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northernladuk
17th August 2015, 20:30
I'm guessing the IPSE members are starting to get emails about the Freelancer Limited Company (FLC) offering and associated links...

Would anyone care to be the first to open what I expect to be a very long discussion?

jamesbrown
17th August 2015, 20:35
I'm guessing the IPSE members are starting to get emails about the FLC offering and associated links...

Would anyone care to be the first to open what I expect to be a very long discussion?

I haven't received anything, but I seem to have opted out of IPSE e-mails at some point, and it's impossible to find where this can be "undone" (and I'm not totally sure I want to undo it :laugh). The website seems to be fubared at present anyway, and the forums are inaccessible :eyes

mudskipper
17th August 2015, 20:57
I will refrain from offering an opinion (for now, anyway!) as I've already had chance to weigh up and argue about the pros and cons and make my own mind up. But I would urge people to properly read the documents linked in the email (the downloads are working for me even without the site) - not all the detail in the FLC document is covered by the survey questions, and Chris Sanger's letter gives a good background as to IPSE's reasoning behind the concept.

jamesbrown
17th August 2015, 21:02
I will refrain from offering an opinion (for now, anyway!) as I've already had chance to weigh up and argue about the pros and cons and make my own mind up. But I would urge people to properly read the documents linked in the email (the downloads are working for me even without the site) - not all the detail in the FLC document is covered by the survey questions, and Chris Sanger's letter gives a good background as to IPSE's reasoning behind the concept.

Assuming the documents aren't yet for the broadest consumption (although I'd hope they would be very soon, because there are a lot of clever folks here that aren't members of IPSE), any chance you could PM the links to me?

stek
17th August 2015, 21:06
More or less says, "ooo, this is bad, we really do need an FLC now like wot we said".

That's not what I wanted hear, tho I expected it. Wish I'd cancelled now, got a second chance when they effed up the renewal process.

Würst than useless.

eek
17th August 2015, 21:17
More or less says, "ooo, this is bad, we really do need an FLC now like wot we said".

That's not what I wanted hear, tho I expected it. Wish I'd cancelled now, got a second chance when they effed up the renewal process.

Würst than useless.

+1 totally and utterly, completely incompetent.

Having spent £100,000s fighting for S660 with arctic they are giving it up without a fight.

worse the solution to the problem, the one both me and Lisa have already worked out is about the only solution is hidden in page 8.

I quote


Requiring a minimum or maximum turnover
Any turnover test would need to take into consideration periods of no work or ‘benched’
individuals. Such a test would penalise genuine freelancers who are in periods of low
income whether that be due to a break, being between contracts, low levels of business
or otherwise. Furthermore, it might deter those starting up in freelancing where the
turnover is uncertain.

As I have continually stated for weeks the problem is that IPSE aren't listening to what the problem is as HMRC perceive it. Only when you understand that can you answer it with things they want.

This is not a solution to HMRCs problems. Its not a solution to IPSE's problems either as they are hanging an awful large number of people out to dry... S660 gone...

I can't be bothered to find if they have an answer to the expected problem that "agencies will only work with FLCs". Where is that addressed.

Meanwhile I'll leave others to debate as I'm trying to get some proper work done and firm up the consultancy I'm working on to escape this disaster which looks like it could be of IPSE's own making...

TykeMerc
17th August 2015, 21:26
Well, not being in receipt of IPSE publications since I loathe the organisation due to its past "achievements" I'm obviously unsighted on their proposals, but reading what Eek and Stek said it's what many of us feared and expected.

Even if the proposed terms aren't that awful now there's nothing to prevent them being made appalling in the future and once the basic structure is up you can bet that it will be FLC or no contract from the Agents after no time. All as predicted, including IPSE selling its constituency firmly down the river.

Zero Liability
17th August 2015, 21:36
Not had the chance to read all of it yet, but this does come across as a rather desperate last bid attempt...

Contreras
17th August 2015, 22:02
I'm guessing the IPSE members are starting to get emails about the Freelancer Limited Company (FLC) offering and associated links...

...and not just IPSE members.

I won't post the links here but if anyone wants them the docs are effectively in the public domain already.

Contreras
17th August 2015, 22:05
Would anyone care to be the first to open what I expect to be a very long discussion?

We must do something. This is something. Therefore, we must do this.

jamesbrown
17th August 2015, 23:08
I'll refrain from talking specifics until the documents are public, but I'm afraid this comes across as hopelessly defeatist and optimistic at the same time. The specifics of the FLC don't really matter unless the fundamental premise bears scrutiny, and it doesn't. Look at this from the perspective of HMG. There's a presumption here that: 1) the new rules being discussed openly and envisaged internally will be unable to address the problems as HMG sees them; and 2) that HMG aims to give freelancers a more "benign" operating environment. I actually think that both of these assumptions are wrong.

First, the rules being discussed and implemented (notably those on expenses and IR35) have the potential to dramatically reduce incorporation for tax purposes. Second, while HMG may desire to reduce the red tape on SMEs (and they don't have a good record on this), this isn't a one-way street. They will not want to increase their own administrative burden, and that's precisely what an FLC proposes to do; as an optional structure, it cannot eliminate the need for IR35, and it will surely need to be policed alongside IR35. One is left asking: what (and, crucially, whose) problem is the FLC trying to solve? The answer, of course, is that it's trying to solve a perception among (some of) us that the operating environment for freelancers should be more benign. We should not be collateral. Whether you take that view or not (and despite some warm words, pre-election, about SMEs and freelancers), this isn't the problem or priority as HMG sees it. The deficit is the priority. The objective is to minimise incorporation for tax purposes by adopting a very high bar, regardless of the collateral (and some of that collateral isn't perceived as such).

Notwithstanding those general criticisms, from HMRC's perspective, there are some rules outlined in the discussion document that may be considered worthy of application to all PSCs. Here be dragons. If this is put forward, IMHO, the concept will be rejected outright, but some of the detailed suggestions will be misappropriated (i.e. suggestions that we were perhaps viewing as "concessions" in a broader context).

Of course, it's very easy to criticise IPSE, but they (and contractors more generally) are in a very difficult position here. I don't think there's a over-arching solution, and I certainly don't believe it can take the form of an FLC. The various parties are not in agreement about the problem. I think the best we can do is to respond forcefully to the various consultations and discussions in an evidence-based way, in order to highlight the potential impacts of adopting the approaches outlined, because I don't believe that HMG is fully apprised of these impacts. We should also offer alternatives or suggestions on the specific points raised. In putting forward anything from this FLC document, great care is needed, as some of the simple criteria mooted to distinguish between "businesses" and "disguised employments" are emphatically bad. If these were intended as some form of concession to maintain the broader simplicity of the FLC, they won't appear that way when misappropriated and applied to PSCs more generally.

TykeMerc
17th August 2015, 23:09
We must do something. This is something. Therefore, we must do this.

Ah so it's better to do something stupid and appear to use the (for want of a better term) "Membership Mandate" to support a bad proposal and hand a sizeable weapon to HMRC and HMG than keep quiet until a good option is available.

eek
17th August 2015, 23:24
Let's be honest any proposal being created at the moment needs to solve two problems

1) HMRC's need to reduce people claiming that they are self employed when they are not. Removing expenses when under sdc is part of their plan, attaching it to all agency payments is another. Any new legal entity has to be created in such a way that people won't be forced to move by their employer from an umbrella to an flc.
2) an flc doesn't fix the IR35 problem. It may increase the tax take but it doesn't ensure those people who HMRC Believe to really be employees are taxed and treated as employees.

So with 2 problems that HMRC are trying to address where is the detail in the proposal that shows how an FLC solves those issues.

jamesbrown
18th August 2015, 00:19
an flc doesn't fix the IR35 problem

Yep. Not only is it unable to resolve IR35, it has the potential to worsen the problem by producing a parallel set of rules. Let's face it, if those parallel rules were any good, they would be adopted more generally. This isn't a question of missing detail, it's a question of missing the point, namely that the rules surrounding IR35 are going to be overhauled and, if anything, the FLC could undermine these rules (or be perceived to do so) by offering an alternative "get out".

Although I don't like the concept of distinguishing between different types of SMEs as it may suit our narrow audience (of generally very well-paid contractors), I would be open to some form of turnover requirement as a prerequisite, along the lines that you and Lisa have suggested. I would not be open to any rules that are contrary to good business practice, along the lines of the failed BETs, or rules that are established, through case law, as being unable to distinguish between employees and the self-employed, such as length of contract or fraction of income from a particular client within a particular period. Such rules have no basis in employment case law and artificial structures will be put in place to circumvent them. No, any prerequisites must be considerably simpler than that.

However, for precisely the same reason, SDC is almost certainly going to feature prominently as well. Let's not pretend otherwise. If there are changes (and it's likely there will be changes), they will almost certainly include SDC. It is becoming central to several different pieces of legislation. I don't have an answer, but I'd like us to consider the conditions (if any) under which a client could be gatekeeper on SDC and not adopt a default position that leads to false employment in many cases, i.e. the incentive to adopt a position that is backed by a professional review. Obviously, the end user is a more realistic prospect for servicing any debt that comes due, so this needs to be addressed too. Perhaps there is scope for insurance here. In the absence of solutions, we'll probably need to adopt a principled position (and I'm not against that) and be prepared for defeat on the client as gatekeeper.

mudskipper
18th August 2015, 05:51
...I would be open to some form of turnover requirement as a prerequisite...

Forgetting "us" for a moment, a turnover requirement would exclude, say, a freelance photographer starting out, charging low rates to get their name known, and needing the limited liability that a LtdCo offers. Even for us there's periods of benchtime, holidays, periods of part time etc. I can't see how it could work.

eek
18th August 2015, 06:11
Forgetting "us" for a moment, a turnover requirement would exclude, say, a freelance photographer starting out, charging low rates to get their name known, and needing the limited liability that a LtdCo offers. Even for us there's periods of benchtime, holidays, periods of part time etc. I can't see how it could work.

That is a bad example, a photographer by definition would rarely be under sdc and also clearly on a project by project basis withe most work being short term.

I don't know where you think I'm suggesting a turnover based approach. The entire point is to give simple rules and processes that an agency can follow so

1 it's not based on turnover
2. The payment levels would be based on payments made by an agency using the payment type (hourly, daily, weekly, monthly) x specified number of hours at x times the national living wage.

The reason for that approach is that it would be possible to argue that if you are earning less than £x an hour chances are you are being supervised.

Also remember what I am looking at here. The current expenses proposal would not pass a judicial review because it treats me differently as an associate of blue chip consultancy compared to employee of same company. The turnover approach solves this issue while also fixing the reason why the unions forced limited companies into scope

LisaContractorUmbrella
18th August 2015, 06:39
Having read through the document quickly it seems as though the cornerstone of the proposal is that there be a minimum PAYE salary of, say, 30% of turnover - everything else is just fluff. This would up the tax take for the Treasury and would keep the quiet for a while no doubt but I wonder how long it would be before the 30% became 40% and then 50%? As a business model it only works if IR35 is scrapped or working through an FLC makes you immune from investigation under IR35, otherwise you're in the same position as you are now only worse off.

The document seems to just accept that single person Limited Companies are a tax avoidance vehicle which I think is an unfortunate concession. Some companies call themselves umbrella companies but they're not - some people incorporate who shouldn't but that doesn't mean that the vehicle itself is flawed.

HMRC have said that they have a problem with the number of workers, especially low paid workers, who are operating through umbrella companies and single person Ltd Co's who shouldn't be - the simple solution is to take away that option. If a worker is on Living Wage + 20%, or less, then an umbrella company or a single person Ltd Co should not be an option. Legislation such as this would not need to be constantly reviewed as it is aligned with Living Wage, it would be simple to police through RTI and agency reporting and, if Government had the gumption to ban zero hours contracts, vulnerable low paid workers would be back in safe, protected, permanent employment.

The downside will be the increased cost to business but that could be offset in any number of ways e.g. tax concessions for offering private health care to staff which would then relieve pressure on the NHS

[stepping off soapbox and going back to work now]

mudskipper
18th August 2015, 06:50
As a business model it only works if IR35 is scrapped or working through an FLC makes you immune from investigation under IR35, otherwise you're in the same position as you are now only worse off.

I read it that it would make you immune from investigation, as long as you complied with the operating criteria. If, for whatever reason - choice or circumstance, you failed to meet the operating criteria, then you would again be at risk.

mudskipper
18th August 2015, 06:52
That is a bad example, a photographer by definition would rarely be under sdc and also clearly on a project by project basis withe most work being short term.

I don't know where you think I'm suggesting a turnover based approach. The entire point is to give simple rules and processes that an agency can follow so

1 it's not based on turnover
2. The payment levels would be based on payments made by an agency using the payment type (hourly, daily, weekly, monthly) x specified number of hours at x times the national living wage.

The reason for that approach is that it would be possible to argue that if you are earning less than £x an hour chances are you are being supervised.

Also remember what I am looking at here. The current expenses proposal would not pass a judicial review because it treats me differently as an associate of blue chip consultancy compared to employee of same company. The turnover approach solves this issue while also fixing the reason why the unions forced limited companies into scope


But we are talking about the FLC proposal, rather than the IR35 review (although I do believe the two overlap)

jamesbrown
18th August 2015, 06:57
Forgetting "us" for a moment, a turnover requirement would exclude, say, a freelance photographer starting out, charging low rates to get their name known, and needing the limited liability that a LtdCo offers. Even for us there's periods of benchtime, holidays, periods of part time etc. I can't see how it could work.

