back to article Tech contractor loses IR35 tribunal appeal: 'Right' to substitute didn't mean he could, say judges

An IT contractor has lost an appeal [PDF] which found he was an employee in the eyes of HMRC, with the judges agreeing he fell under the new IR35 off-payroll tax rules. Robert Lee, working as a contractor under the company name Northern Light Solutions, had challenged an earlier First-tier Tribunal ruling which found his work …

  1. Ambivalous Crowboard
    Coat

    Yet another push for us to all go work at Tesco

    Well well, if it isn't yet another push of the clever people into normal jobs. The rich get richer, the poor get poorer. Where the net is cast scoops up more and more people with each day that passes.

    There's now so much legislation and gotchas that it is surely going to push people into "normal" work for larger companies that ... uh, don't pay the (morally) correct amount of tax, and ensure their offshore shareholders just get fat on the profits.

    Grumble, grumble, grumble...

    1. Anonymous Coward
      Anonymous Coward

      Re: Yet another push for us to all go work at Tesco

      Fair point, I worked as a contractor for some years and still feel that it has its place. What really irritates me is that the government is making such a song and dance over this while failing to sort out tax laws for big business and the rich which makes contracting look like a drop in the ocean....

      1. Jellied Eel Silver badge

        Re: Yet another push for us to all go work at Tesco

        while failing to sort out tax laws for big business and the rich which makes contracting look like a drop in the ocean....

        Well, quite. Can't have all these little oiks contracting work that should be handled by quality operations like Serco, Crapita, Tata, KPMG, Cap Gemini etc. Rather handy that the same entities that advise HMG also just happen to benefit from IR35.

        But such is politics. I've generally avoided the usual suspects like the plague "Who's the client? Crapita.. Err.. no thank you". I also suspect that they've found ways to ensure that their minions are 'employed' on effectively zero hours contracts, with minimal benefits, but can be sub'd out to their clients for very agreeable mark-ups.

      2. alain williams Silver badge

        Re: Yet another push for us to all go work at Tesco

        What really irritates me is that the government is making such a song and dance over this while failing to sort out tax laws for big business and the rich which makes contracting look like a drop in the ocean....

        Quite easy to fix: contractors should start making donations to the party in power ... IR35 will recede

        1. This post has been deleted by its author

        2. ratcatcher67

          Re: Yet another push for us to all go work at Tesco

          No one is going down your "rabbit hole" alice.

      3. Velv
        Boffin

        Re: Yet another push for us to all go work at Tesco

        It is much easier for HMRC to go after a company turning over £100,000 per year than a company turning over £100,000,000

        1. ratcatcher67

          Re: Yet another push for us to all go work at Tesco

          So what!

          they're chasing down tax dodgers good for HMRC.

          1. Anonymous Coward
            Anonymous Coward

            Re: Yet another push for us to all go work at Tesco

            https://forums.theregister.com/user/98247/

            Posts by ratcatcher67

            9 posts • joined 15 Jun 20215

            Fuck off (note the correct spelling) troll

            1. ratcatcher67

              Re: Yet another push for us to all go work at Tesco

              Says the coward who posts anonymously who's the real coward?.

          2. martinusher Silver badge

            Re: Yet another push for us to all go work at Tesco

            That line about 'tax dodgers' is pure Daily Express, its the sort of notion that's fed to readers who don't know how the systems work but are always concerned that their neighbor is getting something they aren't.

            (This IR35 thing definitely sounds like a "Heads We Win, Tails You Lose" strategy.)

    2. Warm Braw Silver badge

      Re: Yet another push for us to all go work at Tesco

      I think you might struggle to get a day rate in the region of £450 from a "normal" job with Tesco - on minimum wage you'd get less than that in a week.

      Like it or not, people with "normal" jobs have been subsidising contractors' tax breaks from their considerably smaller incomes. Yes, there are bigger loopholes - and bigger subsidies - for the megawealthy, but that doesn't make it somehow OK.

      Tax should be equitable and transparent, not based on who can create the most convincing legal fiction.

      1. ratcatcher67

        Re: Yet another push for us to all go work at Tesco

        Spot on, the rest of us whose whole income is pulled into paye are subsidising these tax dodgers.

        Spongers.

        1. Jellied Eel Silver badge

          Re: Yet another push for us to all go work at Tesco

          Spot on, the rest of us whose whole income is pulled into paye are subsidising these tax dodgers.

          You really don't understand IT. It's often project based. So in my case, designing & installng networks. Once that's done, so is my work, and it's on to the next project. Sure, that could be done via PAYE, but that's more complicated for the client, who then becomes an employer for 3-6 months. It's the same with a lot of contracting, ie design/install an application or system. That's short-term work that suits a contracting model.

          1. MericanMan

            Re: Yet another push for us to all go work at Tesco

            Bit of a different situation here in the US on this issue. If I understand the controversy in the UK properly, IR35 was designed to crack down on independent contracting in cases where the person "should" reasonably be considered an employee, because they then aren't paying certain taxes that an actual employee would have had to pay, thereby denying the benefit systems some of the tax revenue they otherwise would have received?

            In the US, you actually come out WORSE if you're a contractor, and the benefit systems get the same amount either way. This is because normally, aside from standard income tax, employees have taxes withheld for social security and medicare. However, the employee only gets charged half of the actual tax

            amounts, with the rest being the employer's responsibility. If you're self-employed though, then the entire amount comes out of your income. This amounts to something like 6 or 8% of additional tax on the same amount of income.

            I was self-employed for years as an IT consultant, so definitely had to deal with this. You obviously aren't getting any benefits from an employer either (health care, retirement contributions, etc), which is another potentially large hit to your income. However, you are presumably/hopefully making significantly more overall income and still coming out ahead. If you're not, then it was a poor choice for you to be self-employed unless you're getting less tangible benefits (controlling your schedule, etc).

            The other headache for self-employed people here in the US, is that since no employer is witholding estimated taxes from your income and remitting them to the government, you're required to pay quarterly estimated taxes 4 times a year (since you can't possibly be trusted to hang onto the owed tax amounts until they're due once a year). This is always fun, especially if your income is pretty variable, because if you "guess" incorrectly, and the amount of tax you've sent in isn't at least 90% of what you end up actually owing for the year, you're penalized.

            So I'm not sure something like IR35 would be as likely to be implemented in the US, as there's no financial benefit to the government for doing it. Though, some states like California HAVE passed something similar due to the perceived "unfairness" of people like Uber/Lyft drivers being contractors and those companies not being required to give them benefits, so you never know.

            1. elsergiovolador Silver badge

              Re: Yet another push for us to all go work at Tesco

              > thereby denying the benefit systems some of the tax revenue they otherwise would have received?

              The benefits systems are actually used to subsidy low salaries paid by big corporations who avoid tax. If there was a crack down on the likes of FAANG, then maybe we wouldn't need a higher tax bracket.

              As someone else noticed, it's easier to tackle a small guy than go after the big one. The big one may get upset and stop donating...

            2. TotallyInfo

              Re: Yet another push for us to all go work at Tesco

              IR35 costs more to administer than it nets in tax income.

              Ostensibly, IR35 was introduced to protect low-payed contract cleaning staff with no rights.

              But nobody really believed that. It was lobbying by the big 4 consultancy companies that caused IR35 - nothing else. Because it drives people out of small (contracting/consulting) businesses into permanent employee status.

              All that happened with low-paid workers was that they were forced onto zero-hours contracts instead.

          2. Lee D Silver badge

            Re: Yet another push for us to all go work at Tesco

            "that's more complicated for the client, who then becomes an employer for 3-6 months"

            Gosh, if only they could afford to have an HR department when they're paying the guy £450 a day.

            Seriously, it's a tax dodge. I don't care if it's temporary, part-time or whatever else. Pay the damn tax.

            "I only work for clients for 3 months and then move on" does not somehow make you magically exempt to paying roughly the same amount of tax on that income as someone who's in the job for 4 months or gets sacked after a week.

            1. Mark 65

              Re: Yet another push for us to all go work at Tesco

              "I only work for clients for 3 months and then move on" does not somehow make you magically exempt to paying roughly the same amount of tax on that income as someone who's in the job for 4 months or gets sacked after a week.

              Yeah, it really does. One has all the risk and the other has all the employment legislation. If the Government decides to weaken the latter then that isn't the contract's fault. Permanent employees have rights and entitlements. Contractors don't. Being outside of the system with regards benefits gives you more leeway to structure your working in a more tax efficient manner. That is the reward for the increased financial risk being taken.

              Don't complain about others earning more or paying less tax when they are at considerably more financial risk than someone sitting on their arse in a permie role accruing benefits (holidays, sick leave, paid public holidays, redundancy etc). Maybe consider why the company saw fit to engage their services in the first place.

          3. anothercynic Silver badge

            Re: Yet another push for us to all go work at Tesco

            It may surprise you that fixed term contracts are still a thing, so PAYE can still work. Yes, it's more hassle for the personnel and finance department (certainly more hassle than simply registering you as a supplier and getting the invoices paid), but it's still possible.

