UK government proposes legislation to regulate umbrella companies The UK government has taken a step closer to regulating umbrella companies – which have seen their popularity skyrocket in the wake of off-payroll tax reform – by seeking to define them in law and establish an enforcement body. Both proposals are in their early stages as politicians consider their options in response to …
Sorting out the tax system to make all forms of paid work equal, thereby rendering IR35 obsolete, would be the better way to do things.
Then the umbrella companies disappear automatically, as they would serve no purpose.
This government introduced the change in liability for incorrect decisions from the worker to the client. As part of that they introduced the double taxation mechanism where taxes are applied twice in this situation.
It is that action from this government that that has pressurised end clients into Inside IR35 blacket assessments. That has driven the rise in Fake Employers(Umbrellas).
In my case an end client asserted 6 hour each way travel to client site using 5 modes of transport was a commute, even though it clearly did not meet any legal understanding of "commute".
In my view many or even most inside IR35 assessments should just be considered an evasion of employment law. Tax and employment regulation need to be aligned. This government has repeatedly delayed addressing this, despite many promises to do so.
End clients should not be able to say:
* our IR35 assessment says you are an employee, not an independent business
* you are not our employee and we have no wish for you to be an employee
* lets agree a business to business contract between ourselves
* can you find a FAKE EMPLOYER (umbrella) who has no involvement in our relationship and will give you none of the benefits of employment to satisfy tax law, so we can protect ourselves
Yet the fairness aspiration is equitable and morally right with contractors skulking as full-time employees.
Pay the same tax, get the same benefits and stop deducting your Daughters MacBook Pro (for University) as a ‘valid business expense’ on your Self -assessment. Porsche Macan optional.
"creating problems"
Let me remind you of who created this particular mess: Prime minister Tony Blair, Chancellor Gordon Brown. The best you could do to absolve them would be to argue they were just the front men for IRC (as it then was). Given that previous Tory governments had resisted the idea it's not much of an absolution.
Well the 2017 and 2021 changes were by the Conservative Party and Labour promised to scrap the 2021 change (it says 2020 here but postponed a year because Coronavirus).
"This sticking plaster is wholly inadequate!"
"That's OK, I've got a larger sticking plaster to stick over it!"
(12 months later)
"What do you mean, gangrene?"
Sort out the mess that is IR-35 (and it is a mess), *then* you can start talking about regulating the rest of the industry.
The principle that a company is s special case and can be presumed to act fraudulently solely because its directors actually deliver the chargeable service is fundamentally flawed. The following assumption that all revenue is automatically personal income is entirely unjustifiable. Thus the entire basis for IR35 is unsound and it should never have been implemented. The proper approach would have been to pursue individual cases of tax fraud where identified, leaving all the honest contractors to manage their own affairs.
Prior to IR35 I for one aimed to reserve some contracting revenue in the company to support non-profit activities such as FOSS development, but that ceased to be economic once all revenue would be taxed at personal rates at source.
The net outcome of this daft legislation has been to severely hamper the contracting market, to drive many contractors out of business, to completely kill the possibility of corporate growth for small contracting businesses, and to create massive opportunities for fraud on the part of "umbrella" companies (hence this pathetically late proposed shake up).
Full marks to successive governments for performing as normal to the detriment of the populace and the economy at large.
I worked as a "contractor" for several years pre-IR35. The large company I worked at had a number of *contractors* who had sat in the same office doing the same job for over 20 years. Basically the company was getting employees on the cheap, not paying Income Tax or pension contributions, no sickness benefits and the contractor was on 1 week notice - no redundancy protection.
Umbrella companies were set up to work the system and, from experience, are legally borderline in terms of protecting their clients.
I don't like IR35, but let's be brutally honest, we should and would not need it if companies dealt with *contractors* who are really employees in an honest manner i.e. employing them on proper contracts with benefits, pension entitlement etc.
Like a lot of legislation, it doesn't solve the problem, just batters the little guy even more. Ultimately, it will end up forcing contract rates up. The counter argument being that it restricts employer flexibility to respond. But let's be equally honest, both companies and contractors are complicit to some degree.
We'd need to look at those contractors in more detail. They should be paying Income Tax, NI, making provision for sickness etc. themselves. They'd have been doing that either as sole traders or via companies.
Clients, at least in IT, preferred the contractors to work through companies because if the contractor failed to make proper returns it would be the client who would be held responsible. Oddly enough c 2000 I discovered that a client had a stock sole trader contract for freelance graphic designers so it seems that in some industries that sole trader was still acceptable, at least back then.