Yes, this is my basic concern too (i.e. I'm trying to think beyond what makes sense for us as, generally well-paid, contractors). On the one hand, you do want to screen out the large number of low-paid workers that are being guided into using Ltd companies for a mixture of tax purposes (benefits on both sides, but mainly the employer) and employment law purposes (benefits the employer). A turnover approach (and I use this as a shorthand) is quite a crude way of doing this, but I'm willing to listen.

I think we're just looking for a prerequisite or screening mechanism, rather than an over-arching solution (i.e. SDC will still be needed). However, we're trying to address the symptom (too many companies) rather than the cause (unscrupulous employers). It would be better to address the cause somehow. For example, is there some way of imposing a meaningful penalty regime on employers that require or otherwise guide low-paid workers into incorporation for tax/employment law purposes (i.e. penalties that require them to be seen to be doing the opposite, if anything)? In the new joined-up environment, one would think that it would be fairly straightforward to identify candidates for investigation.

LisaContractorUmbrella
18th August 2015, 06:57
I read it that it would make you immune from investigation, as long as you complied with the operating criteria. If, for whatever reason - choice or circumstance, you failed to meet the operating criteria, then you would again be at risk.

But that's just adding layers and making things unnecessarily complicated (again) e.g. a business plan review :confused: I can see that as an opportunity for companies to make money - offering business plan reviews where they now offer IR35 reviews but other than that I can't see that the inclusion serves any real purpose.

jamesbrown
18th August 2015, 06:59
I don't know where you think I'm suggesting a turnover based approach.

Understood, but we're both using this phrase as a shorthand, and it amounts to screening based on rates, if not totals.

eek
18th August 2015, 07:06
But that's just adding layers and making things unnecessarily complicated (again) e.g. a business plan review :confused: I can see that as an opportunity for companies to make money - offering business plan reviews where they now offer IR35 reviews but other than that I can't see that the inclusion serves any real purpose.

I am a single consultant in a company that cannot expand beyond that point. Why do I need a business plan?

I missed that utter fail. but will happily add it to the list..

jamesbrown
18th August 2015, 07:13
But that's just adding layers and making things unnecessarily complicated (again) e.g. a business plan review :confused: I can see that as an opportunity for companies to make money - offering business plan reviews where they now offer IR35 reviews but other than that I can't see that the inclusion serves any real purpose.

I've tried to avoid discussing the specifics, but I suppose this is effectively in the public domain now. There are elements of this plan that are worse than half-baked, they are unbaked, and would further complicate an already complicated administration, without any upsides. Let's face it, the vast majority of contractors have quite a simple "business plan": get contract, make money, with an occasional dose of re-skill. There's a reason that the BETs failed miserably. However, I don't think there's merit in discussing any of the details surrounding the implementation of the FLC when the basic premise is flawed. It's a poor solution to the wrong problem. I do hope that we'll be able to bring some pressure to bear on this and avoid it being adopted as an official position.

eek
18th August 2015, 07:15
Yes, this is my basic concern too (i.e. I'm trying to think beyond what makes sense for us as, generally well-paid, contractors). On the one hand, you do want to screen out the large number of low-paid workers that are being guided into using Ltd companies for a mixture of tax purposes (benefits on both sides, but mainly the employer) and employment law purposes (benefits the employer). A turnover approach (and I use this as a shorthand) is quite a crude way of doing this, but I'm willing to listen.

I think we're just looking for a prerequisite or screening mechanism, rather than an over-arching solution (i.e. SDC will still be needed). However, we're trying to address the symptom (too many companies) rather than the cause (unscrupulous employers). It would be better to address the cause somehow. For example, is there some way of imposing a meaningful penalty regime on employers that require or otherwise guide low-paid workers into incorporation for tax/employment law purposes (i.e. penalties that require them to be seen to be doing the opposite, if anything)? In the new joined-up environment, one would think that it would be fairly straightforward to identify candidates for investigation.

Your options would be:-

payment below x an hour/day/week have to be done either directly or directly from the agency / via an agency's designated payroll company.

or

a x strikes and you are out rule. After which agencies would only be able to employ people via their own payroll..

I know its screening on rates (remember I've never said I liked the idea). But that is simple, easy to implement, clear cut and directly tackles the issue both the unions and HMRC really dislike...

pr1
18th August 2015, 07:16
If a worker is on Living Wage + 20%, or less, then an umbrella company or a single person Ltd Co should not be an option. Legislation such as this would not need to be constantly reviewed as it is aligned with Living Wage, it would be simple to police through RTI and agency reporting

it should be nothing to do with turnover/wage/income - having a rule that says "you earn more than him, so you can pay less tax per £ earned" is f**king ridiculous

if you're going to go down that path (i.e. to discourage tax-advantageous incorporation) a fairer way would be to have an annual fixed fee for incorporation - where it costs (eg) £5000 per year to be a limited company or add a static £100/month tax on top of umbrella fees



if Government had the gumption to ban zero hours contracts, vulnerable low paid workers would be back in safe, protected, permanent employment.

or, unemployment (i.e. on JSA and more housing benefit) - the glass isn't always half full, someone paying less-than-PAYE tax is still more tax than claiming benefits

jamesbrown
18th August 2015, 07:20
Remember its a mess because HMRC are only attacking symptoms not the causes..

Yes, I completely agree. However, I think we should respond to these discussions and consultations honestly. In other words, if we can think of ways to address the causes rather than the symptoms, we should do that, while being mindful of the practicalities.

WordIsBond
18th August 2015, 07:23
If a worker is on Living Wage + 20%, or less, then an umbrella company or a single person Ltd Co should not be an option.
OK, but you can't make it that simple, or you block the start-up free lance photographer mentioned above, the inventor, etc. They HAVE to be Ltd for liability reasons.

If I take a year off contracting, pay myself nothing, live off of savings, and develop a product, should I still be allowed to have a Ltd Co? If I take 2 contracts of 2 weeks each during the year and pay myself a little bit from them, does that change the picture?

It's the problem of unintended consequences hitting people who weren't in view when the proposal was made. The government specialises in that, of course. But in this case, i think they wanted to hit contractors.

And IPSE can make proposals until we discover that the moon is actually made of bleu cheese rather than green cheese, but if those proposals limit the tax take that the government thinks it can get from us, they'll fall on deaf ears, because we've been targeted and it's not likely to get better. I'd find some hope that this is the "bad news budget" and that they'll start to bring out good news later, but for us, their consultations and discussions are all about hitting us again. I doubt it will be the complete worst case scenarios, but 2016-17 is going to be much worse than 15-16, and chances are high that 17-18 is going to be a lot worse than 16-17 for many of us, too. And we don't carry enough votes, and we aren't the kind of victims the press likes to bloviate about.

Our best hope is probably to convince enough Tory MPs that they are behaving worse than Labour, and thus put pressure on them to at least slow down and think about the 5 year effects of what they are doing on the economy. Georgie isn't going to be PM if they kill the economy and he can't get elected.

jamesbrown
18th August 2015, 07:26
if you're going to go down that path (i.e. to discourage tax-advantageous incorporation) a fairer way would be to have an annual fixed fee for incorporation - where it costs (eg) £5000 per year to be a limited company or add a static £100/month tax on top of umbrella fees

I don't agree with that specific suggestion, but I do think the bar is currently too low for incorporation. That's one aspect of the FLC discussion that I did agree with. I think it would be helpful to require a minimum initial investment, through share capital, even if it isn't paid down immediately.

pr1
18th August 2015, 07:29
I don't agree with that specific suggestion, but I do think the bar is currently too low for incorporation. That's one aspect of the FLC discussion that I did agree with. I think it would be helpful to require a minimum initial investment, through share capital, even if it isn't paid down immediately.

i don't agree with it either, but it's fairer than it being about how much you earn

eek
18th August 2015, 07:31
it should be nothing to do with turnover/wage/income - having a rule that says "you earn more than him, so you can pay less tax per £ earned" is f**king ridiculous

if you're going to go down that path (i.e. to discourage tax-advantageous incorporation) a fairer way would be to have an annual fixed fee for incorporation - where it costs (eg) £5000 per year to be a limited company or add a static £100/month tax on top of umbrella fees



or, unemployment (i.e. on JSA and more housing benefit) - the glass isn't always half full, someone paying less-than-PAYE tax is still more tax than claiming benefits

No its not. The rule would say that anyone paid less than £x through an agency is clearly and obviously subject to SD or C... and should therefore be treated (for HMRC for tax reasons, in a union / my world for all reasons) as an employee by the company who are paying the bill.

HMRC are trying to solve a problem of low paid fake self-employment with the only tool they have left in their toolbox - a very heavy sledgehammer. We can all see what damage they could do with that tool, we need to find a way to minimise it just a little bit...

pr1
18th August 2015, 07:47
No its not. The rule would say that anyone paid less than £x through an agency is clearly and obviously subject to SD or C... and should therefore be treated (for HMRC for tax reasons, in a union / my world for all reasons) as an employee by the company who are paying the bill.

HMRC are trying to solve a problem of low paid fake self-employment with the only tool they have left in their toolbox - a very heavy sledgehammer. We can all see what damage they could do with that tool, we need to find a way to minimise it just a little bit...

so someone paid £x+1 is clearly and obviously not subject to SD or C? you can't base it on earnings - it's ludicrous. Just because MrX can't demand as much for his service(s) as MrY should have no impact on the rules

jamesbrown
18th August 2015, 07:52
HMRC are trying to solve a problem of low paid fake self-employment with the only tool they have left in their toolbox - a very heavy sledgehammer. We can all see what damage they could do with that tool, we need to find a way to minimise it just a little bit...

One other thought on this: I don't think we should be complacent about the problem and solution being focused elsewhere. We (professional contractors) are squarely in view as more than simply collateral. Would removing low-paid workers from incorporation address the argument for clients as gatekeepers on SDC? Afterall, this is the central problem. We either need to find a workable iteration whereby clients are encouraged/required to undertake a professional review rather than defaulting to SDC or we push back with a sufficiently convincing argument that it's unworkable and hope for the best (I have my doubts either way, but it surely must be one of these two things).

eek
18th August 2015, 08:02
so someone paid £x+1 is clearly and obviously not subject to SD or C? you can't base it on earnings - it's ludicrous. Just because MrX can't demand as much for his service(s) as MrY should have no impact on the rules

We are not talking about us. Lisa is talking about people who earn £12 an hour or less, my figure being higher is talking about those earning £15 an hour or less... Very few skilled contractors of any trade earn that little (please, please show me an exception)...

Now the HMRC expense consultation currently has a flaw in it which is as I've continually said:-

1) As an employee of blue chip consultancy I can claim travel expenses to end client at the other end of the country.
2) As an associate of that consultancy I cannot.

That isn't going to pass any judicial review and as many MPs understand how consultancies work HMRC know that they cannot remove expenses from their workers. Hence its a problem...

By restricting the SD&C test for expenses to some low payment figure we solve a few of the issues:-

1) HMRC have something that is easily verifiable.
2) Agencies have a set of rules they can easily follow.
3) Companies cannot pretend their everyday staff are self employed when they are clearly not.

And yes I'm merely looking at expenses here and how to ensure the changes give HMRC most of what they want without really impacting me.

How we fix IR35 is something I still haven't got a clue about.....

eek
18th August 2015, 08:06
One other thought on this: I don't think we should be complacent about the problem and solution being focused elsewhere. We (professional contractors) are squarely in view as more than simply collateral. Would removing low-paid workers from incorporation address the argument for clients as gatekeepers on SDC? Afterall, this is the central problem. We either need to find a workable iteration whereby clients are encouraged/required to undertake a professional review rather than defaulting to SDC or we push back with a sufficiently convincing argument that it's unworkable and hope for the best (I have my doubts either way, but it surely must be one of these two things).

Isn't it something like the tier 2 argument. We cannot find the skill set on a permanent basis and therefore need to bring someone in... I think that's an issue for a different thread..

As I said above I've not got a solution to all the issues yet simply a starting point that gives HMRC something simple to start with... IR35 is a great one because it may not be SD or C that the company is applying to the contractor, the contractor could be applying SD or C to the company using the original Monday to Friday example....

teapot418
18th August 2015, 08:07
I am a single consultant in a company that cannot expand beyond that point. Why do I need a business plan?

I missed that utter fail. but will happily add it to the list..

Perhaps if you read the document, you'll be in a position to slag it off with some authority. :rolleyes:

LisaContractorUmbrella
18th August 2015, 08:10
so someone paid £x+1 is clearly and obviously not subject to SD or C? you can't base it on earnings - it's ludicrous. Just because MrX can't demand as much for his service(s) as MrY should have no impact on the rules

Thanks to Eek for the clarification of my earlier points :smile

No more ludicrous than basing the criteria for determining whether or not tax relief is due on expenses on a single element of employment law which effectively involves the tax payer (or engager or agency) proving a negative.

This is about achieving HMRC's aim without decimating the contractor market - the current proposals are less sledgehammer and nut and more nuclear device and amoeba

Lightwave
18th August 2015, 08:13
I am a single consultant in a company that cannot expand beyond that point. Why do I need a business plan?

I missed that utter fail. but will happily add it to the list..

