UK government review of IR35 tax reforms? Like a broken pencil, say contractors groups – it'll be utterly pointless The British government has met its election pledge to review new off-payroll working rules for contractors in the UK private sector – though it largely appears to be a fruitless exercise as the roll-out date is seemingly immovable. IR35 – as the controversial tax reform is called – will see financial liability for defining the …
MAYNARD: '...The Castle of aaarrrrggh'.
BEDEVERE: What is that?
MAYNARD: He must have died while carving it.
LANCELOT: Oh, come on!
MAYNARD: Well, that's what it says.
ARTHUR: Look, if he was dying, he wouldn't bother to carve 'aarrggh'. He'd just say it!
MAYNARD: Well, that's what's carved in the rock!
GALAHAD: Perhaps he was dictating.
ARTHUR: Oh, shut up. Well, does it say anything else?
MAYNARD: No. Just 'aaarrrrggh'.
LANCELOT: Aaaauugggh.
ARTHUR: Aarrrggh.
BEDEVERE: Do you suppose he meant the Camaaaaaargue?
GALAHAD: Where's that?
BEDEVERE: France, I think.
LANCELOT: Isn't there a 'Saint Aaauuves' in Cornwall?
ARTHUR: No, that's 'Saint Ives'.
LANCELOT: Oh, yes. Saint Iiiiives.
KNIGHTS: Iiiiives.
BEDEVERE: Oooohoohohooo!
LANCELOT: No, no. 'Aaaauugggh', at the back of the throat. Aaauugh.
BEDEVERE: N-- no. No, no, no, no. 'Oooooooh', in surprise and alarm.
LANCELOT: Oh, you mean sort of a 'aaaah'!
BEDEVERE: Yes, but I-- aaaaaah!
ARTHUR: Oooh!
GALAHAD: My God!
[dramatic chord]
[roar]
MAYNARD: It's the legendary Black Beast of Aaarrrrggh!
“ Instead of getting more tax out of me, you get nothing. Idjits!”
... so are you saying IR35 would oblige you to pay more tax and NI. Did you spend it on a Porsche Macan or Audi SQ5 instead ??
Another slam dunk for IR35.
Do you not put any money into a holiday/sickness fund or have any sickness insurance ??? You get paid more than a permie.
As a result of these changes I am looking at going permanent. Yes my take home will drop overall, but the tax I pay will also drop 29%... As a contractor I have a lot more risk and have to do everything myself, I only get paid for the days I work, so holiday and sick pay, plus anything else has to be covered by me.
I think permie's need to understand that contractors do not just pay PAYE, they also have to pay corporate tax, VAT, etc. and work all this out, plus pay insurance, accountant, IT costs, etc. The difference between permie take home and contractor take home is not as much as you might think, especially if you take 25 days holiday, plus the 8 days national holidays (not working on a contract) into account.
I'd be far more worried if I were a permie rather than posting awful comments on here that a bunch of self motivated highly skled people were about to descend and show me up for the work shy rest-upon-my laurels slacker and bullies you really are. All those "senior" developers that are nothing of the sort are about to realise they know next to nothing and all those permies held back by said political climbers about to work with people who want to deliver. Not just coast
bunch of self motivated highly skled people were about to descend and show me up for the work shy rest-upon-my laurels slacker and bullies you really are
Personally I've seen many work-shy contractors that jump ship as soon as the job gets sticky, leaving a pile of deep shit behind, and I've also seen many permanent staff who work far beyond their expected roles to solve a customer problem. In a decent company both get the reward that they merit.
Contractors fill an important need for short-term skilled work that a company doesn't have (or need) the skills for in-house full-time. The reasoning behind IR35 is to stop companies hiring permanent staff, but disguising them as contractors to avoid their legal obligations to pay permanent-staff benefits. It has nothing to do with competence, indeed the "contractors" that are being targeted aren't contractors at all, they are permies in all but name.
