IR35 fine

A question about : IR35 fine

Hi, advice needed please. I am a locum worker working under a limited company status. HMRC investigated and ruled that I am working within IR35. I have a tax accountant that fought the case but given the case the HMRC had my accountant suggested that I accept their decision. I therefore have had a whopping tax bill/penalty to be paid back to HMRC. Going to get advice from my accountant as to what my options are..if any. I can't pay that kind of money back as my company or I haven't got it. Any help or advice please. Also noted that the HMRC say the monies can have interest added to it! - not good.

Any advice as this would be much appreciated. thanks

Best answers:

• Unfortunately, you have rather shut the door after the horse has bolted. You really should have taken out some tax enquiry and liability insurance to protect you in this type of situation (assuming you had qualified for it in the first place). The only thing you can do now, I suggest, is to seek advice from a qualified IR35 specialist accountancy firm (Qdos, I would recommend who have a fantastic track record of disputing IR35 claims and giving advice to mainly IT contractors who also risk falling foul of this law). Or you could ask them to refer you to someone else. See what they have to say, rather than going back to your own accountant who may not be well versed with IR35 specifics (presumably, if he had been you would not be in this mess now). I think I should point out to you that Qdos may also advise you that you were very likely inside IR35 if your contractual terms and conditions and your actual working practices did strongly suggest that you were 'employed' for tax purposes. If that is the case, Qdos may suggest there might be a way of negotiating with HMRC to pay back what you owe in installments or find some other legal remedy to reduce the amount you owe if hardship and circumstances permit such a remedy. Ultimately, I think you should think to yourself that if you do not have legitimate claim to this money demanded, it is not HMRC taking money from you. Instead, it was never your money in the first place and you should resign yourself to selling assets or possessions, or raising the money by whatever means you can to pay that tax back. I am sorry I cannot be more help by waving a magic wand, but there is none.
• I have a 4 point plan to battle IR35 which works well:
  1. Get your contract reviewed by a competent lawyer such as from Qdos. Ј100 or so.
  2. Pay for tax investigation insurance, Ј80 plus VAT from my firm and many others are around that for a "Full Monty" cover.
  3. Keep a diary of every time you were treated differently to staff workers doing similar roles, and situations where the client made demands of you which clearly put you outside IR35. Over time this really builds up, I am confident that 100% of my clients who've been doing this for over 2 years are on ground that is as solid as it can be with regard to IR35.
  4. Do not take the Mickey with expenses. Yes you'll meet guys who boast about the expenses they've put through to save Ј500 in tax. One of my clients has an IR35 risk of Ј90k. How stupid it would be to get a small scale enquiry into travel expenses or something which later opened up into a full blown IR35 enquiry!
• Many thanks for your responses, all such advise is appreciated and I will take into account. I'm hoping negotiation with the HMRC may help. Don't think reviewing my contract will help as they have been through it with a fine tooth comb and spoke to my hirers at my assignment who in effect seemed to state my work practice was very much of the regular permanent members of staff. Think I have liability insurance already..something I will find out today. thanks.
• What advice did you take when you decided to operate outside IR35?
  If your accountant didn't flag up potential IR35 issues then you may well have a claim for their negligence which could mean you could get them (or their insurers) to pay the fines and penalties. The tax and NIC will always be yours to pay as you'd have had to pay that anyway had you operated under IR35, but you could have avoided the fines and penalties if things had been done properly, hence the potential for a claim against whoever advised you that IR35 was not an issue for you.
• I agree the previous post by Penny. For every client where I have identified a possible IR35 risk, they get an annual review from me where I state the favourable and adverse factors as I see them - inviting the client to tell me about incidents which will help.
  For example, in the main local IR35 sector it is quite common for contractors to be put on 3 or 4 day weeks whilst PAYE people working alongside them carry on 5 day weeks. This is grim news cash flow wise, but in my view makes them cast iron safe from IR35.
  Where such clients appear not to have had a contract review I advise them to get one. Where they do not have tax insurance I state they are HIGH risk and strongly advise them to join the scheme. Finally I state their annual IR35 liability if HMRC were to successfully bring a case, and their cumulative IR35 liability where the contractor has been doing this for more than 1 year.
  Not everyone who accounts for contractors does all of this stuff. But in my view any accountant doing none of it should consult his or her PII provider, because it is bordering on negligence given the very high profile of IR35 in this country since 2000.
