back to article IR35 contractor tax reforms crawl closer to UK private sector with second consultation

Organisations hiring off-payroll contractors will be responsible for handling disputes over tax status and ultimately liable for missing tax payments once IR35 reforms hit the private sector, HMRC has said. In its second consultation on the private sector rollout (PDF), published today, HMRC said it wanted to improve …

  1. alain williams Silver badge

    Companies will take the easy & safe choices

    Safe to them that is. Independent contractors will be deemed employed to avoid a tiny risk that they might get a fine. This is what happened 25 years ago when someone was not properly schedule D registered (ie self employed), the company who they had worked for had to stump up a tax bill. So companies/agencies/... then insisted that everyone work through a Ltd company. Something similar will happen now.

    Doing a proper assessment takes time, so they will not bother as the time spent does not really benefit them.

    I have a friend who does locum work for the NHS. She has classified by her current hospital as falling under IR35 & so employed (other hospitals classify the exact same position as outside of IR35); but does not get the benefits of employment such as holiday pay, sick benefit. She can now no longer claim hotel or travel expenses. The hospital pays the same, she has a large wage cut.

    Yes: some were taking the piss, but many are not. We do need temporary workers for jobs that last a few months, often at a non-commutable distance from where the contractor has a home.

    If the government wants more tax: go after the likes of Google, Facebook & Vodafone.

    1. macjules Silver badge

      Re: Companies will take the easy & safe choices

      That certainly is their intention, to go after the Facebooks of this world.

      I just wonder how Her Majesty’s Receiver of Commissions is going to evaluate what constitutes the poorest 1.5m companies in the UK.

      1. Anonymous Coward
        Anonymous Coward

        Re: Companies will take the easy & safe choices

        "That certainly is their intention, to go after the Facebooks of this world."

        No, it really isn't their intention - the ministers are on their payroll:

        https://www.thetimes.co.uk/article/tax-official-admits-treasury-told-us-to-give-amazon-an-easy-ride-over-vat-gq0p0v5jj

    2. Colemanisor

      Re: Companies will take the easy & safe choices

      Unfortunately no government will ever chase the large corporations for tax for several reasons:

      1) Those big multi-national can afford the cream from bean-counter school, whereas the tax authority has to put up with the dregs. Those top achieving bean-counters will always out-flank the government bean-counters when it comes to legally avoiding tax.

      2) Big multi-nationals pay an army of lobbyists to ensure no MP/Senator/Congressman ever votes to change the tax laws.

      3) Big multi-nationals pay the costs of political party election campaigns, no political party is going to bite the hand that feeds it.

      1. Doctor Syntax Silver badge

        Re: Companies will take the easy & safe choices

        I always reckoned when IR35 was introduced we should have had a whip-round and contributed a Bernie to Labour. The advantage of a Bernie, of course, was that eventually you got it refunded.

      2. Libertarian Voice

        Re: Companies will take the easy & safe choices

        Big multinationals also employ thousands of people and are quite happy to shift production to countries who are not as greedy when it comes to tax.

    3. Colin Ritman

      Re: Companies will take the easy & safe choices

      we just ditched all contractors because of this. That was the easy choice, as contractors were mostly a waste of time and money anyway, they didn't have company buy-in, and were only interested in doing stuff that benefited them (either something new/interesting/cool they wanted to learn, or something they did in a previous job that can be shoehorned into the current requirement somehow).

      1. Gordan
        Trollface

        Re: Companies will take the easy & safe choices

        Cool, so now there's nobody left who does anything productive.

        1. Colin Ritman

          Re: Companies will take the easy & safe choices

          Nope, we have employees who have a vested interest in the future of the company, and get stuff done just fine thanks. No contractors bringing follies and magic bullets to the company.

    4. Addanc

      Re: Companies will take the easy & safe choices

      To raise more revenue maybe the tax man should crack down on companies like Philip Hammond's which pays £5964 corporation tax on a £1.6 million profit. I will bet that many contractors pay more corporation tax than Hammond's company on a fraction of the profit, I know that I do.

      https://www.thisismoney.co.uk/money/news/article-6585187/Hypocrite-Chancellors-firm-pays-paltry-tax-bill-Hammond-tells-web-giants-pay-fair-share.html

  2. Doctor Syntax Silver badge

    Not again!

    "Broadly, IR35 reforms shift responsibility for determining tax status from the employee to the employer."

    The entire basis of IR35 is determination of employment status. If you start by deciding that the client is an employer you've prejudged the whole thing.

    Is it too much to ask that el Reg uses status-neutral terminology such as "engager"?

    1. Lee D

      Re: Not again!

      It's not a question of "are you an employee or not" - they are all employing you, contract or not.

      The question is are you ONLY THEIR employee, exclusively, or an employee of many different places.

      IR35 is about "Are you working for the company in question, by proxy, or are you an independent entity in your own right?".

      If you have any difficulty proving that you are working for many different clients and not just one exclusively, then you're going to have trouble with IR35.

      What people *want* is for the person to not be an employee, but also work for only one employer for a significant length of time.

      In terms of avoiding certain taxes, benefits, and other restrictions (i.e. there are some things you have to do for your employees that you *don't* for an outside contractor), it's an important question.

      But what you get is people who "only work for one employer but it's only for one year and then I go somewhere else" who can't be bothered to just say "Okay, I'm employed by them, I'll get 'another job' in a year's time".

      Honestly decide whether you're an independent contractor, or an employee. It's not hard. The government *obviously* don't want you to be doing that, that's why they are legislating against it and pushing responsibility to the organisations that they can control. Take that as a hint of what's to come, especially if you mess up.

      And the best way to ensure that you don't get the chance to mess up and claim you didn't know, is to make your "client" make the decision for you.

      P.S. If IR35 is costing you money, raise your prices. The markets change all the time because of things like this, but I've never heard quite so much whinging about something until IR35 came along.

      1. Doctor Syntax Silver badge

        Re: Not again!

        "they are all employing you, contract or not."

        Not in this context. "Employ" has a specific meaning. It means that the person employed is an employee. Even if you start thinking in a more generic way such as "We employed a waterfall development approach" as soon as it's a person you're thinking about you're probably half way to coming to the narrow conclusion without even giving the matter due consideration. Worst of all, in any sort of tax investigation if you use the term in the loose sense to an inspector or a tribunal it'll be leapt on and taken literally.

        To help you understand lets say ClientCo has 50 workers bodyshopped in by BigCo amd one worker bodyshopped in by LittleCo which he happens to own? Would you say the 50 are employed by ClientCo? Say the project was wound down and there's only one worker now bodyshopped inby BigCo; would you say they were employed by ClientCo? If BigCo's employee isn't employed by ClientCo why is LittleCo's employee?