          4. elsergiovolador Silver badge

            Re: Yet another push for us to all go work at Tesco

            The length of a contract has nothing to do with self-employment. If a company finds a good supplier and uses them for years that would mean they would have to either stop using them (and probably take a hit to their business) or employ them (forced employment anyone?)

          5. TechnicalVault

            Do it like the trades do

            Looking at the facts of this case, it looks like if they had done it on a true project basis it seems it would be fine. A real project based contract would specify the project, a delivery time and a fee scheme based on the job not the hours worked. The building industry does this all the time.

            That way if you get it done in less hours than estimated it is none of their business, they contracted you to provide a service, you provided it. Instead they are specifying how many hours a week he should work, that's employee territory. If you want to work that way it is fine, it is not that hard to employ someone on a temporary basis, retail does it all the time.

            1. Mark 65

              Re: Do it like the trades do

              If I employ a company under a SLA to support an application, system, etc. then how would I do that without specifying hours? I may need someone to be available on site during business hours. Does that make them an employee?

              Lee worked for Nationwide through his Northern Light agency, which contracted with another agency, AxPO, which in turn contracted with the building society itself

              I think his main problem would appear to be the convoluted nature of the relationship. It would appear, without knowing the specifics, that a boilerplate substitution term may have been put in the contract without adequate adaptation to the circumstances. The Justices inference around the end client having veto and requiring a suitable candidate is incorrect as no company anywhere would allow a substitution clause without suitable caveats - if they did you'd just do a "big 4" and send a guru to the interview and an imbecile to the job.

            2. d3vy

              Re: Do it like the trades do

              "Looking at the facts of this case, it looks like if they had done it on a true project basis it seems it would be fine. A real project based contract would specify the project, a delivery time and a fee scheme based on the job not the hours worked. The building industry does this all the time."

              >> Yes but the building industry also does Time and Materials contracts where they bill for the time spent doing a job as well as the materials. I had a plumber in fitting new bathrooms at the start of the year, he was here for two weeks, half way through we threw a new boiler in too and then had him rip out old piping in the loft and re-tile part of the kitchen... He just billed us for the extra time and carried on. IS HE MY EMPLOYEE NOW?

        2. Roland6 Silver badge

          Re: Yet another push for us to all go work at Tesco

          I see ratcatcher you have zero understanding of the matter:

          I expect that contractor you label as a "tax dodger" is paying more UK tax than the SI's much liked by government.

          If the contractor is worth £450 pday (before agency fee's), I suggest the SI's will be charging circa over £1,000 pday for the same person. The SI's won't be paying NI & PAYE on the slice of fee's they retain after paying their employee.

          So the tax dodgers you are actually subsidising are the large SI's...

        3. Anonymous Coward
          Anonymous Coward

          Re: Yet another push for us to all go work at Tesco

          When I last contracted in the UK over a decade ago I was paying 20-25% in tax, or rather retaining 75-80% of my earnings. However I was still paying around £35,000 to HMRC. It was all legal and I'd wager a damn site more than most pay. Hardly a burden on the low paid. If anything I was supporting them and their minimum wage.

          1. d3vy

            Re: Yet another push for us to all go work at Tesco

            "When I last contracted in the UK over a decade ago I was paying 20-25% in tax, or rather retaining 75-80%"

            Yeah, we don't retain that much now without doing something illegal!

            I miss the days when dividends were effectively tax free :)

    3. CountCadaver

      Re: Yet another push for us to all go work at Tesco

      Tesco really?

      Given he's due to pay an additional £75K in Income Tax and NI (article doesn't say if thats backdated or per year) It doesn't sound like he's exactly on the breadline, in fact this calculator https://listentotaxman.com/185000? gives a figure of £185K to pay £75K in income tax and NI, far about the average UK salary by miles, yet bleating about having to pay tax like the rest of us, here have the world's smallest violin....

      Also shows how feeble an excuse nationwide's claim to being a mutual is, particularly given the pay of the board of directors (several million each) and looking more and more like nominet.

      1. Velv
        Boffin

        Re: Yet another push for us to all go work at Tesco

        Given the length of time the case has been running the £75K probably covers several years of "employment". HMRC can go back 20 years if they believe fraud has been involved, 6 years for normal cases.

        1. ratcatcher67

          Re: Yet another push for us to all go work at Tesco

          and so they should,

          in addition they should seek costs with interest.

      2. anothercynic Silver badge

        Re: Yet another push for us to all go work at Tesco

        Backdated to 2012 - 2015 (or whatever the end date for it was). But yeah, an additional 25K is a bit painful if you didn't have it in the first place. But, if you've been a good boy and paid a lot into your mortgage, you *could* manage to remortgage and pay HMRC back. It's an ugly business either way.

        1. Roland6 Silver badge

          Re: Yet another push for us to all go work at Tesco

          However, if you've been a really good boy and paid a lot into your pension...

    4. Cynic_999 Silver badge

      Re: Yet another push for us to all go work at Tesco

      There is nothing immoral about not paying tax that you are not legally obliged to pay, even if you have arranged matters specifically in order to avoid that tax. If anything, it is the government that is immoral in demanding taxes that it promised not to impose. I'm thinking in particular of income tax, which was introduced by the UK government as a temporary emergency measure in 1799, and it was promised that income tax would be discontinued after it had paid for the Napoleonic war.

      Taxation is completely arbitary. The government will demand as much as it believes it can get away with. If you pay tax that you could legally have avoided paying, you are not doing anything noble, you are just being stupid.

      Cold food is VAT free but you must pay tax on hot food. Would you demand to pay tax on a cold pasty on the grounds that you intend to heat it in the microwave as soon as you get home? Surely if you don't pay tax you will be exploiting a "loophole" in the tax law, which "obviously" intends you to pay VAT if you eat the food hot? Are non-smokers as bad as Amazon in the way that they blatently avoid paying huge amounts of tobacco tax?

      1. Fred Daggy
        Black Helicopters

        Re: Yet another push for us to all go work at Tesco

        If the purpose of Income Tax was to wage war on France ... then it's high time we did it again. There should be enough in the kitty now.

      2. FlippingGerman

        Re: Yet another push for us to all go work at Tesco

        I like paying income tax, because I live in a society and appreciate the benefits that come from that. I expect others to do their bit too.

  2. Anonymous Coward
    Anonymous Coward

    Looks like the new law is working as intended

    Meaning that it's becoming harder and harder to be a contractor in the UK. I'm not sure whether contractors are a cause or a consequence of the low IT salaries in UK, but we can only hope those will go up.

    1. d3vy

      Re: Looks like the new law is working as intended

      They've been going up for the last 3-4 years contract rates on the other hand have hardly changed in 10.

  3. JetSetJim Silver badge

    >Any substitute would need to go through vetting checks and an interview and get up to speed on the project

    So, outside IR35 status is now only reserved for unskilled labour? Most times a substitute would need to "get up to speed" - at the very least because they wouldn't know anyone in the contracting company, as well as not instantly knowing the status and work items remaining on any project being undertaken.

    Drop a coder in on a half-completed project and, however skilled, they'll need to "get up to speed" just like an employee

  4. Mike 137 Silver badge

    Substitution?

    This has been going on for some time and is actually a very confusing case. Lee's contract history strongly indicated he was a disguised employee, regardless of any of the IR35 specific criteria, so he was unlikely to succeed in any case. Consequently it's been a very bad test case and this decision makes it catastrophic as a precedent..

    No single person consultancy can enjoy an entirely unfettered right to substitute as the client must be assured of competence, clearances and confidentiality in the substitute, and for anything other than a flying visit security passes and data access will have to be approved and organised. Consequently the ruling results in an inevitable blanket "inside IR35" decision, which is highly improper and unconstitutional.

    I'm increasingly convinced that the behemoth "consultancies" must have had a hand in devising, or at least promoting, IR35 as it works entirely in their favour by squeezing out the affordable competent competition.

    1. katrinab Silver badge
      Meh

      Re: Substitution?

      If your consultancy specialises in small business, you will likely be fine, because you will have lots of customers, and while you might have regular appointments with some of them for routine maintenance, mostly you will be called out as and when needed, for example when things break down, or they want to install new software or set up a new user etc.

      1. elsergiovolador Silver badge

        Re: Substitution?

        So a developer cannot be self-employed? They need to join a consultancy, preferably one of the big donors, take mediocre salary and be treated like zero hours employees?

        Surely, soon enough those consultancies will complain that they cannot find developers and will be asking for special visas to bring them from overseas.

        1. katrinab Silver badge

          Re: Substitution?

          If you sell yuur work on app stores then definitely yes. If you are working on part of a bigger project, then probably not.

        2. Vehlin

          Re: Substitution?

          I would say it would be very difficult for a developer to be self employed under IR35. What I would do in this position is form a small development company with 2-3 other developers and then bid of packages of work. Any client would then be asked for either a shared login or an individual one for each developer. Who does the actual work internally is then of no consequence to the client.

          In the event of a client wanting someone in their offices during their working day I would get all 3-4 of us cleared and vetted so that we would actually be in a position to make a substitution.

          1. elsergiovolador Silver badge

            Re: Substitution?

            HMRC stated that they will not accept any arrangement that has been created to avoid tax. So that small development company won't fly, because that clearly looks like created to avoid inside determination.