Surely you have a plan?
It might not be long or formal, but in a similar position, I have a plan that my company will offer my services to a series of clients for the 'n' years or so, then it will either progress into designing its own products or wind up.

FWIW, that differentiates me from someone who just has a company because they need one for this year's agency job.

eek
18th August 2015, 08:19
Surely you have a plan?
It might not be long or formal, but in a similar position, I have a plan that my company will offer my services to a series of clients for the 'n' years or so, then it will either progress into designing its own products or wind up.

FWIW, that differentiates me from someone who just has a company because they need one for this year's agency job.

I do have a plan. It features using substitution to build up a business to the point that it employs multiple people. I can't do that if the company I'm using is restricted to a single employee and shareholder...

gisajob
18th August 2015, 08:35
And IPSE can make proposals until we discover that the moon is actually made of bleu cheese rather than green cheese, but if those proposals limit the tax take that the government thinks it can get from us, they'll fall on deaf ears, because we've been targeted and it's not likely to get better.

But they are already hitting their target (and more) for lost tax take with the new dividend tax. The consultation document estimates the Treasury is losing £430m per year at the moment and that the new rules target approx 265000 Ltd Co. contractors. I've seen calculations showing that the rough consequences of the new dividend tax will be circa £2k per year. 265000 x 2000 = £530m

Surely that's just HMRC's method to make us all split the liability, regardless of turnover, rate, no. of directors, IR35 position etc. Or is that over simplifying it...?

pr1
18th August 2015, 08:37
We are not talking about us. Lisa is talking about people who earn £12 an hour or less, my figure being higher is talking about those earning £15 an hour or less... Very few skilled contractors of any trade earn that little (please, please show me an exception)...


so someone on £14.90 per hour is different to someone on £15.10 per hour? you can't just draw an arbitrary line. Why should being "skilled" make you more eligible for a tax break than someone less skilled


Thanks to Eek for the clarification of my earlier points :smile

No more ludicrous than basing the criteria for determining whether or not tax relief is due on expenses on a single element of employment law which effectively involves the tax payer (or engager or agency) proving a negative.

maybe not more ludicrous but easily equal


This is about achieving HMRC's aim without decimating the contractor market - the current proposals are less sledgehammer and nut and more nuclear device and amoeba

silly over exaggeration - most contractors gross (at least) twice what they would get as perm, which means even on equal tax-footing they only *need* to work about 7 months of the year to come out with the same. The fact that most of us push to try and work 9/10/11 months per year and have a better lifestyle (than our equivalent permie-selves) with the extra cash has made us overly greedy

Contreras
18th August 2015, 08:39
One other thought on this: I don't think we should be complacent about the problem and solution being focused elsewhere. We (professional contractors) are squarely in view as more than simply collateral. Would removing low-paid workers from incorporation address the argument for clients as gatekeepers on SDC? Afterall, this is the central problem. We either need to find a workable iteration whereby clients are encouraged/required to undertake a professional review rather than defaulting to SDC or we push back with a sufficiently convincing argument that it's unworkable and hope for the best (I have my doubts either way, but it surely must be one of these two things).

The only way clients as gatekeepers would not default to SDC would be concern over employment rights. The real reason clients want contractors is that they can easily be binned. Tax liability is usually incidental (except ironically perhaps in cases of the very low paid).

If we are not all to be automatically under SDC then those with the clout to do so should be rattling the cages of clients over the "risks" of SDC. IR35 is predicated on FUD and I see no reason why the FUD should be so one sided. The idea has been touted a few times over the years as an IR35 counter-tactic but has fallen on deaf ears. Unfortunately some people find the notion of employment rights at all really quite obnoxious.

TheFaQQer
18th August 2015, 08:45
I am a single consultant in a company that cannot expand beyond that point. Why do I need a business plan?

I missed that utter fail. but will happily add it to the list..

I raise that exact point at the most recent consultation day - my business plan is to bill as much as I can and make as much profit as I can. There isn't much else to do, and nor can I really add much to it.

The suggestion was made that that was fine as a business plan as long as it was reviewed and kept up to date - although the penalty for not meeting that plan is a separate matter. So whenever you're out of contract, update the plan so that it says that you plan to be out of work for a bit, and you're OK.

TheFaQQer
18th August 2015, 08:48
I do hope that we'll be able to bring some pressure to bear on this and avoid it being adopted as an official position.

Make your voice known on the IPSE forums. Take the survey and make your opinion clear - there is a question at the end to add comments, so please do. Make it explicitly clear whether you would consider using one, and explain why. Explain why it's the wrong approach to the wrong problem.

I cannot stress this enough - PLEASE respond to the survey and make your opinion clear. That is the only way to bring pressure to bear on this.

LondonManc
18th August 2015, 08:52
silly over exaggeration - most contractors gross (at least) twice what they would get as perm, which means even on equal tax-footing they only *need* to work about 7 months of the year to come out with the same. The fact that most of us push to try and work 9/10/11 months per year and have a better lifestyle (than our equivalent permie-selves) with the extra cash has made us overly greedy

Even? So we get redundancy, sickness, holiday, free pension now do we?

Change the record or log off.

TheFaQQer
18th August 2015, 08:53
I do have a plan. It features using substitution to build up a business to the point that it employs multiple people. I can't do that if the company I'm using is restricted to a single employee and shareholder...

The FLC proposal doesn't restrict to a single employee.

cojak
18th August 2015, 08:55
Perhaps if you read the document, you'll be in a position to slag it off with some authority. :rolleyes:

You know I do believe eek has.

jamesbrown
18th August 2015, 08:56
Make your voice known on the IPSE forums. Take the survey and make your opinion clear - there is a question at the end to add comments, so please do. Make it explicitly clear whether you would consider using one, and explain why. Explain why it's the wrong approach to the wrong problem.

I cannot stress this enough - PLEASE respond to the survey and make your opinion clear. That is the only way to bring pressure to bear on this.

I'll certainly do the latter. Frankly, it's a huge PITA to have the same conversation in two places, and CUK is far more active. I probably won't be posting over there, but I do read the forum. Someone from IPSE needs to keep abreast of the conversations happening here and loop them back into their decision processes (i.e. in a more official capacity; I know there are a few IPSE CC members that post unofficially).

eek
18th August 2015, 08:59
so someone on £14.90 per hour is different to someone on £15.10 per hour? you can't just draw an arbitrary line. Why should being "skilled" make you more eligible for a tax break than someone less skilled



maybe not more ludicrous but easily equal



silly over exaggeration - most contractors gross (at least) twice what they would get as perm, which means even on equal tax-footing they only *need* to work about 7 months of the year to come out with the same. The fact that most of us push to try and work 9/10/11 months per year and have a better lifestyle (than our equivalent permie-selves) with the extra cash has made us overly greedy

Yes it is an arbitrary line as it makes it something easy to implement. Using a percentage of the national living wage means it get written once into the law and then never changes. And as Lisa says its no more arbitrary than use an agency = SD&C = no expenses.

It also solves the problem of companies using fake self employment to reduce costs.. Yes they can still do that but they will need to pay people significantly more than they currently do to work around it.

You need to look at the problem HMRC are trying to solve and come up with an HMRC friendly solution to this. Remember I'm not saying I like this approach, I just cannot see anything else that may work.

pr1
18th August 2015, 09:00
Even? So we get redundancy, sickness, holiday, free pension now do we?

Change the record or log off.

hence if you work 7 months and have 5 months sick/holiday you come out with the same as permie - most clientco's (in my engineering experience) don't pay full pay sick for more than 3 months anyway

you can claim JSA if you're out of contract (if you're that way morally inclined), same as a permie

you can decide whether you want to put more in your pension or more in your pocket out of the 2x gross you're making

if the rules came in, as planned, tomorrow - as much as everyone's kicking and screaming now i doubt many "high paid" contractors would stop contracting (I suppose time may tell)

Lightwave
18th August 2015, 09:01
......- most contractors gross (at least) twice what they would get as perm, which means even on equal tax-footing they only *need* to work about 7 months of the year to come out with the same. The fact that most of us push to try and work 9/10/11 months per year and have a better lifestyle (than our equivalent permie-selves) with the extra cash has made us overly greedy

I'm not sure this is actually true any more?
Outside of IT, there are a lot of not-very-enticing LTDCo rates being advertised.
As an engineer, if I got a decent permie post I could probably gross 80% or so of what I get as a contractor these days.
Had I taken the permie route a few years ago, I might be doing OK in management now.

A far cry from when I left permiedom twenty-odd years ago, in my first contract I was paying enough tax to pay my wife's salary at the time, she was Deputy Head of a small school.

There used to be CAD people and technicians contracting on good money, the rates you see advertised are rubbish now.

It's not just about top software people in City banks.

LisaContractorUmbrella
18th August 2015, 09:03
Tax is all about arbitrary lines - 20% tax on earnings under £30k odd a year and 40% on earnings over that - completely arbitrary

Why? Because it doesn't seem 'fair'? This isn't about fair, it's about tax and trying to impose tax restrictions according to employment law is never going to work as Employment Law is ever changing and evolving and too open to interpretation


Contract rate may be twice perm salary but that's like comparing apples with oranges - contractors don't get holiday pay, sick pay, statutory payments, company pension schemes etc etc etc

cojak
18th August 2015, 09:06
I'll certainly do the latter. Frankly, it's a huge PITA to have the same conversation in two places, and CUK is far more active. I probably won't be posting over there, but I do read the forum. Someone from IPSE needs to keep abreast of the conversations happening here and loop them back into their decision processes (i.e. in a more official capacity; I know there are a few IPSE CC members that post unofficially).

I refer the honourable member to my previous answer to an earlier question...



And since this isn't an approved organ of IPSE, I doubt you'll get any official response here. 'Join up and see the official response on our website' will be the unofficial official reply I would imagine. :rolleyes:

eek
18th August 2015, 09:09
I refer the honourable member to my previous answer to an earlier question...

I will eventually respond to the IPSE comment. the end response will be very short and is almost already written in my first response to this thread (you can remove the bit where I call them utterly incompetent... You can't say that to someones face and expect them to listen).

northernladuk
18th August 2015, 09:15
Will this be a 100% HMRC compliant and QC approved scheme?

dynamicsaxcontractor
18th August 2015, 09:17
This is the worst idea ever, what are they thinking of? What are they doing with all that money we are paying in membership fees? I am disappointed with IPSE and I will not renew my membership unless this stupid idea of an FLC is abandoned.

eek
18th August 2015, 09:21
Will this be a 100% HMRC compliant and QC approved scheme?

No but its created by a very large consultancy we often compete against for work....

pr1
18th August 2015, 09:21
Tax is all about arbitrary lines - 20% tax on earnings under £30k odd a year and 40% on earnings over that - completely arbitrary


completely different

someone on £30100 pays the same tax as someone on £30000, plus a bit more on the extra £100

drawing a line between where you can incorporate and not means someone on £15000 might pay £1000 tax but someone on £15100 might pay £900 tax - unfair

TheFaQQer
18th August 2015, 09:25
This is the worst idea ever, what are they thinking of? What are they doing with all that money we are paying in membership fees? I am disappointed with IPSE and I will not renew my membership unless this stupid idea of an FLC is abandoned.

Please make your views known on the survey to members - that is the only way that the members can influence this now, and as a members organisation the board must listen to the views of the membership.

I have made my thoughts on the FLC pretty clear from day one, and will continue to do so now that we have some detail, but the more people that comment the more representative it will be.

I would also encourage people to use the comments box to answer whether they would use an FLC, if it came into reality.

MrMarkyMark
18th August 2015, 09:26
hence if you work 7 months and have 5 months sick/holiday you come out with the same as permie - most clientco's (in my engineering experience) don't pay full pay sick for more than 3 months anyway


I'm not sure this is actually true any more?
Outside of IT, there are a lot of not-very-enticing LTDCo rates being advertised.
As an engineer, if I got a decent permie post I could probably gross 80% or so of what I get as a contractor these days.

So, in engineering is it 2* rate, or just 20% extra, compared to perm?

@pr1, you seem obsessed with comparing yourself / us to permies.
Would you say your skill and experience levels are the same?
If so, wouldn't you say your client was just buying a bum on seat and saving money on perm?

I hope to offer skills and industry experience very few permies have, at a principle level.
Therefore, there is a good price charged for this to clients.

Principle Consultancy from <Enter Big BI Software Vendor Here> was £2K PD a few years ago. Admittedly, I suspect this has probably decreased to around £1800 PD now.

All I know is, I'm quite a bit cheaper and in most cases more knowledgeable than the consultants the vendor supplies.

eek
18th August 2015, 09:28
completely different

someone on £30100 pays the same tax as someone on £30000, plus a bit more on the extra £100

drawing a line between where you can incorporate and not means someone on £15000 might pay £1000 tax but someone on £15100 might pay £900 tax - unfair

We aren't.... You can incorporate the agency will just not be able to pay you by any means other than through PAYE... And we aren't talking about those earning £30,000 a year but those earning £7-12 an hour, £250-400 a week or £1000-1600 a month...

Pick an argument that isn't about turnover and come up with an easy to police approach that HMRC can implement using the tools they already have in their arsenal...

Just saying you don't like it, it isn't fair isn't getting us anywhere. We need to provide possible solutions that mean HMRC can implement something that solves some of their problems without destroying the entire freelance marketplace. Otherwise they will implement something that impacts us and accidentally does destroy the entire marketplace...

dynamicsaxcontractor
18th August 2015, 09:33
Please make your views known on the survey to members - that is the only way that the members can influence this now, and as a members organisation the board must listen to the views of the membership.