      2. Anonymous Coward
        Anonymous Coward

        Re: Not again!

        And that's why its stupid to ask the engaging Co to decide the status. If YOU made the decision, based on your rant, you'd make an assumption that the resource is INSIDE IR35. However, your rant is based on your views, NOT on case law , tested at tribunal and court, on employment law or on tax law and thus, you'd be incorrectly assessing a resource as an employee.

        [snip]

        IR35 is about "Are you working for the company in question, by proxy, or are you an independent entity in your own right?".

        [/snip]

        No, its about Disguised employment, not proxy employment. There are plenty of proxy methods, but where the purpose is to disguise the employment (normally to reduce or avoid certain taxes), that's wrong.

        [SNIP]

        If you have any difficulty proving that you are working for many different clients and not just one exclusively, then you're going to have trouble with IR35.

        [/SNIP]

        No, the number of clients you have is irrelevant to IR35 determination. You may have 5 clients, 3 could be inside, 2 outside. you may have 5 clients, all outside or all inside. Its the contractual and working relationship PER ENGAGEMENT that is relevant, not quantity of engagements (or duration).

        [SNIP]

        P.S. If IR35 is costing you money, raise your prices. The markets change all the time because of things like this, but I've never heard quite so much whinging about something until IR35 came along

        [/SNIP]

        IR35 has been around for 19 years, this isn't new. People have been moaning about tax for a *LOT* longer!

        Price have rise in the public sector. some rates now match those in the private sector, but they're inside IR35 roles... No doubt, the same will (eventually) happen in the private sector. but between now and then, it will cost people money form their pockets. (All perfectly timed for a recession and it will make the offshore body shops look even more attractive, so less tax will be collected as the fees leave the country)

      3. Anonymous Coward
        Anonymous Coward

        Re: Not again!

        No, it is not the case, Employees have rights and certain benefits, plus they are under the control of their employer.

        Contractors are not, we are independent, we offer a service to the client, we have no rights except what are agreed in our contracts.

        There is no sick leave, paid holiday, pension contributions, health insurance, etc...

        There is no guarantee of work, I have to budget to ensure I can survive without a contract for months, there is no redundancy pay when the work dries up, I can't claim any unemployment benefits, I have to find more work for my company.

        What we do have is control, I can choose to do what I want when I want, I can choose to take tomorrow off and I don't need approval. I choose where I work and when.

        The tax benefits are minimal, and honestly I think the tax man will loose out with this IR35 nonsense, all that will happen is contracts and working patterns will change to ensure that contractors are not working inside IR35, and in the end I suspect this will benefit the true contractor and only harm those that work in the zero hours economy.

        I have no Mutuality of Obligation with my client, I have the right of substitution, the client has no control over how I work, and they don't try to, that puts me outside of IR35 according to their tool

        If a client tries to treat me like their employee, I will make sure they stop, and I will end the contract early as I don't want to be a contractor for tax reasons, I want to be a contractor because I don't like anyone telling me what to do!

        1. Roland6 Silver badge

          Re: Not again!

          >I have the right of substitution

          Recommend you make sure you can evidence that you actually have a mechanism in place to back up that clause, ie. agreements with friends.

          1. dajames Silver badge
            Headmaster

            Re: Not again!

            ... make sure you can evidence that you actually have ...

            "Evidence"? What's wrong with "prove" or "demonstrate"?

            Why verb a noun when you don't have to?

      4. d3vy

        Re: Not again!

        @leed

        Nope, not even close, I don't know where to start correcting you but wanted you to know you're wrong.

        1. Addanc

          Re: Not again!

          "Now it plans to do the same for the private sector, saying that just 10 per cent of PSCs apply existing legislation correctly, with the cost of non-compliance estimated to reach £1.3bn by 2023-24."

          I recall that at one point PCG/IPSE had won over 1500 IR35 cases, while HMRC had won literally only a handful, 10% really?

          An IPSE commissioned report suggests that flexible work force contribute of the order of £125 billion to the economy, HMRC are aiming to recover £1.3 billion; even if the IPSE commissioned report is optimistic I would suggest there is a strong possibility that the IR35 private sector reforms will lose lots of revenue. There is no accounting for stupidity!

  3. Franco Silver badge

    Still waiting for HMRC to produce their sources for this 90% non-compliance figure they are bandying about. It's almost like it's a made up number plucked out of the air........

    There's no transparency whatsoever from HMRC though, we knew that, especially given the lack of response to requests for their testing data and their new insistence that CEST is only a guideline after previously insisting they would abide by it and were launching legal action based on it.

    1. A.P. Veening Silver badge

      "Still waiting for HMRC to produce their sources for this 90% non-compliance figure they are bandying about. It's almost like it's a made up number plucked out of the air........"

      It is a statistic and as everybody knows (or should know by now), 87.63% of all statistics consists of made up numbers plucked out of the air.

      1. BebopWeBop

        Only 87.63% - a reliable estimate I heard in the pub last night put it at closer to 93.61345% - maybe other readers can improve on the estimate?

        1. a pressbutton

          Statistical Accuracy

          i am sure you are within a Diane Abbot of the correct value

          1. Anonymous Coward
            Anonymous Coward

            Re: Statistical Accuracy

            You racist, sexist Tory fuckbag

            1. Anonymous Coward
              Anonymous Coward

              Re: Statistical Accuracy

              Sp that's Diane sorted - now how about the poster?

            2. a pressbutton
              Unhappy

              Re: Statistical Accuracy

              Your powers of telepathy seem to have found the wrong person. I abhor all politicians:

              - who stand up and pretend they have some knowledge of an issue, but are really just making things up

              - who preach one thing and then do the opposite

              - who think that because they are public figures they should be trusted and not questioned

              - who do not answer the ******* question in an interview

              Diane scores 4 billion / 4 on that

              in the interests of balance,

              Rees-Moogg and BJ score 4/4 as well

  4. A.Coward 1

    Presumably the 1.5 million smallest businesses are contractors and freelancers ;)

    Isn't there about 2 million of them?

    (Add to that mothball companies, deliveroo, uber drivers, or whoever else is forced to be self employed these days).

    1. Gordan

      The threshold is something along the lines of:

      1) Fewer than 50 employees

      2) Less than 10M annual turnover

      3) Less than 5M in assets

      Vast number of companies fall under that classification.

      1. Roland6 Silver badge

        Not quite:

        "There are approximately 1.56 million micro-entities in the UK, as compared with a total number of companies on the UK register of approximately 2.8 million.