In my experience contractors are hired in one of three cases - when the permies have made a mess of the project, when the management has made a message of the project, or when it's a new project that needs to be done in a hurry at short notice.
If the contractors make a mess of the project, it's actually usually the 2nd choice, I've seen SO many contractors told to do X while management walks away and never talks to them again. Six months later they come back and review the contractor's work only to decry "That's not what I wanted you to do! I can't believe I just paid for 6 months of that! Yes, I know it's what I *told* you to do, but it's not what I wanted!"
Contractors are a tool, it's up to management to wield that tool correctly.
Up until now, it has been the responsibility for each contractor to self assess their role. However so many of the contractors that have been in the same company for several years* refuse to accept that they were disguised employee's. So HRMC has decided to move responsibility to the companies that take on the contractors.
Yes this is a very blunt instrument and hits legitimate contractors as well - but did anyone realistically expect some contractors to voluntary start paying more tax to save others from being impacted?
"so many of the contractors that have been in the same company for several years* refuse to accept that they were disguised employee's."
Length of contract has only an indirect bearing on IR35 status.
I used the same mechanic for many years for all my car repairs. Is he "employed" by me?
Repeat business and customer satisfaction is something all businesses want to build. If they have the same customer/client coming back over and over again, they are successful, not necessarily a "disguised employee". To determine that, you'd need to examine the contract terms and working practices (a 1 week contract could still be found to be inside IR35, and a 10 year one outside, depending on the contract terms and working practices).
Rather pompous opinion of yourself and your ilk you have.
Beware hoards of sell/fuck your Granny types that put personal aggrandisement above any character traits you have in your staff handbook behaviours. Please read the Bribery, Expenses and Hospitality section very closely.
<rant_mode>
I like that having money "squirreled away" automatically means dodgy money in your mind. When I was a permie I still managed to save money from my income after tax. Why do you assume that contractors have done something wrong?
If we're down the IR35 route then why don't we also get rid of all the tax-avoidance schemes that I've seen companies use for permies:
- bonus schemes, you only pay personal tax on the bonus not NI, company avoids NI
- share options, ditto
- petrol allowance, ditto
- company car, ditto
- salary sacrifice to artificially lower tax paid on pensions
Then lets get permies to pay all their own insurance/holiday/sick pay.
Yes there are contractors that abuse the system. There are also those perfectly legally using the same mechanisms open to *any* company director. In your words "dodgy dividend splitting". There are also permies that screw the system. I've seen far too many retired on the job permies doing f*** all for their salary.
Some of us don't contract to make a fortune - I work in embedded and the mythical 100 grand salary oft quoted on here is just that - a myth. I contract because it gives me a degree of control and so I don't have to go cap in hand to a fuckwit manager to get a day off. I also get a choice in what I work on and anything that I develop that is not directly for a customer is my IP not my employers. So don't lump all contractors together as abusing the system and I won't lump permies together as work-shy and bitter.
When the dust settles on the IR35 changes it will turn out to make fuck all difference to the tax revenue raised but it will cause companies extra costs for no benefit to them. The beneficiaries of this will be the big body shops hiring out staff for a pittance at an exorbitant fee, offshore outsourcing companies and umbrella companies.
</rant_mode>
Exactly, my "squirrelled away" cash is a collection of savings when I was a permie and savings when I was (am) a contractor. I've paid tax on all of that money. I'm jacking it all in now as I've reached an age where I don't want to return to the permie corporate treadmill, I like the independence that contracting gives me and would have carried on for a few more years had these changes not come in.
I'm just surprised that they actually bothered to pretend to do anything at all.
If you believe that "review" meant a damn thing from this government, well, you deserve all you get.
Only real hope we had was a labour government tempered by an SNP and Liberal alliance.
Only real hope we had was a labour government tempered by an SNP and Liberal alliance.
That would be some new definition of "tempered", meaning "preventing it from doing anything"? Look back on the past year, and imagine 5 more years of that. It would make an Italian government look stable and constructive.