            You either have to join one of the big consultancies (preferably the one that donates the most to the party or the one owned by chancellor's wife) or just be a deemed employee.

            1. Vehlin

              Re: Substitution?

              You actually have to run it as a small development company.

            2. Falmari Silver badge

              Re: Substitution?

              "HMRC stated that they will not accept any arrangement that has been created to avoid tax."

              Yet they accept it from multinationals?

              1. elsergiovolador Silver badge

                Re: Substitution?

                Do you expect that the same laws apply to the rich? At a certain level they can pick and choose.

            3. Roland6 Silver badge

              Re: Substitution?

              >HMRC stated that they will not accept any arrangement that has been created to avoid tax.

              Yet seem to be quite happy about the thousands of offshore umbrella companies...

              Yes, the 'employee' might be paying full UK tax on their earnings, however their earnings are what's left after the agency and the umbrella company's administrator have taken their fees, the scale of these offshoring operations would seem to indicate there are worthwhile UK tax savings to be made by the agencies and administrators...

            4. Mark 65

              Re: Substitution?

              HMRC stated that they will not accept any arrangement that has been created to avoid tax

              HMRC will accept what a court tells them too. They won in this case, but their record isn't stellar.

          2. d3vy

            Re: Substitution?

            That would work, but its not what clients want.

      2. Roland6 Silver badge

        Re: Substitution?

        >If your consultancy specialises in small business, you will likely be fine,

        Remember IR35 is on a per client-basis, so you can have projects that HMRC deem to be inside running concurrently with projects that are outside of IR35...

        But yes, if you only engage with small businesses and provide a service (which all your examples are) you should be deemed to be outside of IR35.

    2. Anonymous Coward
      Anonymous Coward

      Re: Substitution?

      >No single person consultancy can enjoy an entirely unfettered right to substitute as the client must be assured of competence, clearances and confidentiality in the substitute

      The same applies to large consultancies/SI's.

      HMRC themselves won't accept an SI simply substituting project personnel without their prior approval of the substitute.

      One of the admin jobs a large SI has to do is to maintain a pool of client approved substitutes, so that they could rotate staff.

      I've always thought the right to substitute clause was always predicated on the substitute gaining the approval of the client.

      With service contracts things are slightly different, so whilst you may contract with a single person business, in the agreement will be some clause to the effect that whilst in the main projects are undertaken by Joe Bloggs, experienced associates may be called upon.

  5. pop_corn

    How to exercise substitution, with evidence:

    1) Work from home one day, much easier in the current Covid climate than it once was

    2) Choose to take the day off and instead substitute yourself for CoSec / CoDirector (wife, husband, partner)

    3) Have them proof read your latest doc, correct spelling, correct formatting, layout and tables, maybe insert some images etc

    4) Ensure they increment the document version history, with their name as the author

    5) Amend your invoice for the month to include 1 day of their time and only 19 days of your time

    Job done. I've done this. Silver bullet with paper trail achieved.

    1. JetSetJim Silver badge
      Paris Hilton

      Possibly important:

      Step 0) ensure your contract contains a clause giving you the right to substitute anyone (from your Ltd Co?) without vetting by client

      I wonder what the client might make of your actions if you don't have that? (IANAL, just curious. You might be on OK grounds as the contract is between client and your Ltd Co, and it is another employee of your Ltd Co doing the work)

      1. pop_corn

        Yes I was assuming step 0) is you have a right of substitution.

        IANAL however I don't believe a fettered one would matter as you have actually exercised it. Fettering only is an issue if you're arguing you have a right, even though you've not exercised it.

        Exactly, the contract is with your LtdCo, that's the whole point. Most of us have the Missus (or whatever) on the books as well, so they're perfect for this.

    2. katrinab Silver badge
      Meh

      I don't think you even need to take the day off yourself. Taking on additional staff at busy times qualifies. I know one person, who would occasionally get a student in for a day to help with testing network cables.

    3. Disgusted Of Tunbridge Wells

      You might want to change your subject to: "How to be a Tax Cheat".

      1. heyrick Silver badge

        How is it cheating if you're following the rules?

        That's the thing - governments might bleat endlessly about how much tax the likes of Amazon don't pay, but contrary to what the Daily Mail would have you believe, they're following the rules. Okay, it's a twisty interpretation of a narrow definition that equals "pay bugger all in tax while creaming it in profit", but it's not illegal. Only immoral.

        Don't point your finger at Amazon or the contractors taking on their wives. Instead point your finger at the government and ask why things are the way they are, and more importantly, when things will change.

        1. ratcatcher67

          Boo Hoo!!!!,

          you know you're dodging tax but you don't care but you then bleat about how its not fair and you throw in Amazon and Starbucks, Boo Hoo!!!.

          You don't and didn't care about the full time IT employees whose whole income is pulled into PAYE so why the hell would we give a damt about you.

          Pay up or fuch off.

          1. heyrick Silver badge
            FAIL

            Whatever...

            Easy downvote because I make all the correct tax returns each year like a good little citizen.

            Clearly the oversized chip on your shoulder prevents you from understanding that it was a question regarding why the situation that can be abused exists at all, rather than who can and can't abuse it.

            I'll fuch off now.

          2. anothercynic Silver badge

            If you've ever taken advantage of an ISA, or perhaps bought stuff from Play.com before the VAT rulings changed, or ordered something from the US and not paid customs and VAT on that, or maybe taken a salary sacrifice to top up your pension and drop your tax rate (and tax payable), you are just as much a tax dodger as the one you accuse of being one.

            I agree with you that there is a lot of advice out there that's being ruthlessly exploited by unscrupulous contractors out there that effectively means sailing *very* close to the wind, but that said, what is good for the goose is good for the gander here. You cannot accuse someone else of 'dodging tax' when you yourself have taken advantage of tax advantages offered by the government.

            The tax law in this country is categorically labyrinthine, and it's insane to see how many clauses, sub clauses, sub-sub clauses there are for cases that benefit only very few cases, but - large companies pay their tax advisors a lot of money to find every one of those little loopholes, gotchas, cracks and whatnot to avoid having to pay more than is absolutely legally necessary.

            Remember, what's legally required is objective. It is written in law. It is written in secondary legislation. It is written in guidances and other paperwork. What's *morally* required is subjective. What *you* might find offensive is not what others may. Proof are the fake moral outrages that the Daily Hate, the Scum and many other gutter outlets spew out daily.

            1. Anonymous Coward
              Anonymous Coward

              Not the ISA bullshit again. They are defined in tax law, they are not avoiding anything. They are up front and intended. No interpretation required by anyone to decide if tax needs paying.

              1. anothercynic Silver badge

                Guess what, so are many other tax advantages that organisations are taking advantage of. And yet they are slagged off on here as tax dodgers.

                Those who pay themselves minimum wage and take the bulk of their salary as dividends do this legally, as defined in tax law, and thus are *not* tax dodgers. That's what I'm referring to here. And if something is *not* defined in tax law, it is legal until the law (or the agency responsible for applying the law) says it is not.

      2. ratcatcher67

        Spot on!!!

        Or how to be a social P@r@_site.

  6. Franco Silver badge

    Typical

    A single contractor gets a £75k bill for tax and HMRC will pat themselves on the back.

    Meanwhile the work that used to go to contractors like this is going offshore (where revenue is going all over the place ti minimise what's paid in the UK) or to Umbrella Company Contractors (an unregulated sector full of companies taking the piss.)

    Case in point, £37m worth of "unexplained expenses" and all the guy got was a disqualification as a company director

    https://www.gov.uk/government/news/11-year-ban-for-payroll-boss-in-tax-avoidance-scheme?utm_medium=email&utm_campaign=govuk-notifications&utm_source=0847b701-2435-447c-939c-c606c2d39417&utm_content=daily

    1. JetSetJim Silver badge
      Coat

      Re: Typical

      > "unexplained expenses"

      Pfft, booze, drugs, expensive holidays and hookers is my bet. Easily explained

      1. katrinab Silver badge
        Paris Hilton

        Re: Typical

        I think they mean

        "Here's £8.91 per hour in salary [minimum wage] + plus £40,000 or whatever to cover your expenses in doing the job, without any explanation as to what those expenses might be.

        In other words, they didn't spend the money at all.

      2. pop_corn

        Re: Typical

        > Pfft, booze, drugs, expensive holidays and hookers is my bet. Easily explained

        Yeah and he probably just squandered the rest! :D (Credit: George Best)

        Though it seems that £37M was the total amount of cash that flowed through the company, so the total of everyone's pay too.

      3. Strahd Ivarius Silver badge
        Joke

        Re: Typical

        No, booze, drugs, expensive holidays and hookers amounted to £23,345,762.99 of explained expenses

    2. anothercynic Silver badge

      Re: Typical

      Umbrella companies were big in the early noughties, but back then they actually were pretty well-managed, had well-thought-out schemes for handling expenses, holiday pay, etc, and there were some that went to the wall because the people running them either got greedy, or were themselves scammed by some unscrupulous contractors.

      They certainly were a much better and more financially 'conservative' alternative to the sailing-close-to-the-wind kind of contracting stuff some private accountancy and tax advisory companies came up with. Now, who knows... I haven't been in the contracting game in...15 years?

