IR35 fine - advice please!

ISWMLE

One key criteria HMRC look for when ascertaining outside IR35 status is the degree of risk involved in performing your work during a contractual hiring term as a supplier to client. If, as a locum, you were contractually hired by the NHS (sorry, I don't know much about locums and how they operate with clients) then I can only assume that you could expect from your one client a regular pattern of work - say, regular hours, salary or fees, which would have given you a sense of financial peace of mind and security over a long contractual term and, perhaps, well beyond that too, still with that one client, and performing your work in one place of 'permanent place of work' you commute to, and with repeat contractual renewals to expect and enjoy (depending on how these things work with locums). Although, regularity of income with one client is not in itself clearly indicative for being inside IR35, according to law, it is generally understood to be not at all helpful to any litigant trying to establish a truly outside IR35 status. That is because freelancing - as a sole trader - or operating outside IR35 by working with a personal service company is often about the essentials of making a profit or sustaining a business by relying upon your ability to generate and to keep multiple clients on the go and, perhaps, working with more than one client simultaneously so that your drawings or salary doesn't rely upon you having 'all your eggs in one basket', so to speak. Ultimately, it can be said that IR35 cannot be truly understood as an abstraction - by adopting a tickbox approach that applies to every person in any line of specialism. As another poster pointed out, quite correctly: it is much more about looking at your particular circumstances to find out the whole picture, provided that there is no mutuality of obligation, which must be absent to even get to first base of ascertaining outside IR35 status. Other key pointers that are very helpful to kill an enquiry dead before it gets too far are whether your working practices were, in reality, under the Direction and Control of a client (told when, how, what to do during your contract term, with little scope for personal autonomy to move your work around to suit your profit goals), and whether your still had the right to swap your day's work with another replacement of your own choosing skilled enough to perform to your client's / clients' satisfaction, should you choose to work elsewhere (where such a requirement could be made to work in your service provision, which I suspect is not the case with locums because personal service is an absolute requirement with any one client, what with the degree of skill necessary). It has to be said that a lot of IT contractors, who do fall foul of the IR35 rules, are working much like permanent staff counterparts and just because they are highly paid and skilled on high rates of payment does not ultimately excuse - in HMRC's eyes - from the same tax burdens that are, without exception, imposed upon their lesser-skilled and much lower paid agency placed temporary workers who, in their roles, may be working just a few days per week and treated differently from permanent staff doing similar jobs to them, except that the agency pay them net rather than gross and are ultimately given more end-client / agency granted rights as temporary contract workers are entitled to expect.

ISWMLE

TheCyclingProgrammer wrote: »

I'd also recommend an IPSE membership.

I think it is worth pointing out that taking out tax enquiry and liability insurance would still require any applicant to 'qualify' their status as being likely outside IR35 for the contact for which is to be applied, at the time the insurance is taken out (so minimise the risks for the insurance company needing to uphold a claim - after all, they are risk assessors and they are in the gain to get premiums not cough up money to insurance holders). Therefore, it is not an ill fitting mantle for an obvious inside IR35 operator - so as to act as a sort of 'wolf-from-the-door in sheeps clothing.' Also, this kind of insurance will not cover pending tax enquiries or even likely expected tax enquiries either.

savvysearcher

Quick question to you well informed folk. I hear that if you stick at an assignment for more than 2 years as a locum then the HMRC are more likely to pick up on it and start a IR35 enquiry as to you being there. Not sure if there's any truth in it at all, but some have said it's better to keeping moving around rather than stopping more than 24 months at one place. Any truth in this or it is it just pot luck as to being picked on for an investigation?

chrismac1

The 24 month rule applies to travelling costs where you initially say that your place of operations is your home, hence all travel from there is business travel. Note that locum doctors have been involved in some high profile tax cases in Tribunals and other Courts in the last few years.

What tends to happen is that HMRC will send out some initial enquiries to a range of potential targets in the same sector. This often happens at the largest site at which I have "IR35 risk" clients. So far none of mine have been picked. My strategy is to be ready to give a very robust, very individual (i.e. not just generic or boilerplate) response to the first HMRC letter within 14 days, with Qdos oversight first.

In my client base as a whole HMRC has sought roughly £200k in extra taxes over the past 5 years in the course of 10 or so cases. All 10 have been settled with a total extra tax take from the £200k of £0.00. I want to keep it that way, I want anyone from HMRC who takes me on for any client to know they are going to have to crawl over broken glass to get so much as a penny extra.

Conversely, show any weakness and they will press their feet on your neck.

TheCyclingProgrammer

ISWMLE wrote: »

I think it is worth pointing out that taking out tax enquiry and liability insurance would still require any applicant to 'qualify' their status as being likely outside IR35 for the contact for which is to be applied, at the time the insurance is taken out (so minimise the risks for the insurance company needing to uphold a claim - after all, they are risk assessors and they are in the gain to get premiums not cough up money to insurance holders). Therefore, it is not an ill fitting mantle for an obvious inside IR35 operator - so as to act as a sort of 'wolf-from-the-door in sheeps clothing.' Also, this kind of insurance will not cover pending tax enquiries or even likely expected tax enquiries either.

