UK's Defra and Ministry of Justice facing £120m IR35 tax bills thanks to inaccuracies in assessing contractors' status The UK government's own employment checker tool and guidance has led to wrong calls on the tax status of freelance workers, costing £120m across two Whitehall departments. According to recently published financial reports, the Ministry of Justice and the Department for Environment, Food and Rural Affairs [PDF] are facing …
It does not matter, they may argue you have put information in a way to achieve certain outcome and then bang on about "hypothetical contract".
They simply don't want people to run small business. It's part of "Build back better" agenda.
If you want to work in the field you have to join one of the party donors umbrella or a big corporation.
No business for you.
Unless you owe us money of course. 21 years now of IR35 and they still can't get it right and still willfully ignore previous case law when going to tribunal.
It's seriously difficult finding new contracts at the moment, between this shit show and Covid. Clearly also very difficult finding contractors, because I see the same ones appear again and again.
Gather up all the stories about how some contractor, corporation, or governmental department got screwed over while following the check site's advice, compile it into one big report to make it blatantly, crystal, obviously, utterly clear that the government has not done due dilligence in ensuring that their checker tool gives reliable advice and then sue them to get an injunction stopping them from enforcing the law until such time they can prove to the judge that their tool is fit for purpose.
If the government can't rely on its own tool to get things right, what hope in hell do the citizenry have to do it either? If you're going to get screwed either way, why bother trying to obey a law that even the government that wrote said law can't follow?
When Bliar amalgamated HM Customs and Excise with the Inland Revenue in 2005 he practically gave them carte blanche power they seem to listen to no-one and consider themselves infallible.
Part of the problem is that oversight is not from the cabinet directly it is from a board of Commissioners appointed by the Queen ( as told by the PM of the day), so it is not easy to just tell the HMRC to change direction when they are effectively a crown agency.
Minor correction.
Tony Blair was PM at the time. It was Gordon Brown as Chancellor of the Exchequer who decided to amalgamate the Inland Revenue with Customs and Excise with a planned saving (or should I say destruction) of 20,000 jobs.
It was decided that HMRC would be given all the powers of Customs and Excise which were considerable.
I wonder if they are not going to go after the contractors to recover the tax.
While the client / deemed employer is the payee, it's contractor's tax after all that was supposed to be deducted at source.
There is this lie being told that the plus of IR35 changes is that contractors are no longer liable if the status determination goes wrong.
Surely, the immediate responsibility falls onto the fee payer, but they can certainly recover the monies as it is not their tax.
Assuming someone goes after the contractor, who will lose out. If I was contracting and HMRC went to a previous client to recover funds, and the client went after me, I'd be going after HMRC to recover the Corporation tax my limited company would have paid as well as any taxes paid as a result of me taking funds from my limited company.
Ultimately HMRC is at fault through CEST
it's not the PSBs paying tax, it is the "Deemed Employee"'s NI and Income Tax contributions that they should have paid through the PAYE system.
The whole point of the IR35 changes is: the company, not the contractor are liable for making the decision, which in this case is the PSB
PSBs had a head start on Private companies, so HMRC are going after them first ...
CEST was a dog's dinner from the start, the current iteration was half-written by outside IR35 contractors that then quit as HMRC deemed them inside
Because it fluffs the numbers up for HMRC when they report on how much they have "saved" the country.
Its like you or I taking £100 out of our trouser pocket and putting it in a jacket pocket and then claiming to be £100 better off - pointless shuffling of funds.
I'm just waiting for the HMRC sues HMRC for IR35 non compliance headlines which are inevitable.
Chaplin, "CEO of tax advisory firm IR35 Shield" says CEST is not fit for purpose.
Presumably if the free to use CEST was pulled by HMRC then companies (or contractors) wanting to check status would be entirely dependent on their own expertise, or to use a third party such as <checks notes> IR35 Shield.
I note that HMRC claim to " stand by all determinations given by the tool, as long as the information you give remains accurate" while IR35 shield for companies is £75+ per month (which seems like a low additional cost to any contract against the possible tax liability) or or individual contractors £60 for a one-off check (again seems low cost to me)
Whether he's selling something or not, Chaplin is correct.
CEST always has since implemented ignored Mutuality of Obligation (MOO), which means it assumes that there is an ongoing obligation for the engager to supply work and for the contractor to accept it. In practice, this is a key indicator of an inside IR35 engagement and several of the tribunal cases have hinged on it. There is also a huge amount of nuance to IR35 case law, and especially in the case of broadcasters who are one of HMRCs favourite targets, as Editorial Control is a larger degree of control than would often be accepted under SDC but is expected, particularly for news presenters.
Most insurance providers selling PII (a requirement for contractors) usually also offer IR35 insurance and free contract reviews as part of the cost.
But the contract does not matter if HMRC thinks it was constructed in a way to put the worker outside of the scope.
They have invented the whole "hypothetical contract" monstrosity after all.
Only sure way to avoid any trouble is to write contract in such a way that it places the worker in scope of the rules, where it is usually enough to ensure the worker cannot provide a substitute.
The spirit of the law is to "nudge" engagers into hiring only through PAYE. True B2B engagement is only reserved for the bigger players.
They couldn't say "we ban self-employment" or "small service based business" because that wouldn't be palatable to most Conservative voters, however, they can surely smear these kind of way of working as a tax dodge and change the rules so that there is only one way to work "trouble free".