      I certainly would suspect that some of these rules brought in either came from within HMRC (people high up enough to be making a noise discovering how much contractors are paid without understanding the nuances of said pay, such as being responsible for one's own employer's PAYE, holiday pay, workers' insurance, etc etc etc), or like someone else said, from other contracting giants who were happy to milk those Whatsapp group connections at their private club to bend the ears of their tame MP.

      Either way, contractors are stuck with these rules and things are getting somewhat more... difficult, especially post-pandemic where HMRC has to start finding money to pay for all that furlough and business support they dished out during it... Contractors are just the easy pickings.

  7. Lord Elpuss Silver badge

    I'm going to go out on a limb...

    ...and say good. This sounds like the right judgement; and I'm no fan of HMRC.

    The gentleman was an employee in any legitimate sense of the word; he was attempting to get tax relief based on an unexercised and impractical technicality, and he was spotted.

    I'm contracting now, but I've had my share of years behind me working alongside contractors who were earning twice, and in one case nearly three times* as much as me for doing exactly the same work with (for all practical purposes) the same contractual conditions. The argument that contractors had less job security went out of the window years ago; these days you've no more security in full employment than a contractor.

    * The three-times guy worked remotely from home in London - way back before this was 'normal'. He never came into the office, never met with the team, produced mediocre-at-best work (in the team's view), was eminently replaceable from a skills perspective, and yet had been with the company for 25 years. I left a good few years ago, but last I heard he was still there. He survived multiple redundo rounds, and had seen most of his team decimated around him. He stuck around like a stubborn skidmark; we all figured he was sleeping with somebody senior as that was the only remotely explainable reason for him still being there.

    Not bitter AT ALL (I keep telling myself) that he found a way to rake in such a huge pile of dosh for doing very little.

    1. Steve 53

      Re: I'm going to go out on a limb...

      Of course, as a full time employee I'd be getting notice / redundancy. As a contractor i would get very little. But other than that this seems reasonably balanced; you get a higher wage in exchange for limited job security, no pension contributions and no holiday, I don't see how this should affect the tax you pay.

      Either contracting is made attractive to you because you're being paid more, and are in a financial position where you're comfortable with the risk of being let go at short notice / like the ability to leave a company at short notice, and the extra pay covers the perks you're not getting, OR you take paid employment, and the day rate for contractors go up due to supply and demand.

      Yes, many large companies aren't paying their own share. Yes, that should be sorted. But that doesn't entitle you to argue you should pay less than the tax you owe.

      1. ratcatcher67

        Re: I'm going to go out on a limb...

        thats junk for a start,

        you get very little job security as full time employee.

        So please don't insult our intelligence.

        1. Lord Elpuss Silver badge

          Re: I'm going to go out on a limb...

          @ratcatcher67 not sure what you’re calling junk, nobody’s arguing you do get job security as a permie. In fact the posts above state the opposite.

        2. d3vy

          Re: I'm going to go out on a limb...

          "you get very little job security as full time employee."

          The mere fact that the furlough scheme exists contradicts that argument.

        3. Anonymous Coward
          Anonymous Coward

          Re: I'm going to go out on a limb...

          you get very little job security as full time employee.

          So please don't insult our intelligence.

          Nobody is insulting your intelligence...you'd have to possess some first.

          Security would be things like redundancy payments.

      2. d3vy

        Re: I'm going to go out on a limb...

        "But that doesn't entitle you to argue you should pay less than the tax you owe."

        What's interesting about that sentence is "the tax you owe" I pay *exactly* what I owe every year, not a penny less or more, the amount of tax I pay is determined by my accountant who follows the HMRC guidance and applicable laws to the letter.

        So I pay exactly *what I owe* but because you're not a contractor and can't do this (hint, you can, anyone can be a contractor) we will never agree on what the correct amount is, because you'll always think I should pay more.

        It's quite telling that even contractors inside ir35 who ARE paying the same tax rates as a permie still get this mild abuse because they STILL take more home than the permies they work with.

        1. Lord Elpuss Silver badge

          Re: I'm going to go out on a limb...

          ” It's quite telling that even contractors inside ir35 who ARE paying the same tax rates as a permie still get this mild abuse because they STILL take more home than the permies they work with.”

          I can only speak for myself, but I have no problem with a anything up to 30% uplift for contractors doing the same job, to cover the relative difference in T&Cs. No abuse from me there. But as soon as we start talking about integer multiples of salary, they lose my sympathy.

          Bear in mind also that ‘what they owe’ has been determined by the judge here to be significantly more than ‘what they’ve paid’ - so here at least, it’s mot just an emotional argument.

          1. EN1R0PY

            Re: I'm going to go out on a limb...

            Exactly! 450 a day (~100k a year), no one outside of the executive gets paid that much, certainly no employed r&d engineer! The point is that it supposed to be fair, contractors think it's unfair because they don't get all the benefits, employees think it's unfair that they get paid less and taxed more (paying more for the NHS and other things contractors still use) and have no choice about it while having to listen to you winge about how you want to pay even less tax. Here's a question for the high and mighty contactors if you really earn what you are paid how come many businesses are getting rid of you? Answer: you were never more important to the company than other engineers you were just a flexible way of managing the number of bums on seats. So now we've got rid of the notion that you have somehow earned the right to be paid more and pay less tax then everyone else please explain how allowing this tax dodging helps anyone but the contractors? I want too is not a mature arguement...

            1. Tom 38 Silver badge

              Re: I'm going to go out on a limb...

              Exactly! 450 a day (~100k a year), no one outside of the executive gets paid that much, certainly no employed r&d engineer!

              Er. I would disagree. £100k is a good senior engineers salary in London for a permie.

              PS: I'm not a contractor. IR35 forces contractors to pay more taxes, whilst receiving none of the benefits of permanent employment. Contractors are a useful tool for companies to manage projects efficiently.

              Contractors are not tax dodgers. They are employed and paid differently to permies, but they aren't cheating the system or ripping off permies.

            2. d3vy

              Re: I'm going to go out on a limb...

              "Exactly! 450 a day (~100k a year), no one outside of the executive gets paid that much, certainly no employed r&d engineer!"

              >> You're back to complaining about your wages and not tax law again, I definitely know permanent software developers on 60k+ a year who's total package will be costing the company 100k+

              "Here's a question for the high and mighty contactors if you really earn what you are paid how come many businesses are getting rid of you? Answer: you were never more important to the company than other engineers you were just a flexible way of managing the number of bums on seats"

              >> See you say things like this and I think you understand.. yes you are exactly right CONTRACTORS ARE A FLEXIBLE RESOURCE THAT CAN BE BROUGHT IN FOR SHORT PERIODS TO FILL SKILL OR RESOURCE GAPS, I dont think its true that companies are getting rid of us, Ive had more interest in 2021/21 than in previous years, if anything companies are moving more towards contractors for project work and perm staff for support work (at least that has been my experience).

              "So now we've got rid of the notion that you have somehow earned the right to be paid more and pay less tax then everyone else please explain how allowing this tax dodging helps anyone but the contractors? I want too is not a mature arguement..."

              >> and you screw it up again, you were so close...

              Where are you getting this notion that its an earned right?

              To answer your question, I get paid more because that's what I tell clients (like your employer) that I want to be paid and they value the work enough to pay it, if you are unhappy with what you are paid then take it up with your employer, its not the fault of contractors that you don't think you are paid enough, the company can obviously afford it if they are hiring these contractors on so much more money than you...

              As for the tax, again, if its within the law its not tax dodging, I pay exactly what I have to, no more, no less.

              Ill bet if the next budget put income tax up by 5% you'd throw a shit fit... lets not pretend that this is about how much tax we pay, you've made it abundantly clear in your comments that your problem is that we get paid more than you. Guess what, inside IR35 we still take home more than a permie doing the same job... Its not fair but clearly companies value having flexible resources and are prepared to pay for them.

          2. Roland6 Silver badge

            Re: I'm going to go out on a limb...

            > but I have no problem with anything up to 30% uplift for contractors doing the same job

            I bet you also have no problem with an SI charging your employer 4~8x the perm rate for your job for a 'consultant'(*) with similar or even lesser experience - yet the SI won't be paying NI & PAYE on that uplift...

            (*) Been that consultant...

            I remember at school being in the receiving end of people's envy, we were all going to University, I however, filled in a couple of application forms and attended some interviews and got sponsored. People were really upset that I was being paid to study (and a job guarantee on graduation), but totally failed to appreciate that their lack of funds was wholly down to them not filling out the relevant application forms...

          3. Mark 65

            Re: I'm going to go out on a limb...

            But as soon as we start talking about integer multiples of salary, they lose my sympathy.

            Integer multiples may be valid for complex skill-sets, desirable skill-sets, and accompanying experience. It is likely that a highly skilled worker, or at least one that knows their worth in a high demand/low supply environment would choose to work in a way that maximises post tax income.

    2. ratcatcher67

      Re: I'm going to go out on a limb...

      Aye for him KARMA is a bitch with interest.

    3. d3vy

      Re: I'm going to go out on a limb...

      "these days you've no more security in full employment than a contractor."

