Are you at risk personally for IR35 tax?
The recent high profile IR35 case between a BBC presenter and HMRC has hit the headlines in recent weeks. The PAYE tax liability due as a result of this case has been quoted at around £400k but it appears that the company does not have the funds to meet this obligation. So what happens next?
The company owes the money, but…
Failure to pay the PAYE tax and NI is the employer’s responsibility, however if a company cannot pay it’s bills then creditors can demand payment from the directors via the courts.
Be aware that HMRC have extra powers via tax regulations to shift the liability for PAYE tax from the company to the director/employee, from whom the tax should have been deducted. There are different regulations for NI, but they have a similar effect.
HMRC can use reg. 80 Income Tax (Pay As You Earn) Regulations 2003 to demand a PAYE shortfall from the employer. If it can’t or won’t pay within 30 days, HMRC can move to reg. 81 and demand payment from the employee.
Be aware that HMRC can only use this tactic if it can prove that the director was aware that the company was failing to apply PAYE when it knew it should. Unfortunately for this BBC presenter it appears that she didn’t properly consider IR35 and therefore probably will be held liable for this huge debt.
How to protect yourself
To avoid finding yourself in a similar situation we highly recommend that you keep records showing that IR35 has been properly considered. For example a contract review, evidence that the end client has completed the HMRC online Employment Status tool, proof that your working practices don’t fall foul of the IR35 rules.
With clear records and compliant working practices you can sleep soundly knowing that, as an employer, your company is working in good faith.