back to article HMRC opens consultation to crack down on off-payroll working in private sector

The UK government has opened its long-awaited (and dreaded) consultation (PDF) on proposals to extend IR35 off-payroll working in the private sector, which could affect 2 million contractors. In the Autumn Budget 2017, the government revealed it would consult on how to tackle non-compliance with the off-payroll working rules …

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  1. Sheepykins

    Honestly after working with and being a contractor for a time I can see why HMRC want to crackdown especially given all of the loopholes contractors use to get extra cash,

    For example, HMRC allows for a tax deductible christmas party. I knew one guy who would give himself the money, buy a few receipts for sausage rolls and booze.

    Another who always seemed to win employee of the month.

    And another who was working out in Belgium and paying himself per diem based on HMRCs rates, which for Belgium was 170 pounds a day.

    As for myself, my business earned over 80'000 in a single tax year and so HMRC decided I Then had to pay 16.5% of total earnings in a 3 month period every quarter in addition to corp tax and other things. Thanks.

    Most contractors wont agree but I think a bigger upheaval is needed to make it fair for both parties.

    1. AMBxx Silver badge

      I'm more concerned about getting caught in the cross-fire. My work is about as far outside IR35 as it's possible to be - mutiple customers every month, flexible working arrangements, most of my customers haven't even met me, no direction or control etc etc.

      However, given the odd letters I received from my public sector customers when the new laws were introduced, I'm concerned about how some companies may clamp down completely on external consultants like me 'just to be on the safe side'.

      I agree that 'something' needs to be done, it's just that everything HMRC see to do is too heavy-handed.

    2. Doctor Syntax Silver badge

      "Most contractors wont agree but I think a bigger upheaval is needed to make it fair for both parties."

      OK, here's a proposal to make it fair. Do away with the limited companies. One set of tax rules for everyone including, of course, tax for benefits in kind. Security of employment, e.g. as a permanent employee of HMRC, is seen as a highly valued taxable benefit. The extra tax gained by taxing such benefits in kind can then be used to reduce the income tax rates in general including those for freelancers.

    3. Anonymous Coward
      Anonymous Coward

      'make it fair for both parties.'

      Tired of corporations getting a free pass on tax issues versus plebs (see below). Sure there's always the bad apple tech contractor. But most are just trying to get through their day.

      UK tax makes me want to return to low-tax Dubai / Singapore / Hong-Kong Expat work. But 3 kids dogs/cats? Not happening...

      https://www.theregister.co.uk/2018/05/18/aria_technology_open_justice_victory/

      1. AMBxx Silver badge
        Thumb Down

        Re: 'make it fair for both parties.'

        >> Do away with Limited Companies?

        You're joking?! When Public Sector drones put their houses on the line for the mistakes they make, maybe I'll consider doing the same.

    4. This post has been deleted by its author

    5. Anonymous Coward
      Anonymous Coward

      Your definition of "loophole" is rather odd, I feel.

      For instance, the christmas party guy, if he's submitting false receipts for his accounts and pocketing the cash, is not exploiting a "loophole", but is instead committing fraud and embezzling funds.

      The per diem is entirely valid. Someone working abroad will encounter higher costs than if they were working at home. The fact that he's a contractor doesn't change this.

      And as for the last, I reckon you should get a better accountant.

      1. Sheepykins

        "Get a better accountant"

        Agreed, they were a bag of shit.

        Yes, most of these "loopholes" are not fine when stood up to scrutiny, but when does HMRC ever have a chance to come around and audit the little guy? They don't they take it on face value and people are, in my opinion, taking the piss.

        As for the per diem, theres claiming an acceptable amount per day to scale and then theres taking the entire job lot.

        It did not cost him anywhere NEAR 170 pounds to stay in Belgium per day.

        1. Bigkahuna456

          Re: "Get a better accountant"

          How do you know that?

          How long was his contract? I've worked in Brussels before (IT Contractor at Nike) Only 2 months so I was unable to rent anywhere therefore had to stay in Hotel's. Some night's I've paid 140.00 per night (not often) but still. Add to that expenses for travel to and from the office, food and drink etc and you will not be far off 170.00. So 170.00 per diem is not unreasonable.

    6. Anonymous Coward
      Anonymous Coward

      If through earning over 80k in one tax year they assessed you for 16.5% flat rate VAT remember you should be able to charge the 20% VAT back onto your clients.

  2. RobertLongshaft

    Taxation is theft.

    1. Anonymous Coward
      Anonymous Coward

      and your alternative is?

      1. Sheepykins

        If i was smart enough to figure that out ;) i'd still be a contractor.

    2. Anonymous Coward
      Anonymous Coward

      "Taxation is theft."

      No, taxation is _slavery_. I'm pretty sure that's what it's called when what you supposedly earn doesn't belong to you.