        A micro-entity is defined as meeting two of the three following criteria:

        balance sheet total: £316,000

        net turnover: £632,000

        average number of employees during the financial year: 10 (or fewer)"

        [Source: https://www.gov.uk/government/news/accounting-red-tape-cut-for-smallest-uk-companies Sept-2013]

        However, note the definition of "Micro-entity" differs from a 2011 paper, which defines a "Micro-Entity" as a collective term referring to "Micro-Companies" ie. Incorporated entities registered at Companies House and "Micro-Businesses" ie. self employed individuals, sole traders and

        partnerships, of which there are circa 3.5m.

  5. Anonymous Coward
    Anonymous Coward

    I love the spectacularly timing of it all

    I must admit, the drive to really maximise damage to the country is impressively relentless.

    We already have Brexit with all its uncertainty. Non UK passport holders are already looking at other opportunities in countries where they're not subject to the randomness of what May & Co feel like on any given day.

    Now we're adding IR35 to that, so that people with essential skillsets are either forced to work at practically the same rate as others, but without the benefit of holidays and sick leave, or take up straight employment so that those essential skill injections they carry with them no longer happen and those skills wither and die.

    Maybe it's time to investigate what the minimum number of people is to form a "company", set that up as a collective and proceed as before. From experience it also seriously cuts down on the costs of a better, collective liability insurance.

    The reason contractors earn more is because they accept a lot of risk in their approach to work - they can have their contract terminated at any time, don't see redundancy payment and can forget about sick leave income too. Clearly, that is hard to recognise from the perspective of a safe, cushy government desk job.

    1. Anonymous Coward
      Anonymous Coward

      Re: I love the spectacularly timing of it all

      If you are a contractor, operating under your own company then you do get sick leave income, and even redundancy I guess (although odd if you are the only employee). How? Because your company puts aside the money to do so. If it does not that is your decision, nothing to do with anyone else. Money earned by your company is not yours until you take it out, either as pay, or dividends.

      1. Natalie Gritpants Jr Silver badge

        Re: I love the spectacularly timing of it all

        Not sure you're getting the concept of risk. Normal employers pay sick pay as they can share the risk among many workers. If you are a contractor you have one worker (yourself) and cannot share the risk, good luck trying to buy insurance at reasonable rates.

        1. Doctor Syntax Silver badge

          Re: I love the spectacularly timing of it all

          "Not sure you're getting the concept of risk."

          I read that post as explaining - correctly - how the freelancing company manages the risk. The well managed freelancing company deals with the risk not by sharing it nor by insuring it (as you point out, that's not possible for the typical single consultant company) but by putting money aside to continue paying its employee when there are no billable hours, either by being sick, on holiday or being on the bench.

          Right from the start or IR 35 this has been misunderstood. Primarolo described it as "treating their companies as money boxes". Well, a moneybox is where money's saved against a rainy day. It's the means by which the company stays solvent. It is good management.

          In fact, I'd suggest it's a good test of whether the company is being run as a genuine company; if it's being managed prudently in this way it's the genuine article, if it's a direct conduit through which the money travels from client to worker scarcely touching the sides then IR35 might be appropriate.

          There's also a corollary. If we add an expectation that the worker will be paid NMW or living wage and build up reserves then the rate must be some margin above that. If the client pays less than that then they have an employee. Not a deemed employee catching the rough from both sides. A genuine on the books employee, benefits such as holiday pay, sick pay, redundancy the lot paid by the client, PAYE handled by the client, employer's NI paid by the client.

          From the engager's point of view they then can't get away with shoving off the provision of benefits and pay rock-bottom rates: either they have a company providing services at a reasonable rate or thay have an employee. In fact it was dealing with the sort of abuses that we see so much of now that was a paper-thin excuse for IR35.

      2. nubz

        Re: I love the spectacularly timing of it all

        ahem sounds like if your own company is giving you sick pay and leave then your own company is your employer non? And if your company is your employer the "client" is not.

      3. Anthony 13

        Re: I love the spectacularly timing of it all

        That's the whole problem with IR35 - contractors are forced to take everything as 'pay' and not allowed to put aside money in their companies for sick leave, holidays, etc. IR35 is fundamentally arbitrary and unfair, so ultimately we are arguing about enforcement, when we should be looking at getting rid of it all together. If the government thinks contractors should be paying more tax, come up with better rules than these (which I doubt will happen...).

        1. Doctor Syntax Silver badge

          Re: I love the spectacularly timing of it all

          "contractors are forced to take everything as 'pay' and not allowed to put aside money in their companies for sick leave, holidays, etc."

          Unless things have changed from my day the weasel word "deemed" was used. They're deemed to take everything as pay for purposes of taxation but they can leave however much of the post-tax in the company as they want to pay sick leave etc. Yup, that makes perfect sense if you're a weasel.

          1. Gordan

            Re: I love the spectacularly timing of it all

            "They're deemed to take everything as pay for purposes of taxation but they can leave however much of the post-tax in the company as they want to pay sick leave etc. Yup, that makes perfect sense if you're a weasel."

            It makes no sense even in weasel speak, because what's left in the company should be subject to corporation tax, not to PAYE and NI. They are fundamentally different things.

    2. Doctor Syntax Silver badge

      Re: I love the spectacularly timing of it all

      Maybe it's time to investigate what the minimum number of people is to form a "company"*, set that up as a collective and proceed as before. From experience it also seriously cuts down on the costs of a better, collective liability insurance.

      * Why the quotes. If it's registered at Companies House it's a company, if it isn't it isn't.

      If you mean to be big enough to be outside the scope of IR35 ISTR that 20% holding of shares was the critical factor which implies a five person company but I'm not sure whether it was 20% or less or less than 20%. If some or all the shares were held by a spouse that would probably be considered a beneficial holding although there'd be scope for that being argued if the spouse were also providing billable time.

      1. Velv
        Headmaster

        Re: I love the spectacularly timing of it all

        "Maybe it's time to investigate what the minimum number of people is to form a "company""

        Number of employees is irrelevant. There are companies with zero employees. A company is a legal entity in its own right.

        1. Doctor Syntax Silver badge
          Headmaster

          Re: I love the spectacularly timing of it all

          Correct but also irrelevant. That's why I wrote "shares". This is for IR35 purposes which, in the context, is what the OP was asking about. If you own too great a proportion of the shares in the contracting company HMRC will attempt to deem you an employee of the client.

      2. Anonymous Coward
        Anonymous Coward

        Re: I love the spectacularly timing of it all

        ISTR it's more like 5% rather than 20%.

        Then there's the entire separate question of why is it that it has to be "billable time". It takes hours every week to do various administrative tasks that are not directly part of the services the supplier is engaged to provide. Timesheets, invoicing, chasing overdue invoices, book keeping, payment disbursments, VAT return processing, etc. This is all actual necessary work that cannot be avoided. I see no reason whatsoever why it is not reasonable to pay somebody a salary and give them a stake in the company for that work. You can, at a stretch, argue the amount, but there is no law against overpaying an employee.