I have made my thoughts on the FLC pretty clear from day one, and will continue to do so now that we have some detail, but the more people that comment the more representative it will be.

I would also encourage people to use the comments box to answer whether they would use an FLC, if it came into reality.

Already done that, if this goes ahead and the option to trade though a LTD will be limited or blocked in conjunction with all the other tax enhancements from HMRC I will seriously consider moving abroad.

pr1
18th August 2015, 09:41
So, in engineering is it 2* rate, or just 20% extra, compared to perm?

@pr1, you seem obsessed with comparing yourself / us to permies.
Would you say your skill and experience levels are the same?
If so, wouldn't you say your client was just buying a bum on seat and saving money on perm?

I hope to offer skills and industry experience very few permies have, at a principle level.
Therefore, there is a good price charged for this to clients.

Principle Consultancy from <Enter Big BI Software Vendor Here> was £2K PD a few years ago. Admittedly, I suspect this has probably decreased to around £1800 PD now.

All I know is, I'm quite a bit cheaper and in most cases more knowledgeable than the consultants the vendor supplies.

your two quotes are from two different people (i only wrote the first one)

contractors cost my engineering clientco more than their perm staff (day for day), they're a stop gap panic "oh s**t we need to deliver this package of works before date X and half our perm staff have left between when we bid and when we won the work" - so they get contractors in to give bits of the work to so they can (try to) meet the deadlines (it's cheaper to pay more for contractors than to miss a deadline and pay a fine/not get paid in full)

we (contractors) are cheaper than seconding in another BigClientCo perm engineer for 6 months though, which I think is what you're alluding to (i.e. clientco perm is cheapest, then independent contractor, then seconded-in-bigco-staff)

Lightwave
18th August 2015, 09:48
We aren't.... You can incorporate the agency will just not be able to pay you by any means other than through PAYE... And we aren't talking about those earning £30,000 a year but those earning £7-12 an hour, £250-400 a week or £1000-1600 a month...

Pick an argument that isn't about turnover and come up with an easy to police approach that HMRC can implement using the tools they already have in their arsenal...

Just saying you don't like it, it isn't fair isn't getting us anywhere. We need to provide possible solutions that mean HMRC can implement something that solves some of their problems without destroying the entire freelance marketplace. Otherwise they will implement something that impacts us and accidentally does destroy the entire marketplace...

I think this is the key.
When you look at the big picture, including what has been happening with some people on (not vastly more than min wage), the status quo is pretty ridiculous.
Once upon a time contracting was about bigger opportunities not less tax.
However, the current state of the UK job market in my sector (electronics hardware) contracting is more about the mobility to keep in interesting work. The rate differential isn't what it was.

We need to tread a fine line between objecting to a new farcical system and defending the current indefensible mess.

eek
18th August 2015, 09:54
I think this is the key.
When you look at the big picture, including what has been happening with some people on (not vastly more than min wage), the status quo is pretty ridiculous.
Once upon a time contracting was about bigger opportunities not less tax.
However, the current state of the UK job market in my sector (electronics hardware) contracting is more about the mobility to keep in interesting work. The rate differential isn't what it was.

We need to tread a fine line between objecting to a new farcical system and defending the current indefensible mess.

+1. I went permie and was slowly losing my skillset as there was always some disaster that required someone to fix (i.e. me, the goto fix mess in old code base person)..

I contract not because of the money but because I can work where I want and stay where I want. As a prime :eek example Ex clientco's MD bought some flats in St Albans and forced their London consultants to stay there midweek...

pr1
18th August 2015, 09:56
if none of you contract for the money why are you worried about paying the same tax as employees?

(spoiler - you are doing it at least partly for the money)

dynamicsaxcontractor
18th August 2015, 09:58
if none of you contract for the money why are you worried about paying the same tax as employees?

(spoiler - you are doing it at least partly for the money)

If you are not in control of your own income and are taxed as perms you won't be able to be as flexible and having bench time.

TheFaQQer
18th August 2015, 09:59
if none of you contract for the money why are you worried about paying the same tax as employees?

(spoiler - you are doing it at least partly for the money)

If you want to be a permie, then be a permie. If you want to be a freelancer, then be a freelancer.

But being freelance has inherent risks which should be rewarded - is a permie going to go unpaid for six months because they have no role to go to? No. Is a permie going to get redundancy pay, sick pay, maternity pay, paternity pay, paid holiday, any other myriad of benefits? Yes.

However, this is rather off-topic and irrelevant to any discussion of an FLC.

eek
18th August 2015, 10:00
if none of you contract for the money why are you worried about paying the same tax as employees?

(spoiler - you are doing it at least partly for the money)

I'm merely concerned about being treated equally to my contemporaries / competitors... The permanent consultants at any blue chip consultancy....

Lightwave
18th August 2015, 10:04
So, in engineering is it 2* rate, or just 20% extra, compared to perm?

......

Seems to have got increasingly random in recent years.
I'm not looking at the moment, but the last two job alert emails I got were for £30/hr contract somewhere very inconvenient, doing telecoms hardware design, and £50k/year permie somewhere moderately inconvenient doing something comparable. In the old days the norm was contract £x per hour translated to permie £xk per year.
Rates for such contracts would have been around £30/hr in about 1998?

In the old days, we did lots of hours, stacked a lot of cash, paid hods of tax, and our clients made proper money doing 'big things' and paid shedloads of corporation tax.

For a lot of people, what's changing is not just about a new NI and expenses regime. Bigger things are badly wrong IMHO.

Lightwave
18th August 2015, 10:09
I'm merely concerned about being treated equally to my contemporaries / competitors... The permanent consultants at any blue chip consultancy....

You are of course free to apply for a job with said big consultancy.

It's a trap to compare their man hour rate with your contracting rate, their bods don't get paid half of it, any more than the apprentoid who changes the oil in your Merc gets £60 an hour.
When I started as a graduate with a big defence co, I got paid £8k a year and they charged my time to the MoD for about £30 an hour.
Plus ca change....

MrMarkyMark
18th August 2015, 10:11
your two quotes are from two different people (i only wrote the first one)

I realised that, you are both in engineering. You said in that industry you got rate *2, Lightspeed suggested contract rates were 20% extra on top of perm.
Which is it?


contractors cost my engineering clientco more than their perm staff (day for day),
You have those numbers, of course :tumble:.

My father used to employ people and said that full time people cost 2* what you actually paid them. This was in the building industry, btw.


I'm merely concerned about being treated equally to my contemporaries / competitors... The permanent consultants at any blue chip consultancy....
This.


But being freelance has inherent risks which should be rewarded - is a permie going to go unpaid for six months because they have no role to go to? No. Is a permie going to get redundancy pay, sick pay, maternity pay, paternity pay, paid holiday, any other myriad of benefits? Yes.

This is one thing pr1 fails to acknowledge, even though I gave him my own real world example, here:-

http://forums.contractoruk.com/business-contracts/108338-client-wants-hire-me-permie-4.html

eek
18th August 2015, 10:13
You are of course free to apply for a job with said big consultancy.

It's a trap to compare their man hour rate with your contracting rate, their bods don't get paid half of it, any more than the apprentoid who changes the oil in your Merc gets £60 an hour.
When I started as a graduate with a big defence co, I got paid £8k a year and they charged my time to the MoD for about £30 an hour.
Plus ca change....

I wasn't. I could get £80k+ with one of the big firms at the moment (package would probably total £100k), I can get £60-80 an hour at the moment freelance....

The thing is that I've worked in a big consultancy and ended up with my skillset being destroyed as I fixed old crap rather than doing sexy new stuff because I knew the old crap and could fix it in hours compared to the weeks it would take others. I'm not going there again...

pr1
18th August 2015, 10:17
I realised that, you are both in engineering. You said in that industry you got rate *2, Lightspeed suggested contract rates were 20% extra on top of perm.
Which is it?

sounds like somewhere between the two (in my case, 2x)




You have those numbers, of course :tumble:.

My father used to employ people and said that full time people cost 2* what you actually paid them. This was in the building industry, btw.


I know what clientco charge me out at (same as their permies, rates are banded), i know how much they pay myco, I know how much permie equivalent is on and their breakeven cost so yes, in my current contract i know the numbers



This is one thing pr1 fails to acknowledge, even though I gave him my own real world example, here:-




http://forums.contractoruk.com/business-contracts/108338-client-wants-hire-me-permie-4.html

yes, i read, you made your regular annual salary in 3 months then didn't work for 6 months

LisaContractorUmbrella
18th August 2015, 10:23
if none of you contract for the money why are you worried about paying the same tax as employees?

(spoiler - you are doing it at least partly for the money)

Contractors are not employees - that's the fundamental principal here

mudskipper
18th August 2015, 10:28
I refer the honourable member to my previous answer to an earlier question...

WSS

If you want to discuss with others, here's fine.

If you want to make your views known to IPSE (and I would encourage you to do so), then their forums are the place to do it. https://community.ipse.co.uk/threads/did-mr-osborne-write-this.109878/ https://community.ipse.co.uk/threads/consultation-on-a-freelancer-limited-company.109880/

MrMarkyMark
18th August 2015, 10:29
I know how much permie equivalent is on and their breakeven cost so yes, in my current contract i know the numbers

So, you know PAYE, NICs and what all the other perm benefits are worth?


sounds like somewhere between the two (in my case, 2x)

As I said, my father said a perm cost twice what you pay them.
So you actually cost client co the same as a perm, or possibly ,even less?


yes, i read, you made your regular annual salary in 3 months then didn't work for 6 months

Not by choice.

This is called risk.

This is, amongst other reasons, why we should be paid more.

Lightwave
18th August 2015, 10:29
Contractors are not employees - that's the fundamental principal here

Since 'contractor' is an undefined term that IPSE doesn't use much, that's not ever so helpful really.
The problem is umbrella companies, pimps and other Klingons blurring the lines between consultants, contractors and agency scrotes.

It's 'principle' btw.

Lightwave
18th August 2015, 10:31
.....
This is called risk.

This is why, amongst other reasons, why we should be paid more

I don't hold with the obsession with 'reward for risk'.
We get rewarded for delivering value to the client.

LondonManc
18th August 2015, 10:36
I don't hold with the obsession with 'reward for risk'.
We get rewarded for delivering value to the client.

I'm very pleased for you. He stated that was one of several reasons.

Permies also get rewarded for delivering value to their employee. They also get other benefits that mitigate against risk.

We're dealing B2B so there is more risk involved.

Reward for risk happens globally.

MrMarkyMark
18th August 2015, 10:37
We get rewarded for delivering value to the client.

Agree totally.

Thats why I said amongst other reasons, my risk example was something personal to me and in a particular context.



The problem is umbrella companies, pimps and other Klingons blurring the lines between consultants, contractors and agency scrotes.
Yup. My thoughts exactly.

WordIsBond
18th August 2015, 11:16
But they are already hitting their target (and more) for lost tax take with the new dividend tax. The consultation document estimates the Treasury is losing £430m per year at the moment and that the new rules target approx 265000 Ltd Co. contractors. I've seen calculations showing that the rough consequences of the new dividend tax will be circa £2k per year. 265000 x 2000 = £530m

Surely that's just HMRC's method to make us all split the liability, regardless of turnover, rate, no. of directors, IR35 position etc. Or is that over simplifying it...?
Yes, they are hitting their target (and more) with the new dividend tax, but oddly enough, Georgie's budget still isn't balanced. And their baseline is we should be paying the same tax as employees, so obviously target practice will continue.

Yes, the new dividend tax should have made them pause and say, "Let's see how this works with disguised employment, we don't really have to keep on this IR35 thing until we see how things go." But there are feathers to be plucked, and we're the turkeys of the day as far as HMG is concerned.

Until IPSE or anyone else figures out how to change that mindset, we're toast, and any proposals that don't touch it and include any concessions at all are only likely to be used against us rather than accepted in full.

WordIsBond
18th August 2015, 11:25
You are of course free to apply for a job with said big consultancy.

HMG is of course free to explain why he should have to do that to get the same tax treatment as they get on expenses.

LisaContractorUmbrella
18th August 2015, 11:50
Since 'contractor' is an undefined term that IPSE doesn't use much, that's not ever so helpful really.
The problem is umbrella companies, pimps and other Klingons blurring the lines between consultants, contractors and agency scrotes.

It's 'principle' btw.

Thank you for the spelling correction.

Other than that you seem to have missed the point I was trying to make. There needs to be a distinction made between a contractor and an employee and if a 'contractor' was defined we may not have the problems that we have now

Lightwave
18th August 2015, 11:52
HMG is of course free to explain why he should have to do that to get the same tax treatment as they get on expenses.

Equally we are free to explain why umbrella worker 'A' employed via an agency to work alongside agency worker 'B' deserves more beneficial treatment.

Also, I suspect the consultant from the large consulting co generates more tax in total from his assignment, because his daily charge out rate creates turnover and corp tax for his firm. And he's generating a stout NI bill.

Contracting is quite diverse.
How many of us are employed as an alternative to a consultant form a consulting co, and how many are an alternative to a permie?
Personally, my client would have to replace me with a permie, or another freelancer, or they could outsource the whole project, it's that kind of role. To bang on about the old days again, I was in a project based industry, so a big reason for not taking on permies was that they would not be needed when the project wound down.

