BBC presenter loses appeal, must pay £420k in IR35 crackdown A BBC presenter must pay £419,151 in taxes after a UK tax tribunal ruled her contract should have been subject to IR35 legislation – a judgment that has been described as a wake-up call for IT freelancers. Look North presenter Christa Ackroyd lost her appeal covering tax years 2006/07 to 2012/13, with HMRC contesting that she …
I think this story and others covering how you can seemingly never get anything out of the very wealthy just shows the tax system needs simplifying. I don't blame her for trying as I did the same for years. I do think arrangements in IT are by their very nature easier to cover than a TV presenter on a couple of shows which is kind of a little blatant.
For those that will no doubt foam at the mouth as they down-vote - as a result of my circumstances I earned far more pre-tax than I would have as a permie and (obviously) way more post tax, and went on to spend much more in the economy than I otherwise would whilst also saving to cover for possible times of unemployment. I also, though you may not want to hear it, actually paid more tax as a contractor than I would have as a permie due to the higher remuneration. So, Government got more but not what they wanted and local economy got way more. I won't be losing any sleep over it, not when the likes of <insert wealthy non payer>'s residual requirement would likely cover the UK IT contracting community shortfall.
One of the key tests is substitutability - whether you can reasonably provide an alternative. For a programmer that's theoretically quite viable, but for a public face of a show where the value and appeal is their face then there's no direct substitute which is equivalent, so it's not surprising that a presenter would find themselves failing a case like that, really.
A .gov programme I've been involved in (private sector supplier, so not directly affected) saw vast swathes leave, only to come back the following week having been given the option of new contract with a compensatory element for being inside IR35, or same rates but a reworded contract.
We were hugely disappointed, as we'd hoped a couple of them would simply never return.....
A/c, obvs.
this has been brewing for a while. back in the day we all ran under umbrella companies as a shield as we were all warned of potential liabilities. oddly enough it became a Dutch sandwich umbrella company and at the time alkost EVERY unisys and dell contractor were running under the same company umbrella.
when i left this was also being clamped down on.
Presumably the BBC should have paid NI and pension stuff too - I hope they make them* cough up for that as its largely their desperate cost saving attempts that have screwed this poor person over.
* and every other company that tries this too - along with a hefty fine.
Now shes deemed to be an employee, she can claim back pay for holiday and sick days.
no doubt she will take the BBC to court if they don't agree to pay, and the BBC wont have a leg to stand on as its already been proven she was a disguised employee.
She should come out of this pretty well i would have thought.
BBC will be forced to cough up!
Wow. Tough crowd.
I don't think I have missed the point of the ruling, if you run a PSV/PSC and are on a contract that falls within the remit of IR35, then your company is expected to pay both employee and employer NI contributions on the effective salary. The client, in this case the BBC, has no liability if you thought the contract was outside of IR35, but the taxman disagrees. This is the cost saving that has made such arrangements so popular.
My Accountant explained that post IR35 and you were working through a Limited company and paid youself a salary then you had to pay both Employee and Employer NI contributions.
Naturally those are deductable against any corporation tax you may have to pay later on.
This presenter did IMHO get some really bad advice from their accountant.
>My Accountant explained that post IR35 and you were working through a Limited company and paid youself a salary then you had to pay both Employee and Employer NI contributions.
That is on what you pay yourself, which is typically less than what you invoice. This ruling is effectively saying your personal taxable income is the before VAT invoiced amount (minus a small allowance for expenses) and thus PAYE and NI should have been calculated on this.
If my memory is correct, this calculation ignores whether you have paid other employees out of your fee, VAT and any other tax collected and paid on the monies. Obviously, any taxes (other than your personal PAYE and NI) paid on the monies received are non-recoverable and cannot be used to offset your liability...
>If you pay other employees out of your fee, then you almost certainly won’t be IR35.
I was referring to your companies 'staff' eg. the undergrad you've employed to get some work experience and do some research.
>Right of substitution is a very strong indicator of genuine self-employment.
It is; however, I suspect HMRC will challenge this if it hasn't been invoked - particularly in a long contract.
For many years, colleagues with long-term contracts with one client would swap around every few months for a week or so and get paid through each others company. This helped both with IR35 and with avoiding the 24-month rule.
"My Accountant explained that post IR35 and you were working through a Limited company and paid youself a salary then you had to pay both Employee and Employer NI contributions"
Hence why you pay yourself a salary below the NI threshold and take the rest as dividends.
I hope they make them* cough up for that as its largely their desperate cost saving attempts that have screwed this poor person over.
She was a highly paid presenter, reportedly on over 100K a year. If she's not been paying NI on that wage then she's certainly not 'poor'.