    3. Anonymous Coward
      Anonymous Coward

      Re: I love the spectacularly timing of it all

      Finally, someone who’s talked some sense and understands why contractors are paid more than stale, stagnant perms who are never relied upon to deliver projects because they are far too busy talking about personal objectives, discussing appraisals, going on courses, attending bi-weekly physio appointments for their bad back, and hosting coffee meetings.

      Prepare to wave goodbye to your highly skilled and flexible temporary workforce when IR35 comes in. Hammond and Stride hammering another nail into the coffin of this country.

      1. LucreLout

        Re: I love the spectacularly timing of it all

        Finally, someone who’s talked some sense and understands why contractors are paid more than stale, stagnant perms

        I'm not sure you are. Certainly not all of you.

        After £120k ish, it makes progressively less sense to be a "highly skilled and flexible" temp, and rather more sense to continue as a highly skilled and flexible permie, with sick pay, holiday, training budget etc. Sure, there are downsides - the "discussing appraisals, going on courses, attending bi-weekly physio appointments for their bad back, and hosting coffee meetings" you mention, but I'm really rather well paid to put up with that sort of guff.

        Now taxes... taxes are a drag, and continue to be much of the appeal of going contracting as far as I am concerned. I could slash my tax bill in half vs being a permie, but I'd have to live with more uncertainty and stress, and I'm just not wholly convinced its worth it.

        There's also the question of why someone is a contractor. There's two types. The highly skilled & flexible sort, and those who simply couldn't hold down a permenant job - and there's rather more of the latter than the former. Most people in our industry are inept, which is why I interview about 20 candidates to find a good one, but that applies whether I'm hiring permies or contractors.

    4. shaunhw
      WTF?

      Re: I love the spectacularly timing of it all

      Anonymous Coward wrote:

      "The reason contractors earn more is because they accept a lot of risk in their approach to work - they can have their contract terminated at any time, don't see redundancy payment and can forget about sick leave income too."

      Perhaps it is these aspects that should form the criteria of IR35 determination, well above other much more arbitrary factors.

      That a company works for just one client should be immaterial. Employee status is derived from the benefits one is entitled to from that company. You can add to the list that they aren't required to fund your Workplace Pension either. Clearly if all these benefits are NOT provided, then you are NOT an employee. If the employer determines IR35 status in favour of the Inland Revenue, they should also be required to provide, at no cost, all the above benefits including funding your pension just like any other "employer" is now required to by law.

      Otherwise HMRC want their cake and eat it as well as the companies doing the hiring. This CLEARLY is unfair and should be illegal.

      1. Cederic Silver badge

        Re: I love the spectacularly timing of it all

        Yep. Any company tells HMRC that I'm an employee of theirs had best be providing legally mandated employee benefits such as pension, sick pay and paid holiday.

        Obvious all on top of the agreed remuneration.

    5. Wayland

      Re: I love the spectacularly timing of it all

      A friend was contracting in Germany. When his contract ended he received quite good dole money from Germany whilst back in the UK. No wonder the German banks have lent more than the GDP.

    6. katrinab Silver badge

      Re: I love the spectacularly timing of it all

      'Maybe it's time to investigate what the minimum number of people is to form a "company"'

      The minimum number of people needed to form a company is one.

      If your business is running a market stall where you sell vegetables, you are definitely self employed and running a totally legitimate business that HMRC would never challenge.

      1. Anonymous Coward
        Anonymous Coward

        Re: I love the spectacularly timing of it all

        Wrong as wrong can be. When you start a company you need two Co signees

        1. d3vy

          Re: I love the spectacularly timing of it all

          @anon "When you start a company you need two Co signees"

          Sure about that?

          "Your company must have at least one director. "

          No requirement for a secretary any more.

          https://www.gov.uk/limited-company-formation/appoint-directors-and-company-secretaries

        2. katrinab Silver badge

          Re: I love the spectacularly timing of it all

          Not since Companies Act 2006 came into force.

          Even before then, the company formation agent provided the two signatories. You didn't need two actual people.

    7. Anonymous Coward
      Anonymous Coward

      Re: I love the spectacularly timing of it all

      This is why last year, I left the country, and it pains me to say it, but I was surprised how easy it was to just up and go, and I couldn't imagine going back. I wonder how they measure the growing outward flow of talent to the ANZAC countries, because thats where me and most of my ex-UK contractor buddies have gone.

  6. Anonymous Coward
    Anonymous Coward

    I’ve heard that three very very large financial institutions in London (with over 35% of their workforces being contractors) are planning to scrap all contractor roles later this year.

    If you think IR35 in private sector would result in more perm offers, you’d be wrong - almost all are being offshored to India etc where IR35 isn't an issue. All companies need access to flexible temporary workforces, period.

    Outcome in UK: increased unemployment, lack of innovation, key skills offshored, more UK money sent abroad, reduced tax generated.

    Well done HMRC, well done.

    1. Anonymous Coward
      Anonymous Coward

      From the perspective of "let's damage all friends of the US" I think it's rather well done.

      Or do you think Russia's influence during the Brexit vote was an accident?

    2. Anonymous Coward
      Anonymous Coward

      "I’ve heard that three very very large financial institutions..."

      You may be right, your may be wrong but an anonymous person on the internet saying that they heard that some other anonymous entity is planning to do 'xyz' and the reason is bacaase of 'abc' just doesn't hold sufficient weight or due diligence to ensure a robust argument.

  7. Anonymous Coward
    Anonymous Coward

    Tax loss for HMRC

    Here are some very rough calculations of how much money hmrc can expect from me as a freelance contractor vs employee status.

    Freelance

    Corp Tax £20k

    VAT £31k

    Personal paye/NI £2k

    Employer paye/NI £2k

    Dividend Tax £13k

    Total £68k

    Employee (based on most likely permanent role salary equivalent)

    Personal paye/NI £33k

    Employer paye/NI (presumably) £33k

    Total £66k

    So, from the looks of it HMRC gets roughly the same amount in direct taxes, but considering the loss in additional vat based on my reduced spending from having my income slashed it would certainly be a net loss to some degree.

    Am I missing something here? Seriously, where does HMRC stand to gain in all of this?

    1. AMBxx Silver badge

      Re: Tax loss for HMRC

      You need to remove the VAT from your figures unless you're selling to individuals. To your VAT registered customers it's just a cashflow thing.

      The tax take goes up if everyone just went permie. The more likely scenario is that the work goes overseas. We need a flexible workforce. Only people in the UK that gain from this are the big consultancy firms and they just send the work overseas.

