back to article HMRC research finds 'resistance' to proposals to shift contractor tax compliance burden

There is "general resistance" among both the public and private sectors to plans that would shift responsibility for ensuring that third party contractors are paying the right employment taxes from the individual to public sector employers, HM Revenue and Customs (HMRC) has found. Employers surveyed by HMRC were concerned …

  1. Doctor Syntax Silver badge

    "public sector employers"

    The term "employer" is prejudicial here. The better term in "engager". If a freelancer contract is fit for purpose then the engager should not be an employer. Naughty HMRC.

    If the burden were shifted to them engagers - and agencies - would have a simple solution: ensure that all contracts were unambiguously contracts for services. It's what they've been told for years but they couldn't be arsed to sort themselves out.

    1. Preston Munchensonton

      The term "employer" is prejudicial here. The better term in "engager". If a freelancer contract is fit for purpose then the engager should not be an employer. Naughty HMRC.

      For certain, it's disingenuous to make such a leap in logic.

      If the burden were shifted to them engagers - and agencies - would have a simple solution: ensure that all contracts were unambiguously contracts for services.

      Not sure this is even important. Shouldn't these engagers and agencies be looking at what's in the contracts they sign? I would hope they're already doing what you state. If not, the wankers need to be thrown out on their ears.

      1. Doctor Syntax Silver badge

        @ Preston Munchensonton

        I wonder what your experience of freelancing is. It's essential to have a contract for services, not a contract of service, AKA an employment contract.

        It's a good while since I retired but after IR35 came in I made sure I had non employment terms. It helped that I had a number of direct contracts and very few through agencies. However there were many reports of contract problems. One situation was that the agency would issue business-like contracts to freelancers and employment-like contracts with the engagers and got a precedent set by taking a guy to tribunal who was so ill the hearing had to take place in his home so it didn't get properly defended.

        The consequence is that the engager is able to load the risks onto the freelancer so that in the event of a downturn or a project being canned they can be dumped without any redundancy payments but are in danger of being taxed like a permie with all the permie protections.

        The problem is HR drones who don't understand the difference and CBA to find out. If they had the responsibility for ensuring proper B2B terms they'd simply get a different set of boilerplate clauses and that would be the end of the matter.

    2. Anonymous Coward
      Anonymous Coward

      HMRC = Ignore ethe big guys

      I know lots of guys n gals contracted into MoD, HMRC, GCHQ, London Transport from the big consultancies. All act as 'pseudo employees' (that is they take daily work demands from staffers). The HMRC doesnt go for these, just the little guys. This is one of the most biased pieces of eye-blind legislation going.

      When HMRC goes after every contractor in the MoD acting as a pseudo-employee REGARDLESS of how big the parent firm is then we'll know how consistent their approach is.

      1. Sir Runcible Spoon
        Flame

        Re: HMRC = Ignore ethe big guys

        It's also important for the contractor to maintain a 'separate mindset' approach where they're placed.

        Whilst the team I am working with can provide me with things they would like to do, they are left in no doubt that it is I who determine how best to achieve their desired result.

        I also make it clear to any clients of the company that I am independent (i.e. I don't present myself as an employee of the company I am working with) - much to the occasional dismay of the team manager that I'm working with - but I think he gets it now :) - if he ever wants me to do something or go meet someone he asks me, never tells me. It's the little details that I think might help if the relationship were ever closely scrutinized.

        Oh, and if they ever decide that I *am* a full time employee of someone elses' company, they can bloody well stump up for sick pay, holiday pay, redundancy payments, training, decent notice period and pension contributions etc. as well as all my back-dated accountancy fees. I can't see how that will end up cheaper.

        Perhaps if this all kicks off we (contractors) can start a crowd-funded court case against HMRC to sue them for lost benefits or something.

        1. AMBxx Silver badge

          Re: HMRC = Ignore ethe big guys

          Sir runcible, I think you and I are the exception rather than the rule. I'm concerned about being caught in the crossfire with customers being less inclined to use me.

          1. Sir Runcible Spoon

            Re: HMRC = Ignore ethe big guys

            @AMBxx: "Sir runcible, I think you and I are the exception rather than the rule. I'm concerned about being caught in the crossfire with customers being less inclined to use me."

            I'm not sure what you mean. Are you contracting?

            I won't lie, I've had to 'teach' most of the other contractors that work in the same team as me about presenting yourself as independent (I'm not saying you should ram it down people's throats though).

            As an example, I have a 'standard' corporate signature because I use their mail system and laptop to do the work they need me to do (security reasons) but I make sure there is a small amendment - so instead of saying - Security Consultant, <Company X> - it says Security Consultant, on behalf of, <Company X>.

            It's also useful to actually *read* your contract :) Mine clearly states that I must never present myself as an employee of <Company X> - so if Company X complains I just point them at the contract they signed.

            I will admit to being a right royal pain in the arse and a stickler for the rules, but as long as this also applies to the *service* I provide, it gets forgiven. The manager of the team I work with would love to be a bit more 'cowboy' and thinks I'm a bit paranoid, but he has no problems in setting me on other managers if he thinks they're taking the piss so he puts up with it - so I must be like some kind of double-edged sword :)

            1. AMBxx Silver badge

              Re: HMRC = Ignore ethe big guys

              sir runcible

              I .freelance'. Typically, a minimum of 5 customers in any month. I'm not the intended target, just likely to be accidentally hit.

              1. Mark 65

                Re: HMRC = Ignore ethe big guys

                I think this bit

                Most contractors were likely to be caught by a 'supervision, direction or control' test, according to the feedback.

                Catches just about everyone doing anything. I provide direction and supervision of tradies working on my property but I'm pretty sure they're not my employees. Engaged by me for a project, yes, but not employed as such.

      2. jonathanb Silver badge

        Re: HMRC = Ignore ethe big guys

        If they are employed by the big consultant, it isn't an issue.