Going back 20 years pre-IR35 it may well have been that those contracts had started out as sole-traders and maybe stayed that way. If so it indicates a great deal of either trust or naivety on the part of the client. In any case it seems likely that this situation was mutually acceptable to both client and freelancers. That acceptability would have included a rate from which the freelancers would have been able to pay all due taxes. It doesn't amount to being on the cheap. The usual permie complaints include the fact that the freelance rate is higher than the equivalent salary while failing to realise that it has to include elements such as employer's NI.
I think to a large extent brollies came into existence for those who wanted to go freelance but couldn't be arsed to set up proper companies. As to companies not dealing with what you call employees in what you call an honest manner I, as freelancer would have taken considerable offence at a client who tried to strong-arm me into becoming an employee. As a matter of fact I did have a client who tried to recruit me into a vacant permie managerial role; one interesting aspect of that was that they hadn't realised how close I was to their mandatory retirement age and had exceeded it by the time the contract ended. In this context that's an indication that there are considerable differences between employee and freelancer which escape the cursory glance that tries to class freelancers as ersatz employees.
FWIW I read in one of the Computer papers (Computer Weekly or Computing etc.) the history of contractors needing Limited Companies was because in the past HMRC (or their predecessors) didn't like IT contractors working as sole traders owing to the range of expenses that could be claimed, therefore they were told to use Limited Companies as the range of expenses that could be claimed was less and they would have to submit audited accounts, but most importantly Corporation Tax was higher at the time than Income Tax.
Ofc in time the Corporation tax situation changed and this became a benefit, which HMRC see as not playing the game.
It would be better if they could come up with a freelance employee tax class with expenses and conditions to suit, but of course the big consultancies would jump all over that.
I contracted for 16 and a half years and really enjoyed it, not just the money, but the freedom from company politics, and the variety and range of jobs you could undertake and the occasional change of scene (I found on average contracts lasted about a year, that's the time between the project manager getting the money and getting it cut the following year).
It's a class of employment employers and IT staff want but HMRC seem determined to force everyone into PAYE to make their lives easier.
I worked as a "contractor" with various companies for 30 years. I started out being offered a 6 month contract as a sole trader, but the contract got extended and my accountant advised setting up a Ltd Co as that was preferred by the UK taxman. I did that, paid myself a living salary (with associated tax and NI); the extra that I was getting over the equivalent staff rate was set aside to cover sickness, holidays and pension. OK, I took a bit out as dividend (paying full tax on it, but saving the employers NI that otherwise amounted to an extra 12-15% tax) - that paid for the annual family holiday and avoided the kids needing student loans. Over my career, I reckon being a contractor didn't make me any better off financially than had I been on staff with that first client - no sick pay, no holiday pay, no employers pension contributions, no annual bonus and no golden wheelbarrow when I retired. But no regrets either - I was able to move around companies, pick interesting challenges, and avoid the inevitable company politics. Luckily, I was able to retire at 65, before IR35 became the millstone it is nowadays...
The current government introduced the double taxation penalty where a business to business contract has been operating, but HMRC decide that it is an employer/employee relationship.
That has triggered the movement from outside IR35, to Inside IR35 Employment Law evasion by clients
The fundamental mess is that some forms of income are taxed differently to other forms of income and that the tax burden is very unevenly distributed.
It's not in the interests of politicians to fix that because promising/threatening to marginally alter the uneven distribution is the way most elections are won.
In the suburban street outside my house -- you know, 30mph in a suburban street -- the AMG Mercs and the M-Series BMWs are doing 60 and 70 mph!!
"Regulate"......"Enforcement".......a daydream!!!
The sock puppets in Westmister hog the headlines with "We're dong something......."
.......but the truth is that there's absolutely no budget for any enforcement:
- GDPR is a joke!!
- Wayne Couzens is a poster child for our police force
- Members of the so called "royal family" get Fortnums shopping bags stuffed with cash....
- ........and no one asks what the money was intended to buy!!
Colour me really f**cked off!!!!!
A while ago several of the BSD UNIXes were engaged in processes meant to reduce the size of their kernel software, using the not-unreasonable reasoning that less code meant few bugs and easier admin.
A similar idea ought to be applied to the entire UK tax code and indeed to government as a whole. At present the government does too much, and has an unreasonably enormous tax code to try to cope. Reducing what the Government does and drastically reducing the tax code would go a very long way towards improving the welfare of everybody, since it would reduce the cost of doing business.
For example, taxation of alcoholic drinks. These are subject to no fewer than fifteen separate rates of duty, when one single rate based on X pennies per ml of ethanol sold would do equally well.
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