Christ, the hospitals are at breaking point, there's fewer and fewer police on the streets, yet it's a tragedy when people are asked to actually pay their fair contribution to society.
I appreciate she's been given bad advice, and it's not her fault. But I, and a good chunk of the people reading this have to pay NI; don't have a lot of sympathy for those that don't.
I dont want to sound like an American here, but if she obtained advice from a tax accountant that says what she was doing was legal - and assuming she followed all of the tax accountants advice as to what she had to pay etc, etc to Keep it legal - then can she sue the accountant for giving false advice?
(admittedly, she probably heard the "its legal" part and stopped listening at the part where the accountant started saying "... but you have to do this, this and this.. and pay this and this ... etc.")
assuming she followed all of the tax accountants advice as to what she had to pay etc, etc to Keep it legal - then can she sue the accountant for giving false advice?
That can get tricky. Unlike criminal law, you can't generally sue someone (successfully) just for being wrong - you have to prove that the error was deliberate or negligent. Given that this ruling is seen as significant, it follows that the accountants have a good defence on the basis that their advice was an honest, competent opinion at the time it was given.
Tax accountants will (must) have professional indemnity insurance that will cover them in the event of legal action. It almost certain that the insurance would pay out to compensate her if she sued.
Nobody wants to risk losing a court case and setting a precedent that could make *all* firms liable in these circumstances. Better to pay off a small percentage of people that can be bothered to take action than be proven to be liable for *all* cases.
Yes she coule sue, but any award would only put her back in the position she woukd have been in had she been given correct advice - that she was liable to pay the tax, so it would cover only the late payment and misdeclaration penalties, not the actual tax itself.
She was a highly paid presenter, reportedly on over 100K a year. If she's not been paying NI on that wage then she's certainly not 'poor'.
This is what GOV.UK thinks yearly personal income is by percentage points.
https://www.gov.uk/government/statistics/percentile-points-from-1-to-99-for-total-income-before-and-after-tax
So, to pay £419,151 for a period of 2006/07 to 2012/13 (6 years) is £69,858.50 of tax each year. Even if you assume she was taxed at 50% then she's in the top 1% of earners in the specified years.
Christ, the hospitals are at breaking point, there's fewer and fewer police on the streets, yet it's a tragedy when people are asked to actually pay their fair contribution to society.
I appreciate she's been given bad advice, and it's not her fault. But I, and a good chunk of the people reading this have to pay NI; don't have a lot of sympathy for those that don't.
Personally, my sympathy is zero for the top 1% of earners who have dodged tax and are now required to pay it. The question has to be asked though as to if the BBC as a public body is operating a tax avoidance office at the public expense to further line the pockets of a large number of the richest 1%.
Perhaps BBC news could do one of their "fact checks" on this?
>Even if you assume she was taxed at 50% then she's in the top 1% of earners in the specified years.
It is worse, this is unpaid tax over and above what she has already paid.
Additionally, at this wage level if she had been with the BBC in 2016-17, her name would have appeared in the Pay Disclosure Annex of the BBC's annual report - potentially increasing the number of highly paid women and thus directly impacting the BBC's gender pay gap.
>Perhaps BBC news could do one of their "fact checks" on this?
Well this is what they are currently reporting:
http://www.bbc.co.uk/news/uk-england-43074584
"Additionally, at this wage level if she had been with the BBC in 2016-17, her name would have appeared in the Pay Disclosure Annex of the BBC's annual report - potentially increasing the number of highly paid women and thus directly impacting the BBC's gender pay gap."
This would be another advantage for the Beeb. If they'd both been directly employed and she was paid significantly less than, say, Harry Gration, the Beeb could have been on the hook under equal pay legislation. With freelancers each arrangement is independent. Now it's gone political, of course, that isn't such a big concern.
Additionally, at this wage level if she had been with the BBC in 2016-17, her name would have appeared in the Pay Disclosure Annex of the BBC's annual report
The entire point to that report was to give the public the idea that although some were paid a lot of many, like that Radio 4 presenter, there were not to many of the fat cats being minted by the tax payer.
Total fabrication of course, as the majority of the "talent" are classed as self employed and thus hid their remuneration from this report.
"Personally, my sympathy is zero for the top 1% of earners who have dodged tax "
I agree with that sentiment but in this case it sounds like she simply did what she was told by the BBC and her accountant, rather than having "dodged" tax. It's not illegal nor immoral to pay the tax due and no more. And if she believed that is what she had done, it's not fair to suggest she was a tax dodger.
"She was a highly paid presenter, reportedly on over 100K a year. If she's not been paying NI on that wage then she's certainly not 'poor'."