      1. This post has been deleted by its author

      2. Anonymous Coward
        Anonymous Coward

        Re: Tax loss for HMRC

        No, you don't remove the VAT from the figures, it is paid by the company and you collect it and give to the government... That is VAT income you have generated, NOT the client.

        Let me explain it in a way I would to my 4 year old...

        I buy a wooden pole for £12 (£10 plus £2 VAT)

        I paint it, I sell it to a client for £24 (£20 plus £4 VAT), I generated £2 VAT for the government

        my client sells it to a consumer for £36 (£30 plus £6 VAT) They generated £2 VAT for the government

        So you see the VAT is generated and paid by every step in the supply chain, you just end up paying your VAT by excluding the VAT you already paid. Its very simple to understand

        1. katrinab Silver badge

          Re: Tax loss for HMRC

          The customer claims the VAT back and reduces their VAT payment by the same amount.

          If they had an employee, they would not be able to claim any VAT on that, and so their VAT bill would be higher.

        2. Anonymous Coward
          Anonymous Coward

          Re: Tax loss for HMRC

          "No, you don't remove the VAT from the figures, it is paid by the company and you collect it and give to the government..."

          Hold on, you only ever work for such small companies that they are not VAT registered? If not then the VAT will be claimed back by the company and the government will not see any of it. In fact the VAT circle is just a financial burden on the government that loses them money due to extra administration.

          1. Roland6 Silver badge

            Re: Tax loss for HMRC

            >If not then the VAT will be claimed back by the company and the government will not see any of it.

            Funny how at the end of each VAT quarter, my company is always writing a cheque out to HMRC - We must be doing something wrong...

            > In fact the VAT circle is just a financial burden on the government that loses them money due to extra administration.

            Yes VAT costs HMRC so much that VAT receipts account for approximately one-third of all tax receipts...

            1. Anonymous Coward
              Anonymous Coward

              Re: Tax loss for HMRC

              If you sell goods to non-VAT registered end users (for instance consumers) then that VAT will go to the treasury. If you do a B2B sale where there is a service involved or the product stays within the final organisation and they are VAT registered then they claim taht VAT back.

              In this scenario, as a contractor working for a VAT registered company then the VAT is paid by the company but then reclaimed back again. That is why, when you work for most businesses yo uare only interested in the ex-VAT price and why predominantly B2B companies display their prices ex-VAT.

              1. Roland6 Silver badge

                Re: Tax loss for HMRC

                >If you do a B2B sale where there is a service involved or the product stays within the final organisation and they are VAT registered then they claim taht VAT back.

                Err no. They offset the VAT they paid on the stuff and services they buy against the VAT they collect from their sales. I don't know about you, but I don't make a habit of selling stuff at the same price I purchase it at... So ignoring the special cases, the majority of businesses (like mine) collect more VAT than they pay out, hence they write cheques to HMRC...

                1. Anonymous Coward
                  Anonymous Coward

                  Re: Tax loss for HMRC

                  "They offset the VAT they paid on the stuff and services they buy against the VAT they collect from their sales."

                  No they don't. There's plenty of organisations that don't collect any VAT at all that still claim back VAT on their own purchases.

                  You're talking about a supply chain to an end consumer. If your company buys an office chair from OfficechairsRus.com then you will pay VAT on that chair. You will then claim that VAT back from the Government (assuming you aren't selling it on). OfficechairsRus.com has paid the VAT you paid to the Government (sometimes not physically) and you have claimed it back again.

                  1. Roland6 Silver badge

                    Re: Tax loss for HMRC

                    >There's plenty of organisations that don't collect any VAT at all that still claim back VAT on their own purchases.

                    ...If your company buys an office chair...

                    The grey area of VAT....

                    As a VAT registered organisation they do have VAT'able sales, they just fall into the category where input VAT exceeds output VAT.

                    I have one client (a third sector organisation) that falls into the interesting category where they have "VAT exempt supplies" (*) and thus the FD questions whether goods and services purchased are primarily/solely used to make "VAT-exempt supplies", obviously, the vast majority of supplies are justified against the VAT'able supplies....

                    (*) According to HMRC you cannot reclaim VAT on "goods and services your business uses to make VAT-exempt supplies". A problem third sector organisations encounter.

                    If you treat VAT as a tax you pay, it becomes obvious that for any purchase the full VAT inclusive price is tax deductable, the only question is which parts of it get offset against VAT, Corporation tax or IncomeTax (sole trader); hence for any contractor, your bill is simply an expense item for your client, helping them to reduce their tax bill...

      3. Gordan

        Re: Tax loss for HMRC

        "The tax take goes up if everyone just went permie."

        No it doesn't. Perm roles pay half as much because employers have higher additional obligations to cover, such as sick pay, holiday pay, employer's pension contributions, and employers' NI. IR35 is specifically supposed to be about employer's NI, but employers pay way more in in sick pay, holiday pay and mandatory pension contributions than in employer's NI - and those are all coming off the employer's bottom line, making it the cost of doing business and thus not subject to tax.

        And then there's the flexibility premium for contractors.

        So actually, the overall total tax take would go down dramatically - possibly by more than half.

        Let's be frank about it, this isn't about total tax collection, this is a beggar-thy-neighbour politics of jealousy.

      4. Anonymous Coward
        Anonymous Coward

        Re: Tax loss for HMRC

        "The tax take goes up if everyone just went permie"

        Does it?

        Because my Corp tax alone is more than my paye ever was as a permie.

        You're looking at the difference between 21% (ish I've not really worked it out) effective tax rate on 100k compared to around 30% of 45k if I'm a permie.

    2. Anonymous Coward
      Anonymous Coward

      Re: Tax loss for HMRC

      I forgot to add the additional £7k of personal tax I end up paying on my income as a result of the dividends.

      Please explain why the VAT I charge my clients doesn't count? this money would not end up with hmrc if I weren't contracted to that company.

      1. Andy Denton

        Re: Tax loss for HMRC

        It doesn't go to HMRC - the VAT you charge a client, just gets claimed back by said client.

        1. Anonymous Coward
          Anonymous Coward

          Re: Tax loss for HMRC

          Wait, what?

          If I charge the client £30k in VAT, and they claim that back from HMRC, what the hell are we collecting it for in the first place?

          1. Anonymous Coward
            Anonymous Coward

            Re: Tax loss for HMRC

            That is how VAT works, every VAT registered business charges it and reclaims it (dependent on numerous rules), no doubt you reclaim some VAT. The only body that actually ends up out of pocket is someone/something that isn't VAT registered as they can't reclaim it.

            1. Velv
              Boffin

              Re: Tax loss for HMRC

              Reclaiming VAT is NOT the whole story.