      Bollocks

      The move to three month notice periods for perm staff alone is enough to show that contracting is still riskier (even a 4 week notice period) is more than a contractor will get.

      If you're really contracting you'll know that theres no pay without work and no guarantee of work so effectively zero notice period. When was the last time a permeant member of staff was told that the project they were working on was on hold so they had to leave *immediately* and would be called back when (if) the project kicked off again which might be days or months away?

      I've had that happen twice now nearly say down for the day and told I might as well leave.

      Once a company didn't pay me for almost four months... That never happened to me when I was permanent.

      And covid, The company I was at last year when covid started terminated all contractors straight away and sent all full time staff home on full pay...

      Contracting is clearly riskier than perm work for these and many more reasons.

      1. Lord Elpuss Silver badge

        Re: I'm going to go out on a limb...

        My contract doesn't allow a zero notice period except in disciplinary situations. If yours does without a very good reason, you might want to have somebody to look at it. I've certainly never had a situation where I've been asked to leave *immediately*, at least not without pay; I think my shortest ever notice period was 30 days, and now it's three months.

        Re not being paid for four months; when I was a permie one of my team was sent on assignment from his extremely-low-cost home country to a country with one of the highest costs of living in the world. His assignment wasn't set up correctly (thanks HR) so he ended up not being paid his assignment salary uplift for 2 salary cycles, and had to cover several thousand pounds of living costs for that time. He could claim back of course, but expenses were paid back with salary cycles and so it still (temporarily) destroyed his savings, current account and credit card just to stay afloat.

        My point is: sh*t happens to permies too.

        1. d3vy

          Re: I'm going to go out on a limb...

          "My contract doesn't allow a zero notice period except in disciplinary situations. If yours does without a very good reason, you might want to have somebody to look at it."

          Seriously, you might want to get an IR35 review done, an enforceable notice period suggests Mutuality of obligation.

          Also "disciplinary situations" - Holy shit, I'd speak to QDOS tomorrow morning - that isn't a T&M contract its a contract of employment.... You honestly need to get that looked at right now unless you are already inside IR35.

          "Re not being paid for four months; when I was a permie one of my team was sent on assignment from his extremely-low-cost home country to a country with one of the highest costs of living in the world. His assignment wasn't set up correctly (thanks HR) so he ended up not being paid his assignment salary uplift for 2 salary cycles, and had to cover several thousand pounds of living costs for that time. He could claim back of course, but expenses were paid back with salary cycles and so it still (temporarily) destroyed his savings, current account and credit card just to stay afloat."

          >> Thats a bit shitty, I can see that would be an issue. I guess the main difference there would be he KNEW he would eventually see that money again, there are tonnes of examples on the contractor forums of companies just refusing to pay, or going bust (I was at Carilion when it went down and only managed to get my last invoice covered by the skin of my teeth) or agents refusing to pay a final invoice because a timesheet hasn't been signed... There is very little comeback for contractors in this situation, but yes, Ill grant you permies can have issues too, though they generally have better protections against these things.

          -----

          Going back to the notice period what I suspect you will find is that your contract (assuming you are outside IR35) has a notice period of 1-4 weeks but also has a clause that states you will be paid after submitting a completed timesheet or something equivalent AND that the client has no obligation to give you work.

          In real terms this means that no work = no money, because a client can say to you "We're terminating the contract now, start your 1 month notice" and "We don't have any work for you to do, go home" in one breath and have no obligation to pay you.

          This is standard practice, it happens to contractors all the time, how do you not know this?

          Its happened to me a few times and at the start of lockdown last year 50+ contractors started work at 9am at my old client and were sent home by 9.30am with nothing, they got paid up to the previous day and that was it, no notice, no additional money, just a handshake and a thanks.

          *THAT* does not happen to permanent employees.

          1. Lord Elpuss Silver badge

            Re: I'm going to go out on a limb...

            I'm not UK based so no IR35, but we do have mutuality of obligation built into the contract. Reason being that I'm currently performing a critical function and am in theory not easily replaced (although I suspect I'm easier to replace than they think, they're just lazy), so they wanted a 3 month notice period.

            Also no timesheets. It's a fixed-term employment contract with a defined end date. I'm not going to get into details as it could make me identifiable, but where I currently live the law allows for up to 3 fixed-term employment contracts before the company either has to offer you fulltime employment or not employ you for a calendar year.

            The concept of risking being told 'we have no work for you' and shown the door is alien to me. I'm sure it happens, but it's not a contractual basis I or my employer would be happy with. I presume it works both ways, in that you can also walk away with same-day notice?

            1. d3vy

              Re: I'm going to go out on a limb...

              "I'm not UK based so no IR35,"

              >> Nice

              "but we do have mutuality of obligation built into the contract. Reason being that I'm currently performing a critical function and am in theory not easily replaced (although I suspect I'm easier to replace than they think, they're just lazy), so they wanted a 3 month notice period."

              >> Yeah thats the bit that wont fly for a UK contractor in terms of IR35 its a huge red flag.

              "Also no timesheets. It's a fixed-term employment contract with a defined end date."

              >> Makes sense, thats not the type of contract that HMRC are concerned about, so wouldnt be an issue if you were UK based anyway.

              "The concept of risking being told 'we have no work for you' and shown the door is alien to me. I'm sure it happens, but it's not a contractual basis I or my employer would be happy with. I presume it works both ways, in that you can also walk away with same-day notice?"

              >> In theory yes, I could terminate the contract and leave immediately, or I could work the notice period.

              Its quite one sided skewed in favour of the client, I know a lot of contractors won't even terminate early in case it gets them blacklisted by the client (or worse the agent) so most I know prefer to keep relations good and either wait until the end of the contract or if they have to, terminate but work notice.

              Generally if I terminate Ill work the notice and then offer on call support at a reduced rate (or free if I want to keep the client sweet) for a period after I have left.

              The main take away is that UK contractors dont really have many protections, even things built into the contract can be pretty much meaningless as the ruling in this case shows.

      2. EN1R0PY

        Re: I'm going to go out on a limb...

        Then if you are not economically and emotionally able to deal with the uncertainty that comes with being paid more maybe you should make different choices rather than crying for sympathy from people who get their extra money in bonuses that never get paid because once again the company splurged the budget paying one person to work for the same money they could employ 2 graduates.

        1. d3vy

          Re: I'm going to go out on a limb...

          "Then if you are not economically and emotionally able to deal with the uncertainty that comes with being paid more maybe you should make different choices rather than crying for sympathy from people who get their extra money in bonuses that never get paid because once again the company splurged the budget paying one person to work for the same money they could employ 2 graduates."

          >> Mate, every one of your comments has boiled down to "They get paid more than me, its not fair", if your company needed two graduates they would hire two graduates, but they didnt they hired one contractor because they needed a job doing quickly and they didnt want to have ongoing costs of two new employees.

          Ill say it again, your employer sounds terrible, why do you still work there?

          Change jobs or start contracting, but don't devote years of your life to an employer who doesn't give a toss about you, it sounds like its making you really bitter and there is no reason for it, there are good employers out there who will value you and pay you what you are worth.

  8. batfink Silver badge

    A couple of things here I'm surprised about

    1. "Hypothetical" contract? No. Ours are ACTUAL contracts. Signed & sealed. Surely calling them "hypothetical" is an error in law then?

    2. Substitution: The quoted impediments to substitution - end client approval, vetting etc - also apply when the big boys provide staff. Then surely this means all of the people provided by TCS/Wipro/Crapita/Accenture/whoever are also disguised employees of the end client?

    1. Peter Black

      Re: A couple of things here I'm surprised about

      The comment is not about the contract, but about a particular clause, the exercise of which is deemed to be hypothetical.

      People employed by those outsourcing companies are typically (though not always) employees, and are taxed and pay NI as such. Their situation is therefore not comparable.

      1. Strahd Ivarius Silver badge

        Re: A couple of things here I'm surprised about

        Contractors that are not employees fall inside IR35 according to this decision, whatever the company they are working for.

      2. Anonymous Coward
        Anonymous Coward

        Re: A couple of things here I'm surprised about

        A contractor is an employee...of the limited liability company that they contract their services through. The difference is the size of company.

    2. katrinab Silver badge

      Re: A couple of things here I'm surprised about

      "Hypothetical" means a contract that actually represents what is happening on the ground rather than some legal fiction drafted by a lawyer that nobody pays attention to.

    3. Velv

      Re: A couple of things here I'm surprised about

      In fairness, having been an employee of a couple of the large service providers, we were pre-screened and approved for certain clients and government departments before any actual assignment materialised. i.e. screened just in case, not because we were being substituted in.

    4. The Axe

      Re: A couple of things here I'm surprised about

      Many contracts have clauses for unusual or unexpected situations but those clauses are never used. Are they just hypothetical too?

      The point of contracts is to cover all situations and make sure that both sides know what will happen if that event occurs.

      For instance a contract might have a clause that product x must be serviced y times a year and the contract is null and void if it doesn't happen, but if its always serviced properly then the clause is never used. Just like a substitution clause.

