You must seek professional advice. Seek out lawyers who may have been involved with the Montpellier EBT case as they are more likely to be up to speed than anyone else, especially if HMRC are attempting retrospection.
I had seen mention elsewhere of cases where a husband and wife setup similar to ours was prosecuted under IR35, but the outcome of these cases is still in appeal and as yet is undecided. I believe that in the eyes of the law a fiancee or partner is probably equivalent for these cases.
However, as you say its probably never going to come up, and we should be able to prove enough flexibility in her role and lack of benefits as well as a fixed end-date to avoid any IR35 issue.
Thanks to everyone for their help.
Are you sure that is/was IR35 and not S660A?
The issue is that of "connected persons" as we see a certain amount of woollyness in HMRC application of this rule. A spouse, partner, fiancee, sibling, parent, child are most definately "connected persons" but is a first cousin? What about an in-law?
Legislation says ..."In addition you must receive or have rights entitling you to receive a payment or benefit that is not employment income." by which I assume they meant dividends. However, if the company invoices for the fiancee and her partner draws the dividends and shares the money with her then I am sure that would be caught.
All a moot point I suspect.
Moot? Possibly not. It would be interesting to see how HMRC would view divvies that are paid into a joint bank account!
Strictly speaking, as you fiance is not a shareholder in receipt of dividends and therefore avoiding NIC, she cannot be an IR35 target (but you might be). I'm assuming that you are dealing with your fiance via PAYE and therefore she is an employee and not subject to IR35.
As an aside, IR35 is essentially dead in the water, thanks to the efforts of the PCG.
Firstly, how you you know they fall foul of IR35 .... do you have a legal opinion? Secondly, as occca says, IR35 only applies to those who work via the intermediary of a LtdCo and who take on the "deemed" mantle of an employee (e.g. a "[***] on seat" at the end client). IR35 "deems" all turnover of the LtdCo, minus 5% for expenses as PAYE.
As per usual, it looks as though the accountancy profession doesn't have a clue! If I was your client and had coughed up on your determination, I'd be after you professional indemnity insurance quick as a flash.
.... in that you are correct that the freelancer who operates through a LtdCo has the responsibility of IR35 decisions BUT ......... as IR35 is a TAX law which has any decisions based on EMPLOYMENT law case history, should HMRC "deem" the freelancer IR35 caught then the client can face employment rights (backdated of course) from the client including, but not limited to, holiday pay, sick pay, pensions etc. This would of course have to be done via costly to defend Tier 1Tribunal.
..... how was access gained? I suspect (actually know) that the security aspects of the HMRC system is pretty robust so hacking is not a viable hypothesis. I would suspect inside jobs on this, given that a significant proportion of HMRC system development is done by a large multi-nat who uses off-shored labour.
Please do remember that HMRC plan to "score" agents in future and may use your score to make a determination of just how good you are. What odds would I get if I said that the subject of this thread may form part of the scoring system?
Get the name of the HMRC individual involved and indicate that a Malfeasance in Public Office charge will be brought personally against them. That should focus their mind.
My answers
Personally
I would consider that it is a valid business expense in line with PII etc.
Professional advice, plus ....
You must seek professional advice. Seek out lawyers who may have been involved with the Montpellier EBT case as they are more likely to be up to speed than anyone else, especially if HMRC are attempting retrospection.
IR35 or S660A?
Are you sure that is/was IR35 and not S660A?
The issue is that of "connected persons" as we see a certain amount of woollyness in HMRC application of this rule. A spouse, partner, fiancee, sibling, parent, child are most definately "connected persons" but is a first cousin? What about an in-law?
Moot point
Moot? Possibly not. It would be interesting to see how HMRC would view divvies that are paid into a joint bank account!
Strictly speaking, as you fiance is not a shareholder in receipt of dividends and therefore avoiding NIC, she cannot be an IR35 target (but you might be). I'm assuming that you are dealing with your fiance via PAYE and therefore she is an employee and not subject to IR35.
As an aside, IR35 is essentially dead in the water, thanks to the efforts of the PCG.
IR35 EEK
Firstly, how you you know they fall foul of IR35 .... do you have a legal opinion? Secondly, as occca says, IR35 only applies to those who work via the intermediary of a LtdCo and who take on the "deemed" mantle of an employee (e.g. a "[***] on seat" at the end client). IR35 "deems" all turnover of the LtdCo, minus 5% for expenses as PAYE.
As per usual, it looks as though the accountancy profession doesn't have a clue! If I was your client and had coughed up on your determination, I'd be after you professional indemnity insurance quick as a flash.
Hope that helps.
Partially correct ......
.... in that you are correct that the freelancer who operates through a LtdCo has the responsibility of IR35 decisions BUT ......... as IR35 is a TAX law which has any decisions based on EMPLOYMENT law case history, should HMRC "deem" the freelancer IR35 caught then the client can face employment rights (backdated of course) from the client including, but not limited to, holiday pay, sick pay, pensions etc. This would of course have to be done via costly to defend Tier 1Tribunal.
The big question here is ......
..... how was access gained? I suspect (actually know) that the security aspects of the HMRC system is pretty robust so hacking is not a viable hypothesis. I would suspect inside jobs on this, given that a significant proportion of HMRC system development is done by a large multi-nat who uses off-shored labour.
£0.02
Agent scorecards
Please do remember that HMRC plan to "score" agents in future and may use your score to make a determination of just how good you are. What odds would I get if I said that the subject of this thread may form part of the scoring system?
All of the above plus ....
Get the name of the HMRC individual involved and indicate that a Malfeasance in Public Office charge will be brought personally against them. That should focus their mind.