      1. Anonymous Coward
        Anonymous Coward

        Re: taxation is slavery

        No, it's the next level down from that, it's serfdom. Historically, slave owners were responsible for their slaves. Serfs' masters, on the other hand, are not responsible for their serfs.

        1. Anonymous Coward
          Anonymous Coward

          Re: taxation is slavery

          I couldn't afford the cost of living in a country without taxation.

        2. handleoclast

          Re: taxation is slavery

          Historically, slave owners were responsible for their slaves. Serfs' masters, on the other hand, are not responsible for their serfs.

          Are you sure about that?

          I think it depends on what you mean by "responsible." And also, what you mean by "slave." Under feudalism (which is the system which had serfs), serfs and slaves were different classes of vassal whereas under slavery (no feudalism and no serfs) things were somewhat different.

          If you mean "responsible for the serf/slave's well-being." then under feudalism the lord was responsible. It was a reciprocal obligation: The lord provided the serf or slave with somewhere to live, protection from robbers or other lords, and charity in times of famine; the serf or slave had to provide a certain amount of service to the lord. Under slavery, as legislated in the Old Testament, you could mistreat your slaves but couldn't kill them (unless it took them a couple of days to die, in which case you were OK). Under slavery, as practised in the American colonies, you could do whatever you wanted to your slaves, including rape and/or kill them.

          If you mean "responsible for the serf/slave's actions," then I have little knowledge of the applicable legal systems. However, I strongly suspect people would be held responsible for their serf/slave's actions otherwise they could have their serf/slave do all sorts of bad things and if the serf/slave was caught doing it then the feudal lord/slave owner would suffer no consequences.

        3. gbru2606

          Re: taxation is slavery

          You're talking about being an employee, which is exactly not what this article is about.

      2. David Nash

        You don't supposedly earn all of it, you supposedly earn the bit after tax has been paid.

        If you don't like it, go and find somewhere uninhabited with no government, because that's about the only way you'd not have to contribute to society and infrastructure. There won't be any paid jobs there though, so no tax to be paid. What's not to like?!

        And taxation is certainly not slavery. Nobody's forcing you to work.

        1. Anonymous Coward
          Anonymous Coward

          No one is forcing you to work>

          You obviously have never lived in England and been unemployed

        2. LucreLout Silver badge

          And taxation is certainly not slavery. Nobody's forcing you to work.

          A fact which is its own elephant sized problem at the heart of the welfare state.

  3. Anonymous Coward
    Anonymous Coward

    Not a contractor (any more) . . .

    I stopped partly, but not wholely, because of IR35.

    Both now and then it looks to me like IR35 is a steaming pile of @;#*

    The HMRC remarks are full of 'we estimate' and 'it is reckoned'. (Yeah, well see Mitchell & Webb for the definitive conclusion on 'reckons') - https://www.youtube.com/watch?v=OQnd5ilKx2Y

    As has been said before the benefits to the economy of contractors are multiple - despite what any jealous permies may think - but they assume risks for those benefits and the additional risk they don't need is that some over-zealous civil servant who has never been outside a comfy permanent position is going to decide that they should take all the downside of being a permanent employee with none of the upside!

    Seriously, I would really like to see some credible statistical (not 'reckon') estimate of the total additional tax take from IR35 over the years against the costs of court cases (lost and won) and the impact on the contracting 'community'. It's probably horribly complicated and ultimately unknowable but I have a 'reckon' on how it would tot up.

    1. Mark 65

      Re: Not a contractor (any more) . . .

      Their statement

      However, HMRC said it also believes "that the available evidence shows that the public sector reform has been effective in tackling noncompliance with the off-payroll working rules".

      tells you all you need to know. The extra budget cost of paying the increased rates in order to retain key staff that would otherwise have left are not considered when contemplating the "effectiveness".

  4. johnfbw

    Risk vs Reward

    It baffles me why contractors are expected to be treated as employees for tax, but not receive holidays or normal benefits but have to foot the risk of unemployment (either through termination or between jobs) and not have that risk tax deductable

    1. Gordan

      Re: Risk vs Reward

      THIS.

      The test for employment vs. self employment should be made the same for both employment rights and tax purposes. If your client isn't paying you statutory holiday pay and pension contributions, you are self-employed and should be taxes as such. If they are, you are employed, and your client is liable for deducting your taxes at source and providing at least the minimum statutory benefits.

      Anything else effectively amounts to expecting a employees to pay employer's taxes.

    2. Dr Dan Holdsworth

      Re: Risk vs Reward

      I rather think that HMRC are suffering from a lack of vision here. Their objective is to maximise tax revenue. I would suggest that engineering an environment where economic growth is fostered rather than hindered would work better in the long term than hounding people over what amounts to minor amounts of money.