As a freelancer she will have been paying both employer's and employee's NI from such portion of that sum as she takes as salary. Given that there's no guarantee of long-term re-engagement or, indeed, payments should she fall ill, she should have banked a good deal of that payment for future income should the engagement cease. She would also have to make her own provision for pension. These are issues that HMRC neglect to take into consideration. They only really understand PAYE as that's how they're paid. Their employment includes a degree of permanence not available to freelancers. It ought to be valued as a perk of the job and taxed accordingly.
from such portion of that sum as she takes as salary
Which was presumably a nominal amount
She would also have to make her own provision for pension.
Like the rest of us
a degree of permanence not available to freelancers
She had a guaranteed 7 year contract - that's a lot more 'permanent' than most of us
"Their employment includes a degree of permanence not available to freelancers. It ought to be valued as a perk of the job and taxed accordingly."
Hang on - so I, as co-founder of a company (& thus employee of it according to HMRC); now employing 25 staff, should considering successfully growing the company to this size a PERK?!?
The risk is all mine; I had many years of living on the breadline to get to this point, and if it goes wrong we all have no employment, so strongly reject the idea that it's anything other than a giant sense of responsibility to others and cause of sleepless nights.
So anyone claiming my employment is a 'perk' can *£&! right off...
“It ought to be valued as a perk of the job and taxed accordingly.”
It should be - as should index-linked final salary pensions with a state guarantee, and all those expenses MPs can claim the rest of us can’t .... but they won’t be ...
I, and a good chunk of the people reading this have to pay NI; don't have a lot of sympathy for those that don't.
This seems a bit unfair on those of us who have slogged through 45 years to reach State Retirement Age, after which NI is no longer payable.
"If they do have to pay, it will be the public, via the television tax."
No, it'll be the tele tax paying public who will gain if this rids them of some of the overpaid celebutards they have to suffer.
Well, they can dream ...
"Presumably the BBC should have paid NI and pension stuff too"
I believe HMRC are responsible for enforcing compliance with workplace pension scheme legislation. Are they providing such a scheme for their IR35-caught freelancers? If not, why are they not prosecuting themselves.
The BBC never employed her as such. The HMRC can't give someone a job at the HMRC, maybe the BBC would never have wanted her as an employee. What the HMRC can claim is that she owed them tax and NI for the type of contract she entered in to, but that doesn't mean the BBC owes her anything.
If you're freelance and you aren't being paid enough to pay full tax like an employee would, when effectively working as an employee, then that's cheating. Either on the employer's side or the freelancer's side.
If you're a freelancer using such arrangements to avoid tax... pay your tax.
If you're not able to pay that tax from your earnings, then demand more money or move on. If you're claiming to be freelance, this basically means "increase your prices".
If you demand more money and they need you, they'll pay you.
Though it's an upheaval, it's been long-coming and I don't get the fuss any more.
>So unless she did the itv news too shes fucked.
Purely hypothetically, but would working for different parts of the BBC count. Are BBC Yorkshire and BBC News different organizations or seen as the same organization?
Presumably as a "celebrity", she will also have done personal appearances and the like that will have been paid.
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Whilst the wording of the contract is considered, actual working practices take precedence over it. E.g. if your contract contains a substitution clause that's considered one of the key factors to pass the CEST tool, but if the engager would block any and all substitutes without reasonable grounds (E.g. qualifications, experience, security clearance) then you would be deemed inside IR35.
"Shouldn't they be looking at her actual contract, not just a hypothetical one?"
Of course. But that's why IR35 was brought in. It enables HMRC to invent a contract which puts the worker in the worst of positions: the engager doesn't provide employee benefits aso they have to be paid by the freelancer but HMRC can up the tax take by pretending that this isn't so.
I’m waiting for this one (which will never happen):
“Mr X, you will receive a final salary, index-linked pension for being a MP, which has an estimated value of Y. For an average self-employed person to build that up, that would cost Z per year. We are therefore adding Z to your income for tax purposes. You also get a very large payout for simply leaving your job, which we may or may not decide is deemed to be income for tax purposes. We are not going to write a single, hard and fast rule on that in advance, and we may decide to come along years later after the interpretation of the rules has changed.”
yeah right.
The fine seems out of step with her wages.
https://www.yorkshirepost.co.uk/news/bbc-attacked-over-150-000-a-year-christa-ackroyd-absence-from-look-north-1-5608665 states that she was earning ~£150,000 per year over 7 tax years.
That would be £1,050,000 in salary and assuming she'd paid tax and NI/employers NI at some point - £419,151 (39.92% of salary) seems quite a lot in my opinion.
I'm sure it's right since it went to court but does seem a lot.
"That would be £1,050,000 in salary and assuming she'd paid tax and NI/employers NI at some point - £419,151 (39.92% of salary) seems quite a lot in my opinion."