              If the business you are applying VAT to operates mostly in either zero rate goods or VAT exempt items (e.g. financial services) then they cannot reclaim the VAT you have applied. So the £20K of VAT per year my company add to the invoices to the Banking clients goes straight to HMRC,

          2. Doctor Syntax Silver badge

            Re: Tax loss for HMRC

            "If I charge the client £30k in VAT, and they claim that back from HMRC"

            You do realise, don't you, that your company can reclaim VAT on any business expenditure?

            And, in line with my comment to Lee, get your terminology right. You don't charge the client anything, Your company does. Distinguish between yourself and your company. HMRC tries its hardest to confuse that issue because the entirety of IR35 is based on such confusion. Don't fall into their trap.

          3. katrinab Silver badge

            Re: Tax loss for HMRC

            Collecting VAT from every stage of the supply chain works better than having a sales tax on the final sale to end user. That's why most countries outside the US have switched to VAT.

        2. Wayland

          Re: Tax loss for HMRC

          >It doesn't go to HMRC - the VAT you charge a client, just gets claimed back by said client.

          Yes it goes round and round but at some point somewhere some schmuck pays the VAT.

          1. Anonymous Coward
            Anonymous Coward

            Re: Tax loss for HMRC

            Slightly wrong view here, you need to look at the value added at each step in the chain, the client offsets the cost so it only pays it's amount of VAT at each step in the supply chain.

            VAT is complex if you are not used to it, but anyone in business should understand the supply chain and the point behind VAT, I personally thing this is the best form of taxation, since it is a low burden, but is directly related to the GDP of the country, if we switched

    3. Wayland

      Re: Tax loss for HMRC

      The problem is that of control. You get too much control of your life as a contractor, too much freedom. Making you go permie puts you back in the cage where you belong. They can't put it like this, they pitch it as you're earning too much money tax free and should be reigned in.

  8. Anonymous Coward
    Anonymous Coward

    Seriously, where does HMRC stand to gain in all of this?

    Hiring more civil servants? Don't forget, the only satisfaction for people who drive this is status and volume as they're on a civil servant salary. You can't get a worse motivation. Taking on the big boys such as US outfits selling to a UK audience and exporting the profits is too hard, it's much easier to target people who spend all their time earning a living through effort and actual skills..

    1. Anonymous Coward
      Anonymous Coward

      As someone once told me..

      The laws only apply the law-abiding.

  9. Anonymous Coward
    Anonymous Coward

    Its just a factor in my rate.

    If the client, misguidedly, wants to put a contract inside IR35 than my response is fine, my rate is 30% higher due to increased costs.

    The client then has the choice to meet the increased rate, or make sure lawyers have done the contracts correctly or I wont take them on as a client. Unsurprisingly the home office was recently unwilling to meet those requirements when looking for a senior python dev.

    The fact that I choose my clients this way and engage in this negotiation should already be strong indication that I am outside of IR35.

    The banks in London are not going to move the high end of their workforce out - if they could have they already would. A lot of lower end support roles will move - those less than £500/day - but they have been moving for years.

    The better agencies are already on the ball with this and have extremely well written contracts that make the engagement arrangements very clear.

    1. Anonymous Coward
      Anonymous Coward

      Re: Its just a factor in my rate.

      Unfortunately, legally or not, HMRC have previously stated that they are prepared to ignore the actual contracts and create a dozen more one-size-doesn't-fit-all hoops to jump through to be classed outside ir35.

      1. MrXavia

        Re: Its just a factor in my rate.

        It is true you need to actually work as a contractor, not just have wording make you a contractor...

        I've been places where they treat you like an employee, if you are a contractor, then you have to be a contractor and act like one, not just pay lip service to it

    2. Anonymous Coward
      Anonymous Coward

      Re: Its just a factor in my rate.

      "my rate is 30% higher due to increased costs."

      So why are your costs 30% higher for working as an employee rather than a contractor?

      It also isn't that difficult to be a true contractor outside of IR35, wording is not required. Just accept a package of work, with a budget and timeline to deliver it with no set working hours outside of essential meetings etc and the ability to provide another person to complete the work if you aren't available.

      Therefore you are being contracted to produce some work , not just work alongside employees doing daily tasks at set times etc.

  10. Anonymous Coward
    Anonymous Coward

    Have I misread this?

    This bit has confused me slightly:

    "HMRC also noted the importance of the fee-payer – the body that pays the tax to the government, and usually the body that pays the worker's PSC – knowing the worker's status (crucial for the taxman to get the cash)."

    Now, my understanding is that the way it works is (generally):

    End Client pays Agency

    Agency pays worker's PSC

    Worker's PSC pays tax to Government (corp tax, PAYE, NI)

    Worker pays tax to Government (personal tax)

    The End Client and Agency dont (as far as I am aware) pay any taxes to the Government as part of this process.

    Have I got something catastrophically wrong?

    1. Doctor Syntax Silver badge

      Re: Have I misread this?

      No, but you missed this (and so did I):

      "Agency pays worker's PSC"

      This is HMRC's obfuscation. PSC in HMRC-speak is Personal Service Company. It could, of course be short for Professional Services Company and it would always be better to spell it out fully in this way. Personal service is what HMRC are trying to establish so it's wise not to fall into their trap.

      Adding it onto "worker's" further clouds the issue it's a company that's probably at least partly owned by the worker but there might be other shares involved. But why not call it the worker's employer? This captures the other side of the arrangement, the one HMRC doesn't like. It's the company that's actually responsible for paying the worker's salary, including sick pay and everything else.

      1. Anonymous Coward
        Anonymous Coward

        Re: Have I misread this?

        I 100% agree and it is important to keep clarity around what each relationship really is.

        So the flow is, as I understand it at least:

        End Client pays Agency

        Agency pays Ltd Company to provide services

        Ltd Company pays taxes (Corp, PAYE, NI, VAT etc)

        Worker pays taxes (income)

        At no stage, as far as I can see, is the End Client the actual taxpayer here. I assume the Agency will pay some tax on the profit they cream off, but the main taxpayer is the Ltd Company which actually employs the worker (or has the worker as a director).

  11. Anonymous Coward
    Anonymous Coward

    Downvoters, get ready ....

    Taking a long-term view and outsiders view, I can recall the IR35 debate starting in 2000. So we've had 19 years of it. And none of the doom that was predicted back then has come to pass. Government IT projects were shitty, incompetent and over budget then. And they are now.

    If you spin the telescope around and look the other way (i.e. the government view) that makes it a stonking success. They managed to introduce something and it didn't make anything worse.

    That is the metric by which this is being judged.

    Also, none of the independent contractors that complained about IR35 ever left the country, or went into veterinary medicine, became a trappist monk, or all the other dire threats of leaving the IT world.

