Freelancers' Questions: What if an outside IR35 role is found inside IR35?
Freelancer’s Question: If a public sector body states that a post is not caught by IR35 and I operate a personal service company, what is the situation if HMRC subsequently decides that the post is caught by IR35? Would I be liable for any penalty or additional taxes?
Expert’s Answer: There is a relatively straightforward answer to your question.
The public sector body is responsible for the determination of IR35 status and, as long as you haven't provided them with any fraudulent information on which they based their assessment, you will not be liable should the assessment be incorrect.
The liability and any penalties rest with the 'fee-payer' -- the term HMRC gives to the body that has paid your company's invoice. So the fee-payer might be the public sector body (your client), your recruitment agency or other payment intermediary. But it won't be you!
Of course, the fee-payer is likely to seek compensation from the public sector body if the fee-payer implemented their decision but that, as they say, is not your problem!
The only way it could potentially become your problem is if an indemnity clause with the effect of transferring liability for any costs incurred by the agency (e.g. tax debts and penalties deemed by HMRC to apply) to the company (your PSC) entering the contract with the agency. However, you do not say that such a clause is contained within your contract and, anyway, whether such a clause would succeed is open to debate.
The expert was Graham Fisher, the chief executive of accountancy specialists Orange Genie.
5th July 2017