      3. Anonymous Coward
        Anonymous Coward

        Re: HMRC = Ignore ethe big guys

        The directors of those big consultancies are not the only shareholders and they are not the ones working on site with those clients.

  2. Velv
    Boffin

    HMRC should drop IR35 entirely.

    If an individual is employed by their own limited company them they must already comply with all the same tax rules as every other limited company and employee. So the fault is not with the employment through an intermediary but the rules concerning operation of a limited company.

    Don't like how some companies structure their operations to gain a business advantage? Then change the rules on how companies can be structured. Don't try and fudge even more complex and onerous "schemes" onto business because some people gain a business advantage by following the rules.

    And this is about punishing people who follow the rules. These changes are not designed to address fraud and will make no difference to those who already commit tax fraud.

    1. Gordon 10

      I rather suspect that this is HMRC trying to reduce the burden auditing of millions of small companies to a few hundred thousand big ones.

      1. AMBxx Silver badge

        We're not audited annually. As with most tax law, the threat of penalties for non-compliance are sufficient to keep us all in line. HMRC are just interested in an easy target to gather more tax.

  3. Zippy's Sausage Factory

    When it comes to IR35, HMRC has one criteria they really care about, and one only:

    a) Does it benefit Capita

    b) Does it help people to compete against Capita?

    If the answer's yes to (a), they do it. If it's yes to (b), they do the opposite.

    Simples.

  4. d3vy

    "evidence of widespread non-compliance" given that the existing ir35 legislation is just one massive grey area and no one (not even hmrc) can actually say with any certainty whether you are caught by it or not.. it's why there are companies offering insurance against it.

    Also when they say compliance do they mean what most contractors do and legally split income with spouses, take mine wage and the rest in dividends paying the lowest possible amount of tax... Or do they mean they actually want everyone paying full whack PAYE? If so does that mean that they will stop requiring contractors to pay corporation tax?

    1. Anonymous Coward
      Anonymous Coward

      Red herring

      That's a red herring. Noone pays both corporation tax and employment tax on the same money.

      I'd be fine with PAYE if it were just the 20%/40% headline rates. It's the extra 25% employment tax that drives me to avoidance, and to taking only the "living wage" as PAYE.

      I anticipate a large pension contribution this year, avoiding both employment tax and corporation tax.

    2. biolo

      @d3dy

      Corporation tax is payable on profits, if we were paying ourselves the entire income of the company, minus expenses, there would be no profit to be hit with corp tax.

      What would end up happening of course is that taking a contract with a public entity end-client would become not worth it, and contractors would at-best use such a contract as a stop-gap measure until something in the private sector came up. The public sector would therefore have to offer massively higher day rates to compensate for the higher tax bill, or suffer headcount shortfalls and massively increased churn rates. In the former case it'll just increase the public sector costs, in the latter it'll cause project delays, more errors and outages which of course will result in more cost. There is no upside here for HMGovt, but HMRC can claim it "did something".

  5. Anonymous Coward
    Anonymous Coward

    "doing a similar job in a similar manner to an employee" ie getting paid holiday, sick pay, parental leave, pension contributions, etc. If they / we don't get every one of those things, we're not employees. End of story.

    If HMRC came up with one, single, simple and straightforward set of rules for everyone - no exceptions (no special treatment for their friends in Parliament, for example) - then this sort of nonsense would be a little easier to take.....

    1. d3vy

      I'd go one further... If contractors and employees are the same make all employees pay £1500 a year in public liability and professional indemnity insurance.

      1. Tim Warren

        Nah - that's only for junior doctors racking in £22k+!

      2. Anonymous Coward
        Anonymous Coward

        And

        Having to ensure you are continuously up-to-date and trained at your own expense. Being on more than 3 month contract (heard of job security HMRC?)

        Oh and get to use the 'employees' car-park! usually banned as contractors get in on time so employees moan about having no spaces!

      3. Sir Runcible Spoon

        @d3vy

        "£1500 a year in public liability and professional indemnity insurance."

        I recently realised that I don't *actually* need public liability insurance, as I don't work with the public :) So I now only fork out for indemnity insurance - much cheaper!

        1. d3vy

          Re: @d3vy

          Interesting... I'd have thought that the 'Public' in this instance would be the workers of your client... Prof Indemnity won't cover someone tripping over your laptop bag... pub Liability would.

          I might be wrong! Who's your insurer?

          1. Sir Runcible Spoon

            Re: @d3vy

            "I might be wrong! Who's your insurer?"

            http://www.qdoscontractor.com/

            1. d3vy

              Re: @d3vy

              @ Sir Runcible spoon.

              Cheers. I already use them for contract reviews so will give them a call and get a quote for ins.

              :)

    2. Doctor Syntax Silver badge

      "If HMRC came up with one, single, simple and straightforward set of rules for everyone - no exceptions"

      I have an alternative scheme. Everyone has the same tax rates but the stability of the job is viewed as a benefit in kind and taxed accordingly so if you have a nice steady job with long term prospects, say working in HMRC, then you pay accordingly. The honourable friends should be OK with that; after all they can be turfed out at the next election so their job security is much less than Sir Humphrey's. I always reckoned that if the PCG had started a campaign for such an arrangement IR35 would have been dropped PDQ.

      1. d3vy

        "I have an alternative scheme. Everyone has the same tax rates but the stability of the job is viewed as a benefit in kind and taxed accordingly so if you have a nice steady job with long term prospects, say working in HMRC, then you pay accordingly."

        Thats the problem though isnt it... contractors are not EMPLOYED by the clients, they are employed by their company which is then engaged by the end client.

        I can guarantee that my employment status will not change because I am employed by d3vy LTD, I own the company and Im not likely to fire myself, so you could say that my employment is extremely stable.

        Conversely I am now 18 months into what was initially a risky 3 month contract, because after I got started the project scope expanded and my skills matched, so how would you deal with that? change the tax on a contract by contract/extension by extension basis? Hardly simplifying it. How do you quantify what is risky? Every contract is risky, contractors don't need to be given notice, contractually we normally get a week, in practice the fact that you wouldn't be allowed on site to work that week means you wont get paid for it.