      1. MonkeyCee

        Re: Risk vs Reward

        "Their objective is to maximise tax revenue."

        It's not. It's to maximise it in a way that doesn't piss off the PTB.

        It's actually relatively simple to raise tax revenues. You hire more investigators, and you audit accounts. By setting a minimum threshold (turnover, VAT collection, potential theft, etc) high enough, you guarantee returns.

        Spending roughly 60k on wages and benefits, and minimum threshold of 1 mil turnover, roughly gets you another 2 million in tax per year.

        But HMRC is actively getting rid of these roles, since they have a nasty tendancy to brush up against the sort of people who will go through hell and high water to avoid paying tax, but consider six figure political "donations" to be the cost of doing business.

      2. Voidstorm
        Mushroom

        Re: Risk vs Reward

        The HMRC know damn well they can't nail the big corporates, who cost the Revenoo (spit) tens of billions per annum. They're too big to touch, so they go for low-hanging fruit ..

        ... The little guys? Easy targets.

        The worst part?

        HMRC's Retroactive Application : if a contractor tried that shit on their invoices, they'd be laughed out of court.

    3. David Nash

      Re: Risk vs Reward

      Does anyone know whether HMRC have ever responded to this frequently-made point about benefits?

      1. Gordan

        Re: Risk vs Reward

        "Does anyone know whether HMRC have ever responded to this frequently-made point about benefits?"

        Not officially, but self employed (note: important distinction vs. ltd. company) people have in the past successfully sued their clients for statutory holiday pay and pension contributions after they were engaged as self-employed contractors and then found by HMRC to be caught by IR35. So there most certainly is legal precedent for it.

        The real kicker here is that the client-side determination of IR35 status here is also coupled by the client's insistence that the contractor be operating through a ltd. company rather than as self-employed. This key point allows the client to dodge the employer's taxes and palm off the responsibility for them onto the ltd. contractor.

        In other words, the entire setup is actively rigged for the government departments to dodge both employer's statutory liabilities/obligations _and_ employer's taxes and shift them onto the employee.

    4. Anonymous Coward
      Anonymous Coward

      Re: Risk vs Reward

      Why should less favourable compensation terms of a contract between two parties be tax deductible? The risk taken between the parties is by mutual agreement and by choice.

      It is fair to ask for more pay when signing up to a contract with less favourable terms (as you mention no holiday, no benefits, short to no notice period and so on) but that is between the contractor and the client and does not require HMRC to subsidise/encourage this via tax policies.

      Specific HMRC tax deductions (for business risk for eg ) should result in an increase in tax revenue in the long run which is of benefit to the country (and not one individual).

      A contractor wanting more pay in lieu of benefits does not need to be specially tax deductible.

      Similarly employers wanting to avoid paye/employer liabilities is not something HMRC should make specially tax deductable to encourage. It is usually one customer, for long durations, distinguishable from a paye only in these liability benefits.

      This is very different to the risks taken to start a genuine business, where there is a genuine attempt to gain multiple customers. It is clearly distinct from paye employee beyond just compensation terms.

      It is of no economic benefit for HMRC to justify a special tax consideration as there will be almost no distinct growth potential in revenue/employment creation as there is no intent in these cases for the contractor to do so.

      Such a deduction will not increase HMRC revenue take over time (by increasing economic activity).

      Whether IR35 is appropriate or suitable is a different point.

      So no I don't think *any* risk is an automatic entitlement to reduced tax outlay. I haven't seen any of these single customer contractors taking anywhere close to the types of risk a typical business takes.

  5. ChrisB 2

    The consultation runs largely through the Parliamentary recess - meaning MPs (who may take a stand against this idiocy) won't be there to receive submissions or constituency communication.

    https://www.ipse.co.uk/our/news-listing/anti-business-ir-consultation-.html

  6. Herring`

    Speaking as tax-dodging contractor scum

    The IR35 situation is stupid. It's a lottery as to whether you get screwed or not and if you do, you get screwed harder than a permie. If they just created a PSC tax - obviously lower than the IR25 burden, say an extra 5% of money taken as dividends - then everyone would know where they stand.

    If you make it low enough (so that most people will just pay it rather than fighting it) then no more court battles, HMRC get some extra dosh, contractors can sleep easier and everyone's happy. They could just get rid of flat-rate VAT, but that would cause a fecktonne of paperwork for everyone.

    1. Anonymous Coward
      Anonymous Coward

      Re: Speaking as tax-dodging contractor scum

      Good idea, they could call it dividend tax and start it at, say, 7.5%

    2. NogginTheNog

      Re: Speaking as tax-dodging contractor scum

      “Hey could just get rid of Flat-rate VAT”

      They effectively have done thanks to the rate hike for ‘limited cost traders’!