Lightwave
18th August 2015, 12:01
Thank you for the spelling correction.

Other than that you seem to have missed the point I was trying to make. There needs to be a distinction made between a contractor and an employee and if a 'contractor' was defined we may not have the problems that we have now

It's not a binary choice though.
We have:
Consultant (multi client)
Contractor (single client at a time)
Umbrella co workers
agency staff (multi end-client)
agency staff (single end-client)
Temporary contract direct PAYE
Permies

Plus other convolutions.
with time of engagement distinctions.

While I think the proposals on the table are deeply flawed, so is the status quo.....

LondonManc
18th August 2015, 12:18
Equally we are free to explain why umbrella worker 'A' employed via an agency to work alongside agency worker 'B' deserves more beneficial treatment.

Also, I suspect the consultant from the large consulting co generates more tax in total from his assignment, because his daily charge out rate creates turnover and corp tax for his firm. And he's generating a stout NI bill.

Contracting is quite diverse.
How many of us are employed as an alternative to a consultant form a consulting co, and how many are an alternative to a permie?Personally, my client would have to replace me with a permie, or another freelancer, or they could outsource the whole project, it's that kind of role. To bang on about the old days again, I was in a project based industry, so a big reason for not taking on permies was that they would not be needed when the project wound down.

How would you know the difference?

If you're in an IT development department, you could be either.

eek
18th August 2015, 12:27
It's not a binary choice though.
We have:
Consultant (multi client)
Contractor (single client at a time)
Umbrella co workers
agency staff (multi end-client)
agency staff (single end-client)
Temporary contract direct PAYE
Permies

Plus other convolutions.
with time of engagement distinctions.

While I think the proposals on the table are deeply flawed, so is the status quo.....

So come up with a solution that solves HMRCs problems....

I know that this going to become a broken record but just saying x is a bad idea doesn't solve anything when x is currently the only option on the table.

And currently a rule based on a percentage of national living wage is the only plausible suggestion on the table. I don't want to promote it if someone comes up with something workable and better but I'm not seeing anything workable or better just continual posts saying its a bad idea (yep, it is, the other option is just worse)...

Lightwave
18th August 2015, 12:44
So come up with a solution that solves HMRCs problems....

I know that this going to become a broken record but just saying x is a bad idea doesn't solve anything when x is currently the only option on the table.

And currently a rule based on a percentage of national living wage is the only plausible suggestion on the table. I don't want to promote it if someone comes up with something workable and better but I'm not seeing anything workable or better just continual posts saying its a bad idea (yep, it is, the other option is just worse)...

Dare I suggest that the key thing could be being a 'professional' as in broadly equivalent to Chartered status?
Just a thought, not something I'm committed to.

Either that, or as I've seen elsewhere, the concept of an 'overarching employment', i.e. I'm employed by myco and myco sends me wherever the contracts are, and employs me continuously for as long as that's my 'business model'. I've always seen that as significant, paying myself the same salary whether I'm in contract or 'between'.

Maybe what's needed is forcing people to pay themselves serious salaries for their 'bum on seat' role?
An end to the £10k plus 10x that in divs for a '£50k permie' role?
I don't know.
I am relieved not to be dependent on my contracting career going very far forwards from here!

WordIsBond
18th August 2015, 12:57
So come up with a solution that solves HMRCs problems....

Combine NI, employer's NI, and income tax into a single tax. Make corporation tax the same rate. Eliminate dividend taxation entirely.

Life becomes easier for everyone.

Except for the politicians, who lose the ability to tinker with rewarding behaviour they like and punishing things they don't like but can't criminalise. And they'd lose also a big part of the ability to obscure how much tax they are taking. And they'd lose the ability to lure companies here with low corporate tax and then hammer them and their employees on employment tax, and brag about how they've brought in new jobs.

So it won't happen.

LondonManc
18th August 2015, 12:58
Dare I suggest that the key thing could be being a 'professional' as in broadly equivalent to Chartered status?
Just a thought, not something I'm committed to.

Either that, or as I've seen elsewhere, the concept of an 'overarching employment', i.e. I'm employed by myco and myco sends me wherever the contracts are, and employs me continuously for as long as that's my 'business model'. I've always seen that as significant, paying myself the same salary whether I'm in contract or 'between'.

Maybe what's needed is forcing people to pay themselves serious salaries for their 'bum on seat' role?
An end to the £10k plus 10x that in divs for a '£50k permie' role?
I don't know.
I am relieved not to be dependent on my contracting career going very far forwards from here!

It's not a permie role if there's no severence pay, etc.

I see it as being paid a basic retainer to be available to MyCo for work and the dividends are paid when work has been secured and I'm carrying out said work for MyCo in a commission format.

WordIsBond
18th August 2015, 13:04
Basically what I'm saying is that in any system where you have different tax regimes for different types of income / profit / wealth, you are going to have edge cases where it is going to get hard to draw distinctions between them, and you will have people who will modify their behaviour to get into the lower tax regime.

So you will always have enforcement / compliance issues which will become more and more complicated, as long as you have significant tax rate disparities for different kinds of income.

And the biggest driver of it all is probably employer NI. The government wants to keep it hidden, and call it an employer tax, so people don't realise just how much of the money their company is paying on their employment isn't in their take home pay. So they have this swingeing 13.8% hammer blow that most people don't even know or think about. And it provides a huge incentive for employers to off-load employees. And as long as that exists, there are going to be attempts to avoid it and attempts to prevent avoidance.

SpontaneousOrder
18th August 2015, 13:15
silly over exaggeration - most contractors gross (at least) twice what they would get as perm, which means even on equal tax-footing they only *need* to work about 7 months of the year to come out with the same. The fact that most of us push to try and work 9/10/11 months per year and have a better lifestyle (than our equivalent permie-selves) with the extra cash has made us overly greedy

And that makes sense if you suppose that you are a disguised permie. Otherwise it's apple & oranges.

SpontaneousOrder
18th August 2015, 13:22
so someone on £14.90 per hour is different to someone on £15.10 per hour? you can't just draw an arbitrary line.


I an forced to give up a much larger percentage of my income than someone on 15k a year. Why? - because I earn more. How's that for arbitrary?

Lightwave
18th August 2015, 13:44
It's not a permie role if there's no severence pay, etc.

I see it as being paid a basic retainer to be available to MyCo for work and the dividends are paid when work has been secured and I'm carrying out said work for MyCo in a commission format.
Commission format?
That would attract PAYE.

Lots of permies don't get 'severance pay', their 'permie' roles do not last long enough.
I sometimes wonder if other contractors have no contact at all with people who don't have good jobs!

pr1
18th August 2015, 13:47
I an forced to give up a much larger percentage of my income than someone on 15k a year. Why? - because I earn more. How's that for arbitrary?

yes but my point with drawing an arbitrary line is that someone on (say) 14.5k would pay more tax than someone on 15.5k - which is unfair - it's generally agreed/accepted/is never going to change that tax should be progressive to protect the very-low earners (an extra £100 to someone with £1000 is worth a lot more than an extra £100 to someone with £100,000)

eek
18th August 2015, 13:52
yes but my point with drawing an arbitrary line is that someone on (say) 14.5k would pay more tax than someone on 15.5k - which is unfair - it's generally agreed/accepted/is never going to change that tax should be progressive to protect the very-low earners (an extra £100 to someone with £1000 is worth a lot more than an extra £100 to someone with £100,000)

It's not would at most its a could. And in reality they couldn't because there would be costs associated with that change in payment method which would easily cost £1000 a year....

Yep its arbitrary and potentially unfair. Give me something better than HMRC could use without effort...

SarahL2012
18th August 2015, 14:45
Best article I've seen on the consultation is on taxation.co.uk by David Kirk. Not sure if already been linked to somewhere on this forum but it sums up the position well.

He sounds like the kind of person I'd like representing me rather than the latest IPSE nonsense!

DaveB
18th August 2015, 14:48
Best article I've seen on the consultation is on taxation.co.uk by David Kirk. Not sure if already been linked to somewhere on this forum but it sums up the position well.

He sounds like the kind of person I'd like representing me rather than the latest IPSE nonsense!

Subscription only....

SarahL2012
18th August 2015, 14:49
2 weeks free if you sign up I think.

eek
18th August 2015, 14:51
Subscription only....

Google (cache) is your friend

Carry on consulting | Taxation (http://webcache.googleusercontent.com/search?q=cache:H-rA34GuIRAJ:www.taxation.co.uk/taxation/Articles/2015/08/10/333516/carry-consulting+&cd=2&hl=en&ct=clnk&gl=uk)

eek
18th August 2015, 15:34
Google (cache) is your friend

Carry on consulting | Taxation (http://webcache.googleusercontent.com/search?q=cache:H-rA34GuIRAJ:www.taxation.co.uk/taxation/Articles/2015/08/10/333516/carry-consulting+&cd=2&hl=en&ct=clnk&gl=uk)

Having only really skim read it, does it offer anything beyond employers NI should be paid regardless of employment method?

jamesbrown
18th August 2015, 15:53
Having only really skim read it, does it offer anything beyond employers NI should be paid regardless of employment method?

That seems to be the main thrust, and it doesn't stand up IMHO; employers may remit employer's NI, but this masks the reality. It also seems to have missed the point on SDC, namely that this is precisely what is most likely to change, i.e. the alignment of IR35 with the T&S and agencies legislation to have a common determination w/r to SDC. I like the spirit of the article, but the substance is lacking. The argument needs to focus on what's actually in front of us, not what we'd hope to be in front of us.

eek
18th August 2015, 15:55
That seems to be the main thrust, and it doesn't stand up IMHO; employers may remit employer's NI, but this masks the reality. It also seems to have missed the point on SDC, namely that this is precisely what is most likely to change, i.e. the alignment of IR35 with the T&S and agencies legislation to have a common determination w/r to SDC. I like the spirit of the article, but the substance is lacking. The argument needs to focus on what's actually in front of us, not what we'd hope to be in front of us.

Which in one sentence shows the flaw in both that document and the FLC proposal...

jamesbrown
18th August 2015, 17:13
Which in one sentence shows the flaw in both that document and the FLC proposal...

Right, I entirely agree, so this is where we are IMHO:


Changing the focus to SDC is going to be the centrepeice of any revision to the IR35 rules, bringing it into line with the agency legislation and T&S (which will surely proceed)
There is likely to be a requirement on the client as gatekeeper w/r to the application of SDC
It's straightforward to outline the potential impacts of the above changes
It's less straightforward to offer a workable improvement to the above (as opposed to something completely off base, like the FLC), but we either need to do that or express frustration and capitulate


Arguments about the details of the T&S or why the FLC isn't workable or why freelancers pay more or less tax than a notional employee is going to miss the point. Perhaps we can also address low-hanging-fruit through simpler rules (e.g. low-paid workers exploited by employers), but I don't think this is the most pressing problem for the average punter on CUK/IPSE (and we also shouldn't throw low-paid freelancers under a bus, I think we all agree). Clearly, HMG don't have a complete proposal w/r to clients operating payroll, and they will need to be put straight on that (I have no doubt this will be a common theme in the responses). I think any solution needs to aim for:


A requirement that the client must have the contract and working practices reviewed professionally w/r to SDC (applicable to both IR35 and T&S). This wouldn't need to happen for every role and could be advertised in advance in most cases.
If the review fails, and the PSC accepts the terms, the client notifies HMRC, via the new reporting rules (possibly extended to PSCs even when they don't have subcontractors), that a deemed payment should be operated by the PSC. Having the client operate payroll is completely unworkable (mechanistically and from an employment law perspective). The stated aim of the T&S consultation and the IR35 discussion is not to prevent people operating through a Ltd company, but to reduce the tax benefits of doing so.
If the review passes, the PSC is responsible for retaining the review and any supporting evidence during the contract. The PSC operates payroll and T&S as usual. In the event that a status inquiry finds against the PSC, liability should be aligned for the IR35 and T&S legislation (two options were presented in the T&S legislation).


Now, I think there are some obvious problems with the above. First, it will be difficult to incentivize the client to make a reasonable judgment about SDC, as opposed to a blanket determination that (a right to) SDC applies. It's possible that HMG is actually aiming for this with agency contractors, although I'm not convinced (a "presumption" doesn't mean much). I'm not in any way naive about the likely outcome w/r to the action of clients, but this is the crux of the problem afterall. However, it may be possible to mitigate some of the downside risks. One possibility would be for the client to have a tax insurance policy in place for those contracts/working practices that are not subject to SDC (as some PSCs do currently). The practical reality, though, is that the bar will probably be sufficiently high, or the incentive for clients insufficiently strong in the long-term (e.g. by way of increased rates etc.) versus the short-term risks, to mean that many more PSCs would be caught under the new regime that wouldn't be caught at present.

This leads to the second and related problem. Unless there are many more caught under the new regime (by virtue of many more reviews taking place that wouldn't have happened previously or many instances where reviews failed), it is unlikely to be workable w/r to the stated objective of the IR35 discussion (i.e. increasing the tax take for IR35). Of course, many contractors that currently take the p*ss would no longer have that option, but that doesn't mean it's fair. We cannot lose perspective on what is happening here. We are being asked for ideas about how HMRC can increase their tax take through IR35. Either we point to IR35 (and son-of-IR35) as an unmitigated policy failure (whether directly or tacitly through something like the FLC) or we propose something that is squarely accepting of the broad outlines of the approach that HMG is looking to implement, while trying to make sure it's done as "fairly" as possible.