        One other thing to remember is that its not just contractors taking advantage of these rules, there are a whole host of small companies that do the same, so your plan kind of shits on other small businesses too.. Shop keepers, family run businesses...

        There is no way to fix this with the current way that contractors are forced to work.. We need Limited Liability so we cant be "Self Employed" so we realistically *need* to operate a LTD company, but then if we pay ourselves a normal wage we get double taxed because we need to pay Corporation tax AND personal income tax.

        I suppose there is an argument that you could run a LTD and draw EVERY PENNY as a wage which would effectively wipe out the CT liability... But then that would mean paying more tax than is needed, no one is going to do that - Prove me wrong, Phone HMRC and tell them you no longer need your 11k Personal Allowance - No? Thought not.

  6. Sir Sham Cad

    Re: a lot of tax is being lost

    Is it bollocks! If it was then HMRC would have spent some of the "lost" money in recovery action. Instead each attempt to re-write IR35 or otherwise change the goalposts indicates that in it's current form IR35 isn't actually doing anything and is not economically enforceable.

  7. Dominion

    How hard can it be?

    Simplify the tax system and merge employee NI and tax so that everyone pays the same rate of tax, regardless of whether income is paid as salary or dividends and all this nonsense instantly goes away.

    The only downside is all the HMRC staff that will be out of a job. Ah wait.... I've just spotted the issue with making it simple...

    1. Buzzword

      Re: How hard can it be?

      It's not just the National Insurance, it's the expenses too. If you're commuting from e.g. Bath to London, the train season ticket will cost you £10,000 a year. A contractor can pay that out of pre-tax income, whereas an employee (even a short-term one) simply can't.

      Paying your wife is another trick which employees can't do either; a contractor pulling in £100k a year could save at least £12,000 by using his wife's (and/or children's) tax-free allowances. It's not terribly common, but it does happen.

      A level playing field would be much appreciated, but it's hard to see how it could be done with minimal state interference.

      1. Preston Munchensonton

        Re: How hard can it be?

        A level playing field would be much appreciated, but it's hard to see how it could be done with minimal state interference.

        No real way to minimize state interference without minimizing the size and scope of the state. And no one seems to support that idea without being denounced as a lunatic, a Randian idiot, or a capitalist pig (among others).

        There's no question that a self-employed or freelance consultant has many options available to avoid taxes, provided by the very legislators that complain about such options existing. #smh

      2. Dominion

        Re: How hard can it be?

        In my Utopian world, tax free allowances will be scrapped, and the rate of tax reduced to reflect it. Maybe I'll continue with child tax credits for the first 2 children, after that it's your own lifestyle choice. Then it won't matter who pays the tax, it will always be paid at the same rate.

        The expenses issue is a bit more difficult for an off the cuff policy statement - I'll get back to you on that one. Something like... If you commute to the same place 3 days a week or more then lets's face it, that's your permanent place of work so tax deductions won't be permitted.

        It'll be much clearer when I'm appointed President and I can start implementing these policies....

        1. Sir Runcible Spoon

          Re: How hard can it be?

          "In my Utopian world, tax free allowances will be scrapped"

          So your Utopian society is only of benefit to people on higher incomes? Because removing tax free allowances would hit the poorest hardest -not exactly a vote winner.

          1. Dominion

            Re: How hard can it be?

            I just need to figure out how to calculate graded tax so higher earners pay more without allowing them to offset it against another company employee paying a lower rate (spouse / child / dog etc...)

            Figure that bit and it's a sure fire vote winner....

            1. d3vy

              Re: How hard can it be?

              "I just need to figure out how to calculate graded tax so higher earners pay more without allowing them to offset it against another company employee paying a lower rate (spouse / child / dog etc...)"

              Higher earning contractors DO pay more.

              The problem is that people don't seem to make the connection.... Contractors are company shareholders, the fact that they own the company doesnt matter... If you (I assume a permie) buy shares in BT/Apple/MSFT etc then your dividends from that get taxed in EXACTLY the same way as a contractors dividends from their company.

              The disparity that you see is not because the tax rules are different (They are not), its because contractors have more control over where their income comes from. They can pay themselves minimum wage and draw as much of a dividend as they like... this might mean paying very little tax, or it might mean paying quite a lot depending on how much they want to take out in a given financial year.

              With regards to splitting money between spouses, are you suggesting that only one family member should be able to hold shares in a company? What about family run companies?

              Personally, I dont think that the issue is a small number of contractors using LEGAL tax avoidance mechanisms... Its the HUGE number of permanent staff using tax avoidance... Lets start taxing child care vouchers, pension contributions, student loan payments... Imagine how much that would bring in.

          2. 's water music

            Re: How hard can it be?

            Because removing tax free allowances would hit the poorest hardest -not exactly a vote winner.

            It wins votes from the rich and let's face it they can afford more votes

        2. d3vy

          Re: How hard can it be?

          "If you commute to the same place 3 days a week or more then lets's face it, that's your permanent place of work so tax deductions won't be permitted"

          Commute from where? My home, or my business address?

          What about when I commute once a week and stay in a hotel for 3 nights? Can I claim for the travel/hotel? *

          What about if I work from an office (my own office, not attached to my home) but a client wants me on site for a few weeks?... thats not my normal commute - its something a permie would be reimbursed for...

          Problem is the contract market is massive, contractors provide a service that is plainly needed, if you piss them all off by not making contracting worthwhile you risk them all going back to permanent jobs, which has two effects:

          1. companies, the NHS and gov't loose access to a mobile work force that they can dip into when needed and discard when done.

          2. The gov't collects less tax. No really, my CT bill last year was double any single years PAYE before I started contracting.

          Go back to the drawing board :)

          * I've known permies that do that because it was cheaper and less hassle than getting the train.