    5. John 48

      Re: A couple of things here I'm surprised about

      IR35 introduced the concept of a hypothetical contract. It is *supposed* to be a contract that combines the terms from what might be a chain of contracts between worker and final client, and can include within it terms "invented" by HMRC to reflect what they believe to be the reality of how the relationship works in real life, where that may not be adequately defined in a written contract or if it differs from the written contract.

      HMRC will then make decisions about the status of the worker based on the content of that hypothetical contract... the one that no one other than HMRC is allowed to see, and one that HMRC can (and do!) insert any clauses they want worded in any way they like, regardless of whether they actually reflect the real working practices! (who knows? you can't check!)

      So the contracting company will be party to one contract, and the next intermediary in the chain - possibly an agency of some sort. There will then be another written contract between agency and final client or next intermediary. The contractor has no right to see these contracts and yet they affect their employment status for the purpose of tax. (which has nothing to do with your actual employment status)

      It's a fundamentally broken system and has been since the start. The latest reforms make it even less workable. One of the requirements of IR35 is that as well as looking at the individual assignment, you take a look at the "big picture", and ask questions like "is the contractor in business on their own account", "do they have a business like structure and approach?" i.e. a list of things that the final client who now has to make an IR35 status determination has no visibility of.

      Lastly we have Mutuality of Obligation or MOO. One of the key requirements for a contract *of* service (i.e. employment) to exist is that there must be a minimum level of MOO. This means that for an employee

      1. elsergiovolador Silver badge

        Re: A couple of things here I'm surprised about

        Other problem is that the HMRC is only look into it one way. They never investigate (at least I have not heard of such case) whether a contractor is paying wrong tax by means of overpaying by being wrongly declared as employee.

        1. EN1R0PY

          Re: A couple of things here I'm surprised about

          Because theres no reason for overpaid underworked lazy contractors to come crying on mummies shoulder then is there?

          1. fix

            Re: A couple of things here I'm surprised about

            Is this the same entropy that ^^ above^^ was saying " I want too is not a mature arguement", now talking about mummies shoulder ?

            Very mature.

            1. d3vy

              Re: A couple of things here I'm surprised about

              Hes also said his problem is with contractors not paying tax, but then spent the majority every comment complaining that contractors get paid more than him... and for some reason he has something against testers too.

              Im fairly confident that tax isn't his main issue, it might be part of it but I get the impression that his employer is a bit shit and he doesn't get paid particularly well (or thinks he is worth more than he gets).

              To compound matters the same employer brings in contractors to work along side him and pays them more, now if I was being immature I'd suggest that there was a reason for his low pay and the need to bring in contractors to work alongside him even if they cost twice as much... but I'm not so Ill stick to him having a bad employer.

              I'd have changed jobs by now, not sure why he hasn't, the jobs market is brilliant at the moment, I dont know why but there seems to be tonnes of well paid IT work going but for some reason this guy would rather stay where he is and complain that everyone else has it better than him and its just. not. fair.

              1. Lord Elpuss Silver badge

                Re: A couple of things here I'm surprised about

                I realise I may be sinking (parts of) my own argument here, but there's a truism in contracting circles; you're worth as much as you're paid, no more and no less.

                In the case of the contractor in my first comment at the top of this thread who's effectively been a fulltime employee for 25+ years at three times the normal permie rate; the team thought he was mediocre at best but SOMEBODY thought he was worth the money - or couldn't be bothered to look up alternatives. Could have been because he was delivering value and we couldn't see it (unlikely, the work wasn't rocket science), because he'd pulled the wool over some decision maker's eyes to convince them he was worth it, or because he's delivering 'value' in other ways. Like sleeping with the boss. Or boss's wife. Or both.

                Anyway point being: if you think you're worth more, go out and get it. If you can't be bothered, you're not worth it. If you're trying but nobody's prepared to pay your rate, you're not worth it.

                1. d3vy

                  Re: A couple of things here I'm surprised about

                  "I realise I may be sinking (parts of) my own argument here, but there's a truism in contracting circles; you're worth as much as you're paid, no more and no less."

                  >> This is very true, and is reflected by different clients offering different rates for more or less the same work, I might only be worth £250 a day to a client who has a tight budget and loose project deadline or I might be worth £500 a day to another client who needs something done quickly that I have prior experience of.

                  "Anyway point being: if you think you're worth more, go out and get it. If you can't be bothered, you're not worth it. If you're trying but nobody's prepared to pay your rate, you're not worth it."

                  >> Yes!

  9. Sykowasp

    I guess he can at least ask Nationwide to pay him backdated holiday and sick pay as a result. I mean, a court of law no less found he was an employee, not a contractor.

    Right?

    Oh.

    1. Cederic Silver badge

      Not to mention them being liable for employer's national insurance.

      Sorry but the Government and HMRC need to stop this pretence that you can be an employee and also responsible for employer's NI.

  10. cantankerous swineherd Silver badge

    you've had a good run lads.

    1. d3vy

      What's funny about this is that because the liability shift with the new IR35 legislation it's actually less risky to be an outside ir35 contractor now than it was previously... There may be fewer outside contracts but they are definitely there (I'm working one now) so the run never ended, we just got some extra theater to make the permies feel better about it.

      1. elsergiovolador Silver badge

        The problem that nobody talks about is that the client has now a complete power over how contractor is classified, regardless of their individual circumstances.

        All they need to do is to tell their legal team to write a contract in such a way to it places contractor inside IR35 (for example by not allowing substitution and adding some supervision clauses for a good measure).

        There is only a material consequence if client wrongly decides that a contractor is outside of scope.

        The whole appeal route only exists on paper and is not enforceable in any shape or form and yet papers keep writing that a contractor can somehow appeal.

        Shambles.

        1. d3vy

          Definitely, there is no real incentive for clients to put contractors outside.. and quite a risk if they do so most clients are opting to put contractors inside.

          I think what is happening is that because there is now more competition for the outside contracts it's pushed rates down a bit so some companies are taking advantage, taking the risk, and finally handling contractors properly.

          Some are definitely just saying "everyone is inside" and having done with it... But not all.

      2. Strahd Ivarius Silver badge
        Devil

        don't gloat, HMRC has not yet prosecuted you, that's all

        1. d3vy

          Very unlikely to now too now that liability is with the client or fee payer contractors won't be getting targeted as much, easier to go after a bank with 100 contractors than one individual.

  11. ratcatcher67

    Good for HMRC

    Good and I hope HMRC come chasing after the rest of the contractors and the "faux one and two person companies" this country is littered with, especially within IT and the media.

    He didn't care if other full time employees subsidised his tax dodging and I bet he and his use the NHS, did he ever question how something like that is funded, he probably did and didn't care.

    Fuch him and the other tax dodgers.

    1. d3vy

      Re: Good for HMRC

      I know you're a troll and I shouldn't... But... Go on, how exactly do full time employees subsidise contractors?

      As for your comments about the NHS, his corp tax payments alone over those three years will have been in the region of 50-60k so there's that. How much tax do you pay a year?

      1. EN1R0PY

        Re: Good for HMRC

        If you pay a lower percentage of your income as tax than anyone else earning the same amount you are a tax dodger, says everyone who pays their fair share!

        Contractor pay is inflated to begin with, don't give me some nonsense about how it works out the same, the same work I do goes for 400 or more a day as a contractor, I get a lot less that that but pay a higher total percentage in tax than a contractor doing the same, I contribute my fair share, they don't, end of. So what I get one day off in 14, that doesn't make up for the contractors getting paid twice and taxed half as much as I do. If that contractor wage was taxed with PAYE they would pay more tax, so compared to me and other employees they are reducing contributions, regardless of how much more in total they get paid than me. Where does the extra money go? In their pocket, not to the NHS, not the police or to fight covid, but to your second home and Tesla payments, grubby thieves!

        You are either directly benefiting from this clearly unfair situation, or you are not very bright, if you think it's defensible. To give a specific example based on ability and contribution to the business: SW tester contractors get paid more than SW developers, which proves that skill and responsibility have less of an impact on pay than whether you a contactor or employed, how is that right? It's either you get paid more OR you pay less tax for loosing 1/14 days now both, contractors make a free choice to get both and still cry all over the internet about it.

        1. Anonymous Coward
          Anonymous Coward

          Re: Good for HMRC

          The pay rates are defined by the clients.

          If they are too low, nobody will want to do the work, as per capitalism 101.

          If contractors pay the taxes defined in the law, there is no tax dodging.

          Companies prefer to hire contractors than permanent employees because permies are totally unable to do the work required, since they are too lazy to improve their skills and prefer spend their time sipping tea and working on the internal politics.

        2. d3vy

          Re: Good for HMRC

          "If you pay a lower percentage of your income as tax than anyone else earning the same amount you are a tax dodger, says everyone who pays their fair share!"

          >> But its the right amount as per the law, and that's what matters really.

          "Contractor pay is inflated to begin with, don't give me some nonsense about how it works out the same, the same work I do goes for 400 or more a day as a contractor, I get a lot less that that"

          >> I can see where the animosity is coming from now.

          "but pay a higher total percentage in tax than a contractor doing the same,"

          >> You pay a higher % (Marginally) but a significantly lower ££ amount.

          I think you need to decide if the problem is that HMRC don't get enough tax ££

          Or just that we get paid more in general.