    None of this is in any way intended to express my support for these measures - they really are a dogs breakfast. But I'm suggesting no amount of frothing at this stage will change a thing. IT projects will still continue to go badly, the innocent will be blamed, the guilty rewarded, and the company shafted. Nothing new there. Except (thanks to Brexit) it will be a British fuck-up, not an international one.

    1. Sir Runcible Spoon

      Re: Downvoters, get ready ....

      "none of the doom that was predicted back then has come to pass"

      From my (admittedly) limited understanding of the subject, I think HMRC have lost numerous IR35 cases that have actually been taken to court. So the doom and gloom was halted by people challenging HMRC's interpretation of their own tax laws, and winning.

      Then, HMRC decide to have another crack at it.

      This was all supposed to combat those PSC body shops that were actually hiring people as disguised employees, yet it's somehow morphed into trying to catch out genuine contractors.

      For example, I exclusively do project work for clients (i.e. there is a definite end to the project and revenue stream) - renewals are based on how the project is proceeding. As soon as it's done, I'm out.

      However, since I work in security it's pretty hard to argue a valid use of the right to substitution, since I'm not in a position to provide the necessary security checks often required for the work I do.

      In addition, I am often forced to utilize provided equipment by the client, as they don't want uncontrolled devices running around on their secure networks for some reason.

      I do, however, at all times act as an independent contractor. I tell them when I'm taking a break, although out of professional courtesy I inquire as to whether they anticipate any issues arising from me taking some time off and I consider their response.

      I also take care to ensure they tell me what they want to be done, but it is up to me how I achieve it (within the bounds of the field I work in).

      Some of these things mark me as a proper contractor, others (according to HMRC) mark me out as an employee - mostly because they don't seem to understand that their blanket approach doesn't cover many bespoke situations (such as mine) - and so they try force ir35 based on some arbitrary rule, contractor challenges it, goes to court and the judge (who looks at the whole picture) decides I'm a contractor and HMRC loses the case.

      What exactly don't they like about contractors like me? It feels like persecution to be honest. You don't see electricians or plumbers being treated like this (afaik) - for example if a building contractor takes on some sparkies for a big job that lasts 3-4 years - are they suddenly employees? Of course not.

      1. Doctor Syntax Silver badge

        Re: Downvoters, get ready ....

        "it's somehow morphed into trying to catch out genuine contractors."

        I don't think it was ever any other intent. Or rather, in IR/HMRCs view there never was such a thing as a genuine contractor.

    2. Anonymous Coward
      Anonymous Coward

      Re: Downvoters, get ready ....

      But that's only because the government departments are hiring contractors outside of IR35... or certainly that's what the recruiters are telling us.... and they NEVER lie.

    3. Dr. Mouse

      Re: Downvoters, get ready ....

      "none of the independent contractors that complained about IR35 ever left the country, or went into veterinary medicine, became a trappist monk, or all the other dire threats of leaving the IT world"

      There is a reason for this: IR35, when applied correctly by the courts, did not apply to the vast majority of contractors. They were independent consultants before and after, and they didn't have to pay the additional taxes* involved.

      HMRC have realised this is the case and are trying to twist things around so that, rather than a small number being inside and them having to investigate and prove this, the default will be to assume that everyone is inside and it's up to the contractor (and end client, agency etc) to prove they are outside. This is because they are lazy (they don't want to do the work of investigating) and incompetent (even when they do investigate, it gets challenged in court and overturned).

      * Although there is very little additional tax to be paid: Factor in both corporation and dividend taxes and a contractor and his company will pay a very similar amount to an employee. What is missing is Employer's NI. If, as HMRC suggest, contractors are actually employees of the end client, then it is not the contractor but the end client who is avoiding tax.

      1. Anonymous Coward
        Anonymous Coward

        Re: Downvoters, get ready ....

        No, it's not just that money that is missing. Once the wages has been passed to one or more companies that are solely used for services of a single or more person then that money can be used to avoid taxes using tax avoidance which then take a lot more time and effort to try to close or restrict etc.

        This has happened continuously, just look at all the cases involving footballers, racing drivers, comedians etc. The PSC can invest in trusts, move money abroad, invest in film companies, reate artificial losses against profits, use dividends to offset salary and lower NI etc. There is far more control and visibility over a PAYE company to employee relationship.

        This isn't to say that most PSCs utilise tax efficient methods, however all cash-in-hand workers could be putting everything through the books properly and there is legislation to make sure they do, however it is very expensive and difficult to ensure this happens.

        1. Dr. Mouse

          Re: Downvoters, get ready ....

          "use dividends to offset salary and lower NI etc"

          As I said, there is little difference between taking a salary directly from the engager and taking dividends from your Ltd company. Both will result in very similar amounts of tax being collected.

          The biggest difference is in Employer's NI, and it is the ENGAGER who is avoiding this, not the contractor or his company.

          It is perfectly acceptable for a company to pay it's owner-directors a low salary and the rest in dividends. Many companies do this, not just contractor Ltds. However, if they tried to stop it for bigger companies, they would throw all their legal might against it. Contractors are just easy pickings, especially when they can stoke up the (incorrect) opinion that they are tax dodgers.

          1. Anonymous Coward
            Anonymous Coward

            Re: Downvoters, get ready ....

            "Both will result in very similar amounts of tax being collected."

            No they won't, you pay no NI on the dividend this means no ERS or EES will be paid. The dividend is also taxed lower than the equivalent income tax. There is an extra tax free sum available on top of the basic income tax free amount and there is sometimes a possibility of a fixed rate administration offset.

            Taking income as a dividend does have significant tax advantages. If you disagree set out what the following tax rates would be (ERS, EES, Income Tax) for £100,000 taking as purely dividend, 50/50 income and dividend and 100% income.

            I can take home far more money from contracting than I can through working the same role as a fulltime employee - even if there was a similar amount paid to me - i.e. not including my contractor premium which pays about 2 to 2.5 times the going rate of an employee.

            1. Dr. Mouse

              Re: Downvoters, get ready ....

              "No they won't, you pay no NI on the dividend this means no ERS or EES will be paid. The dividend is also taxed lower than the equivalent income tax."

              I agree, no NI will be paid and the tax rate will be lower. However, dividends are taxed after CT, hence tax levels come pretty close to income tax + employee NI. As stated above, if HMRC are saying we should be taxed as employees, then it is the engager who is avoiding employer's NI, so it is incorrect to include this in the calculation (for these purposes).