IPSE membership is not an insurance policy.

Pennywise

savvysearcher wrote: »

Quick question to you well informed folk. I hear that if you stick at an assignment for more than 2 years as a locum then the HMRC are more likely to pick up on it and start a IR35 enquiry as to you being there. Not sure if there's any truth in it at all, but some have said it's better to keeping moving around rather than stopping more than 24 months at one place. Any truth in this or it is it just pot luck as to being picked on for an investigation?

HMRC won't even know you've been at a particular client for 2 years unless they either investigate you or them (or their agency). Neither you, the agency nor the end client routinely send HMRC of the actual detail of who's working where. So, no, being somewhere for more than 24 months won't be the "trigger" for an enquiry.

However, once they've enquired into your books, or your client or the agency, and they see you've exclusively been somewhere for that length of time then it clearly will make them start to think that you're "part and parcel" of your client, i.e. more likely to get IR35 to stick, and will go down that route, asking for contracts, working practices, etc. There's very little chance they'd go down the IR35 route if you changed your end client every few months or were working on two or more different contracts concurrently.

So it's cause and effect really. 2 years won't "cause" an enquiry but it will effect the course of a targeted or random enquiry once started.

Pennywise

chrismac1 wrote: »

My strategy is to be ready to give a very robust, very individual (i.e. not just generic or boilerplate) response to the first HMRC letter within 14 days, with Qdos oversight first..................Conversely, show any weakness and they will press their feet on your neck.

Absolutely my method too and it works just as well for me.

The last one, the enquiry started on a completely unrelated matter which was soon cleared, but the inspector sniffed the potential of an IR35 case and sent a letter with some fairly broad "fishing" questions clearly aimed towards IR35 such as asking for an analysis and copies of all sales invoices, copies of time sheets, copies of expenses claim forms, etc. I batted it straight back with a firm rebuttal of IR35, sending her a random contract and working practices questionnaire covering a contract in that year, with a very comprehensive argument as to why IR35 didn't apply cross referenced back to the contract and WP questionnaire. I deliberately didn't send her the sales invoices, expenses claim forms nor analysis of sales that she'd asked for. So basically, I ignored her questions and set the agenda of my own!

She didn't know what hit her and her next letter was a closure notice with nil tax resulting from her enquiry (she actually forgot about some other outstanding points she raised and didn't follow up the questions I hadn't answered and the copies I didn't send her!). She'd also never now know that I'd cherry-picked the "best" contract and didn't refer to a different contract that was a lot more risky re IR35!

In reality, it was a border line case and there were some aspects which pointed towards IR35 applying, but I deliberately avoided mentioning those in my rebuttal - they were in black and white on the contract and WP questionnaire had the inspector bothered to look, so we weren't hiding anything! Likewise, the inspector could have easily asked for another contract for the same year which would have been more towards IR35, but missed that opportunity too!

Just goes to show that a bit of back bone and taking control can work wonders, rather than letting HMRC set the agenda. It also concluded the enquiry very quickly whereas they can be known to drag on for several months if not years if you let a tax inspector set the agenda.

I learned that the hard way from one of my first enquiries about 20 years ago where the inspector kept asking for more and more information every month or two and I kept answering and providing more information like a demented sheep. After 2 years of it, I passed it over to a tax enquiry expert who took the bull by the horns and wrote demanding wither a closure notice or a review
by the district inspector, and setting out a long list of reasons why the case should have been closed about 18 months ago. He got a closure notice straight back - he'd achieved in one letter and a couple of hours work what I'd been trying to achieve for nearly two years. There was nothing he did that I couldn't have done - it was simply a matter of being assertive and taking control. It was one of the best lessons I learned and I've followed his lead ever since.

le_loup

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directdebiter

As an ex contractor There is so much advice available on the web for IR35 and some really solid responses above savvysearcher. I have read that alot of appeals often win as the IR35 legislation is so ambiguous. Definitely get in touch with a specialist (such as QDOS mentioned above). Insurance is well worth the peace of mindfor future use. There is lots of very useful reading and advice on IR35 and talking about investigations on ContractorUK - IR35 pages - this has helped me massively over the years. Information I would have known nothing about! Most people are great at their jobs but know nothing about tax and just trust their accountant - just look at Gary Barlow!

petepetepete

savvysearcher wrote: »

disregard the contract I had with my agency and felt that in practice there was

My understanding is that sadly that's the way it's meant to work. I always used to take out QDOS TLC35 insurance, and while they would do contract reviews as part of it, their insurance usually focussed on actual working practices.

Good luck moving forward, and interesting to hear that they've started doing investigations again. I thought the government had been making noises about essentially stopping enforcing it, but I'm at least a few years out of date.

Might be worth considering an umbrella company like Giant or Parasol moving forward.