I run a limited company and carry out work for multiple clients (usually a couple of days a now and then) and the work is done when I have time available (with a deadline so I am not directed on how I do it) and I supply the equipment. I also pay myself a salary, with NI and Tax deducted (plus I pay employer's NI).
When I go to the HMRC website and fill out the survey for all my work the HMRC says I am outside IR35 for all my work.
Yet now I am getting hassled by a couple of big clients (who pay me the least per day) about IR35 as they only have limited visibility of my entire work portfolio.
One client who I have done no work for since last May emailed me the other day to say they believed I was inside IR35, they constituted less than 2% of company turnover last year so I again went to the HMRC website did a the test for the work I do for them. The HMRC yet again says the the work I do for them is not within IR35 (emailed it bak to the client).
Big companies are just applying a broad brush to this which is crazy.
At this rate if you need a Plummer to fix a water leak or mend a boiler in your home, you will need to run an IR35 payment scheme in order to pay them.
The whole situation is getting crazy when you only do a couple of days work for a client a year (spread over a couple of months) and they say you are in IR35!!!
So my advice to real contractors is to fill out the IR35 test on the HMRC website and send a copy to the client.
This seems to be exactly the kind of work most people envisage when you say "contractor", yet the Government conveniently ignores it and assumes "contractor" means "high paid permanent staff with tax avoidance".
Also, can HMRC not some how manage to make MPs all fall within IR35, after all, they are all fixed term contractors, no doubt with some on the fiddle.
“ Big companies are just applying a broad brush to this which is crazy.
Big companies are applying the broad brush as they are risk averse.
HMRC determines roles are inside IR35.
HMRC demands tax be paid immediately and must continue to be paid until a tribunal. Millions of pounds grabbed by HMRC through their interpretation of poorly written legislation.
Tribunals takes 2-3 years to reach a determination before any chance the company can get its money back.
HMRC determines roles are inside IR35
And here's the rub. As has been demonstrated time and again, HMRC's interpretation of IR35 is wrong.
Contractors are prepared to take the chance that they have to defend themselves. Many companies are choosing not to take the chance that they have to defend their decision.
And this was HMRC's plan all along. They don't want to get the decision right, they just want to scare companies into cowing to their ill-informed opinion. They want to bully people into ignoring the law. So far, they are succeeding in many cases, but please remember that's what they are doing.
There are three reasons that organisations should recognise blanket decisions as being dangerous, that are contained within the legislation itself:
They do not constitute ‘reasonable care’ – and if they are found to have breached section 61T(6)(c), then the tax risk passes back up to that organisation.
Insurance underwriters will not cover the tax risk unless an individual assessment has been conducted, and agencies do not wish to take on uninsured risk.
If investigated by HMRC, an inadequate role-based blanket assessment could trigger a 2 year extension of the IR35 enquiry window to six years due to ‘carelessness’ under Section S36(1) TMA 1970. If the error was deliberate this could extend to 20 years (S36(1A)).
I think this is why we are seeing the responses we are.
A blanket inside (or outside) decision is definitely not taking "reasonable care". Nor are role-based determinations.
However, choosing not to use a particular supplier, or type of supplier, is just a business decision. This doesn't come under the new regs. It is purely a choice not to engage that supplier (the contractor's Ltd company), like choosing not to use BT for your phone line. They could still choose to use another one supplying the same resource (an umbrella company, for instance, with services supplied by the same contractor) just as they could choose to use a company reselling BT phone lines. It neatly side steps the new rules altogether and requires no more care (legally) than choosing which brand of loo roll to use.
Note that I'm not saying I agree with this approach, just that this is what I believe to be the reasoning.
Nice bit of schadenfreude watching HMRC shoot themselves in the foot here.
Well - let's be honest - blow their own leg off.
So I used to earn £250,000 a year as a consultant. And believe me - at that price you *are* a consultant.