Looks like about 40% deductions to me, which seems like it's not way over. She was probably dodging everything she could, so paid very little tax before. Normal tax is around 45% on over £100k, with the phasing out of the tax-free allowance. Also she might get hit by interest penalties, which might form part of the figure.
" Normal tax is around 45% on over £100k"
Actually, due to way peronal allowance is withdrwan as salary passes £100k then there is a band between 100k and 123k where the effective tax rate is 60%.(or 62% when NI is included) ... it then drops back to 40% and 45% doesn't kick in until after 150k
According to the report on the BBC news site, Ms Ackroyd states that the tax due is some C£217,000.
The Judge has given the parties 28 days to agree on the actual liability, and if not agreed, to be determined by a further trial.
She is quoted as saying that although she had a fixed contract with the BBC through a PSC (at their insistence) that her company should not pay tax as her employer because, get this, she is freelance.
What is slightly odd abut this, is that the BBC often state that if they don't pay high enough remuneration then they lose staff to the private sector, and yet in this instance, they poached?/acquired her from that same private sector.
Apparently "news presenter" is no longer a role where there is competition from the "private sector" - hence the BBC's justification as to why they are able to ask all their male presenters to take significant pay cuts ... however, the same seems not to apply to "talent" like Chris Evans, Gary Linneker (who it appears doesn't even need to be poached and is able to present on BBC and BT at the same time) etc
I thought one of the main contractual requirements against defending yourself against the disguised employee test is control over the process and a right to substitute the work to equally qualified persons.
Given she was a news anchor for the tv and selling her own identity as part of the package, I struggle to see how anyone could advise her that no, she wouldn't fall foul of this legal test...
The factors determining employee/contractor status are several and deep in nature.
There are plenty of cases where somebody has been engaged for 20 years working individually at a firm and were found to be self-employed. The classic kill on an employment contract is 'mutuality of obligation'. If an employer isn't required to find you work, then it isn't an employment contract. It is something else. But even that concept is complicated by the time factor (is the analysed obligation time, days, weeks or even hours?)
And since this is a first stage tribunal I fully expect this decision to be appealed all the way to the Supreme Court.
One of the main areas I focus on regarding being IR35 compliant is my working relationship with the client.
During the period of the contract they can tell me what work they want to be done, but they don't get to tell me how to go about doing it. I also don't present myself as an employee to others (so mandatory company signatures in emails are amended accordingly).
Also, if the work is project based and the contract is tied to the delivery of that project (i.e. the contract ends when that piece of work is completed) then that helps with ir35 status too.
Basically, don't act like an employee - act like an outside consultant who is helping them out for a fee and you should be good (I hope).
The main issue I have with ir35 is the complete lack of guidelines from HMRC as to what is considered compliant and what isn't.
This helps them in two ways. 1 - it allows them to make it up as they go along and 2- prevents anyone from setting up their business relationships so as to be compliant.
In my book that simply makes it a con-job and a total money-grab from people who are, by definition, not backed up by a large organisation and so can't mount an expensive legal defense.
You only have to look at all those 'ir35-compliant' public sector contracts that suddently appeared when they started losing contractors hand over fist when the recent rules were introduced. Totally hypocritical - if they can look at the working relationship and ignore the worded contract, how can they suddenly deem positions that were not compliant to be 'compliant' just by decree/changing the wording of the contract.
The bottom line is that they want all the money, but don't want to endure any consequences themselves from this legislation. They are acting like fraudsters imho.
I'm sure it's right since it went to court but does seem a lot.
Well, don't forget that the bulk of her "salary" would be in the higher rate (40%) tax rate anyway, she would be hit by various steep withdrawals of the tax free allowance where her income is over £100k that mean between £100k and £121k the marginal tax rate is 60%, and if she claimed expenses through her PSC that an employee couldn't have claimed, she'd be taxed on those at the 40% rate (or even 45% if that took her over £150k). What are the chances there were quite a lot of "expenses" that you and I wouldn't be able to claim? So 40% overall seems in keeping with the prevailing tax rates.
But I must say that I am utterly unsurprised that the Beeb are paying some gobshite who fronts up a dull regional news programme as much as the prime minister, and then conniving in tax evasion.
"But I must say that I am utterly unsurprised that the Beeb are paying some gobshite who fronts up a dull regional news programme as much as the prime Minister"
This has always made me wonder as well - I used to work in a highly desirable industry (the space biz) and for that reason wages in that industry are as a rule low (lower than auto, aero mining and a host of other Engineerings) for the simple reason that there's a constant stream of new grads wanting to get into the industry, so wages stay low and the more experienced People either jump to Management or sideways into another Engineering (like me) after a few years in order to get better pay.
