UK taxman is supposed to know how IR35 reforms work but still lost appeal against TV presenter Kaye Adams The UK's tax collector has lost its appeal against TV presenter Kaye Adams in a £124,000 IR35 case which, according to tax experts, could have implications for IT contractors. In April 2019, Her Majesty's Revenue and Customs (HMRC) lost its IR35 case to Adams, formerly a panellist on ITV's Loose Women, who was appealing …
Surely this is going to be delayed by another year, because Covid? If that was the reason last year, then it still applies this year.
Also, the who MOO thing is ridiculous. If you contract an electrician to rewire your office over the next three months, you can't really then turn around and say you don't want them to do the work, once you've agreed on the contract. And they can't really turn around and say they don't feel like doing it any more. Of course you are obliged to offer the work agreed in the contract. How is this a test of employment?
That's not how MOO "works".
If you're an employee working in project 'X', you can be told to go and work on project 'Y'.
If you're a contractor working on project 'X', then you cannot be required to switch to working on project 'Y' (assuming you have a decent contract in place).
Contracts can also be terminated, usually be either party - there may be penalties for doing so, and it is common for termination clauses to be heavily biased in favour of the client.
MOO would mean that, at the end of the contract, the employer would be obliged to provide more work for the employee, and the employee would be obliged to do it. Which is employment, even if hidden behind a personal service company.
Without MOO, the contractor is free to say "no" to additional work, and the employer is free to not offer more work. Which is contracting.
Well done Fonant for correcting the definition of MOO. Its also worth pointing out that the established legal position of employment is there MUST be MOO. If there is no MOO, it is not employment and therefore outside of IR35. If a contract is within IR35, then the company MUST provide ongoing work and it MUST be undertaken.
It's a sign of how thick HMRC are that they don't get this.
I expect they *do* get it, but realise that it fundamentally the whole concept of IR35 if they include it.
So they choose to ignore it! They justify this by relying on their own much watered down interpretation of MOO that basically assumes if a contract exists, then there must be MOO!
MOO is indeed complex but I believe that being obliged to offer and accept work at the end of a package of work is not MOO.
There have been arguments in court that there can be MOO within a contract.
I believe that to demonstrate a complete absence of MOO the engager should have a right to not offer any work and the contractor should have a right not to accept any work.
Some agents will not accept an explicit absence of MOO because it doesn't suit their purposes of a constant and guaranteed income stream. For engagers/clients it gives them freedom to end or suspend the contract at any time.
IANAL
Instead of going after a small fish that might net the government a whopping few hundred (or maybe even a thousand! GASP!) per year, why not go after the big fish that could bring in the BILLIONS they've been screwing the government out of for as long as they've been able to exploit all those loopholes said governments so helpfully put in place to attract said companies in the first place?
Oh wait, we can't have THAT, that might upset all those fat brown envelopes of "donations" that line your fekkin' pockets, wouldn't it? Bastards.
Not only should they stop aggressively pursuing those least able to defend themselves, but how about actually getting rid of the loopholes by abolishing all the various unnecessary different ways of taxing work, and just make it so that all forms of direct remuneration for work are taxed the same.
It is more complicated than that. They are slanting the table against the small contractor. If you, say, take up 3 months work 200 miles away then they are stopping you claiming against tax the cost of your rail fares & hotel - insist that you aretreated the same as someone who has lived there for years. And other similar.
@alain williams: Most contractors who are forced to stop working through a PSC will end up with an umbrella company. A decent umbrella company should be prepared to deduct travel and subsistence from gross pay.
Of course there's no travel and subsistence while we're all working from home. I was briefly with an umbrella company last year. Although the client supplied a laptop, guidance on workstation safety advises against prolonged use of a laptop keyboard and screen, so I was able to persuade them to allow the purchase of display screens and keyboard as an essential expense. Despite the fact that the same guidelines about correct chair adjustment and posture they wouldn't make a deduction for purchase of an office chair.
"A decent umbrella company..."
Umbrella companies have for years been notorious for not being decent. Regardless of which, the principle of "employment for tax purposes but not for employment purposes" is fundamentally unjustifiable.
However this is only half the story of IR35. It's not based on a consistent principle to prevent tax avoidance at all - it specifically singles out the small business that can't argue.
The "In the City" column of the latest Private Eye (1541) describes how big 4 consultancies operating as LLPs avoid paying employers' National Insurance on millions paid to partners by classing them as "self employed". Apparently HMRC is perfectly content with this arrangement, but can't tolerate a "personal service company" director earning, say, £100k max being paid partly in dividend (allowing a perfectly legal reduction in tax of no more than about 12%).
