UK govt says contractors should challenge IR35 status via self-assessment

The UK government has suggested IT contractors should challenge errors in their tax status and reclaim overpaid tax through self-assessment yet some experts think the plans are impractical and misguided. Tax authority Her Majesty's Revenues and Customs (HMRC) was responding to a report by the Public Accounts Committee (PAC) …

[Callum]

boom for offshore consultancies

The big winner from the reduction in flexible contractors from the market place in FinTech has been the larger offshore (majority Indian) consultancies. Surely that's quite a loss in tax revenues.

[The Vociferous Time Waster]

Re: boom for offshore consultancies

Of course it helps if your wife's family owns one of those large Indian firms.

[RichardB]

Re: boom for offshore consultancies

Some might suggest that would be a conflict of interest for a high ranking politician.

Others clearly disagree...

[Strahd Ivarius]

Re: boom for offshore consultancies

you don't say that some specific Indian-based firms are hugely profiteering from this scheme specifically designed to enrich their owner, do you?

[Aitor 1]

Re: boom for offshore consultancies

Thr idea is to get rid of these independent contractors so their buddies get all that money.

No way they will step back.

[Andy 73]

The entire issue..

... has been captured by HMRC (with the core metric of maximising tax return) rather than the Government (with the ideal metric of maximising economic activity). Whenever this continued mess is challenged, MPs defer to the civil service and we get the same tired and dishonest excuses.

New MPs (and PMs!) come along promising to address these issues, but in true Yes Minister fashion rarely last more than a few weeks before they're also following HMRC's standard defences. The result is we see absolutely no new thinking around this issue, just additional layers of complexity added in a poor attempt to fix edge cases.

[Pascal Monett]

"high levels of non-compliance"

Hardly a surprise when HMRC cannot be arsed to explain the rules properly.

[Kevin Johnston]

Re: "high levels of non-compliance"

I refer my honourable colleagues to an old sketch by Ronnie Barker about a simplification of the tax system...

How much did you earn last year?

How much have you got left?

Send it to us...

Has about as much thought behind it as IR35 but oddly could increase the receipts through it's simple honesty

[J.G.Harston]

Re: "high levels of non-compliance"

Well, everything else is going back to the '70s, why not tax as well.

[Anonymous Coward]

How do you contest

The SA has no way to contest or reclaim Employer / Employee National Insurance Payments, Apprentice Levy and all the other Guff that Umbrella companies are bang on our "PAYE" Pay statement. No way to contest a determination even when it does not comply with GDPR or DPA.

I believe SA can only claim your tax back.

My last Inside experience was 8 months of "chuckle bro's" contract negotiation and last minute the job went Inside IR35.

So the Agency pushed it to an "umbrella company (UB)".

Both these entities are getting paid from UK Gov agency and both are using Netherlands to pay each other.

I get added to "new employee" status and UB company receives Gov kick back.

The UB pay my salary sacrifice into a US Pension fund, and it takes me 3 months to get paid and 9 months to trace and transfer my Pension.

I have now decided to only look at Outside roles.

Only winners are Agencies (Pimps), UB's and Indian (Rishi's mates) Offshore companies.

So much for UK jobs

[Mike 137]

Once again, the same stupid mistake

Quote from the PAC report: "The absence of a clear definition of self-employment"

Self employment has nothing to do with the case. A limited company contractor is an employee of the limited company of which they are the director. That is not self employment. If even the Public Accounts Committee can't get their heads round this fundamental point there's absolutely no hope at all of straightening out the mess that is IR35. The only legitimate option is to scrap it as discriminatory, unworkable and unconstitutional.

[elsergiovolador]

Re: Once again, the same stupid mistake

According to HMRC it is self-employment. But that's only for the purpose of destroying small business and having everyone on PAYE (except the rich, who are fine getting small salary and dividends).

Regardless, one man band limited company offering services, does not do anything different than Infosys, but when classed in scope of IR35 it de facto is forced to pay tax on revenue, which makes business impossible.

To be fair, HMRC and Treasury that came up with that should be facing criminal charges.

[Mike 137]

Re: Once again, the same stupid mistake

"According to HMRC it is self-employment."

Indeed. They've created an anomalous and entirely unlawful (in common law terms) position where a person can be "an employee for tax purposes" but "not an employee for employment purposes". Which is why employment rights do not accrue under IR35.

If anyone had enough money this anomaly could be taken to judicial review, but it would need millions to ensure that HMRC could not simply exhaust the complainant financially (and they would assuredly try, whatever the cost).