BolshieBastard
18th August 2015, 18:21
Ah, pcg, sorry, IPSE shafting contractors again. Who'd have thought it, eh?

WordIsBond
18th August 2015, 18:50
Kirk's article points to one of the biggest problems with IR35 -- the whole risk of employers NI has been transferred to the worker. Addressing that could be a major part of a workable solution. What do you think of this?

1. Any Ltd company contractor that within a two year period A) has more than one client and B) is engaged for less than 9 months by any one client is NOT an employee of that company and is not subject to IR35. (Everybody knows that anyone who is bouncing around between clients is not an employee, they are running a business. Quit pretending that you can twist their working practices into employment. Tweak the 9 months to 12 if you want, the two years to three, whatever. But these people are not employees, they have their own business, with multiple clients. And they can deduct their travel expenses, too. Give me a break.)

For those with a single client for longer engagements:
2. Clients either certify that a contract is not subject to SDC, or pay the employers NI for a deemed payment. (Assume 5% expenses, and 5% pension contribution. Or create a new class of NI contributions and make it a flat 8% or whatever, of the contract.) This gives clients at least some incentive not to automatically throw contractors into IR35, but shields contractors from the worst of the damage if they do.
3. Contractors could offer to indemnify the client against IR35 claims by purchasing insurance (on a contract by contract basis). If a contractor thinks a contract is safe, they can offer the insurance and then the only real risk to the client of losing a case is reputational. QDOS and others will quickly offer two products, one that covers the client only, another that covers both client and contractor. If clients want to be indemnified, or want to take the risk, or want to just pay their NI payment, if contractors want to try to persuade the client with an insurance contract or just want to go within IR35, well, it's a business decision for both parties and a matter of negotiation.
4. Forget the travel expenses change. Just bury it. It's a grave injustice to anyone who is truly running a business. Shorten the 24 months to 18 or even 15, if you think you need to. (There does come a point when you say, "No, you shouldn't be getting travel expenses if you are going to be there forever." I don't think 24 months is a bad cutoff line, but whatever. People would survive if it were 18.) Just because someone is under supervision or control in their work doesn't mean they should be told they either have to move home or can't take a contract at some distance from home. Come on. Join the real world. These are not people who have a permanent job that justifies moving house to be within a reasonable commute. Just stop. The people who are proposing this abominable idea are bureaucrats with lifetime jobs and great pensions or MPs who get THEIR expenses paid. When MPs have to pay taxes on their expense reimbursements then they have the right to think about this. THEY are under SDC, "they do just what their leaders tell 'em to."

This works. HMG is happy, because a lot of clients will just say, "No hassle, pay the tax, move on." A lot of contractors will be content to work under IR35 if the client is paying the employers NI. I would. I'd hope to avoid it half the time or so, but whatever. They will have a LOT of contracts that suddenly begin to operate under IR35.

Those contractors who are fortunate enough to have a client certify that a contract isn't SDC will have a strong case that they are not subject to IR35, and they'll be happy. They won't have clients undermine them in an investigation years later if the client has certified "no SDC." HMRC will probably almost never waste time investigating those cases because they will almost always lose.

Those contractors whose client pays the NI, but who think they can still beat an IR35 case, can take the risk if they want, based on no MOO and/or right of substitution or sheer chutzpah. They probably won't be able to buy insurance, though, and they risk heavy penalties, not just interest.

The big problem? Engagers won't like it because you just added maybe 10% to the cost of a longer contract, unless they want to take the risk (or make sure insurance is in place). But it isn't an uncertain expense that could mount over time, it's just part of the cost you budget to begin with.

Will it hit contractor rates? Perhaps some, because some clients may look to recover some of that 10%, and some contractors will have to buy insurance to cover their clients. But it is relatively straightforward, prevents the destruction of the flexible workforce, brings in more revenue, and ends a lot of uncertainty and stupidity.

It's more fair -- if engagers want to exercise control over contractors the way they do over employees, they have to say so and pay for it. They don't have to give full employment rights, maybe, but they have to pay much of the tax hit.

If it is a close call between hiring a permie or getting a contractor, this would drive some companies to hire a permie. There would be fewer contracts. But if it is a close call between taking a permie job or becoming a contractor, some would choose permie who wouldn't have otherwise. The market would adjust. Supply and demand usually wins, unless government horribly twists the market, and this wouldn't horribly twist it. It would actually rebalance it.

jamesbrown
18th August 2015, 19:36
What do you think of this?

There's quite a lot to respond to there, but my basic problem (and, more importantly, I think this would also hold for HMG/HMRC) is that you will find many contractors that are subject to quite a high degree of SDC that fit into the first category. In other words, it really wouldn't be appropriate to screen on the basis of these simplistic rules alone, as they bear no relationship to how real businesses (or, indeed, disguised employees) operate. It may be your opinion that contractors who operate a sequence of short-term contracts are very different from employees, but it isn't an opinion that's borne out by case law. The actual indicator you're alluding to is being part-and-parcel, but it's a secondary indicator, and the aim is to prioritize SDC.

I appreciate the clamour for simple rules, but there are no simple rules that are good rules (form either side of the fence) and so it comes down purely to which group of true/false employees you'd prioritize with those simple rules and where the avoidance strategies develop (e.g. unscrupulous employers moving low-paid employees around between entities). I think any workable strategy for HMG is going to focus on SDC, and it will be applied without fear or favour. I suppose it's possible that they may further elaborate on cases that are squarely subject to SDC and hence inside IR35 (i.e. all agency contractors in the worst case scenario), but they are not in the business of identifying scenarios that are squarely outside.

I also wouldn't completely dismiss the T&S elements (although I agree it isn't the worst of what we face) because: 1) this will make all the difference to a significant minority; and 2) the rules are heading in a common direction, so the absence of SDC should, in principle, support T&S and an outside IR35 position. In other words, it's not a concession that has any real purpose or value once it becomes aligned with IR35. Of course, you can ignore all of this if agency contracts become de facto SDC.

I agree with some of the things you are saying elsewhere. In terms if indemnification, I think that would need to operate on the client side. In my view, one of the primary reasons that HMRC will be aiming for joint and several liability is that clients are easier to pursue and are less likely to fold leaving debts (including to HMRC), whereas any insurance policy will die with a PSC (leaving the unrealistic prospect of pursuing a director if possible).

eek
18th August 2015, 20:55
There is far too much to read there to provide a short reply I'll try tomorrow night...

I have however gone back and reread the IR35 discussion document again.

The first thing that leaps out at me is that if they move the compliance checks and responsibility for payment back to the end client an FLC or limited company instantly becomes untenable for the end client. The end client will need assurance that all tax has been paid and the only way to do that would be to ensure that all payments are done via a trusted 3rd party...

But as the document makes clear HMRC wants clear and simple, practical solutions they can implement.... So we need to highlight the unworkable bits and endeavour to find a solution that might just work...

Zero Liability
18th August 2015, 20:56
I wonder if the "protected yield" figure will be revised downwards to account for the changes to dividend taxation and, if so, what will remain of it once that is done. One would have thought this would have been sufficient for HMG to lay their avaricious paws on much of this "protected yield".

Also, good comments JB and WiB, certainly a lot of food for thought, and thanks to Lisa and eek for taking it upon themselves to organise a response to this whole mess.

youngguy
18th August 2015, 21:05
I don't see how the FLC helps us in any way at all? My view is simple...If the Gov wants to tax me like an employee then give me the benefits. If I have to carry the risk (just because my contract has never been ended doesn't mean it won't) then there should be some incentives .

Back to IPSE however, I know the paper is out for consultation but I'm yet to see anyone who supports their views and I can't understand how they reached the views they have. I hope this is a true consultation and they listen to feedback. If not then I will be getting my insurance elsewhere. Bring back the PC I say!

sapexpert
18th August 2015, 21:10
Is about the low-end of the market as shown on the BBC 4 podcast (like M&S outsourcing to DHL that in turn uses agency workers that in turn use umbrellas ou Ltds although M&S retains SDC).
BBC Radio 4 - The New Workplace, Who Do I Really Work For? (http://www.bbc.co.uk/programmes/b065rlry)

My 2p.


There is far too much to read there to provide a short reply I'll try tomorrow night...

I have however gone back and reread the IR35 discussion document again.

The first thing that leaps out at me is that if they move the compliance checks and responsibility for payment back to the end client an FLC or limited company instantly becomes untenable for the end client. The end client will need assurance that all tax has been paid and the only way to do that would be to ensure that all payments are done via a trusted 3rd party...

But as the document makes clear HMRC wants clear and simple, practical solutions they can implement.... So we need to highlight the unworkable bits and endeavour to find a solution that might just work...

eek
18th August 2015, 21:12
I don't see how the FLC helps us in any way at all? My view is simple...If the Gov wants to tax me like an employee then give me the benefits. If I have to carry the risk (just because my contract has never been ended doesn't mean it won't) then there should be some incentives .

Back to IPSE however, I know the paper is out for consultation but I'm yet to see anyone who supports their views and I can't understand how they reached the views they have. I hope this is a true consultation and they listen to feedback. If not then I will be getting my insurance elsewhere. Bring back the PC I say!

Supposedly most of the cc were against it. That doesn't seem to have stopped the proposal seeing daylight though.

jamesbrown
18th August 2015, 21:14
The first thing that leaps out at me is that if they move the compliance checks and responsibility for payment back to the end client an FLC or limited company instantly becomes untenable for the end client. The end client will need assurance that all tax has been paid

It depends how the liability is enforced. For example, subject to a reporting requirement being met, it could (quite reasonably) become the responsibility of HMRC to chase any deemed payments that a client indicates are due. I think HMRC would accept that, because we're talking about a low latency (not years after a tax year is closed) and non-payment would represent evasion rather than avoidance. I think the implementation will aim to support Ltd companies being an option, in principle, only one that is less appealing in practice.


But as the document makes clear HMRC wants clear and simple, practical solutions they can implement

Perhaps, but I wouldn't overstate it. Both documents acknowledge the inherent complexity and all of the recent proposals focus on SDC, which isn't much of a simplification.

eek
18th August 2015, 21:18
I wonder if the "protected yield" figure will be revised downwards to account for the changes to dividend taxation and, if so, what will remain of it once that is done. One would have thought this would have been sufficient for HMG to lay their avaricious paws on much of this "protected yield".

Also, good comments JB and WiB, certainly a lot of food for thought.

The dividend tax is probably just an old fashioned tax increase. I think it could decrease the potential tax take to £230m or so.

This is based on the Supposedly 100,000 freelancers who should be subject to ir35 (would love to see evidence behind that figure) which would increase current tax take by £430m or £4300 a year.

jamesbrown
18th August 2015, 21:21
The dividend tax is probably just an old fashioned tax increase. I think it could decrease the potential tax take to £230m or so.

This is based on the Supposedly 100,000 freelancers who should be subject to ir35 (would love to see evidence behind that figure) which would increase current tax take by £430m or £4300 a year.

We should certainly make that point in the response, because a lot of this is premised on the size of the deterrent effect (it may be a farcical amount, but half of a farcical amount makes a difference). However, one also needs to look at the situation in, say, 2020 when various other rates and allowances will have changed (and probably the dividend tax rate too :laugh)

eek
18th August 2015, 21:24
It depends how the liability is enforced. For example, subject to a reporting requirement being met, it could (quite reasonably) become the responsibility of HMRC to chase any deemed payments that a client indicates are due. I think HMRC would accept that, because we're talking about a low latency (not years after a tax year is closed) and non-payment would represent evasion rather than avoidance. I think the implementation will aim to support Ltd companies being an option, in principle, only one that is less appealing in practice.


Yep I think we would both agree that using a limited company will be as easy as opting in to agency regulations.



Perhaps, but I wouldn't overstate it. Both documents acknowledge the inherent complexity and all of the recent proposals focus on SDC, which isn't much of a simplification.

It is simple if you apply the logic through agency = SDC = IR35

teapot418
18th August 2015, 21:27
would love to see evidence behind that figure

Footnote on page 4

There is no statutory definition of a PSC and they are not precisely identifiable in the available data. The government has estimated the number of PSCs using a proxy. It is therefore subject to a degree of uncertainty.

i.e. we made it up

Zero Liability
18th August 2015, 21:27
We should certainly make that point in the response, because a lot of this is premised on the size of the deterrent effect (it may be a farcical amount, but half of a farcical amount makes a difference). However, one also needs to look at the situation in, say, 2020 when various other rates and allowances will have changed (and probably the dividend tax rate too :laugh)

It's quite a huge decrease, and that is predicated on figures that are already very flimsy. I'm a little perplexed as to why there is such an utter lack of rigour in estimating these figures, when they are proposing changes that could have huge direct effects on the freelancer market and its engagers. Even assuming that the £230m is true, that's at most £2.3bn over 10 years, without factoring in any wider economic detriment or behavioural changes it might induce. That is a minuscule amount compared to the total tax take. Surely they could nab the remainder by simply calibrating dividend tax rates (not that I'd want that) accordingly, rather than going through all this mess?

eek
18th August 2015, 21:33
Footnote on page 4

There is no statutory definition of a PSC and they are not precisely identifiable in the available data. The government has estimated the number of PSCs using a proxy. It is therefore subject to a degree of uncertainty.

i.e. we made it up

That's the 265,000 Psc figure not the 100,000 who should be subject to Ir35 which is probably more inaccurate than the PSC figure.