Being on TV has to be one of the most desirable industries out there. Surely there are a sh%tload of young actors coming through willing to be paid peanuts to work on the Beeb. Sure at some point, I guess "Brand Recognition" might kick in and make someone more desirable, but I would have thought the argument - "Well yes I could pay you 150k a year or i can pay this young actor 40k a year and maybe lose 5% of the Viewers. Since we dont need to chase Ratings you can see which way I'm leaning..."
"What are the chances there were quite a lot of "expenses" that you and I wouldn't be able to claim? "
In that business, and as a woman, probably a very large clothing allowance. A bloke can wear the same suit everyday and maybe change their tie every day or so, but there seems to be an unwritten rule the female presenters must wear a different outfit every day and not repeat it too often.
People may leave the public sector, but once applied to private sector, if they leave that, they are going abroad or on the dole. For most, it will just mean sticking with it.
Ultimately contractors have a high rate to offset risk. IR35 should be applied across the board - there should be no reason why they can circumvent tax bands other than the lowest. Earn more, pay more. Feel the pain as you traverse the tax bands like everyone else.
"People may leave the public sector, but once applied to private sector, if they leave that, they are going abroad or on the dole. For most, it will just mean sticking with it."
All that will happen is a general acceptance that everything is inside IR35 for privately owned contracting companies and a rates balancing will take place.
The sad thing is that HMRC are advised by the big accounting consultancies who have a vested interest in getting their expensive daily rate "contractors" on site. PWC, EY, Deloitte, McKinsey et al view the individual contractors as cheap competition and are therefore directing HMRC on how to eliminate the competition. In Public Sector land, the real loser is the Public who will need to spend twice as much on Public works than they do today, putting the profits in the pockets of the shareholders of the big consultancies.
If IR35 becomes more widely applicable. it's likely to have serious repercussions in the IT Contracting world.
One of the problems that permanent employees don't see, or maybe do see but don't fully understand, is the fact that when you are in contracts that are typically 3 months to a year, you travel to wherever the work is rather than moving home. This normally means travel and/or accommodation costs. To me, it seems fair that this should be allowed against tax.
I'm currently renting a grotty little room in a cheap shared flat for no reason other than for my current assignment. This is in addition to paying for the family home. On top of that, I have a longish round trip (250 miles - I don't claim for travel to and from work during the week) every week. This costs me more than £600 a month. If that is made to come from taxed (and double NI'd [employer and employee]) income, it will be the rough equivalent of about £15 Grand a year out of the money generated by the assignment. This is an expense as a direct result of working this way, and adds to the vacation, sick pay and business costs that are all taken off the value of the assignment.
If I were a permanent employee, with expectations of working for years in a particular location, I would consider moving my family. But I'm not going to do that for a contract that has an clear end-date, and could be cut short at a week's notice with no redundancy or consultation process.
Next contract, I might have to go to London, or Manchester, or Edinburgh, or Plymouth. You can't uproot your family several times a year!
I have contractor colleagues around me doing the same or very similar things. What I can absolutely guarantee is that if IR35 is made to apply to contractors working like this (who probably make up a large chunk of IT contractors) such that they can't offset the costs against tax, that they will not be prepared to travel.
As the UK government has been keen over the last few decades to move large chunks of their operations outside of London, what this will mean is that they will struggle even more to find the skills they need, because the people with the skills will not already live close to where they are needed, and people with the skills can't afford to travel because they will be paying tax on the associated costs of working away from home.
It's already pretty demoralizing being away from home during the week. If the financial benefit is drained away in the manner described, there will be precious little reason to work like this at all, and where will that leave the government departments!
I totally agree with expenses being pre-tax. As a permanent employee that travels far, it coming out of my wages is like double-tax. That's the good thing about being a contractor.
However, once you've deducted expenses, I am saying that the remainder (which is really what IR35 should cover) is ensuring that your income goes through the tax bracket pain like the rest of us rather than everything on the lowest band of tax.
That's where it is unfair. Expenses before tax is good. An additional allowance to help offset risk is good. Circumventing tax bands is bad and very unfair.
> when you are in contracts that are typically 3 months to a year, you travel to wherever the work is rather than moving home. This normally means travel and/or accommodation costs. To me, it seems fair that this should be allowed against tax.
Well, you can certainly claim travel expenses for the first two years, up to 45p per mile up to 10,000 miles and then 25p a mile thereafter for cars. I don't know about accommodation. Canny contractors ride motorcycles and claim the car allowance because the IR doesn't have the first clue about the running costs of nice motorcycles. (They allow up to 24p per mile for motorcycles and encourage bicycles with a generous 20p per mile.)