One rule to line the pockets of the powerful, another to squeeze the powerless.
There is a short list of umbrella companies that are supposed to adhere to certain standards
https://www.fcsa.org.uk/members/
Interestingly, none appear to be able, or want, to work on an international basis. They all want their corporate clients to be UK based already. Which defeated the object of the use case I was evaluating 6 months ago.
If the Umbrella Company is your employer they are legally required to provide you with a workstation that meets Health & Safety regulations. These are requirements in law, not guidelines. I don't see how an Umbrella Company can genuinely act as an employer. Similarly when the end client is dealing with the Umbrella Company, work related discussions are unlikely to involve any officer or representative of the Umbrella Company.
I work through an umbrella that offers schemes that allows you to buy the equipment you need, but it all get subtracted from the money that you get that flows through them. Basically, you pay for it from your pre-tax income, and they 'own' the equipment, but write it off over a period of time. After you've had it for some time, or you leave the umbrella, you pay a pro-rata'd small amount to get it off their books and fully into your ownership. It means that you can pay for the equipment from your pre-tax income. It's not that different from if you bought it from your own limited PSC.
If you actually want the umbrella to buy the equipment from their capital, you're going to have to expect that they will charge you significantly more in their fees. The only money they make is from those fees (and the VAT back on expense'd items).
It has to work this way, because of the strings that HMRC have tied around the tax status of the money that passes through the umbrella. There were clauses in the first part of the Intermediaries legislation two years before IR35 determination for Public organisations came into effect that threatened the whole umbrella sector. This forced umbrella's to change the way they applied expenses, particularly accommodation (but not travel), with the threat that they would have punitive tax determination against them.
This is the reason the FCSA accreditation system was set up, to have the umbrella's compliance checked, and this requires them to apply significant rules about how expenses are authorized and allowed.
This legislation also required all intermediaries to report on the money that flows through them for all contractors (remember when all the contracting agencies went through an exercise of checking the identities of their contractors about four years ago, that was also part of it). It's all part of HMRCs goal of gathering data that will allow them to ensure that the tax *THEY* think is applicable is paid.
That would involve work and err, perhaps a little research because it appears to me that HMRC make a hash of things, except issuing fines on a fire and forget otherwise know as trying our luck basis.
The other problem is the big fish usually have quite efficient and well paid legal departments who are better than HMRC.
Another classic piece of well thought out reasoning by one Gordon “Brooding” Brown (Lab.) who has probably done just as much over the long term to f—- the economy as COVID has. PFI was another of his classics, and pension raids too.
[I am not a contractor. But IR35 is awful.]
If you read the decision, some of the key reasoning for determining Kaye wasn't an employee was a number of things provided to an employee that she didn't have - no restriction on working for others, comparable access to equipment, annual reviews, holiday and sick pay, defined disciplinary processes, etc. MOST IT contractor arrangements avoid at least most of those elements, so it does raise the question of whether the tribunal decision has fatally undermined HMRC's claim that most contractors in PSCs are not correctly determined. This seems likely to be the kind of case that will be widely cited in future cases and HMRC seems likely to have an up-hill struggle to not lose most of its cases from hereon in.
I have noticed a slight change in the way that assertation (HMRC's claim that most contractors in PSCs are not correctly determined) is now pitched: It has become, 9 in 10 of people who *should* be in side are not correctly paying.
No longer do they say "most PSCs" should be inside etc etc .
But yes, agree it rather puts a hole in their argument!
Better yet, as they lost in the Upper tribunal doesn't that mean its effectively "case law"?
/anon... PSC (non wage) slave
If it happens like it happened years ago with a similar kind of tax, only those with pockets deep enough to challenge the revenue service in all courts will have a chance.
Here too TV presenters and singers were able to demonstrate they were people without a "stable organization" and without "people working for them, but occasionally", required by the law to not pay the tax (even if they had assistants, etc.) while people like me had to pay that just because I had a computer, some software and a desk deducted as job expenses.... it was asserted I had a whole "office" for me (the desk and the computer were at home....) and it was enough to pay the tax. I could not afford spending tens of thousands euros to challenge it to the supreme court... and maybe lose - it would have costed more than paying the tax for several years.
When it comes to fiscal laws, usually you get all the justice you can buy.