I think we could really do with some figures from the contractor accountancy firms as to how many contractor PSCs actually exist.

teapot418
18th August 2015, 21:37
That's the 265,000 Psc figure not the 100,000 who should be subject to Ir35 which is probably more inaccurate than the PSC figure.

I think we could really do with some figures from the contractor accountancy firms as to how many contractor PSCs actually exist.

Yes - it's a finger in the air percent of an estimated figure.

It's probably worked backwards - we need to raise £x - how many PSCs do we need to catch to make that happen?

jamesbrown
18th August 2015, 21:44
It's quite a huge decrease, and that is predicated on figures that are already very flimsy. I'm a little perplexed as to why there is such an utter lack of rigour in estimating these figures, when they are proposing changes that could have huge direct effects on the freelancer market and its engagers. Even assuming that the £230m is true, that's at most £2.3bn over 10 years, without factoring in any wider economic detriment or behavioural changes it might induce. That is a minuscule amount compared to the total tax take. Surely they could nab the remainder by simply calibrating dividend tax rates (not that I'd want that) accordingly, rather than going through all this mess?

Yeah, you'd think, but there are so many Wild-Ass-Guesses flying around in government budgets and planning documents (not even forecasts) that it becomes second nature for them to stick a finger in the air. It's a regular feature in select committee hearings. It's illuminating to look through the "uncertainty" rankings in the OBR assessments of budget measures.... "High", "Very high", "You're kidding, right?"

SpontaneousOrder
18th August 2015, 21:45
yes but my point with drawing an arbitrary line is that someone on (say) 14.5k would pay more tax than someone on 15.5k - which is unfair - it's generally agreed/accepted/is never going to change that tax should be progressive to protect the very-low earners (an extra £100 to someone with £1000 is worth a lot more than an extra £100 to someone with £100,000)

That sounds reasonable, but you have to understand that that's a pragmatic argument. The only thing that makes that not 'arbitrary' is pragmatism.

It is absolutely unfair that person B should pay a higher percentage of tax than person A, just because he earns more. BUT... if you want to raise some particular amount of tax without impoverishing the low earners, then pragmatism mandates it.

I'm not saying the £15 per hour limit (or whatever it was) is a good idea. I've not thought about it too much. BUT... given that the lower earners are leeched less by the taxman in the first place, then it makes sense grant more favourable tax planning facilities to higher earners.

The fact that a higher earner may pay less tax than a lower earner (under particular circumstances) is no different from the general state where a higher earner pays a higher percentage.

The injustice in one is a mirror image of the other. In this case (i.e the difference between £14 and £15 an hour) the pragmatism that supposedly justifies the current state of affairs doesn't exist - it's just that it's been engrained in your mind as being 'normal' whereas a higher earner paying a lower percentage is the opposite of that 'normal'. Which says nothing about fairness..

eek
18th August 2015, 21:56
That sounds reasonable, but you have to understand that that's a pragmatic argument. The only thing that makes that not 'arbitrary' is pragmatism.

It is absolutely unfair that person B should pay a higher percentage of tax than person A, just because he earns more. BUT... if you want to raise some particular amount of tax without impoverishing the low earners, then pragmatism mandates it.

I'm not saying the £15 per hour limit (or whatever it was) is a good idea. I've not thought about it too much. BUT... given that the lower earners are leeched less by the taxman in the first place, then it makes sense grant more favourable tax planning facilities to higher earners.

The fact that a higher earner may pay less tax than a lower earner (under particular circumstances) is no different from the general state where a higher earner pays a higher percentage.

The injustice in one is a mirror image of the other. In this case (i.e the difference between £14 and £15 an hour) the pragmatism that supposedly justifies the current state of affairs doesn't exist - it's just that it's been engrained in your mind as being 'normal' whereas a higher earner paying a lower percentage is the opposite of that 'normal'. Which says nothing about fairness..

I think there are 2 things people are missing here

1) I haven't said I like the idea (I don't I just think it works and there is no other suggestion on the table from anyone)
2) the lower paid are often hit hard by umbrella costs at he moment and they aren't cheap. Given £14 an hour paid via paye or £15 paid via umbrella would you like to guess which pays better once you factor in umbrella costs and employers NI?

Finally as I tell my children at times, life is unfair deal with it. Mrs Eek often works all week making chocolates while I earn the same on Monday morning. If you argument against something is perceived injustice either fight against that injustice, give us another solution or work to ensure you are on the other side of it.

Gordon Ice
18th August 2015, 22:07
FLC navel gazes on taxation from the HMRC perspective and completely misses the point that contractors choose to operate through a Limited Company for more reasons than tax.. once again this demonstrates a complete lack of understanding of the contractor market.

youngguy
18th August 2015, 22:49
Supposedly most of the cc were against it. That doesn't seem to have stopped the proposal seeing daylight though.

I'm not surprised. There is so much wrong with this. Why on earth would we sign up to FLC when there is still the risk of falling under IR35 as the doc states? Why should we get punished if clients want repeat business? That is surely what any 'real' business would want to strive for?

IPSE also don't seem to acknowledge that companies and agencies pretty much dictate things, we all know an agency can't discriminate if someone has not got security clearance but we all know they do. We all know opting in/out is our choice but in reality there are strong pressures.

I don't know why the Gov doesn't mandate a minimum percentage for salary and increase the dividend tax if they want to raise funds. I'm not saying I would like it but I could understand it.

Zero Liability
18th August 2015, 22:53
That's the 265,000 Psc figure not the 100,000 who should be subject to Ir35 which is probably more inaccurate than the PSC figure.

I think we could really do with some figures from the contractor accountancy firms as to how many contractor PSCs actually exist.

In which direction is the inaccuracy biased, if you were to hazard a guess (for the PSC figure)? Too high or low?

SueEllen
19th August 2015, 04:54
Supposedly most of the cc were against it. That doesn't seem to have stopped the proposal seeing daylight though.

The questionnaire on FLC is unfair.

The only way to answer it is to say you disagree with everything otherwise the proposer will say x% of members agree with having a FLC structure.

I had similar questionnaires given to me by the local council on parking and some residents on different streets revolted due to how the questions were written, so the residents were able to get the parking times they knew would be effective for their individual roads.

expat
19th August 2015, 06:01
Forgetting "us" for a moment, a turnover requirement would exclude, say, a freelance photographer starting out, charging low rates to get their name known, and needing the limited liability that a LtdCo offers. Even for us there's periods of benchtime, holidays, periods of part time etc. I can't see how it could work.Long bench time is bad enough: imagine adding to the the stress of knowing that if you don't achieve a certain turnover you will not only have lower income, you will have more tax to pay.

eek
19th August 2015, 06:23
Long bench time is bad enough: imagine adding to the the stress of knowing that if you don't achieve a certain turnover you will not only have lower income, you will have more tax to pay.

Exactly who apart from mudskipper and the iPse have suggested a turnover based approach.

My approach is payment related to avoid that problem. 3 hours work at £50 an hour is out of scope. 2 hours at £8 an hour in scope because those workers shouldn't be being paid that way

eek
19th August 2015, 06:28
Just dug up the ots report from ir35. It rejected end clients doing anything as it would be too much work and probably have unintended consequences.

Ho hum. I need to go and spend some time reading up on uber and other sharing economies as the iPse is right - that is where the world is moving to and that is going to be where the real problems appear

LisaContractorUmbrella
19th August 2015, 06:36
Is about the low-end of the market as shown on the BBC 4 podcast (like M&S outsourcing to DHL that in turn uses agency workers that in turn use umbrellas ou Ltds although M&S retains SDC).
BBC Radio 4 - The New Workplace, Who Do I Really Work For? (http://www.bbc.co.uk/programmes/b065rlry)

My 2p.

We had a meeting with HMRC shortly after the consultation document on T&S was published and they were quite open about the fact that a major issue for Government is that too many workers are now operating through umbrella companies and PSC's are therefore eligible for tax relief on T&S expenses. PSC's have become politically unattractive as they are viewed as tax avoidance vehicles by most of the media, again because they are being used in circumstances where they shouldn't be used and more people than Government intended are getting, what they perceive to be as, a tax advantage.

The BBC programme linked above focused almost solely on low paid workers, referring to only one 'higher paid IT worker' who was on a support desk and earning £25k a year. HMRC appear to be comfortable with contractors (as I understand the word - highly skilled, independent workers) but not with the huge influx of lower paid workers who've entered the market place. We all know that this move has been driven by clients who want to save money and with employment costs as they are who can blame them but this move will not resolve the situation - companies will not magically take workers back onto their books because their net pay through their brolly or PSC has gone down - look what happened to construction workers after the CIS shake up.

The only way to appease HMRC and, more importantly the politicians who will be the driving force behind these changes, is to present them with a solution that will take low paid workers out of the equation and put them back into full time employment - the tax man will be happy, the politicians will be happy and the workers will be in a much more secure position and financially no worse off.

LisaContractorUmbrella
19th August 2015, 06:42
It's quite a huge decrease, and that is predicated on figures that are already very flimsy. I'm a little perplexed as to why there is such an utter lack of rigour in estimating these figures, when they are proposing changes that could have huge direct effects on the freelancer market and its engagers. Even assuming that the £230m is true, that's at most £2.3bn over 10 years, without factoring in any wider economic detriment or behavioural changes it might induce. That is a minuscule amount compared to the total tax take. Surely they could nab the remainder by simply calibrating dividend tax rates (not that I'd want that) accordingly, rather than going through all this mess?

I am pretty certain that this has absolutely squat to do with the money

LisaContractorUmbrella
19th August 2015, 06:58
This article in today's FT demonstrates the problem for the Government pretty well I think http://www.ft.com/cms/s/0/e6231ad6-45a6-11e5-af2f-4d6e0e5eda22.html#axzz3jF1ebrIM

teapot418
19th August 2015, 07:12
This article in today's FT demonstrates the problem for the Government pretty well I think http://www.ft.com/cms/s/0/e6231ad6-45a6-11e5-af2f-4d6e0e5eda22.html#axzz3jF1ebrIM

It's behind a paywall if anyone can give a summary please?

eek
19th August 2015, 07:22
It's behind a paywall if anyone can give a summary please?

press release https://www.citizensadvice.org.uk/about-us/how-citizens-advice-works/media/press-releases/bogus-self-employment-costing-millions-to-workers-and-government/

Its supposedly covered in the telegraph as well

https://pbs.twimg.com/media/CMwGURGWwAAOg88.jpg

TheCoconutDog
19th August 2015, 07:22
It's behind a paywall if anyone can give a summary please?

Worked ok for me - but I have registered on the site. Haven't paid them a bean.

eek
19th August 2015, 07:31
Worked ok for me - but I have registered on the site. Haven't paid them a bean.

Depends how many articles you read a month

dynamicsaxcontractor
19th August 2015, 07:41
The only way to appease HMRC and, more importantly the politicians who will be the driving force behind these changes, is to present them with a solution that will take low paid workers out of the equation and put them back into full time employment - the tax man will be happy, the politicians will be happy and the workers will be in a much more secure position and financially no worse off.

Shouldn't this be fairly easy for them to sort if they really wanted to? If you make the start up cost high and overheads on smaller turnover higher then these people would never form a LTD to operate through.

1) Make a rule that you need £X in capital when setting up a LTD, say £10K.
2) Add an operating a LTD company tax of £5K a year - this will be deductible from the corporation tax so anyone normally paying more than £5K in CT will not be affected.

This should screen out most of the ones they would be after.

LisaContractorUmbrella
19th August 2015, 07:44
Shouldn't this be fairly easy for them to sort if they really wanted to? If you make the start up cost high and overheads on smaller turnover higher then these people would never form a LTD to operate through.

1) Make a rule that you need £X in capital when setting up a LTD, say £10K.
2) Add an operating a LTD company tax of £5K a year - this will be deductible from the corporation tax so anyone normally paying more than £5K in CT will not be affected.

This should screen out most of the ones they would be after.

Yes but the Government won't like that as it is a disincentive to entrepreneurs and Mr Cameron (apparently) is right behind small businesses David Cameron's message to small business leaders - BBC News (http://www.bbc.co.uk/news/election-2015-32484535)

eek
19th August 2015, 07:47
Shouldn't this be fairly easy for them to sort if they really wanted to? If you make the start up cost high and overheads on smaller turnover higher then these people would never form a LTD to operate through.

1) Make a rule that you need £X in capital when setting up a LTD, say £10K.
2) Add an operating a LTD company tax of £5K a year - this will be deductible from the corporation tax so anyone normally paying more than £5K in CT will not be affected.

This should screen out most of the ones they would be after.

No that doesn't work because there are legitimate reasons for very small companies to exist. Many buildings / estates are managed by limited companies which only exist to do small amounts of maintenance and save up for major repair works...

My plan c has a company which turns over exactly 0 at the moment.... It made a loss of £8k last year and will probably continue to do so until the market is right....