      3. d3vy

        Re: How hard can it be?

        "Paying your wife is another trick which employees can't do either; a contractor pulling in £100k a year could save at least £12,000 by using his wife's (and/or children's) tax-free allowances. It's not terribly common, but it does happen."

        Its hardly a "trick", if you are a contractor and you run a limited company you can have employees, you have to pay employees whether they are family or not In my case I pay my wife £210 a month this payment is for her to clean my home office, sort my expenses, answer emails & phone calls when Im on a client site (pretty much 9-5 every day) and to chase unpaid invoices. Now I could hire someone to do this, and I'd have to pay them more (Spouses don't need to be paid minimum wage)... In your eyes is this me dodging tax?

        In your original post you said "...another trick which employees can't do either..."

        Do you know what else employees cant do?

        They cant be held financially liable for mistakes.

        They cant be told that their services are no longer required and asked to leave the site there and then.

        They cant be required to supply their own software licenses for tools required for their work.

        The list goes on.

        Yes contractors get paid more. No its not necessarily fair that they get to use different tax avoidance mechanisms, but they do, contractors get some benefits to being a contractor, employees get different benefits for being an employee.

        If you are an employee and you think that contracting is an amazing wonderland where money rains from the sky as you skip merrily from contract to contract why don't you jack in your job and give it a try? If you like I can put you in touch with a few good recruiters.

      4. d3vy

        Re: How hard can it be?

        I dont want you to feel that Im picking on you.. but I just re-read your comment and had to add something:

        "the train season ticket will cost you £10,000 a year. A contractor can pay that out of pre-tax income, whereas an employee (even a short-term one) simply can't"

        That is simply false, my last full time employer offered several pre tax schemes for buying things such as the cycle to work scheme, child care vouchers and (Someone do a trumpet noise here) ****TRAVEL SEASON TICKETS****

        Incidentally - Contractors cant get any of the above benefits*

        * Well - except the cycle to work - My company owns a bike that I can borrow for getting to local clients.

        1. Buzzword

          Re: How hard can it be?

          @d3vy,

          Companies can offer loans to help purchase an annual season ticket, which works out slightly cheaper than a monthly or weekly ticket. This can save a few quid; but it's nothing compared to the 40%+ you save by purchasing a season ticket out of your pre-tax income.

          I'm not moaning - just observing that it's actually quite difficult to design a tax system which treats both employees and contractors fairly and equally. In particular, it's very difficult to distinguish between a job-hopping employee and a "serial monogamist" contractor who only has one job at a time with each job lasting many months.

          1. Sir Runcible Spoon

            Re: How hard can it be?

            "it's very difficult to distinguish between a job-hopping employee and a "serial monogamist" contractor"

            It isn't really about how long you stay doing one thing, it's about liability and risk.*

            When a company hires a contractor, a large amount of risk is taken up by that contractor (you do know that some companies are slow to pay other companies don't you? Try that with a payroll and see how long you last!).

            A huge amount of risk takes the form of being 'cull-able' at a moments notice without any HR/redundancy headaches - that's something a company should pay for isn't it?

            Money for contractors also comes out of other budgets than permies and don't get measured as 'headcount'.

            It's easier to hire a contractor too, takes a lot less time - also - if you get it wrong you just get rid of them, whereas a permie has *rights*. You can't just get rid of a permie because they are a bit slower than you'd like. Contractors are a vital part of the work-force these days, especially in IT.

            Most people I know who are capable of being contractors don't do it usually because they have kids and they like the stability of knowing where their paycheck is coming from.

            Although, it has to be said that I have had more job security since I became a contractor than I ever had as a permie, primarily because you *know* the risks and you take steps to minimize them, something most permies don't do.

            For example, when redundancies come around - I've seen people who've worked for that firm 15-20 years and believe that they won't be culled and are very surprised/upset/angry when they are. I once got a call on the *way* to my first day on a contract - like an idiot I took the call - and they told me they didn't need me anymore (if I'd walked through the door they would have owed me the notice period at least).

            It didn't upset me very much, I went home and followed up on one of the other leads I had, no fuss.

            If you are a permie, and you're not familiar with the contracting down side, do you have enough money saved up *that you never touch* to ensure you can live for 6 months without going into debt? Most people don't - but if you are a contractor and you don't have that then you are in for a very rude awakening, because you live and work from day to day. This also has the added benefit/stress of ensuring you stay current. I don't know *any* contractors who are both successful and apathetic.

            I'm not suggesting permies are apathetic (I need a better word here) but I have noticed a tendency to 'get comfortable' so to speak.

            If you can imagine a sliding scale, 0-100, where 0 is a contractor who puts themselves inside IR35 and plays it *really* safe with expenses etc and 100 is someone who pushes every rule and boundary to leech another 10p from their company sans tax, then guess who HMRC goes for first? So just because a particular contractor is bending every rule in the book doesn't mean they will not pay for that at some point. Me, I probably sit around 30 on that scale - I don't need to take the piss and it's extra risk I don't need - I have enough already :)

            *edit: I took so long writing that someone else made the point first :)

            1. d3vy

              Re: How hard can it be?

              Your point was much more eloquently put though :)

            2. Anonymous Coward
              Anonymous Coward

              Re: How hard can it be?

              "I'm not suggesting permies are apathetic (I need a better word here) but I have noticed a tendency to 'get comfortable' so to speak."

              Sometimes that's a reflection of the employer more than the employee.

              I was an employee with a "blue chip" outfit and had never been formally trained in Topic X; I'd picked it up on the job, I got by, but wasn't as productive or confident as I should have been with proper training. A week's learning with a decent expert (not just the guy/gal in the next hotdesk but one) could have sorted that. Did it happen? No, despite multiple requests to multiple managers. I wasn't the only one hampered by lack of appropriate training but I was the only one brave/daft enough to speak out about it.

