UK government having hard time complying with its own IR35 tax rules

Government departments are guilty of high levels of non-compliance with the UK's off-payroll tax regime, according to a report by MPs. Difficulties meeting the IR35 rules, which apply to many IT contractors, in central government reflect poor implementation by Her Majesty's Revenue & Customs (HMRC) and other government bodies …

[Mike 137]

Can anyone get it right?

PAC comment "tax owed for individuals wrongly assessed as self-employed"

Apparently even the Public Accounts Committee can't get it right.

Contractors working through 'personal service companies' are not self employed. They're employees of the PSC. The only difference in employment status between a PSC contractor and an IR35 contractor is which company employs them - a PSC accountable to the contractor or an unaccountable 'umbrella' company they can't choose or challenge. In the tax domain,the only difference is that almost all PSC activity frowned on by HMRC is lawful tax avoidance, whereas umbrellas have evaded tax on multiple occasions.

Until this fundamental misunderstanding is eliminated, there's not a hope in hell of any common sense emerging to correct this abusive and discriminatory taxation regime.

[Howard Sway]

Re: Can anyone get it right?

There's an alternative explanation : that they don't want to eliminate misunderstandings or make things clear. That it was designed to sow so much chaos and confusion that it ended up in a situation where the rule became "whatever HMRC say you owe, you owe".

Everyone's complaining that it's capricious, inconsistent, chaotic, unfair, incompetent. Well, corrupt governments always are.

[Franco]

Re: Can anyone get it right?

Not for a second defending the current government, but this particular shit show has spanned 22 years and numerous administrations.

HMRC are firmly of the opinion they are always right. The courts rarely seem to agree.

[Trigonoceps occipitalis]

Re: Can anyone get it right?

"capricious, inconsistent, chaotic, unfair, incompetent"

A fish rots from the head.

[dak]

Re: Can anyone get it right?

There in no such thing as a PSC.

[John Brown (no body)]

Re: Can anyone get it right?

"There in no such thing as a PSC."

Miss Whiplash would beg to disagree. Or may she'll punish you if you disagree.

[Mike 137]

Re: Can anyone get it right?

@dak There's no such thing in company law as a PSC, but it is recognised by taxation law. The same applies to the status of' notional employee 'for tax purposes' but not 'for employment purposes'. It's yet another instance of conflicts between different pieces of legislation which HMRC have created in their attempts to rake in the maximum in revenue from the little people.

[A.P. Veening]

Re: Can anyone get it right?

Until this fundamental misunderstanding is eliminated, there's not a hope in hell of any common sense emerging to correct this abusive and discriminatory taxation regime.

The problem with common sense is that sense never ain't common - Lazarus Long

[elsergiovolador]

False information

Why do you keep posting false information?

The reforms are part of the government's crackdown on so-called disguised employment, where workers behave as employees but avoid paying regular income tax and national income contributions by billing for their services through PSCs, which are taxed at lower corporate rates.

There is no such thing as "taxed at lower corporate rates". The way contractors pay themselves - small salary + dividend - which they pay corporation tax on top, is now taxed on par with PAYE since 2017.

The problem is that IR35 is essentially a revenue tax and prevents you from running business since you cannot claim legitimate business costs against your tax.

While being Inside IR35 you still have to pay for your accountant, insurance, office, tools and so on, but that money comes from your deemed salary that you have to loan to your company essentially running it into debt.

This is an awful piece of legislation that makes no sense (unless you are a big consultancy - it helps with getting rid of competition).

[Natalie Gritpants Jr]

Re: False information

If you're actually spending significant sums on equipment, there is no way you are inside IR35 and you should not be in that contract. If you're inside IR35 you don't need an accountant.

Outside IR35 I was taxed at a lower rate by being able to employ my spouse as a director (they don't have another paid job). That effectively doubles all the tax rate thresholds, and makes a big difference. I'm now forced inside IR35 and have put my rate up by 36%. Luckily this client has agreed, but the next one may not.

[elsergiovolador]

Re: False information

If you're actually spending significant sums on equipment, there is no way you are inside IR35 and you should not be in that contract.

Whether you buy tools or not has no bearing on IR35 outcome. It's up to the client to decide and if they don't want the risk of being investigated by HMRC they put the contract in-scope. For the contract to be firmly in scope all it takes is that the client wants you to perform the task personally (by fettered substitution clause).

and you should not be in that contract.

That's quite bold. If all potential clients insist on working in-scope, then what do you do?

If you're inside IR35 you don't need an accountant.

If you are running a business, you certainly need one. If you have multiple clients, not all contracts will be in-scope (even when running concurrently) and your business can do other things like online sales.