              From your request, £100k paid as:

              100% salary from engager:

              -> £7,197.12 Employees NI

              -> £28,360.00 PAYE Income tax

              ==> £35,557.12 Total tax paid (36%)

              (+£12,637.49 Employers NI paid by engager)

              50/50 Salary (from engager) and dividends:

              -> £1,197.12 Employees NI

              -> £8,360.00 PAYE Income Tax

              -> £9,500.00 Corporation Tax on profits

              -> £15,400.00 Dividend Income Tax

              ==> £34,457.12 Total Tax Paid (34%)

              (+£5,737.49 Employers NI paid by engager)

              100% Dividends

              -> £19,000.00 Corporation Tax

              -> £13,060.00 Dividend Income Tax

              ==> £32,060.00 Total Tax Paid (32%)

              Note that I have taken Corporation Tax into account as I am looking at the total tax returned to the govt. While there is a tax advantage to it, it's not that much and would barely be worth the accountancy fees and paperwork involved.

  12. Gideon 1

    Not the real problem

    This is all because they split the tax system into income tax and national insurance payments, and employers equivalents. It all ends up in the same pot anyway.

  13. Velv
    Flame

    More Contractor roles not less

    It's ironic that the Brexit we're being forced into (followed by the subsequent Scottish and Welsh Independence splits) is going to generate a lot of short term work that will be filled by Contractors. Just another foot being shot by the UK Government.

  14. Doctor Syntax Silver badge

    Here's an alternative model.

    Income tax is paid on what the engager pays.

    Permanence of job and all benefits such as entitlement to holiday pay, sick pay etc. are treated as benefits in kind and subject to additional taxation.

    The tax take of the benefits in kind allows the percentages of the various income tax bands to be substantially lowered.

    The net outcome could be the same as now for freelancers and permies but the permie tax inspectors can then understand that they and the freelancer are paying the same tax on money received and the extra tax they, the tax inspectors pay is due to the things they get and the freelancer doesn't.

    1. Dr. Mouse

      "Permanence of job and all benefits such as entitlement to holiday pay, sick pay etc. are treated as benefits in kind and subject to additional taxation."

      Yep. These are all valuable benefits which contractors do not receive*. If they were factored in as taxable benefits-in-kind, I wouldn't be surprised to see that contractors are paying a higher rate of tax than permies.

  15. Anonymous Coward
    Anonymous Coward

    I hope Gordon Brown

    burns in hell. He started all this crap.

  16. kain preacher

    THis yank hasa question ?

    So what will happen if you have a hard brexit and UK citizens decides that IR35 shafts them ? Shafts them to the point were no body wants to be a contractor any more ?

    1. Sir Runcible Spoon

      Re: THis yank hasa question ?

      That's a really good question.

      I expect we could still hop over to the EU to work, it would probably just require more paperwork,

      1. kain preacher

        Re: THis yank hasa question ?

        Then what would happen if more people decided to leave then work in the UK as contractors ?

      2. Anonymous Coward
        Anonymous Coward

        Re: I expect we could still hop over to the EU to work,

        Er, no.

        Companies wishing to employ non-EU nationals (like UK citizens) will need to prove there were no EU nationals that could take the job first. I know a few people who have been excluded from roles as they can't show they would have a right to work in the EU after 29th March.

      3. Anonymous Coward
        Anonymous Coward

        Re: THis yank hasa question ?

        You could hop over to the EU to work (as of today) and take advantage of much lower income tax rates, different working conditions, better weather etc.

        However most people don't because they want, for whatever reason, to live and work in the UK. The same would happen with extended IR35 catch nets. If it becomes too onerous they will just get permanent jobs or become and agency worker or similar.

        Things, generally, have to get really difficult and sustained to see a mass migration from a specific sector abroad. It's also a lot easier decision for the super rich than for your average contractor with a family.

  17. BahnStormer77

    So when does it all fall apart?

    Could somebody summarise exactly when I need to close my limited company by (and emigrate)?

    Or is this all going to be like the Public IR35 and only selectively applied? I've been repeatedly contacted by Public sector recruitment agents (recruiting for MOJ and MOD) stating that their contractor clients do NOT fall in IR35... even on the rates 20-30% above private sector contract rates, it isn't not a risk I've ever been willing to take, but it seems that some people have found loopholes, even working for departments within the government.

    I'd rather close the company and emigrate than risk being pursued for income tax, when I already pay double what I ever paid in PAYE+NI as an employee... if they actually refunded the VAT, corporation tax and dividends and then forced us to pay PAYE+NI, I think they'd very quickly realise that it's a zero sum game for most contractors - or certainly most that aren't completely abusing their expenses.

  18. Dr. Mouse

    MOO

    I know Mutuality of Obligation, and CEST's lack of accounting for it, has been spoken of before, but there has been a recent case which completely trashes HMRC's view on this.

    Basically, a locum took a medical practice to court for unfair dismissal. All other factors (control, personal service etc) pointed towards an employer/employee relationship. However, there was no MOO: The locum did not have to accept any work offered, and the practice didn't have to offer any work. This meant the relationship was not that of employer/employee, but self-employed consultant and client. It established the importance of MOO, and HMRC should be taking note of that (although it won't, it'll just carry on ignoring the law and doing whatever the hell it wants).

    However, this does bring one thing (back) into the spotlight: Zero hours contracts. If this were applied to them, it would suggest they are all actually self employed, do not qualify for employee benefits but, on the flip side, should be taxed as self employed... It's a pickle!

  19. Anonymous Coward
    Anonymous Coward

    Impractical and illogical

    I don't understand why it is the company engaging a supplier who decides on the tax status of the supplier. This seems completely illogical and impractical. If we engagage an engineer as a sub-contractor we do it for one of two reasons:

    a) We know that there is not a long term position and therefore do not want an employee.

    b) We want a long term employee but have not managed to recruit one yet. Once we do we will end the contract.

    In both cases the whole point to us is that position is conceptually temporary so that we can in a straightforward and defined manner end the contract whenever we chose to. We can't do that with an employee for legal and ethical reasons related to the employees reasonable expectations. This situation is the case even if we expect the contrast to last 18 months or 2 years.

    At no point are we acting as an employer. We can only be responsible for our own actions and that includes the contract we signed we cannot be responsible for the tax affairs and issue resolution of a sub-contractor if we were then we would consider whether we should ever engage contractors at all as we would be responsible for risks we have no control over and the implication is that we cannot terminate the contract without being accused of unfair dismissal! It undermines the entire point of taking on a contractor in the first place.

  20. Addanc

    HMRC loses ‘disguised employee’ contractor case.

    https://www.constructionnews.co.uk/best-practice/legal/hmrc-loses-disguised-employee-contractor-case/10029598.article

    Not really working in the public sector, I wonder if this latest IR35 tweak is going to trigger a litigation shit storm. Politicians and the unintended consequences of the legislation, or is it the fact that they simply do not care about the country?

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