              To add insult to injury, at one point the PHB started talking about employees taking CPD seriously, but wouldn't let people use works time to go to qualifying low-cost CPD sessions e.g. those run by relevant professional institutions.

              PHB speak with forked tongue, especially PHB with serious corporate ambitions.

              So, it's not always the employees fault that they're getting a little stale.

          2. d3vy

            Re: How hard can it be?

            @buzzword.

            Where the F£ck did you get a 40% saving from?

            Buying anything for my company reduces my corporation tax bill by 20% of the items value, it has no effect on my personal income tax.

            1. Mark 65

              Re: How hard can it be?

              @d3vy: From memory, depending on how hard you push the boundaries, typical tax yield from contract income (going back a few years) is 15-35% with 35% being damn safe (i.e. you get 1 - tax yield in your pocket). Not 40% by any means. Whether it affects your personal income tax or not is irrelevant as we are comparing the spend of pre-taxation money versus post taxation money i.e. £1 vs down to £(1-0.35). The money you'd have to spend personally (rather than corporately) to get the ticket is money taken out of the company remember, and that gets taken out after personal tax is paid as well as corporation tax.

              Still, I consider the perks of pre-tax travel to be minor compared to redundancy, pension provision, holidays etc etc. If permies think contractors have it so damned easy and it's such a life of coke, hookers, and unicorn tears then perhaps they should STFU and try it.

              1. d3vy

                Re: How hard can it be?

                Thing is, if you stop contractors claiming travel then you have to stop employees claiming it too.

                I know, it's harder to justify many contractors "work address" is also their home but of you think of it in terms of a WFH employee who us asked to spend a month at one of their employers sites.. it's no different, their company would cover tge cost to travel from their normal base, to the remote site.

                As a contractor I am a permanent employee of my own company. My company pays my expenses to travel to its clients. Obviously it a bit more blurred because that's the norm rather than an exception.

                It might be easier to think of it like CSC, they have tonnes of permanent staff on their books that they send to client sites for months at a time... The staff get reimbursed expenses for travel, the only real difference is the size of the company.

              2. Anonymous Coward
                Anonymous Coward

                Re: How hard can it be?

                If permies think contractors have it so damned easy and it's such a life of coke, hookers, and unicorn tears then perhaps they should STFU and try it.

                Over the years I've found the group that have been the most vocal on such matters are those permies who don't maintain a current CV and don't receive calls from agencies and don't actually know any agencies and don't change employers (or even departments within an employer) very often.

                The one part of being independent I really dislike are all the sales calls and thus not knowing where the next piece of work is going to happen... :(

                However, once I've got an opportunity and an engagement with invoices being paid... :)

        2. d3vy

          Re: How hard can it be?

          Also

          https://www.gov.uk/tax-relief-for-employees/travel-and-overnight-expenses

          So... That's pretty much the same as a contractor.. except a contractor almost always works from a temporary place of work.

      5. Doctor Syntax Silver badge

        Re: How hard can it be?

        "If you're commuting from e.g. Bath to London, the train season ticket will cost you £10,000 a year. A contractor can pay that out of pre-tax income, whereas an employee (even a short-term one) simply can't."

        And if the headcount gets cut 3 months in it'll be the freelancer's head that's first in the queue - or maybe it'll just be enforced rate cuts.

        The essential point about using freelancers is that it enables the engager to transfer such risks to them. It's the taking on of those risks (including those which might need professional liability issue) that differentiated between being in business and being an employee.

  8. Lost In Clouds of Data
    Joke

    Whatever happened to the promise that...

    ...the Tories would abolish Labour's IR35 edict when they were still the opposition?

    Seems to me that, like all great opposition promises, one should assume they mean the total opposite with a cherry on top.

    1. Anonymous Coward
      Anonymous Coward

      Re: Whatever happened to the promise that...

      Citation needed. Who promised what, and when?

      Or do you just mean the general "tax simplification" promise? Whatever happened to that, as complexity rises ever further?

      1. BebopWeBop
        Facepalm

        Re: Whatever happened to the promise that...

        OK - http://www.computerweekly.com/feature/Tories-will-scrap-IR35 - reported here and here http://news.bbc.co.uk/1/hi/business/1173109.stm (links exposed so you know what they are before you bother to chase them up (not that I voted Tory in this or any other belief that what they said had any bearing on truthfulness, or even voted for them at all.

        1. BebopWeBop
          Terminator

          Re: Whatever happened to the promise that...

          And a corollary, multiple opposition parties have lobbied in favour of a severe restriction on anti-privacy legislation, and when in power, the home secretary of the time (cf Jack 'slime ball' Straw) promptly try to out do their predecessors. And even David Davis seems to have gone back to the dark side.

      2. Dan 55 Silver badge
        Meh

        Re: Whatever happened to the promise that...

        2000: IR35 came into force.

        2007: Philip Hammond as Shadow Chief Secretary to the Treasury said Tories will abolish IR35. link

        2011: Recommendation by Office of Tax Simplification to suspend IR35 or compel HM Revenue & Customs to make changes to its implementation. link

        2016: Now. Philip Hammond in charge of Treasury.

        1. JimmyPage Silver badge
          Joke

          Re: Yes Minister

          Does anyone remember the episode of Yes Minister where the hapless Hacker (:)) had to take delivery of a petition as minister, which he had organised when in opposition. Of course in power, he had no intention of honouring it ...

          Bernard: What shall I do with it minister, file it, or arrange secure disposal

          Hacker: Just get rid of it, I never want to see it again !

          Bernard: In that case I'll file it minister.

          1. billse10

            Re: Yes Minister

            yes, the petition is explicitly about surveillance powers - "The Death List", iirc

            Quick search later - yes, that's the one: https://www.youtube.com/watch?v=6DYlK4oPgHY

            If anyone has a spare 20 minutes, always worth watching - even if just for the joke about the government's chief bugger ...

        2. DavCrav

          Re: Whatever happened to the promise that...

          "2000: IR35 came into force.