[Franco]

Re: False information

"Whether you buy tools or not has no bearing on IR35 outcome."

It shouldn't, at least not in the context of most of us here working in IT, as no company with any sense will allow devices they don't manage on their network. It is however a consideration, albeit a small one, for people in a lot of trades such as electricians, plumbers etc

[Anonymous Coward]

Re: Outside IR35 I was taxed at a lower rate by being able to employ my spouse as a director

Mmm. I presume there is more to your story than you say, otherwise I might assume your scenario /sounds/ like the kind of dodge (noting your "effectively doubles all the tax rate thresholds") that IR35 -- irrespective of its botched implementation -- was intended to stop.

I'm not really bothered either way. If I want to get exercised about tax or employment matters, they'll either be ones that apply to me & those in my comparable circumstances, or to those lower down on the income scale. It seems unlikely those caught by IR35 fall into either category, and they can fight their own battles.

The botched implementation *is* concerning, however, as a matter of general principle.

[Harry Kiri]

Its a complete farce.

These rules have never worked. HMRC is out of control and has a vendetta against small businesses. I don't know if its because it makes their life easier if you just have a few big businesses you can have cosy chats with or because they've been given advice by companies that would like small businesses out of the way.

HMRC refused to appear in front of the Commons Business Committee when they were investigating IR35 - HMRC are big on kicking the little (man || woman) but don't like answering questions regarding their own governance.

[boblongii]

Re: Its a complete farce.

"These rules have never worked. HMRC is out of control and has a vendetta against small businesses. I don't know if its because it makes their life easier if you just have a few big businesses you can have cosy chats with or because they've been given advice by companies that would like small businesses out of the way."

This isn't a one-or-the-other situation.

[Pascal Monett]

"Difficulties meeting the IR35 rules [..] in central government reflect poor implementation"

Given the amount of trouble that these rules are causing at all levels, I would say that that is the wrong conclusion.

To me, that amount of difficulty clearly indicates that the rules are poorly drafted and inherently contradictory, which does not make for easy implementation.

When you've made a square peg to go into a round hole, it's easy to blame the people who can't put it in.

[Anonymous Coward]

Fix your shit.

If you can't even figure out how to follow your own rules then you can GFY if anyone else should be expected to obey them either.

[wayneinuk]

Re: Fix your shit.

Perfectly said :-)

[A Non e-mouse]

Re: Fix your shit.

A lot of people are saying this about BoJo for the same reason.

[ICL1900-G3]

Re: Fix your shit.

True, But, as our wonderful government continually demonstrates, rules are for other people.

[Natalie Gritpants Jr]

Hilarious

So these government departments have been employing contractors outside IR35 and now have to stump up PAYE+NI+NI. Not really a problem as the money goes to the government, which can hand it back as an increased budget (+ bonus for the department heads).

If the contractor is smart, they will claim back the taxes they paid. Net result is a loss for HMRC instead of what they claim is increased tax revenue from their enforcement actions.

[David Nash]

UK Government members not following their own rules?

Surely not?!!!

[Anonymous Coward]

IR35 means one thing

Jake will comment. :)

[Anonymous Coward]

Not really sure why this is "news" - does nobody think anymore ?

When IR35 came out, a very very clever colleague immediately pointed out that it's entire aim was to stop Joe Bloggs from doing what the OxBridge set had been doing for years, which was dodging tax (and paying themselves in dividends) with arcane corporate structures.

Every single change and "confusion" since then has only served to suggest he was 100% spot on.

That was when it seemed necessary to actually have rules to work by. The past few years suggest that's a dim memory. The rules is now what the man says they is.

[Anonymous Coward]

Things would be a lot simpler ...

,,, if the Government simply abolished IR35.

[Anonymous Coward]

Re: Things would be a lot simpler ...

Things would be simpler if the government abolished IR35, abolished National Insurance and equalised taxation so that everyone pays the same rate of tax on income regardless of source.

[A.P. Veening]

Re: Things would be a lot simpler ...

Things would be simpler if the government abolished IR35, abolished National Insurance and equalised taxation so that everyone pays the same rate of tax on income regardless of source.

True, but that would require something as coarse as common sense, something made from unobtainium where governments are concerned.

[DrAndyHill]

No surprise there then!

Definitely no surprise there, from a government that consistently proves that it is not only incapable of following its own rules but also believes it is above them.

They seem to forget that they are public servants!

[Anonymous Coward]

The other half of the story is even worse

So a lot if these contractors were brought in to write new software to replace software formerly supplied by the EU. That we no longer have access to due to brexit.

The timing is classic. By forcing all their contractors inside IR35 they have caused a mass exodus, putting at risk all these projects, and wasting a fortune starting stuff again. No one dare speak out though.