In the meantime, HMRC have created a set of criteria for "outside IR35" that it's almost impossible to satisfy. For example, a leading subject matter expert will find it almost impossible to fulfil the substitutability requirement due to their unique expertise, but HMRC have asserted that substitutability must be an actual rather than a theoretical condition to qualify. Similarly, they have asserted that attending a client site during the client's standard hours of business (i.e. when the office is not actually locked up) can constitute "being under control".

The whole point of the vagueness and flexibility of interpretation is to disallow working outside IR35, and if that does not infringe common law freedoms I'd be very surprised. But of course government departments are allowed to break the law as they're entitled to manipulate it at will (particularly if it's regulation rather than statute).

Finally, it would be extremely informative to be told the total tax revenue accruing from IR35 versus the total cost to HMRC of implementing and pursuing it.. I suspect it would be substantially in the negative. IR35 is an outcome of politics (potentially driven by vested interests), not a common sense way to prevent fraud (as continues to be alleged).

[Anonymous Coward]

Re: Once again, the same stupid mistake

IR35 was invented by a tax bully who did not even announce during his budget speech, he was just looking to hit a small group of people who he thought could not fight back

[Anonymous Coward]

Solutions may not be legal, but.......

....HMRC has no way of tracking cash payments........

....perhaps that is the reason for recent news that there will be NO CASH AT ALL in the much heralded "digital economy"!!

Personally, I'm looking to move to cash cards......the person who gives me the card can explain where the money went -- "I gave it to an AC!!"

Perhaps I need to become a "burner person" who wields a "burner phone"!! Other suggestions welcome!!

Link: https://www.independent.co.uk/money/digital-currency-uk-electronic-diem-facebook-cash-covid-bitcoin-china-b1834338.html

Link: https://www.theguardian.com/business/2020/feb/19/budget-2020-uk-cash-economy-close-to-collapse-campaigners-tell-chancellor

[Anonymous Coward]

Cash has been a target

The government has been wanting to switch to a no-cash economy for quite some time.

You can see this from the way that they don't oppose bank branch closures, pay lip service to keeping post offices open, and ban cash payments for certain transactions (have a car to scrap? Don't ask for cash, the scrapyard can't pay you that way, and this is just one example).

I could see certain people in al sorts of sectors and the government going into raptures when COVID-19 behavior looked like being the final nail in the coffin of the cash society.

But it's very interesting. As families' finances are being squeezed, statistics published in the media appeared to show that the number of cash based transactions was seriously increasing again, and the amount of money changing hands as cash is going up. It's also interesting that these stories appear to have stopped, even though I'm sure it's still happening.

The reason for this is obvious. The banks don't really care where your money goes. If there is a mandate for something to be drawn against someones account, they will pay it, and often if there is not enough money in the account, charge that account holder for the privilege of the payment that has been denied. This lack of control over their finances has caused real problems for people that I have known in this situation.

Whereas, if someone has their money as cash, they can decide exactly what to pay, and what they cannot, meaning that they can prioritize something like food. And if someone tries to physically take the cash from them, unless there is a court order, it is theft. OK, they will be clocking up problems with the organizations that they don't pay, but at least the kids get something to eat. It's a last desperate attempt to maintain some control.

So I think there is a good chance that the organizations that were looking forward to the demise of cash will have to think again.

[jmch]

Re: Cash has been a target

Cash = control

Governments keep limiting cash under the guise of fighting criminality and money laundering (which is actually fair enough for giant volumes of unexplainable cash). But ultimately it's about control. Cash is controlled by the holder. Electronic money is controlled by the bank and government, and for all the legal protections available, money in a bank account is only available at the bank's favour and discretion, and the bank only operates under the government's favour and discretion.

Ask any Greek or Cypriot account holders from a few years ago how protected their money was. Truth is, the government guarantees and banking laws, and the bank's own account rules etc protect the account holder's money from everyone except the bank itself and the government that controls it.

[elsergiovolador]

Nudge

The IR35 changes are a classic example of Nudge gone wrong.

Everything in these changes is to stop small business from operating and put everyone through umbrella companies as fake employees.

It's the easy way, let client's avoid HMRC scrutiny and most importantly removes competition for big consultancies.

If you work through an umbrella as an employee of an umbrella you can't challenge the IR35 status, because you are an employee and in that case IR35 no longer applies.

If you work through your own company, then you can't challenge your status either because the client will drop you like a hot potato and if you wanted to challenge what you have already paid through the SA, then good luck figuring out how this should work, because HMRC has not created any guidance for that and I doubt anyone would find an accountant and a solicitor willing to spend years figuring this out.