          2007: Philip Hammond as Shadow Chief Secretary to the Treasury said Tories will abolish IR35. link

          2011: Recommendation by Office of Tax Simplification to suspend IR35 or compel HM Revenue & Customs to make changes to its implementation. link

          2016: Now. Philip Hammond in charge of Treasury."

          And you are commenting on an article about proposals to make changes to the implementation of IR35.

          1. Dan 55 Silver badge

            Re: Whatever happened to the promise that...

            I was supplying the citation that the AC asked for, although it seems odd that we're talking about this in 2016 instead of 2011.

        3. Roland6 Silver badge

          Re: Whatever happened to the promise that...

          Now. Philip Hammond in charge of Treasury.

          Well don't hold your breathe, given the U-turns and backtracking we saw both in the referendum campaigns and post referendum, it would not surprise me if Philip Hammond now holds a totally contrary viewpoint.

        4. Anonymous Coward
          Anonymous Coward

          Re: Whatever happened to the promise that...

          Dan55: checked your first link. It's actually rather a long way from saying what's claimed of it. All it says about 2007 is that "the Conservatives’ Economic Competitiveness Policy Group" (whoever they may be) put forward a proposal that would abolish IR35. Given that the article's source is a strong Vested Interest, I'd expect them to be much clearer on the status of that group if it actually had any meaningful status.

          No quibble with the other point: whatever happened to tax simplification (and clarity)? As already mentioned in the post calling for citations.

  9. Kubla Cant

    A bit of history

    Back in the day, there was a good deal of dismay in the contractor community when Red Dawn Primarolo introduced IR35. I initially shared that dismay, until I read an article by an employment lawyer that described the history of attempts by Inland Revenue (HMRC's predecessor) to prove employment status. Mostly they were trying to prove that somebody was an employee, but occasionally they were trying the opposite. Either way, they lost just about every case. Even with IR35, I don't think they've enjoyed much success since then.

    Unsurprisingly, HMRC's preference is for a system where they decide who pays tax as an employee, without reference to any pesky rules.

    1. jonathanb Silver badge

      Re: A bit of history

      My source at HMRC tells me that most IR35 cases involve people working in pubs serving drinks.

      1. Anonymous Coward
        Anonymous Coward

        Re: A bit of history

        "My source at HMRC tells me that most IR35 cases involve people working in pubs serving drinks."

        My source at the local pub tells me that most IR35 conversations take place in the local pub while someone is serving drinks too :-)

        Ironically, manager (note, not landlord, it's a managed house) runs his own business out of the pub building, doing triathlon training etc (including of local plod, according to the 'gentleman' in question), but of course not declared (to pub chain) - and given his "function rooms are paid in cash only, no card or cheques, and don't ever put it through the register" rules, I somehow have less than 100% faith that he is declaring it to HMRC either.

        1. d3vy

          Re: A bit of history

          So he's stealing from the company and failing to declare earnings?

          Nice.

  10. Anonymous Coward
    Anonymous Coward

    Ethical tax compliance

    I'm going to get some downvotes here, I'm sure.

    I'm a contractor, and I choose to pay myself, and only me, mostly as salary that generates PAYE and NI as I draw it out of the company, but I'm an exception.

    I work with many other contractors, and to tell the truth, I'm pretty appalled at the (mostly legal) lengths many of them go to in order to minimize the amount of tax and NI that they pay, and this includes going out of their way to try to get contracts worded in ways to try to make them outside of IR35. They're not breaking the law, but they are taking advantage of the convoluted legislation in this area.

    They cannot see any ethical problems with being highly paid and paying a much lower percentage of tax and NI than most people, and they cannot understand why I am prepared to pay more tax and NI than I absolutely have to. It is these people that HMRC would like to target, although I do think that the rules need to be much clearer.

    Where I am currently getting wound up with the Treasury is their recent crusade about trying to align travel and subsistence allowances to IR35. Were this to happen, it would mean that I would have to demand a higher rate, just so that I could continue going where the work is as there is not enough of the right type of work within commuting distance of where I live.

    Oh, and double taxation on money that I choose to keep in the company over an end-of-year, to allow me a buffer in case I'm out of contract for any period of time. And also the disparity between the rules for small and larger companies.

    1. aelking

      Re: Ethical tax compliance

      But one thing you don't mention is that there is a much greater risk being a contractor, with unpaid holidays and sick leave.

      So whilst you may be doing the 'moral' thing of paying more tax you are doing yourself a disservice by increasing your own risk level.

      Plus, the a contractor will pay around the same amount of tax (maybe more) than a permanent employee, just with the final take home factoring in risk.

      1. Dominion

        Re: Ethical tax compliance

        Sorry, but that's a load of crap. If you choose to pay every penny you earn at the point you earn it instead of keeping some back to pay yourself "holiday pay" and "sick pay" then that's your problem. You are your own employer. So if your employer (yourself) isn't paying you holiday pay and sick pay then look in the mirror. There's your problem.

    2. Anonymous Coward
      Anonymous Coward

      Re: Ethical tax compliance

      While I think that its admiral that you pay more Tax and NI than you need to, Its not something that I would do.

      The lower tax that I pay compensates me for the benefits that I lose not being an employee.

      I'd also be interested in your remuneration arrangements... You say that you pay yourself a wage, wages are a company expense and therefore reduce your corporation tax bill, so in reality are you not just shifting some of your CT onto PAYE? You mention that a change to T&S would mean you go onto the higher rate which suggests that you are paying basic rate at the moment which (Unless its changed) is 20%, Corporation tax is also 20% at the moment so what real benefit are you getting from this arrangement?

      Without knowing your exact circumstances its difficult to know, but a bit of fag packet maths shows that you pay about the same either way...

      If your going down that route you might as well just sign up with an umbrella company and close down your LTD your not really getting the benefit of it..