HMRC really are a bunch of F*cking C*U*N*Ts.
Every single one of my clients (large multi-national corporations) slapped a ban on PSCs the second this came out. Lawyers rule the roost in that environment, and they are quite rightly risk adverse.
So people like me - with a turnover of around £250,000 a year (gross) are being slammed by HMRC's stupid (and to my mind - criminal) actions.
Want to guess what my reaction was? It was "F*ck you - I'm out of here". Oddly enough - it was the same reaction I made 22 years ago when this first started. I spent the next 10 years working (and domiciled, and paying tax) overseas. I guess I will be doing the same for the next 10 years. At least the weather is better.
Bunch of cupid stunts.
Mind you - the Consultancy Companies will be happy. Which is what all this is about in the first place. Who was it that advised HMRC on these latest changes????
B*stards. Why don't the Consultancy Companies just give HMRC officials (or MPs) big envelopes stuffed full of cash in full view of the press cameras?
At least that would be honest. For a given value of the word "honest"
My UK Tax contribution next year will be.... - ZERO! Choke on that you Fu*kers!
This IR35 affects me not in the slightest, so pardon me if I haven't been paying attention closely enough. But this one really made me sit up:
"The government hoped the reforms would recoup £440m by bringing 20,000 contractors in line."
It sounds like £22k per contractor. Isn't that rather a lot? I assume the contractors already pay *some* tax already, so this is an *additional* £22k. If a government did that to me I would be looking for charity afterwards. And no, I don't have the time, energy, or lawyers to fight our IRS. I went up against them once already and despite being in the right I only came out on top due to blind luck.
That's a good point. With the aid of a dodgy IR35 calculator it looks like each of those 20,000 contractors would have to be working full time on over 1200/day.
To be fair, there may be 20,000 contractors earning that much in the UK but quite why the other 1.5-2 million contractors get their tax affairs fucked over just for those 20k confuses me.
£450 / day, T/o £103K exc VAT, 19/20 tax year.
PSC Tax paid £31K + £20K VAT collected for HMRC
Equivalent tax on an £80K salary £35K
Tax paid via umbrella on same PSC day rate £41K
So on paper, yes, they will collect more tax by forcing the use of an umbrella / effectively banning PSCs.
the result of an extra £10k out of pocket will be either:
Haggle, lump it, walk, take a PAYE role.
My client has assessed me outside, so no issue for me (few!), though I know others who have been blanket/lip-service assessed inside. Few are getting a rate bump to compensate, so they will spend less retail next year, put more in pensions etc, neither of which will help our economy.
You say "extra £10k out of pocket", but your own numbers show a difference of £6k. Regardless, neither £6k nor £10k equals £22k so I'm going with the "dodgy IR35 calculator" offered above by @Cederic.
I think the government has an interest in quoting a rather large bottom line figure, both to justify their own budget for the enforcement, and to generate outrage in the populace. The only thing people hate more than taxes is other people not paying taxes. But of course no ethical government would exaggerate the actual numbers solely for political purposes. Right?
Or is it "the old prejudiced argument again"?
"where workers behave as employees but avoid paying regular income tax and National Insurance contributions by billing for their services through PSCs, which are taxed at lower corporate rates."
Once and for all, let's get this straight.
Income received by a "personal service company" (a class of business that doesn't actually have any statutory definition by the way), as that of any other limited company, is not available tax free to be rifled by its directors. The "lower corporate rates" alluded to only apply to company profits that remain after payment of the contractor's salary and other business expenses.
A limited company contractor is employed by their own company and receives a salary on which income tax and national insurance are duly paid. The company also pays employer's national insurance contributions for its employee (the contractor). Any profit left over in the company after these costs and legitimate business expenses is subject to corporation tax. Consequently, all else being equal, the contractor's limited company pays more tax overall than the contractor would have done if employed directly by an end client (i..e. some of the tax burden is transferred from the end client to the contractor's own company).
The only "tax breaks" available to the limited company contractor are business expenses paid out of personal income (which would otherwise be refunded, and claimed back against tax, by their client) and apportioning remuneration between salary and dividend, which is practiced almost universally by directors of limited companies not classed by HMRC as "personal service companies". These are facts.
So, unless fraudulent activity is present, the only real difference is who pays HMRC. There are plenty of mechanisms for dealing with fraudulent activity, despite which HMRC seems to turn a blind eye to a lot of it, particularly on the part of larger enterprises (just read any issue of Private Eye).
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