Now thanks to IR35 most Multi-National Companies (my client base) are saying "PAYE or the Highway. We don't care who you are or what you do." That's the Company Lawyers speaking by the way.
So I am going to retire, as are quite a few like me.
We will be replaced by people who either speak Hindi as their mother tongue, or have a distinct American accent. Neither will be able to do the job anywhere near as well (if they could - I would have been out of business years ago), and they sure as hell won't be paying Tax in the UK. Or even working in the UK.
Meanwhile I get to close my Limited Company down - and under CGT Entrepreneurs Relief draw the (*fairly massive) cash reserves out at 10%.
I thank you!
Cheers HMRC! Have a drink on me. And then F%ck Off. For ever!
Tw@ts.
* OK - Massive.
This is not just short sighted its seriously damaging. HMRC really do not get what they are doing. Most contractors with Limited companies actually pay significantly MORE tax than HMRC claim as HMRC fail to take into account Corporate tax and tax on dividends. Yes contractors pay less NI, but once you take into account standard rate tax is 20%, corporate tax is 19% which offsets and you pay tax on dividends AFTER corporate tax, the top rate of tax is actually 19% + 32.5% = 51.5% not 40%.
I can also see a lot of small Limited companies going to the wall, so HMRC will also suffer losses from all these companies not paying 19/20 tax year or in many cases 18/19 tax year corporate tax, not to mention the cost of managing all of these companies closing down.
I am now looking at full time positions. Given one offer, yes my take home will drop 37% - BUT the tax I pay will also drop 29%..... go figure.
Its not that HMRC are shooting themselves in the foot that amazes me, it's how fast they can re-load!
Andy
Remember, however, that they will find a way to make it LOOK like they've done a good job. For instance, they will point to a slight rise in personal income tax and national insurance, while completely ignoring the massive decrease in corporation tax which completely removes any benefit. The CT drop will be blamed on something else. HMRC will be able to pat themselves on the back and the country will be poorer in several ways.
Not seen much mention of the 20% VAT the gov will lose out on. I ran the govs self-test and fall outside IR35 due to my assertion that I have to purchase something before being paid. i.e. laptop, mobile, communications, without which it would be impossible to deliver the unsupervised services for which I invoice. Unfortunately my clients are typically large financial institutions with legal advice that says they rather spend elsewhere than risk a small army of gov flunkies crawling through their files to prove it. Ho hum. options: Close down the company. Use my EU second citizenship to set up and bill from another jurisdiction. Early retirement.
Feel sorry for the next generation of independent contractors/consultants/entrepreneurs now apparently prevented from launching themselves into what was - for me anyway - a gloriously liberating, risky but rewarding world.
Not seen much mention of the 20% VAT the gov will lose out on
Personally, I haven't mentioned it because it's near irrelevant in my own engagements. The companies I contract out to are generally VAT registered, so will offset that against the VAT they charge their customers.
This post has been deleted by its author
"shift from the employee to employer"
The company I am providing design services to are not my 'employer'.
That is, and will continue to be my company, which covers all my training, sick pay (I was off for a month last year after emergency surgery), holiday pay, benefits etc.
I have also had an employee (for a project which fell through, we're still on good terms, he keeps trying to
persuade me do some work for him now), a situation I'd like to repeat and grow the company.
Again, the crowd I'm doing some work for _now_ are not my employer.
>:-|
I'd like HMRC to answer the following:
1. If HMRC consider an engagement to be "deemed employment" who do they believe should be liable for the employer's National Insurance?
2. What is HMRC's understanding of the reasons why end-clients engage contractors in "deemed employment" type roles and are they confident they are not "throwing the baby out with the bathwater"?
3. If an individual is engaged with an end-client for three months in a "deemed employment" type role and travels 400 miles each way per week staying five nights in a guest house to do this, do HMRC genuinely consider this to be ordinary commuting and not legitimate T&S expenses to be offset against tax?
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