      Please note, none of the above is a dig at you, I am also a contractor, and as I said, I am interested in how you structure your company and remuneration... Ill probably never follow suit, but its interesting none the less. :)

      1. Anonymous Coward
        Anonymous Coward

        Re: Ethical tax compliance @AC "admiral"

        Original "ethical" AC here. I presume you meant "admirable"

        I actually dispute your numbers. I agree that paying CT and income tax on dividends, the overall tax component is only a couple of percent saving, but paying CT and tax on the dividends gives you another 5K in tax free allowance on the dividends, and significantly reduces the employers and employees NI contributions, saving you more that 15% of your earned rate.

        If you structure your salary so that you stay below the Lower Earnings Limit, a common practice amongst contractors, you pay little or no NI, employer or employee at all, a huge saving.

        And if you pay a significant other as a part time 'secretary', and split the dividends, then you double the tax allowances, and reduce your tax liability still further. This is what, in my view, is unethical.

        I said nothing about the T&S taking me over the higher tax threshold as even ignoring T&S, I'm already over the higher tax threshold (experienced contractor here). It's the fact that if I can't claim T&S, I will effectively have to pay tax on the weekly travel to wherever my (short-term) workplace is (currently ~130 miles) and overnight accommodation, so this would be 40% tax on £800-1000 per month, an increase on my personal tax of several hundred pounds a month (and this is just tax ignoring NI).

        This is not insignificant, is unfair compared to my directly employed colleagues (many of whom are placed by their employers on customer sites, just like me, but can still claim T&S) and may force me to reconsider my current stance on tax, even though I could carry the cost.

        1. d3vy

          Re: Ethical tax compliance @AC "admiral"

          "And if you pay a significant other as a part time 'secretary', and split the dividends, then you double the tax allowances, and reduce your tax liability still further. This is what, in my view, is unethical."

          Well, there is your problem.

          If you pay a significant other t be a "Secretary" then they get a WAGE as they would be an employee of your company and that wage would be subject to PAYE. In order for them to be paid dividends they have to be a shareholder of the company.

          Forget for a moment that the shares that the spouse owns are in the contractors company.. Instead take a contractor, who owns 100% of the shares in their company and their wife owns a few shares in some other UK based company (Say.. BT)... are you saying that the wife shouldn't be allowed to take advantage of the 5K dividend allowance in this case? Or is it only a problem when its their partners company earning the money?

          In the interests of disclosure. I am a contractor, My wife owns 15% of my company because she put in a considerable amount of work to help me get started (And she still does), She also receives a small wage as an employee from my company which is taxed at the appropriate rate.

          None of the above is illegal, in fact if anything its quite well within the rules, we could pay her more easily without it ever being an issue. Ethics on the other hand are a separate issue and are subjective so bringing them into a discussion about tax law is ridiculous (Though I see it happening more and more in the media).

          If you really want to bring the ethical argument into it give me 10 minutes to email my brother who likes to think of himself a bit of a anti capitalist, I'm sure he would love to lecture you on why every penny that you don't spend on absolutely essential items should be given to the poor...

          Thats why ethics cant play a part in this discussion... its either legal or its not.

    3. Roland6 Silver badge

      Re: Ethical tax compliance

      "I'm a contractor, and I choose to pay myself, and only me, mostly as salary that generates PAYE and NI as I draw it out of the company...

      I'm pretty appalled at the (mostly legal) lengths many of them go to in order to minimize the amount of tax and NI that they pay, and this includes going out of their way to try to get contracts worded in ways to try to make them outside of IR35."

      Whilst I understand your reluctance to sign up to some of the schemes that are more akin to tax evasion than tax avoidance or to schemes that require significant effort compared to the savings achievable on your typical trading figures. However, from what you are implying, I do not understand why you are not making full use of simple prudent tax saving/avoidance measures that could add several thousand a year to both your business'es and your personal tax home net income, for no change in the gross price on your invoices (ie. I'm talking about simple tax efficiencies that will improve your margin). By simple I mean things like being in the 'right' VAT scheme - for my mix of trading I'm better off by several thousand a year by being in the Flat rate VAT scheme and my VAT accounting is vastly simplified, or it is really worth it (financially and time spent on administration) having the company run your car rather than have the company simply pay you a per mile rate to use your personal car.

      From my calculations from my business, I know I'm paying about 3~4% of my gross earnings in tax that if I were prepared to make the effort (and I mean effort) I could avoid, however I pay it because having a simple life (ie. time not spent doing admin/accounts) is worth more than the money I could potentially save and the hassle involved.

      Also, I do not understand why you are not ensuring your contracts are worded correctly as "contracts for service". Particularly as it is also in the interests of your client to ensure the contract is either clearly outside of IR35 (no nasty tax surprises for them at a later date) or within IR35 (what they really want is an employee and so should be budgeting accordingly).

      I agree the double taxation conundrum on monies retained in the business over a tax year end is highly irritating.

  11. Santa from Exeter

    Allowances and caps

    My partner owns a PSC of which she is the only employee.

    Unfortunately, she is seriously considering giving it all up.

    Due to the recent changes, she can no longer claim the Ca £450/month extra accommodation cost (legitimate business expense, she's working away from home) nor her weekend trips home. This is due to the Tories deciding that as an employee wouldn't get it, nor should she (despite the fact that an employee wouldn't live 200 Miles from their place of work).

    Add to that the fact that she is a Locum with the NHS and the Tories have introduced 2 caps to the pay, she now probably takes home less than an employee of the same level!

    This to me has less to do with levelling the playing field and more to do with screwing more money out of the Little Guys.

    1. DavCrav

      Re: Allowances and caps

      "Due to the recent changes, she can no longer claim the Ca £450/month extra accommodation cost (legitimate business expense, she's working away from home) "

      Fucking diddums. As an employee, I cannot claim diddly squat for the fact that my partner and I ork 78 miles apart from one another so have long commutes.

      "This is due to the Tories deciding that as an employee wouldn't get it, nor should she (despite the fact that an employee wouldn't live 200 Miles from their place of work)."