• thanks for the information. My accountant may have mentioned something about IR35 when I left Umbrella to go with him back in 2010. I didn't get it in writing as to what IR35 was and he painted a optimistic picture of extra earnings under my Limited Company. It was only when I was apparently randomly selected that he mentioned it to me in greater detail and I did research on it. If I knew then what I know now as to IR35 then I probably would have stuck to Umbrella or be more shrewd in going for another accountant who specialises in IR35 investigations should one ever have come up. I suppose I was naive and put too much trust in the accountant. Hard lesson to learn.
  I'm still with him as he is negotiating with HMRC as to what we can settle on. Don't really want to go down the road of making a claim of negligence against him as this has been traumatic enough. Will approach Qdos who seem to be highly recommended, I'm doubtful as to what they can offer at this late stage of the process, but worth a try.
• Hi Chrismac1, thanks for your post. In it you mention 'in the main local IR35 sector it is quite common for contractors to be put on 3 or 4 day weeks whilst PAYE people working alongside them carry on 5 day weeks. This is grim news cash flow wise, but in my view makes them cast iron safe from IR35.'
  Just to be clear are you saying working 3 or 4 day week rather than 5 day week would be enough to be outside the IR35 reg's? If so wouldn't HMRC say your status is a p/t worker but still be considered within IR35 if your working practises are near enough same as PAYE employees i.e. supervision, accountable to a line manager, working core hours, etc
• I don't see how working a 3/4 day week makes the blindest bit of difference to your IR35 status if the client has mandated it.
  The three key tests are mutuality of obligation, right of substitution and lack of direction and control. You only need to show one of these in your favour but I don't think the amount of days you work is nearly enough to show a lack of D&C.
  HMRC will always look at the whole picture in an IR35 case. What was their justification for you being inside?
• thanks so much pennywise, i now get it, and it makes sense. Did think it odd as to my misunderstanding of it. Yes, it looks like they did look at the whole picture in my case.
• Pennywise you've convinced me to approach Qdos, think my accountant isn't up to this. Fingers crossed there's someway out of this!
• Cyclingprogrammer the HMRC did some serious digging, they even contacted my last assignment line manager and used what answers they got to work practices to strengthen their case. In effect they seemed to disregard the contract I had with my agency and felt that in practice there was little difference between the permanent members and my work practices i.e. supervision, working core hours, work being overseen, etc
• I think you've had some really good advice on here savvysearcher. If Qdos say bad luck leave it at that, but otherwise there is still hope. For other contractors who stumble across this thread, for pity's sake get a formal contract review and tax insurance. It's Ј200 or so all in for the first year and Ј100 thereafter, and it is protecting you from Ј10k to Ј90k of tax risk and untold hassle and stress in dealing with HMRC.
• Yes the advice has been great, many thanks to all of you for your help. Will take on board all of it and see what Qdos says. thanks again.
• From everything you've said it sounds like it may be difficult for you to overturn HMRC's decision. You therefore should understand that a large part, probably the majority, of the amount you have to pay is not a fine but payment of tax that you would have had to pay at the time you earned the money had you been operating within IR35 rules. If you consider that you've been hard done by and have had to pay something that other people haven't then it'll fester and you might develop the irrational hatred of HMRC (who after all are only doing what their political masters tell them to - look up Dawn Primarolo and IR35) that some posters on here have. Better to pay up with reasonably good grace and move on.
• I see your point agrinnall. I certainly don't want the matter to fester and I will use Qdos conclusions as a final word on it. I too think I have little hope in the decision being overturned but its worth a final shot.
• Just to be clear, savvysearcher, if HMRC were to cold call the HR or payroll folk at the majority of my "IR35 clients", and even the directors in many cases, they would doubtless get the strong impression from many that my clients were effectively staff folk. This includes all of the locum doctors and associate dentists I have had on my books, which is a small sample size of 3 as most of my IR35 folk are engineers.
  I am more than 90% confident that I would win ALL of the cases for the locum doctors and associate dentists. The staff HMRC would speak to are very unlikely to know the arrangements for holiday cover and the risk of commercial loss within those contracts, and the other terms that put my clients outside IR35 - that is between my clients and the practice owners.
  This is the stuff a decent accountant or Qdos legal guy will go looking for. If it is there it is time to go back into the battle with your sword freshly sharpened. If it isn't there, you've spent a few Ј100 proving to yourself that the tax bill is valid and learnt a harsh lesson for the future. This experience should not put you off future such work, just get better legals and a better accountant next time.
• Yes, I see your point chrismac1. It has been a tough lesson thus far. For now going back to Umbrella but will also see what Qdos say. Ј100 as a last ditch attempt is money well spent to get an answer whatever it may be from a reputable source. As for the future may go back to locum but for now taking a break from it.