[Anonymous Coward]

Customers....

"Where HMRC disagrees with a customer's Self-Assessment, all customers have the right to have the decision reviewed, and to appeal to an independent tribunal."

Dear HMRC. We are not customers. We are citizens, plebs, punters, mugs or even muppets, but we are not your customers. Please do not call us customers. We do not purchase anything from you. It is insulting and offensive to be called a customer of something you have no choice but to deal with.

Thank you.

A Pleb.

[ChoHag]

Re: Customers....

No hold on a minute, you may be on to something there.

If *they* consider us customers then is that not a tacit agreement that we can take our custom elsewhere?

[Anonymous Coward]

Re: Customers....

and, if it's a Sales Contract, how can I claim my money back when they ALWAYS fail to deliver what they promised?

[The Vociferous Time Waster]

assessments

For fear of getting them wrong and either being challenged by HMRC or Contractors it seems that most companies are taking the loophole of not working with PSCs and only engaging through umbrella as a standard policy. This means there is no assessment to challenge.

[Anonymous Coward]

Re: assessments

When will HMRC go against the umbrella companies?

Are their contractors inside or outside IR35?

[elsergiovolador]

Re: assessments

Umbrella "contractors" are employees of an umbrella, essentially zero hour workers and IR35 does not apply to them.

[Franco]

It's truly ridiculous. According to HMRC non-compliance was widespread, so they've essentially forced everyone inside IR35 via Umbrella Companies, which is an unregulated sector with many documented cases of widespread non-compliance with the law. Witholding holiday pay for example is widespread amongst the less reputable companies.

Truss and Sunak have both promised to "look at it" which of course means another internal review followed by another round of HMRC patting themselves on the back for "getting it right" all along.

[elsergiovolador]

There is a caveat. If you work through an umbrella, you are not forced "inside" but forced to be an employee of umbrella. In that case the IR35 no longer applies. Then it strictly becomes a territory of violation of employment laws. The de-facto employer avoids their obligations towards de-facto employees and does not even have to pay employer taxes. This should be illegal if it isn't already, however there is nobody willing to spend millions to challenge that - where in reality there should be a body inside the government that could smack HMRC in the head.

IR35 applies if contractor works through their own company. There is a widespread misinformation proliferated by umbrella companies that if the role is deemed in-scope of IR35 then the worker must sign up to an umbrella. This is not true and they use the fact that most workers don't have actual knowledge of how IR35 works.

[Franco]

That's the way it's being presented though, I've worked outside via an Umbrella many years ago when I first started contracting and before I setup a Limited company, and now the vast majority of recruiters are simply stating it as inside = work via umbrella. This of course suits them and the end client as it means the contractors aren't on payroll and so there can be no claims to them about employee benefits or anything like that. It is of course second-class employment - contractors working via umbrella pay taxes like an employee and may get some benefits such as pension schemes via a reputable umbrella, whereas some just ripped off.

Sadly very few people genuinely understand IR35, I recently terminated a contract because the end client changed the contract scope without telling me, and they were furious when I told them I was leaving as they'd breached the contract. They threatened me with all sorts of action until the recruiter told them not only did they have no leg to stand on as regards action against me, they were in fact in breach of my contract and their own IR35 declaration. Was close to walking even before that as the PM kept insisting that everything was done her way, and went in a strop when told that was also an IR35 breach.

Sadly as we've seen with the broadcasters, I would end up being the one to foot the bill if I hadn't walked away, despite them being the ones in breach.

[Roland6]

>There is a widespread misinformation proliferated by the promoters of umbrella companies.

[Anonymous Coward]

in other news

UK government says we should change the government.

[JMiles]

HM Treasury/HMRC are going to foment extreme reprecussions

They are so clueless and if it weren't for their gov backed jobs would barely survive a day in the real world. In fact, “Mr Harra hits the real world,” was the comment PAC chair Meg Hillier made about the head of HMRC. Jon Thompson was the dimwit before.

They live in their own bubble and until one of them ends up like a pendulum off a lamp post they're not going to wake up. They don't care about the suicides from the loan charge, they don't seem to want to accept that they've created a 2 tier system for workers where those who are self-employed pay the same taxes but get none of the same benfits.

And where was Rishi during the Pandemic when he was putting together the furlough scheme and the SEISS? Actively knee-capping Limited Company contractors is where. HM Gov are begging for a backlash of epic proportions.