      One of my colleagues' family lives in Germany and he rents a small flat near work and flies home every weekend. So stop your 'employees wouldn't do whatever' bullshit. People who work in highly skilled areas have to locate where the jobs are, and that can lead to long commutes. When I worked in Oxford someone was working there who lived in Devon, another works there and lives in Bristol, another in Southampton. It's called the two-body problem, and it means I and many others have a lot of expenses that we cannot claim back.

      A lot of people here like being contractors because of the freedom, blah blah, but the reality is that most people like it because of the tax avoidance opportunities.

      1. Shades
        Pint

        Re: Allowances and caps

        It seems you've used all the bitter, here, have a pint of lager instead.

    2. Anonymous Coward
      Anonymous Coward

      Re: Allowances and caps

      My partner owns a PSC of which she is the only employee. ...

      I take it that what you really mean is that your partner is using an agency who are operating the HMRC approved PSC model to pay your partner as if they were an employee, so your partner only has to complete a timesheet and expense form each month?

      A possible solution is for them to set up an Ltd in their own right and manage their own accounts, getting the agency to pay them on receipt of invoice rather than on timesheet.

      1. Peter Gathercole Silver badge

        Re: Allowances and caps @AC re. Ltd company

        It is still possible to claim travel and accommodation expenses even if you run a Ltd company, or even work through an umbrella, so long as your business contract fall outside of IR35. The wording of the legislation that came into effect this April is convoluted, but clear.

        There are, however, a number of accountancy practices (including some of those that will manage the finances of your PSC for you) who seem to want to play it very safe, and recommend stopping claiming expenses now. Whether they are being over cautious or overly risk averse is debatable.

        George Osborne was quite clear that he wanted this practice stopped completely for umbrellas and PSCs, by reworking/replacing what is still known as IR35. Hopefully, once Philip Hammond gets his feet under the table, we may get a more fair policy. We'll have to wait and see.

  12. JimmyPage Silver badge

    IR35 - As I recall ..

    was introduced to prevent exactly what was happening when I worked for a GEC company in 1998-2000.

    Employee would resign on Friday, and then turn up on Monday doing exactly the same job, but as a "contractor". With an appropriate bump in salary as they then paid themselves in dividends.

    It was discussed in great detail on this very site - I recall quite a few people threatening to fuck off to the US if it came to pass. I guess we really missed their like.

    From what I recall the IR35 tests were quite sensible at separating employees from genuine contractors supplied by a genuine company. The key one being "substitutability" (?). If your contract with the company allows you to send "a resource" then they are probably genuine. If, for any reason the contract is for a particular person, then it's probably bogus.

    Or to put it another way the last 3 building jobs I have had done were done by a bunch of lads who I had no say over - I sorted it with the gaffer, and he chose the resources.

    1. Sir Runcible Spoon

      Re: IR35 - As I recall ..

      "If your contract with the company allows you to send "a resource" then they are probably genuine"

      This part of IR35 is probably the most onerous part of it, especially in my field.

      My company contract *does* allow for me to supply a replacement (in theory) - but in order for that replacement to be accepted they would have to jump through a lot of hoops,

      -Background checks

      -Access cards/network accounts etc.

      not to mention that they would be starting in a complex environment it took me months to get to grips with and a year or so to get to the point where I stopped having to ask so many questions.

      Whilst all this is possible, and permissible (according to the contract) - in reality if I tried it it would almost certainly result in an immediate invocation of the termination clause.

      So, does that mean the contract would be inside or outside IR35 on that basis alone?

      1. Anonymous Coward
        Anonymous Coward

        Re: IR35 - As I recall ..

        My company contract *does* allow for me to supply a replacement (in theory) - but in order for that replacement to be accepted they would have to jump through a lot of hoops,

        Sounds a lot like many government contracts (such as HMRC's Aspire), the option is there and does get used - the question that arises is who pays the bill and generally an arrangement is reached whereby the supplier pays some of the costs incurred for the on-boarding (including background checks) and handover period.

        This is why I tend to pay myself a reduced salary and then pay additional monies as dividends/bonus's on completion of an engagement, to show that the business has made some allowance necessary to honour the substitution clause.

  13. John B 1

    Not just IT

    The haulage industry is watching this with interest. There's a scam whereby agency staff join an "umbrella company" that treats them as PSCs for tax and NI, For an extra £1 ph (yup, a whole pound) the driver gives up pension, SSP, holiday pay and workplace rights. Nor is he treated differently to a staffer. His workload is allocated without his input, he must protect the brand, he must comply with any reasonable instruction and his infringements are managed in-house. HMRC intend to rip this up, and there's a rumour that the agency will be made liable for unpaid revenue.

    Which is why I'm PAYE.

    1. Anonymous Coward
      Anonymous Coward

      Re: Not just IT

      "... haulage... HMRC intend to rip this up, and there's a rumour that the agency will be made liable for unpaid revenue."

      'Bout effing time.

      if you buy an appliance from (say, hypothetically) oa.com (online appliances) it's likely to be delivered by a couple of folk wearing oa logos, on an oa-logo'd truck, who are following their *personal* oa instructions. But they're not oa employees, they're 'self employed'.

      And before them there was Citylink, and there are still plenty of others playing this silly "self employed" game; Hermes are in the news this week.

      1. d3vy

        Re: Not just IT

        Note: contractors != Self employed.

        And umbrella companies are generally a perfectly good legal way to do contract work without the hassle of setting up a limited company (which is generally a requirement for contract work)

  14. Dave 15

    Suggestion...

    a) Flat rate benefit to all

    b) Flat rate tax on all company turnover in the UK

    No need to tax individuals at all really. Anything I get paid will already have been tax paid by my company... job done. No taxing every penny two or three hundred times.

    And more importantly no more offshoring Tesco, Starbucks, Natwest etc etc etc profits abroad by dubios charges for use of logos etc.

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