The actual contract matters very little, it's actual working practices that count if it goes to tribunal. More than one case has been lost because, despite a valid substitution clause in the contract, the engager has effective veto over anyone except the specific contractor.
The rollout to the private sector has been far more painful than that to the public sector IME, not helped by the Covid situation. The change (IME) actually helped in the public sector, because I got much more clearly defined contract scopes and people were careful to add any extra projects to the scope instead of just dumping extra work on the contractors.
Anon for obvious reasons... not IR35 but just general HMRC arse/elbow identification errors:
I made the terrible mistake of not retiring on April 5th a couple of years ago. As a result, when I did retire, HMRC charged rates on my pensions that assumed I still had a salary income. That took me a year to retrieve the overpaid tax - no interest, of course.
After that they couldn't decide which country I should pay tax in - dual tax treaty arrangements between the UK and my current country of abode, so I'm paying no tax at all at present and dreading the eventual tax bill... after calling the local tax authorities and HMRC every couple of weeks for a year, and passing sundry documents back and forth for most of that time, HMRC have now deigned to advise me that my case is being dealt with 'urgently' and I can expect a response by next July...
Really, you couldn't make this bollocks up.
Given that most contractors have made it very clear that they will walk if they are placed under IR35 it's likely that managers have been gaming CEST in order to keep vital contractors on board and get their projects done sometime near the deadline and somewhat compliant with the original requirements.
I very much doubt the many contractors have returned to permanent employee status, or, if they did not for very long.
One of the joys of being freelance is that you do not have to deal with HR. Catbert is not a parody but a pretty accurate picture of the average HR bod.
The Irony is that the overall tax take will be less as the various departments with be forced into the hands of serial tax dodgers (and bodgers) from Crapita, App-sent-manure et al.
"The Irony is that the overall tax take will be less as the various departments with be forced into the hands of serial tax dodgers (and bodgers) from Crapita, App-sent-manure et al."
With my cynics hat on, it's not ironic but by design. Have a look at how many MPs are consultants for or paid to lobby for such companies, and those of us who have experience of them know that knowing the right people is the only way Crapita et al could ever secure any work. It's certainly not because they have reputations for excellence.
So if I worked for one of these gov agency's, can I get all my taxes that my limited company paid?
Like Corporation tax (20%) and any NI (12 + 18%), PAYE (25%) or Dividend (7%) tax paid. Can I back date for all this for 7 years?
I used the same CEST "tool" (for want of a more appropriate word) and I was always outside, I would be asking for the tool to be scrapped.
Start of Rant:
I feel I am being bullied into working for a company that did a blanket ruling off all contracts being inside IR35. I contested as the assessment had prepopulated answers that conflicted with my contract / were incorrect and hence did not conform to GDPR legislation as I was not able to correct the information
All this has achieved is enabling the larger company's, to pump up day rates and the Offshore brigade to make more money from exploiting poorly trained and experienced people. This smells of modern day slavery.
Bullying is something that government is very good at.
It's a pity that they can't deploy that skill over to other issues where they are not even sure that they exist.
But then, accountability has never been a strong point of our government that constantly expects - nay - demands, that everybody else exercises - or else face the penalties.
Maybe we, the Great British public, should consider a mass class action against the rule-breakers?
HMRC goes after government entities, dragging them through the courts, imposing fines and fines are paid.
When it comes to private companies, precedent is already set and courts have things to refer to therefore increasing the likelihood of a result for HMRC.
If your a medium or large business with that liability then you should be worried.
They will go for the big ones first, even if HMRC lose they still win as it scares people into compliance.
I didn't see mention in the article that this had been to court, let alone a precedent setting court.
So it has no legal relevance at all. HMRC can bleat all they like, they'd still need to prove that a company using CEST and following HMRC guidance were responsible for getting the wrong answer anyway.
Tax law is a large program that politicians get to hack once or twice a year in order to get a different result for a handful of test cases. There is no obligation for the hackers to have any programming experience, nothing even approaching a comprehensive test suite, the input data is riddled with errors, and the programming language is INTERCAL.
Is anyone really surprised to discover that it doesn't work?
Literally a couple of days no contractors turned up. Everything seemed to still work, but because there's loads of Oracle in there it was all going to fall apart without constant babysitting in a couple of days.
The core problem seemed to be that back then the guidance tool would change every time they submitted to it, based on the amount of money the guidance would result in HMRC getting.
Well, the core problem is the citizen lifetimes of tax wasted in calculating how much extra tax government departments should pay, when they are funded by those same taxes.
Faced with this nonsense, I simply decided to retire. It was upcoming anyway, for me, but I might have gone on for a couple more years. I'm perfectly capable, and loads of experience to offer. But why bother? Far too much worry.
I imagine most of the more senior and experienced contractors will just retire. So at one go British industry will see the average quality of their freelancers go down. What could go wrong?
No, wait..
:)
Sorry, but HMRC deserves every scrap of derision that can be thrown at them. The only reason to release this sort of BS (which, incidentally, may have brought in some money in the interim but has lost the UK a fortune in talent which translates as an absence of long term tax revenue) must have been politically. Some high end tosser has pushed this through well before it waa ready to be unleashed on the economy, and the damage keeps getting bigger because politics also stops reconsideration.
Worse, as it's HMRC you always have to pay before you can even argue your case. That sort of power has clearly gone to their heads.
Despicable. Tarring and feathering is too good for whoever is driving this.
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