Q. My wife and I both work in the public sector under our Limited Company and through an agency. Our company income is disbursed via salary, personal expenses, dividends and company expenses such as Business Insurance. I have just been asked by my client to provide an assurance that I am meeting my tax obligation by initially declaring whether I am self-employed, on the payroll of an organisation/employment business, or engaged via a Personal Service Company. I have always steered away from suggesting the business is a PSC, since we occasionally also provide consultants to other clients and incur business expenses by “networking”. However, as our income this year has been generated by just the two of us (90/10 by me), I’m not sure that position currently holds water. I am technically “on the payroll of an organisation”, but I don’t think providing salary slips for a fraction of my daily rate will satisfy the client. If I declare the company as a PSC, they want to know whether we operate IR35, and if not then I should provide payslips which support compliance (which they won’t). The only other option provided is to declare the company outside of IR35, which would then need to be supported by a HMRC review of my contract which confirms it has been assessed as outside of IR35. The client wants my response within two weeks, and failure to provide adequate assurance will result in the termination of my contract. What should I do?
A. Firstly, it will be difficult to avoid being classed as a PSC. There is no statutory definition of the term and even if you don’t class your own company as one, your end user and HMRC may well see it differently.
It is rare that public sector end clients demand an HMRC review as proof of tax compliance. The vast majority of clients accept a 3rd party review of your engagement from an independent status expert. It is also highly unlikely that HMRC would turn around any review within two weeks.
I advise that you clarify your client’s specific requirements around the assurance process. If they will accept an independent review you should be able to get it turned around within a few days.
Note that IR35 rules in the public sector will change from 6th April 2017, and your end client will be responsible for determining your status.
This answer was provided by Qdos Contractor.
If I was you, I would tell them it’s none of their business and quit.
QDOS are expert at IR35 disputes.
How about this as a layman’s approach:
Ask the client, and possibly the agent, what do you want the arrangement to be? This is needed because if the client/agent are not committed to wanting ex-IR35 then it will be difficult to convince anyone else that your company is ex-IR35 ie
. PAYE
. ex-IR35 ie company – company
If they say PAYE then you say that you have 2 options:
. agree an end date to the current contract
. increase the day rate to something like double or triple the current rate – depends on how much extra your company needs to cover the extra costs to compensate for the new legislation
If they say ex-IR35 then agree between you what needs to be done to make it so and progress down the QDOS route.
The public sector client clearly does not wish to go to the expense of undertaking an IR35 review of the working arrangements on the ground to construct a hypothetical contract to evaluate IR35 – post April 2017.
The 2 week imposed deadline is unreasonable.
I suggest you say so because HMRC hasn’t even released the IR35 web application akin to the “ESI” which is not appropriate for IR35.
I recommend that you engage an IR35 expert to undertake a critical sense check based on facts and the law. Inform the end client and as part of the process say that you wish to have a meeting or telephone conference call to establish the agreed arrangements and whether IR35 applies in the absence of an HMRC web based tool which has been promised but not yet made available by HMRC which is unreasonable nonsense especially when considering the timing.
Everything needs to be accurate and not misleading.
I also recommend that the New Rules re expenses and Supervision Direction and Control (“SDC”) is built into the check.
Unfortunately, this is not a cost free environment and you get what you pay for.