          IR35 only addresses one of these, you need to take the other one up with your employer.

          My tax in my last perm role was < £10k a year, its consistently £20-30k a year as a contractor, So if I stop contracting HMRC lose money.

          "I contribute my fair share, they don't, end of."

          >> I love the "fair share" argument, you don't get to decide what my fair share is, HMRC do, I pay *exactly* as much as I have to and not a penny more, my accountant checks that its all within the current laws and regulations.

          "So what I get one day off in 14"

          >> Your working conditions are between you and your employer, if your employer is that bad change jobs.. You could even have a go at contracting, Apparently it pays really well and is very easy to do.

          Of course, should you try your hand at contracting you wont have any issues, because even if the client determines that you are outside IR35 you will still put the whole lot through PAYE and pay 40p+ on every quid you earn?

          "that doesn't make up for the contractors getting paid twice and taxed half as much as I do"

          >> Its much less than twice and much more than half.

          Once you take into account the total cost of employment of a permanent member of staff, even just the pension contributions Employers NI & Tax" employing a permanent member of staff is more expensive than just the Gross figure you see on your pay slip.

          As for the tax, Ive never cared to work out what my overall % is, Its difficult because I dont take all of the money that my company gets paid out all at once.. but its probably somewhere between 20-30% of my gross (Thats a proper finger in the air guess) Assuming that you are in the lower tax bracket and have the normal £12k allowance Ill bet your overall tax % is ~19% Maybe a bit less depending if you offload money into a pension (Salary sacrificed and tax free of course).

          "If that contractor wage was taxed with PAYE they would pay more tax, so compared to me and other employees they are reducing contributions, regardless of how much more in total they get paid than me. Where does the extra money go? In their pocket, not to the NHS not the police or to fight covid,"

          >> In their pocket and then it gets circulated around the local economy as it is spent, We're not Scrooge McDuck, We're not just hoarding all the cash ffs.

          "but to your second home and Tesla payments, grubby thieves!"

          >> There's that green eyed monster again, I thought we'd seen the last of him.

          Seriously though, I don't have a second home, I don't know a contractor who does, and Teslas are hardly the height of luxurious expense... I know permie staff who are driving round in significantly more expensive cars provided by their employers.. Again Speak to HR if you're not happy with your working conditions.

          I have to admit I did once look at the cost of chartering a helicopter into the office once when I found out that my client had a helipad on the roof... but the cost was (shock) prohibitively expensive :)

          "You are either directly benefiting from this clearly unfair situation, or you are not very bright,"

          >> And we're into the personal attacks, that took longer than expected.

          Bright enough to recognise a shitty employer and leave for something better...

          "To give a specific example based on ability and contribution to the business: SW tester contractors get paid more than SW developers, which proves that skill and responsibility have less of an impact on pay than whether you a contactor or employed, how is that right?"

          >> I'm not sure I follow your logic here, permanent software testers get paid about the same as

          permanent software developers, its a skilled job, most of the testers I know ARE developers, they have different tools and goals but they write code just the same as the rest of us.

          Even if they were inside IR35, they would still earn more than a permie they'd just pay more tax, We're getting back to the uncertainty about what you're really annoyed with.

          Again, If you're not happy with your salary, I cant help you, speak to HR.

          "It's either you get paid more OR you pay less tax for losing 1/14 days now both, contractors make a free choice to get both and still cry all over the internet about it."

          >> Its not just paid holidays we lose, we also get no sick pay, no paid bank holidays, pretty much enforced unpaid leave over xmas, no pension contributions, no redundancy, no notice period, no job security, (Ive started work at 9 one morning and been sent home by 10 because the project has been cancelled, when was the last time that happened to a permie?)... We also have to pay for accountants & insurance, save enough to cover potential sickness & holidays. I think that list is long enough but its by no means exhaustive.

          Like I said, I'm unclear if your complaint is that we don't pay enough tax of just that we earn more than you, you seem to swing from one to the other but mainly focus on the latter, so I guess your main problem is that you're not happy with your working conditions, I sympathise, I have definitely been there.

          If you want to have a bash at contracting I'd be happy to give advice and details of agents and accountants, I don't hold a grudge because someone has a different opinion than me :)

          As a bonus, if you do start contracting you will likely be forced inside IR35 now anyway so you wont have to worry about any of this (And you will *STILL* take home more than a permie).

          Well, this has been a bit more of an essay than expected.. I'd better get back to counting that hoard of krugerrands I've been keeping in my swimming pool sized vault. :)

          Have a good one.

    2. elsergiovolador Silver badge

      Re: Good for HMRC

      All this does is that contractors will have to join big consultancies, get paid the same salaries as employees, but the consultancy will continue to charge the client 1-2k per day.

      Difference is that the profit will go offshore shielded from tax by creative accounting.

      HMRC will get less and small entrepreneurs will have no way to fund their start ups.

      1. d3vy

        Re: Good for HMRC

        "All this does is that contractors will have to join big consultancies, get paid the same salaries as employees"

        Funnily enough the final straw that pushed me into contracting was being TUPEd into CSC and being treated like a contractor but with none of the benefits...

  12. Anonymous Coward
    Anonymous Coward

    Perhaps they need to do what owners of private land open to the public as a convinience need to do.. lock it up for one day per year to maintain control.

    One day per year, he should have had a substitute go in for work for him.

  13. Anonymous Coward
    Anonymous Coward

    To be honest, I don't think this goes far enough at all

    You just have to look at all the commentards saying "just have your wife do the job instead of you for a day". In case it was not perfectly obvious, this is flagrantly trying to game the rules. It's the equivalent of playing Monopoly and saying "I didn't steal money from the bank, because I put it in my pocket before we even started playing so that doesn't count as cheating".

    If you work more than 150 days in the year for the same client, you should be taxed as an employee.

    1. ratcatcher67

      Re: To be honest, I don't think this goes far enough at all

      Absolutely

    2. d3vy

      Re: To be honest, I don't think this goes far enough at all

      The comments saying "let your wife have the job for the day" if anything just highlight how stupid that rule is, if a clause is in the contract we should get have to prove it's enforceable, it's a legally binding contract, the clause is enforceable by virtue of being in a signed agreement between both parties.

      This ruling Means that we need to be able to demonstrate that the clause is enforceable so forces us to find ways to do that. Substitution exists so we can have someone else do the work in the event of illness or unavailability, in the 6 years I've been contracting it's never come up so I can't prove that it's enforceable.. so yeah, while it's fucking stupid, I might have to pay someone to come in one day and do some testing for me (it's the least domain knowledge intensive part of the role).

      1. elsergiovolador Silver badge

        Re: To be honest, I don't think this goes far enough at all

        The substitution argument is quite stupid anyway. Any employee who had been sick for a period of time, surely had a colleague taking over their duties. Does that make them self employed?

        1. d3vy

          Re: To be honest, I don't think this goes far enough at all

          "The substitution argument is quite stupid anyway. Any employee who had been sick for a period of time, surely had a colleague taking over their duties. Does that make them self employed?"

          There are some nuances to the substitution clause, the contractor would have to cover the costs of the substitute themselves and handle all training etc, from a financial standpoint the client is unaffected they still pay the original contractor and the original contractor pays the substitute, anything else isnt considered substitution.

          But you're right, unless you are going to be unavailable for a considerable time (in which case you'd probably just terminate the contract anyway) its unrealistic to expect a substitute to be dropped in to cover unavailability for short periods.

    3. d3vy

      Re: To be honest, I don't think this goes far enough at all

      "If you work more than 150 days in the year for the same client, you should be taxed as an employee."

      Implement that and I guarantee that every contract will be 4 months long and no one will renew.

      Literally no one benefits.

      1. EN1R0PY

        Re: To be honest, I don't think this goes far enough at all

        No one benefits? I think you are only seeing it from one perspective, try thinking about the employees pov: make it harder to employ temp staff and the company will have to look after its perm staff better! Perm staff are in fact people, taxpayers and human effing being too didn't you know?

        The contractors like to claim employees are just jelly the contractors get paid more, yes for the same work of course we think it's unfair, however there's also the commoditization of tech employees. Business now generally treat all tech staff as if they are not really employees, once had a 2 hour lecture in a town hall about how in India and China they can make the staff work all night and sack them if they refuse. Imagine that lecture being given to sales or manufacturing? They'd all be up in arms!! Educated, experienced, employed engineers holding grad and post grad degrees in the actual work that they do are talked to like street rats begging for crumbs all because the contractors, here and abroad, have tought the management to think of engineers as only interested in making it to end of their contract taking as much money as possible as they go. Contractors are a convenience, employees are the real life blood of a business. Carry on putting contractors ahead of employees, have all tech jobs moved to India and every business in the west closed then who benefits exactly? Not the Indians, because we won't have any money to paid them anymore.

        1. d3vy

          Re: To be honest, I don't think this goes far enough at all

          "No one benefits? I think you are only seeing it from one perspective, try thinking about the employees pov: make it harder to employ temp staff and the company will have to look after its perm staff better!"

          >> Interesting, you're doing it again, blaming contractors for your bad working conditions.

          Do you honestly think that its contractors fault that your employer isn't paying you what you think you're worth?