What you've described is how it works outside of IR35, and it can include accommodation for up to 2 years, or longer if you spend three days or less a week at the customer site. I've been contracting 20+ years now, and have watched how IR35 has developed from it's initial introduction.
If you are deemed inside IR35, you can no longer claim travel expenses or accommodation (or IT costs etc).. Unfortunately, the recent changes for public sector contractors inside of IR35 only allows 5% of the pre-VAT contract value for all expenses. This will barely cover the accountancy and other business costs of running a company, let alone travel.
I am not defending the manipulation of bonuses, dividends or paying significant others. It's the travel and accommodation that I think it is unfair to lose.
"I have contractor colleagues around me doing the same or very similar things. What I can absolutely guarantee is that if IR35 is made to apply to contractors working like this (who probably make up a large chunk of IT contractors) such that they can't offset the costs against tax, that they will not be prepared to travel."
It was a previous Tory Govt. who said the British workforce had to "get on their bikes" and go where the work is. Looks like a U turn to me.
If they extend this to the private sector and twist the rules to catch as many people as possible (which is what I think they are doing this for, not just to stop the abuse of the PSC system) then there will have to be another financial model.
If all of my contract income were taxed under PAYE/NI etc. then all of the overheads of running a limited company are a complete waste, as I would, in effect, be paying more than a permanent employee on the same gross salary.
How then will all these tax details be worked out? If a contract is inside ir35, is it then the responsibility of placing agency to perform all the necessary calculations and payments etc.?
"If all of my contract income were taxed under PAYE/NI etc. then all of the overheads of running a limited company are a complete waste, as I would, in effect, be paying more than a permanent employee on the same gross salary."
Yes, that is what happens if HMRC decides your contract is within the scope of IR35...
"How then will all these tax details be worked out?"
Somewhere on HMRC's website are the details, but from memory, the general approach is to take the total pre-VAT contract income and treat that as salary. From this some deduction - I think it is 5% - is permitted for expenses. You then calculate the PAYE/NI on this, deduct what you've already paid on the salary you paid yourself and pay HMRC the difference.
Obviously, neither yourself or the employer can reclaim the VAT.
Hence you can see why HMRC have a vested interest in determining a contract to fall within IR35.
Speaking as an *employee* who travels 200 miles (each way) for work and also thus pays a whole chunk of cash for the privilege (travel, accommodation etc) — that chunk of cash comes out of my *taxed* earnings. It's not a business expense. It's a personal expense.
So if *I* have to cough it all up from taxed income then so should *you* for, what is in effect, the same thing. Don't go crying to mama HMRC about that one just because you can't get a contract close to home every time. (If anything, we should *all* campaign for "getting to work" expenses to be pre-tax!).
"But you could live nearer work" I hear you cry. "Or you could work nearer home". Yeah, maybe. But it's 2018 in case you haven't noticed. Unless I want to work in a low-paid hospitality or service job, or be stuck in a forever-entry-level support role in some minor business, then I need to travel to get a job worth having. Moving house (and uprooting family and all) isn't an option; aside from the hassle, I can't afford to live within sane commuter range of where I would need to work. All the employee benefits, perks, sickness and holiday malarky doesn't help me with this one - I have to pay to travel *just like you do* so why should I be unfairly taxed on it compared to a contractor?
A/C (because someone trying to minimise their income will moan).
Friend of mine is a tax specialist account and and a straight one. He can tell many tales of former customers and friends of his own who left his business to go to other accountants that told them what they wanted to hear i.e. they they don't have to pay tax, that they can get cars for free etc etc all the accountancy myths. Almost like an accountancy version of a 419.
Several of these people/businesses are now in sequestration after audit by HMRC and will be bankrupted.
It's almost like the accountancy version of a 419.
A company I used to work at were advised to use an EBT to remove £250k tax free for the benefit of the directors. No doubt the accountancy firm involved got a nice fee out of the £30k charged by the EBT provider.
HMRC are all over the former directors due to the tax-free funds paid out by the EBT.
Blow-back on the accountants? Nowt.
Don't worry. If you don't like the BBC you can just stop being a customer.
Oh wait, you're forced to pay a TV licence if you have a TV even if you don't watch their programs.
It's actually funny how the BBC is a corporation which is allowed to collect its own tax and yet its programs regularly depict this sort of arrangement as a capitalist dystopia.
Last time I looked there was a wierd legal fiction that a tax finding did not confer any employment rights so the deemed employer got off scot free.
The poor sod of a deemed employee had to pay the same PAYE and NI as a real employee but got none of the benefits of sick leave, holiday or pension. The taxed income then went into the personal service company where it was all taxed again. Absolute bare faced robbery.
