If found liable then you then you can no longer receive dividends from the company and would be liable to 8 – 15% reduction in your net income.
If found liable there may be significant and disastrous consequences for your financial situation. HMRC will calculate how much Tax, National Insurance, interest and penalties, and can go back up to 6 years to recover additional liabilities. If your past dealings are decided in subsequence to be caught by IR35 you receive this massive extra tax bill with perhaps only 3-6 months to ‘repay’ these sums.
In the most famous and infamous ‘Dragonfly’ case (Dragonfly Consulting Limited v HMRC) HMRC recovered a sum Â£99,000Â from Dragonfly. Despite an undoubtedly trying court case which went to the Court of Appeal.
The official figures on IR35 compliance state that the legislation brings in 1.5billion pounds a year. Depending on your view point this is a miserably small sum, or frightening if you were to be one of those ‘successfully’ investigated. Either way there is no denying the number of distressing, costly and time-consuming investigations by HMRC into compliant, legitimate freelancers. Lawdit are providing a means to take the worry out of this situation for you.
Recently it has been questioned whether the finding of a pseudo-employment tax relationship may lead to the provision of employment rights. This is a concept still in its infancy and it is still safe to say that currently the only one to suffer in the event of a ‘successful’ IR35 investigation is you.