutory Residence Test then you will not be subject to UK taxation. IR35 only applies to contractors who operate through their own limited companies or partnerships and does not apply to sole traders.
If I believe that my client has determined inside IR35 status incorrectly, can I still argue this with HMRC and ask for a tax return?
From 6 April 2021, your end client is duty-bound to consider your representations and respond within 45 days. However, if, after appeal, they still believe you are ‘inside’ IR35 but you still disagree then you can effectively appeal via your Self-Assessment tax return (SATR). On the employment page of your SATR you will have to show ‘nil’ income but still enter the PAYE tax suffered. On the white space information box, you will have to inform HMRC of the reason for showing ‘nil’ gross pay and that you are in disagreement with the end client’s status determination. This will then create an overpayment of tax. There is also a knock-on effect on the preparation of your company accounts and C.T tax return. If you have not registered for Self-Assessment, then you will need to do so to enable you to file a 2022 tax return.
With regard to the NIC, you will have to write to HMRC and claim a refund soon after the tax year you’re claiming for.
Both these actions will trigger an IR35 enquiry and this is where the difficulties will arise. HMRC will set great store on the end client evidence, and your end client is likely to stick to their guns, so effectively you are taking on both these parties. While this is not an impossible task, your evidence for arguing an ‘outside’ IR35 determination is going to have to be strong and compelling. It could be that some of your evidence is personal but persuasive, e.g., business on own account factors, that the end client refused to listen to, in which case they could be guilty of failing to take reasonable care.
How to Ask Andy…
If you have any last-minute questions for Andy, you can put them to him using our simple form and he’ll do his best to answer them here on the blog.
Whether you have an SDS and want to check its accuracy or want to help your client find the right determination for you, the Kingsbridge IR35 Status Tool can help. Developed by Andy, the tool asks you questions on your contract and working practices before issuing you with an instant determination. If, however, your case is borderline, it’s passed to one of our in-house IR35 experts for review, giving you the best of both worlds and complete peace of mind that your status reflects your situation.