I doubt that it would have gone quite so easily if the BBC was fighting to avoid 7 years of holiday pay and pension contributions. No idea who copped for the employers NI on the deemed employment. Wouldn't be surprised if it was the deemed employee because HMRC must get the money regardless.
This is a myth. The higher rate charged is meant to cover insurance for such things. The fact that contractors decide not to take holidays (from a paperwork perspective) or pay for insurance to cover things is their choice.
If anything, contractors are the ones with no-expense spared holidays, so to say their rate does not pay for holidays and moan when they get clobbered by IR35 like they're some gig-economy worker is ridiculous.
If you are getting paid as a freelance contractor running your own Ltd. Co. then sure, all holiday pay/sick pay is down to how you manage your company accounts - totally agree.
However, if you are suddenly deemed an employee of the client and forced to pay tax accordingly, all the extra money to cover holidays/sick pay has just suddenly disappeared into the tax-mans coffers and no-one pays you when you are off sick/on holiday.
It will be the end of contracting.
So an organisation which frequently runs pieces denouncing the rich for 'abusing tax loopholes to avoid tax' pays it presenters a high salary via a service company which means they pay less tax?
This can't be right.
It would be like finding out stand up comedians who denounce fatcats avoiding tax used an offshore company or that MPs who'd grilled Google execs over clever use of the tax rules to minimise tax liability were directors of companies which used those same rules.
It's inconveivable!
I’ve gone through the figures and I’m tempted to agree that the £420k back bill is how much should be paid in back taxes.
The thing is, if she was paying herself through a limited company, surely she would have been paying corporation tax.
Wouldn’t this ruling now mean that she has quite a large income tax bill to settle but quite a substantial amount of corporation tax that should never have been paid?
I suppose the headlines wouldn’t have been as good though.
>Wouldn’t this ruling now mean that she has quite a large income tax bill to settle but quite a substantial amount of corporation tax that should never have been paid?
Yes, however, she will only be able to offset PAYE and NI previously paid on her salary against the amounts HMRC deem is now owed.
What is a little surprising is that the employer, the BBC, hasn't also been landed a tax bill, as currently it would seem there is no financial penalty being imposed on the BBC for not correctly assessing the IR35 status of the contract.
I recall back in the later 1980's the Fed passed a tax reform bill to encourage investment in businesses. One of the provisions was that one could deduct "movable partitions" (meaning parts to make workers' cubicles, mainly) as an expense rather than amortize them. One of the "Big 8" (at the time) CPA firms told their clients they could tax deduct the doors on their buildings as they were "movable partitions."
The IRS response to this was "WTF are you smoking?" So a lot of companies ended having to cough up the tax, as well as penalties. Don't think the CPA firm paid much of it.
If you sail too close to the wind of the tax laws, trying to avoid every dime you can, you'll likely wind up in irons at some point, maybe literally.
It would appear that HMRC are being two-faced over the IR35 legislation.
They actually have IT contractors working for them who operate through PSCs (Ltd), and are declared to be outside the legislation, and do not have to pay additional Income Tax, and NI beyond what is normal for their PSC. The major point of interest is that their contracts do contain the right of substitution clause, which this news presenter could hardly have present in her contract.
The other point that no one seems to have commented on.
There is an upper limit on contract length : 2 years, exceed that, and different rules apply anyway.
The bottom line is that things will get fairer when IR35 doesn't just apply to the public sector. To be fair, its ridiculous that there is even an assessment as to whether you're in or out. Everyone should be in forced through the tax bands regardless of whether earnings are taken as wage or dividend with the ability to offset expenses before tax and a small allowance for running your own company to offset other overheads. Everything else in terms of risk should be against the high rate charged by the contractor.
But ultimately as it becomes more lucrative to be able to sidestep all but the lowest tax bands, sooner or later as the flood of permanents go contracting, the government will have to make changes. It's a question of when that equilibrium of pain through higher numbers of people only paying tax at the lowest band will hit their finances and when they have the guts to act on it.
But ultimately as it becomes more lucrative to be able to sidestep all but the lowest tax bands, sooner or later as the flood of permanents go contracting, the government will have to make changes.
Are you for real? It has become more expensive every year I've been contracting, so it certainly isn't becoming 'more lucrative'. I also think you'll find that contracting isn't the happy-clappy fairy land jealous permie's seem to think it is. Every time I see this kind of comment I see someone responding with 'if you think it's so easy and lucrative, why aren't you doing it yourself?'.
There are a lot of reasons more permie's aren't going contracting, the main one being that it isn't the bed of roses that they think it is and they get a very large shock when they do, often limping back to the safety net of PAYE as a result.
If you force all contractors into PAYE, there will be no contractors. You might be happy with that outcome, but I'm pretty sure that the UK IT Industry would not be happy.