          "Perm staff are in fact people, taxpayers and human effing being too didn't you know?"

          >> But not the testers, you didn't seem to think they were worth much in your last comment.

          "The contractors like to claim employees are just jelly the contractors get paid more,"

          >> Yes, that is very much how you are coming across.

          "However there's also the commoditization of tech employees. Business now generally treat all tech staff as if they are not really employees, once had a 2 hour lecture in a town hall about how in India and China they can make the staff work all night and sack them if they refuse."

          >> Funnily enough, they can do that with contractors too, we don't have any employment rights!

          "Contractors are a convenience, employees are the real life blood of a business."

          >> I agree, employees should be treated well, and again, you seem really unhappy in your job I honestly urge you to find somewhere else to work, there are employers that will pay you well and treat you fairly.

          "Carry on putting contractors ahead of employees, have all tech jobs moved to India and every business in the west closed then who benefits exactly? Not the Indians, because we won't have any money to paid them anymore."

          >> This seems like an odd tangent unrelated to the IR35 discussion so I'm not going to get involved in this one, I don't see a connection between contractors and offshoring development and I don't see why you think that offshoring will cause every business in the west to close.

  14. elsergiovolador Silver badge

    Chasing the little guy...

    I wish they were so relentless at chasing all those big corporations that are on the fiddle.

    People on higher tax bracket are de facto subsidising those big corporations. These companies pay small salaries and their workers have to turn to tax payer for help. Then all the profits go offshore.

    Meanwhile the government PR is turning one tax payer against another.

    CEOs must be laughing reading this article and preparing another donation to the ruling party...

    1. ratcatcher67

      Re: Chasing the little guy...

      You mean yourself,

      The solution is simple just pull all your income into paye and nobody will chase you.

      1. d3vy

        Re: Chasing the little guy...

        "The solution is simple just pull all your income into paye and nobody will chase you."

        All income? Is this going to apply to everyone? Anyone getting dividends from shares they hold in a company? Should those be taxed as PAYE income?

        Where exactly do you draw the line on what income is taxed as PAYE?

        Unless you can truthfully tell me that you pay tax on EVERY single penny you earn, not take advantage of salary sacrifice pension contributions, never paid back a student loan via salary sacrifice or saved in a tax free Isa then I'll think that you're talking out of your hole and nothing you can say will convince me otherwise.

        1. EN1R0PY

          Re: Chasing the little guy...

          No you are talking out of something! The same tax breaks that ordinary people get are available to wealthier people, but there are loads of loop holes that wealthy people get that ordinary people don't. This feels like such a typical logical assignment statement I struggle to believe that you don't get it but think you deserve to be in the tech sector. Here's some free advice Google "union" and "intersection" they should help you understand the concept the all can have one of something without all having one of everything. It's not all that difficult really.

          1. d3vy

            Re: Chasing the little guy...

            Sorry mate, Im not picking on you, but you seem to have commented on every comment I posted yesterday...

            "The same tax breaks that ordinary people get are available to wealthier people, but there are loads of loop holes that wealthy people get that ordinary people don't."

            >> I have so many questions.

            1. Define wealthy.

            2. What tax breaks do contractors get that "ordinary" people cant? (Bearing in mind that anyone can start contracting, its scarily easy to set up a company).

            "This feels like such a typical logical assignment statement I struggle to believe that you don't get it but think you deserve to be in the tech sector."

            >> worthy? Your previous comment about testers had a bit of a tone to it where I got the impression that you looked down on them, I just ignored it.. but now you think that there are people who are "worthy" and I assume "unworthy" of being in the tech sector?

            Who exactly judges this worthiness?

            Is there an arbiter of tech?

            Am I not allowed to work in IT because I want to do contract work? Despite having almost two decades of professional development experience (and close to another decade just doing it for fun).

            "Here's some free advice Google "union" and "intersection" they should help you understand the concept the all can have one of something without all having one of everything. It's not all that difficult really"

            >> Again, You're really sending mixed messages here, the topic is TAX LAW as it relates to contractors working to limited companies...

        2. Strahd Ivarius Silver badge
          Trollface

          Re: Chasing the little guy...

          If you pay less than 100% of you total income as taxes, you are a tax dodger!

          1. d3vy

            Re: Chasing the little guy...

            100% ?

            So no salary sacrifice pensions?

            No ISAs?

            No salary sacrifice student loan repayments?

            No cycle to work schemes?

            And you can wave goodbye to the 12k tax free personal allowance.

            By this logic literally EVERYONE is a tax dodger.

            I've just spotted the troll icon, I salute you, I was properly reeled in by that :)

      2. farrier

        Re: Chasing the little guy...

        Senior Network Engineer:

        Permie - £50k pa, tax £7484, NI £4852 = £12,336

        Contractor - £450 per day, tax £28,825

        Who's paying for more hospital beds again?

  15. d3vy

    Small point.

    "with the judges agreeing he fell under the new IR35 off-payroll tax rules"

    He didn't fall under the NEW rules, this investigation began before the new rules came into effect, otherwise he would not be liable.

    1. Strahd Ivarius Silver badge

      Was he not working for a government agency or something like that, where the rules have been in place for some time already?

      1. d3vy

        The details I saw said it was Nat West over a three year period around 2012/13

        Even if it was a public sector client, The public sector rules only changed in 2016 so no, this is an old investigation that has been bubbling away for some time.

  16. Anonymous Coward
    Anonymous Coward

    All the same to me

    As a younger software engineer who needs to take employment contracts to grow my career I have to pay whatever the tax man charges, but I get job stability and benefits. Contractors make the choice to loose stability and benefits and instead take themselves out of the tax system by keeping the money themselves that would be used for employment and state benefits. As an actual employee and tax payer I loose out because I'm contributing more when your contributing less, so I never receive the full benefit of my contributions because not everyone is contributing. You wanna know why you don't get holiday and sick pay, or god forbid bonuses, YOU ALREADY POCKETED THE MONEY WINGEBAGS!

    To someone on PAYE all tax dodging is tax dodging, bezos, IT contractor, it's all the same to me.

    1. elsergiovolador Silver badge

      Re: All the same to me

      You seem to have a "crab in a bucket" mentality.

      > Contractors make the choice to loose stability and benefits and instead take themselves out of the tax system

      There is no such thing as taking oneself out of the tax system, unless you run a big corporation, then you replace the tax with a donation to the party.

      > As an actual employee and tax payer I loose out because I'm contributing more when your contributing less

      I understand you also do voluntary contributions as well? Are you in a contest who pays more tax?

      > You wanna know why you don't get holiday and sick pay, or god forbid bonuses

      Because they are not employees

      > To someone on PAYE all tax dodging is tax dodging, bezos, IT contractor, it's all the same to me.

      You claim to be an engineer, but you seem to have problem with maths. Are you able to notice a different between 70k and a billion of pounds?

    2. d3vy

      Re: All the same to me

      "YOU ALREADY POCKETED THE MONEY WINGEBAGS"

      Yes, spot on, this is WHY we get paid more.. we have to cover our own holiday pay, sick pay, Maternity, Bank holidays etc...

      But when we go inside IR35 we don't get the extra money to pay ourselves holiday pay, sick pay etc and we certainly don't get it from the employers..

      I'd be perfectly happy inside IR35 with Holiday Pay and Sick Pay covered by the employer, but thats not what we get, we end up with the worst of both, higher tax and no employee benefits.

      As an example, I could get a Perm job paying 60k a year (net of approx 4k a month), I could also get an equivalent inside IR35 contract on 375 a day which also gives a net of 4k a month.

      But as an employee I'd have pension contributions, holiday pay, sickness cover etc... So where is the incentive? I mean, I still do it because I like the lifestyle, I like changing where I work regularly (2-3 times a year).

      As for this : "Contractors make the choice to loose stability and benefits and instead take themselves out of the tax system by keeping the money themselves "

      You know we pay tax too right?

      In my last perm job I paid about 10k a year in tax, Im now paying 20-30k a year.. We do pay tax, its just worked out a bit differently so the % looks a bit unfair.

      Ive said it before and Ill say it again, HMRC makes more from contractors even outside IR35 than they do from permanent employees.

      "To someone on PAYE all tax dodging is tax dodging"

      I seriously hope you dont have a salary sacrifice pension or student loan payment if thats your attitude... or does that not count because thats a good form of tax dodging?

  17. John PM Chappell
    Megaphone

    I see those who've never worked a day in their lives as a contractor are as clueless and irrationally envious as ever.

    This case is a mess, and not a typical example. It went the distance because it does seem like the guy was, to all intents and purposes, functionally an employee and not a freelance contractor.

    If he and his legal advice feel they still have a case for disagreeing (legally provable case, not just disagreeing with the result), no doubt it will be pursued.

    For those of you who have never contracted, please educate yourself a little - contractors are responsible for all their own costs and benefits, the rate of pay demanded reflects that along with compensating for the insecurity of the position, and base value of the services offered.

    If you really think it's easy and a tax dodge, quit your job, set up a "fake" Ltd, employ yourself, your wife and your dog, and go make the millions you think are on offer and that you're worth. Otherwise, do shut up about how unfair it is people with a different contract to you are paid differently.

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