  7. ISYS
    Facepalm

    Shooting themselves in the foot

    If they press ahead with this, most contractors would go permie as the idea of paying a lot more tax for no extra benefit (sick pay, holdiay, pension etc) is not desirable. Permie pay is a lot less than contract rates. End result will be that the HMRC net tax take goes down and the workplace becomes less flexible just when really need it to be as the loonys seems hell bent on pushing ahead with Brexit.

    1. This post has been deleted by its author

    2. Anonymous Coward
      Anonymous Coward

      Re: Shooting themselves in the foot

      " Permie pay is a lot less than contract rates."

      Not after you include pension payments, annual leave, training costs, sickness, Christmas party etc.

      1. Tom Paine

        Re: Shooting themselves in the foot

        Why does anyone do it, then?

      2. Mark 65

        Re: Shooting themselves in the foot

        @AC: I think you'll find it is definitely a lot less. I was earning 3 times what the permies were during my last contract. I also got to attend the Christmas party. If you took into account the training costs (tax deductible) sick leaver, annual leave etc you'd find they'd need a hell of a lot of leave to come anywhere close.

        The reason that I did it and they didn't was, principally, that I was more comfortable with the risk of future unemployment/downtime than they were. Plenty like the feel of a secure permanent job, it's just that (other than the redundancy payment) few realise that a permanent job isn't that much more secure than a defined contract. Given contractors often have more specialised skill sets required by the business I have been in the situation where permies are let go and the contractors stayed.

  8. Anonymous Coward
    Anonymous Coward

    "most contractors would go permie"

    Really? Do they actually have that option? Would they really take a huge hit in take home?

    Given the way we are heading towards a serious shortage of people looking for work, I guess this could help to push up the rates for everyone.

    1. Steve Gill

      Re: "most contractors would go permie"

      What huge hit in take home. With all the current uncertainties added to the government increasing their cut your average contractor is probably on a lower total package than the permies in the equivalent role.

      1. Steve Button

        Re: "most contractors would go permie"

        "average contractor is probably on a lower total package"

        What? Really? In what universe?

        1. Gotno iShit Wantno iShit

          Re: "most contractors would go permie"

          What? Really? In what universe?

          This universe. Ask your project manager about the comparative book cost to his project of permies vs contractors. In the oil & gas project I'm on now permies are the more expensive by far. Contractor rates have taken several hits in the last few years, everyone get's an email one day that basically says take a 15% cut or there's the door.... Contractors at Fluor are going through a 10-25% cut right now. What are the chances of a permie getting hit with that? Nil.

          It was closer on the project I was on 6 years ago but the permies doing the same job as me were still the higher book cost.

    2. Anonymous Coward
      Anonymous Coward

      Re: "most contractors would go permie"

      Who says it’s a “huge hit in take home”, after you’ve taken off everything we pay for compared to permies?

    3. Wensleydale Cheese

      Re: "most contractors would go permie"

      "Really? Do they actually have that option? Would they really take a huge hit in take home?"

      Once you get past a certain age, for many, going permie without a horrendous commute Is not an option full stop.

    4. Ian Johnston Silver badge

      Re: "most contractors would go permie"

      Would they really take a huge hit in take home?

      Oooh, bit of a giveaway there.

  9. Franco Silver badge

    I may be unique in this, but I have found that the IR35 changes in the Public Sector have actually helped a little bit. Not when they were first introduced, as they were applied with a heavy hand due to poor communication from HMRC, but once the clarifications came out regarding no blanket classifications etc it meant (again, for me) a much more clearly defined contract scope which meant I wasn't getting whatever they felt like thrown at me.

    Every contractor knows other contractors who take the piss (E.g. the Xmas party scam mentioned above, I know a few who claim subsistence to the max every single day regardless of location and so on) but the majority do it (again in my experience) because they like the freedom, the flexibility and the diversity of projects. However another consultation will only actually help anything if HMRC do what they didn't last time, which is actually listen to what people are saying.

    1. Doctor Syntax Silver badge

      "However another consultation will only actually help anything if HMRC do what they didn't last time, which is actually listen to what people are saying."

      Public consultations aren't held so HMG can listen to what's said. They're just held because they're held. It's a step that has to take place before HMG just goes ahead and does what it always intended to do.

    2. Paul Ellis

      "However another consultation will only actually help anything if HMRC do what they didn't last time, which is actually listen to what people are saying."

      Oh, come on. Have you actually been part of any HMG consultative process? I have. Consultations take place so that the "we've had a consultation" box can be checked. The civil servants listen only insofar as what they hear enables them to carry out their masters' wishes within the law. None I have met were actually interested in what I had to say for its own sake. Certainly, none of them was prepared to countenance any kind of challenge to the prevailing groupthink orthodoxy.

      Been there, done it. Downvoters: don't you dare unless you have equivalent direct experience.

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