"There are a lot of reasons more permie's aren't going contracting, the main one being that it isn't the bed of roses that they think it is and they get a very large shock when they do, often limping back to the safety net of PAYE as a result."
To be honest, that was me last year before the IR35 changes.
I'm not saying its not becoming more expensive as a contractor. Things are certainly going in the right direction. Getting rid of the 35K tax free before calculating anythinng else was a good thing.
You're also wrong to point out that being a contractor is that bad and people limping back. Yes, people do go back, but the point is that contractors portray the only real difference in contracting is not getting involved in politics and getting a wide variety of work, blah blah blah. They don't really state that the main reason is to be able to circumvent the tax bands and have everything taxed on the lowest band. Yes, there are good things in that expenses are taken off before tax which I think should exist across the board.
But contractors, like you for example, probably have not heard of the 'squeezed middle' where those earning more as a permie suddenly lose out on child benefit, are spending a lot of money commuting to their work place and coupled with the increasing tax bands suddenly find themselves trying to work out the benefit in the extra pay vs the travel cost, high tax and loss of benefit.
Those contracting simply ignore this and have everything taxed at the lowest band so that as earnings increase, you don't lose an increasing percentage of earnings.
And yes, after a while, I am likely to join the club like all those that have gone before me. Yes, there can be volatile times, but unlikely in the next 5-10 years given Brexit resulting in a lack of labour coming into the country.
And the real proof of the pudding is this article - how much would a permie have to really earn to get a tax bill of half a million? Or put another way, that's what she'd have paid as a permie, but because she went contracting, she only paid around 10% of that, hence the calculation result being such a large amount.
A permie earning half a million less and you're talking like you're in povertly? Get real!
I'm not sure of the tax advantages, but it may be worth noting that a few years ago the lawyers & accountants got the government to approve the concept of the Limited Liability Partnership - which is now the favoured vehicle for said professionals ( plus those involved in maintaining UK leadership in financial operations such as money laundering and fraud ).
Delays in public sector projects are due to bad advice and one track approach led by big outsourcing consultancies that rip off the tax payers.
The ir35 changes were circumvented through departments tendering big projects to fixed price delivery through consultancies who in turn hire freelancers that are automatically deemed outside of ir35 due to fixed price project.
HMRC are chasing individuals but should look at the government departments who have found this loop hope to get freelancers on board through outsource companies who deliver poor value for money and don't come under ir35 scrutiny.
Rather than claw back deemed taxes the tax payer ends up paying more now since the changes in ir35. The ir35 contract checkers also get to make more money usually costing £100 to £200 per individual tested by public body for compliance. That because the public body Just get third party to check things for them as they want to devolve judgement to external party.
The ruling isn't binding - this is a decision in principle only by the FTT. However, it may well be influential on others whose PSCs operate under similar terms.
Ms Ackroyd won't be paying any tax due - the legislation specifically charges her PSC with the liabiliy, not her.
Also, the quantum has *not* been decided by the FTT. She claims it's about half of what HMRC have assessed. The treatment of corporation tax that has been paid by her PSC is also in dispute.
The judgment is available here: http://www.devereuxchambers.co.uk/assets/docs/news/CMS_13.02.18_CAM_Decision_.pdf
Exactly right. and in the judgment it states
"180. We acknowledge that this is a value judgement. It is in the nature of a value judgement that different people may come to different conclusions. We do not criticise Ms Ackroyd for not realising that the IR35 legislation was engaged. She took professional advice in relation to the contractual arrangements with the BBC and she was encouraged by the BBC to contract through a personal service company."
HMRC stand no chance of getting that PAYE debt transferred to the director from the company as they cant reach the wilful level required. The judgment clearly shows she took professional advice, and that alone ought to deflect any claim to wilfulness.
Reg 72 of the Income Tax (PAYE) Regulations 2003 and Reg. 86 Social Security (Contributions) Regulations 2001
"1. The employer did not deduct PAYE;
2. The failure was wilful and deliberate; and
3. The employee received the remuneration knowing that the employer had wilfully failed to deduct the tax."
And this is why no-one should crap themselves about paying the deemed PAYE debt in an IR35 case. It can't be transferred to the director. Simply fold the company. HMRC use these sums for FUD.
....just hike their prices when the Government decide to raise IPT; pass the cost on to the customer.
As a Ltd. company owner, if I were to be consistently charged more tax for providing a service, that cost would be passed onto my clients.
Personally, I would now be considering providing clients with two consultancy prices dependent upon the inside or outside IR35 ruling.
This also has the effect of HMRC losing out on CT from the client due to their higher tax-deductable costs. Rob Peter, pay Paul?
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