Financial risk and exemptions: Ask Andy Answers
With around two weeks to go until the private sector off-payroll rules come into force, your questions for Andy Vessey, Kingsbridge’s Head of Tax and font of all knowledge where IR35 is concerned, are coming in thick and fast. So, without further ado, here are Andy’s answers to your questions on financial risk, small business exemptions and everything in between.
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.
Does having a contract with a PSC which has a retention on day rate (recoverable at end of contract in some form or value) assist in the determination outside IR35?
As an interim who is required to travel to USA or EU, my PSC will book airfares flights and hotels, incur the cost and then rebill to client, will these costs be 100% reimbursable or subject to payroll/umbrella company etc. where inside?
Proportion of fees held back until a milestone is accomplished will demonstrate a degree of financial risk, as the fees may potentially never be recovered if the end client is dissatisfied with the services for some reason. Whilst this is a pointer towards self-employment it will not be determinative in itself and you must therefore consider all the other major employment status tests as well to develop a more clearer picture of your employment status.
If your contract is deemed to be ‘inside’ IR35, then it may still be possible for you to obtain tax relief for expenses incurred in respect of foreign travel (see Chapter 7 – special tax rules on foreign travel of HMRC guidance 490).
Can the size of a client business give an exemption from the IR35 reform? E.g., if they are a small business?
If an end client is a small business then the private sector off-payroll rules do not apply and the contractor, as is the case right now, is responsible for assessing their IR35 status.
As an agency supplying contractors (time and labour) on an outside IR35 basis, being the fee-payer and also coordinating the SDS process on behalf of the client for their sign-off along with an audit process during the contracts to verify all parties are abiding by the contract and agreed working practices as per the SDS, could an agency become the liable party if HMRC disagreed with the employment status of the contractors? This being where the SDS lines up compliantly with working practices but somehow HMRC disagree. Would it be the case that this would actually sit with the end client due to the contractor carrying out the work for an end client? I understand the fee payer is first in line for liability but looking to understand what would actually happen if the agency had completed all their due diligence. I'm aware IR35 Protect insurance will cover all within the chain, but trying to figure out when and how the attention would sit away from the agency in that scenario?
Only if the end client failed to take reasonable care in making their status determination or failed in its other obligations would the PAYE tax and NIC responsibility pass to them. So, if HMRC were able to recategorize a worker(s) by virtue of technical arguments that went beyond the ambit of reasonable care, then the fee-payer would still be liable for the tax and NIC. HMRC guidance ESM10014 makes it quite clear stating, “If a client is not already the deemed employer, and has taken reasonable care and fulfilled its other duties (such as issuing an SDS), the responsibility for deducting tax and NIC and paying these to HMRC will not rest with it. This is the case even if it turns out that the client got the decision wrong.”
I need a barrister or a solicitor to advise me on a recruiter’s contract my client wants my one-man company to sign instead of our existing contract. Can you suggest anyone?
Unfortunately, I am unable to recommend any particular lawyer but a good starting point might be to contact the Freelancer & Contractor Services Association (FCSA), who may be able to point you in the right direction.
I was in a contract outside of IR35 for five months, but now the client has determined it will be inside. Nothing has changed in the way we work. Can this cause HMRC to ask for tax for previous five months as well? Or is it correct that they will not look retrospectively?
HMRC has given numerous reassurances that they will not use information acquired as a result of the changes to the off-payroll rules to open up IR35 enquiries into previous years provided there has been no fraudulent or criminal behaviour. This includes Status Determination Statements which were prepared for the current tax year. This statement can be found in ESM10036.
HMRC took the same approach with the public sector and thus far, has been as good as their word.
How to Ask Andy…
If you want to get your question in before the reforms come into effect, simply submit it using our online form. Andy will do his best to answer as many questions as he can right here on the blog.
If, in the meantime, you want to ensure your SDS is a fair and accurate reflection of your contract and working practices, it’s worth checking out the Kingsbridge IR35 Status Tool to comprehensively assess your engagement and get an instant inside or outside determination. Developed by Andy, the tool is hybrid in that if your determination is borderline, it will be passed to one of our in-house IR35 experts for review, giving you confidence and peace of mind.