Lizz Truss says she'll do a review. Go do one Lizz, your lot have been cocking it up for 12 years making everyone poorer and the type of 'unashamedly pro business' Tories you guys are was put on public display when Grenfell happened and it became obvious that its only 'big business donors' you care about. Like Michele Mone who after getting £200m of tax payers money has ended up with an HMRC winding up petition. Whups - imagine if politicians and civil servants could be held personally liable like company directors?

Corrupt to the core. The country doesn't need handouts, it just needs this lot to get their snouts out the trough!

[elsergiovolador]

Re: HM Treasury/HMRC are going to foment extreme reprecussions

who are self-employed pay the same taxes

It's worse than that. Since self-employed have to buy their own equipment (I don't mention accounting, insurance, office and other business costs), the equipment will be purchased from their deemed salary, after tax. Whereas direct employees equipment would be purchased before tax (employer's business cost).

It's interesting that worker in-scope of IR35 cannot even claim expenses like direct employee can. It is possible, but very complex. Basically if you need to buy software specific for a certain client, the client has to pay that as a part of your salary - which will be taxed at source. Let's say you are on the higher tax bracket.

Software costs £4000 + VAT. The client pays you £4000 + VAT, then Fee Payer applies all the deductions (Employer NI, Employee NI, Apprenticeship Levy, Income Tax...), you get about £2000 + VAT (from £4000) - so you have to come up with £2000 out of your own pocket. Then VAT should null at your VAT return. Then you can reclaim the employee side of tax for that purchase at your Self Assessment. That software then becomes about £600 more expensive to you than to a business not taxed this way and your get your £2000 tied up for many months (until SA gets submitted and you get a cheque from HMRC).

Taxed the same as employee is one of the biggest lies of the Treasury.

(my example is about working in-scope of IR35, not as Umbrella employee - for clarity)

[Velv]

Re: HM Treasury/HMRC are going to foment extreme reprecussions

This is complete and utter rubbish.

If you are supplying software or any other goods then that is not fees for professional services and you are clearly operating that part of your business outside IR35.

If you are providing professional services via an umbrella and classed by the client as inside IR35 then you should not be supplying goods, you can make a recommendation and the client makes their own purchase.

I also know my umbrella has a mechanism for claiming back expenses from the client outside of any professional services fees. Nobody likes it, expenses are discouraged, but it's there just in case something must be purchased. (Last time I was asked to work away the client provided the travel and accommodation because it was easier than me expensing it).

[elsergiovolador]

Re: HM Treasury/HMRC are going to foment extreme reprecussions

This is complete and utter rubbish.

If you are supplying software or any other goods then that is not fees for professional services and you are clearly operating that part of your business outside IR35.

It's not rubbish, it's the reality of how they botched this legislation. It does not matter if business is de facto outside of IR35 if client wants it to be in scope. If your business disagree, the client can simply walk away and find a different supplier. It's all about the risk appetite and most clients don't want HMRC anywhere near them, so declaring everything in-scope of IR35 is the safest option.

[Anonymous Coward]

HMRC had a lot of contract IT people

Now they don't.

Says it all.

[Anonymous Coward]

Easy Solution

An easy solution is to move away from the UK and its draconian tax system. There is huge demand in the USA and the pay is better.

Another solution is to contract for an offshore client

Another solution is to contract through an offshore agency like braintrust

HMRC has gotten this so wrong for too long and I'd love to see the damage done to the UK economy independentpy quantified. Especially because of "unintended consequences" such as lorry drivers etc. They can only use Brexit as a cover for so long

[Tron]

A message from Glorious Leader, whomsoever that currently is.

This is clearly all the fault of Covid and China and the French. Brexit will fix it, make you rich and improve your six pack as well.

The government are in charge, so you have nothing to worry about - just do everything they tell you to.

Tax law is not designed to be understood. If it was, think how many consultants would lose their jobs.

Yes, you are all being shafted, but it is for your own good. You will develop a degree of immunity to corrupt and incompetent government, which may come in handy.

Now write the government a large cheque and go back to your wage slavery.

[gandalfcn]

"What could possibly go wrong?" The ETon Party that has been in control for rather along time and most recent history does not understand the real world which is why the UK is slowly sliding into irrelevance. But Rees-Mogg, Sunak et al will be fine. Who is going to support Al de Pf in the manner he is used to now he is irrelevant and has done what he was told to by the ERG?

[Anonymous Coward]

I'm a burden now

I used to pay a lot of tax before this happened but after all the hassle I really can't be bothered.

I now have a low paid job and I am on income support and it's great.

I have more free time and a lot less paperwork and stress.