Now you could create a new corporate entity type and change things in such a way that agencies can only work with that agency type but not even the IPSE went that far (although in reality you don't need to force agencies to do it, they would automatically insist upon it as it is the case of least resistance)...

teapot418
19th August 2015, 08:14
press release https://www.citizensadvice.org.uk/about-us/how-citizens-advice-works/media/press-releases/bogus-self-employment-costing-millions-to-workers-and-government/



"The one in ten people potentially bogusly self-employed figure was derived by looking at Indicators including whether they choose the hours that they work, provide their own equipment and if their employer deducts tax from their payslip. Respondents were classed as potentially bogus self-employed where they hit three or more markers."

A google gold star for anyone who can find out the whole list.

MicrosoftBob
19th August 2015, 08:23
Just dug up the ots report from ir35. It rejected end clients doing anything as it would be too much work and probably have unintended consequences.

Ho hum. I need to go and spend some time reading up on uber and other sharing economies as the iPse is right - that is where the world is moving to and that is going to be where the real problems appear

Shame as weneed the nuclear option, if end clients had to give employments rights and pay PAYE and NI then they would fight tooth and nail to make people outside IR35

eek
19th August 2015, 08:37
Shame as weneed the nuclear option, if end clients had to give employments rights and pay PAYE and NI then they would fight tooth and nail to make people outside IR35

I said the OTS rejected it, it is however back on the table...

My problem is that the planned logic is:-

Client is jointly liable for all tax payments due, client will need confirmation that everything is paid, client will need confirmation its been paid by a trusted 3rd party...

jamesbrown
19th August 2015, 09:09
I said the OTS rejected it, it is however back on the table...

Yes, I also read this again recently. For those interested, the summary is presented in Table C.5 on page 63 of the report (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/199183/05_ots_small_business_interim_report.pdf).

Although it was rejected at the time, I think some of the criticisms are addressed by the changes being proposed. For example:


"The main problem with this approach is that the engager will only see one contract; yet the worker’s position as IR35 or not, although technically on a contract by contract basis, needs to be assessed on an overall basis that the end-user will not see."

This isn't the case with a refocus on SDC.


"The policy would not address the key issue of clarification of the boundary for IR35"

Again, this is partly addressed by refocusing the criteria to SDC.



"The policy would be onerous for engagers and also for HMRC in ensuring compliance."

True, but that's a given in entertaining the proposal, and compliance for HMRC is probably eased through the new intermediary reporting requirements (possibly with some tweaks).

TheFaQQer
19th August 2015, 09:25
Back to IPSE however, I know the paper is out for consultation but I'm yet to see anyone who supports their views and I can't understand how they reached the views they have. I hope this is a true consultation and they listen to feedback. If not then I will be getting my insurance elsewhere. Bring back the PC I say!

Just to re-emphasize my earlier posts - PLEASE make sure you respond to the FLC survey, whether positive or negative. And make use of the free text boxes to provide as much reasoning as you can - could you operate in the same way under an FLC as you do at the moment? If you could use an FLC, would you? Why would / wouldn't you?

As a members organisation, the board are bound to listen to the membership, so the more people express their opinion, the more representative the survey can be.

LisaContractorUmbrella
19th August 2015, 09:51
Yes, I also read this again recently. For those interested, the summary is presented in Table C.5 on page 63 of the report (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/199183/05_ots_small_business_interim_report.pdf).

Although it was rejected at the time, I think some of the criticisms are addressed by the changes being proposed. For example:



This isn't the case with a refocus on SDC.



Again, this is partly addressed by refocusing the criteria to SDC.



True, but that's a given in entertaining the proposal, and compliance for HMRC is probably eased through the new intermediary reporting requirements (possibly with some tweaks).

What this approach doesn't deal with is the lack of interest on the part of the engager. If it's not in a business' own interests to undertake a risk assessment they're not going to bother and if there's a possibility of debt transfer they will follow the path of least resistance i.e. everyone inside IR35. The type of review that would be necessary and the burden on the legal departments of big companies with something as ill defined as SDC would just not be worth it for them

eek
19th August 2015, 10:02
What this approach doesn't deal with is the lack of interest on the part of the engager. If it's not in a business' own interests to undertake a risk assessment they're not going to bother and if there's a possibility of debt transfer they will follow the path of least resistance i.e. everyone inside IR35. The type of review that would be necessary and the burden on the legal departments of big companies with something as ill defined as SDC would just not be worth it for them

+1. Although it won't be everyone inside IR35 it will be everyone is inside IR35 and you will use this 3rd party umbrella (that we trust) for payments and no one else...

The idea that a end clientco is going to accept responsibility for paying the tax of a legal entity it doesn't control and could disappear is an absolutely hilarious concept..

The Spartan
19th August 2015, 10:07
Just to re-emphasize my earlier posts - PLEASE make sure you respond to the FLC survey, whether positive or negative. And make use of the free text boxes to provide as much reasoning as you can - could you operate in the same way under an FLC as you do at the moment? If you could use an FLC, would you? Why would / wouldn't you?

As a members organisation, the board are bound to listen to the membership, so the more people express their opinion, the more representative the survey can be.

Done

I wrote about 4 paragraphs (definitely a lot for me), about how it was a poor proposition and defeatist position.

jamesbrown
19th August 2015, 10:31
What this approach doesn't deal with is the lack of interest on the part of the engager. If it's not in a business' own interests to undertake a risk assessment they're not going to bother and if there's a possibility of debt transfer they will follow the path of least resistance i.e. everyone inside IR35. The type of review that would be necessary and the burden on the legal departments of big companies with something as ill defined as SDC would just not be worth it for them

Yes, I think that's understood. Two observations though. First, I think it's probably going to happen; despite the appearance of being a discussion (i.e. IR35), it sounds as though they want to push it through, and I think they'll be willing to take some heat from engagers (it will be interesting to hear whether this comes up at the T&S roundtable - next week?). Of course, I hope I'm wrong, and that they're willing to back down on that with forceful opposition (conversely, I think SDC is almost certainly a done deal). Second, your point about whether it's in the interests of an engager to do anything other than assume SDC is precisely the issue we need to consider. I'm trying (hard) not to be pessimistic, and to consider whether anything could mitigate that near-inevitability.

Zero Liability
19th August 2015, 11:04
I am pretty certain that this has absolutely squat to do with the money

Well what does it center around then? For clarity's sake I'm referring to the upcoming review of IR35, not the T&S consultation.

eek
19th August 2015, 11:11
Well what does it center around then? For clarity's sake I'm referring to the upcoming review of IR35, not the T&S consultation.

My guess is too many people being self-employed.. you only have to look at the examples in the discussion document to see that people think employers (and some employees) are just taking the mickey...

Of course this ignores the fact that that is the way the world is moving and HMRC should be trying to simplify and standardise rules but that's in the too hard to fix pile....

Zero Liability
19th August 2015, 11:26
Well the discussion document does suggest they're concerned about protecting the Treasury IIRC, and therefore are eager to rake in more. I'm just eager to see whether they will be able to produce more accurate figures concerning how many 'PSCs' there are with the agency reporting requirements in place, which should give them a clearer idea of this excl those who contract directly, and then reconcile this with the impact of the dividend tax changes.

If it's not about the rather paltry sums involved then it does indeed seem reflective of an outmoded view of how work is and will be done. Surely if the self-employment is driven by the worker's choice, the 'pro business' government should welcome it.

eek
19th August 2015, 11:29
Well the discussion document does suggest they're concerned about protecting the Treasury IIRC, and therefore are eager to rake in more. I'm just eager to see whether they will be able to produce more accurate figures concerning how many 'PSCs' there are with the agency reporting requirements in place, which should give them a clearer idea of this excl those who contract directly, and then reconcile this with the impact of the dividend tax changes.

If it's not about the rather paltry sums involved then it does indeed seem reflective of an outmoded view of how work is and will be done. Surely if the self-employment is driven by the worker's choice, the 'pro business' government should welcome it.

I think the problem is that there are loud vocal unions on the side saying that self-employment is often not a choice...

WordIsBond
19th August 2015, 11:35
There's quite a lot to respond to there, but my basic problem (and, more importantly, I think this would also hold for HMG/HMRC) is that you will find many contractors that are subject to quite a high degree of SDC that fit into the first category.
Well, JB, I'd say all HMG cares about is getting more money in a way that doesn't make them look bad.

And I think that first category of people is an opportunity to make them look bad. Their focus on SDC without recognising real businesses is throwing the burden of employers NI onto the workers. That's a formula for giving them some really bad press.


It may be your opinion that contractors who operate a sequence of short-term contracts are very different from employees, but it isn't an opinion that's borne out by case law.
I think a focus on case law is not at all helpful here. If case law were going to drive this, we wouldn't have to worry too much, because IR35 is largely ineffective operating under case law. We're probably going to be dealing with statutory law within a year or two, and we'd be best off making proposals / suggestions that the statute should protect those who have real businesses.


I appreciate the clamour for simple rules, but there are no simple rules that are good rules
I don't actually think this is true. If the rules are based on reality, it should be easy to construct some simple rules that put most cases either clearly inside or clearly outside, and significantly reduces the number of murky cases. Right now, tens of thousands of contracts, probably hundreds of thousands, are open to interpretation and a case could be argued either way, so a costly inspection is always a threat. I simply don't believe that the situation can't be made a whole lot clearer.



I think any workable strategy for HMG is going to focus on SDC, and it will be applied without fear or favour.
Something that is so drastically open to interpretation cannot be applied without fear or favour. Nor is it equitable. IR35 already skews the B2B relationship heavily in favour of the engager. If they go solely with SDC, that will make it worse.

It's also just plain stupid. If I engage a full-time gardener to maintain my country estate (LOL), he's an employee. If I engage one to come for three days and sort out the mess in my front garden, he's not. And he's still not even if I tell him exactly what I want planted, and where, and what kind of compost I want him to use when planting the tree. He's got his own business, and he shouldn't have to pay more tax (or have to pay tax on his expenses) just because I'm weird about my garden.


I suppose it's possible that they may further elaborate on cases that are squarely subject to SDC and hence inside IR35 (i.e. all agency contractors in the worst case scenario), but they are not in the business of identifying scenarios that are squarely outside.

Really? Statutory law is full of specifications of cases that aren't in the scope of the legislation.



I also wouldn't completely dismiss the T&S elements (although I agree it isn't the worst of what we face) because: 1) this will make all the difference to a significant minority; and 2) the rules are heading in a common direction, so the absence of SDC should, in principle, support T&S and an outside IR35 position. In other words, it's not a concession that has any real purpose or value once it becomes aligned with IR35. Of course, you can ignore all of this if agency contracts become de facto SDC.

I agree with some of the things you are saying elsewhere. In terms if indemnification, I think that would need to operate on the client side. In my view, one of the primary reasons that HMRC will be aiming for joint and several liability is that clients are easier to pursue and are less likely to fold leaving debts (including to HMRC), whereas any insurance policy will die with a PSC (leaving the unrealistic prospect of pursuing a director if possible).



I also wouldn't completely dismiss the T&S elements (although I agree it isn't the worst of what we face) because: 1) this will make all the difference to a significant minority; and 2) the rules are heading in a common direction, so the absence of SDC should, in principle, support T&S and an outside IR35 position. In other words, it's not a concession that has any real purpose or value once it becomes aligned with IR35. Of course, you can ignore all of this if agency contracts become de facto SDC.

As to dismissing the T&S stuff, I'm saying they should completely withdraw their proposals. Contractors aren't employees, and even if they are subject to SDC their T&S expenses shouldn't be taxable. Tweak the current rules if they think it is necessary, but the proposed changes are horrible and unjust.

Doesn't affect me much because I mostly WFH. But the proposals are terrible.



I agree with some of the things you are saying elsewhere. In terms if indemnification, I think that would need to operate on the client side. In my view, one of the primary reasons that HMRC will be aiming for joint and several liability is that clients are easier to pursue and are less likely to fold leaving debts (including to HMRC), whereas any insurance policy will die with a PSC (leaving the unrealistic prospect of pursuing a director if possible).
An insurance policy would name the engager as the beneficiary for the employers NI portion. So it wouldn't die with a PSC. So indemnification via insurance can work. The insurers will be offering products like that if the engager becomes liable.

Zero Liability
19th August 2015, 11:47
I think the problem is that there are loud vocal unions on the side saying that self-employment is often not a choice...

They're in a prime position, however, to fact-check that, and certainly should before introducing any reforms. I suspect you are probably right about the motivation as the dividend tax will already put more cash in their coffers.

LisaContractorUmbrella
19th August 2015, 11:52
Well what does it center around then? For clarity's sake I'm referring to the upcoming review of IR35, not the T&S consultation.

As Eek says, I think it has a lot to do with the number of workers being pushed towards brollies or PSC's by companies that previously had them on their books. I also think it's to do with Public appeasement - the media has labelled PSC's and brollies tax avoidance vehicles and it will earn HMG brownie points with the voters if they're seen to be stamping on it.

From HMRC's point of view I would guess that HMG have been nagging them about 'off payroll' for years and about how ineffective their attempts to deal with it have been up until now i.e. IR35 If these proposals go ahead the problem will go away and it will be one less thing for HMRC to worry about

LisaContractorUmbrella
19th August 2015, 11:54
They're in a prime position, however, to fact-check that, and certainly should before introducing any reforms. I suspect you are probably right about the motivation as the dividend tax will already put more cash in their coffers.

The Unions knew all about the changes to CIS as they were part of the consultation process along with a number of the large construction firms - didn't stop them moaning about the outcome though :eyes

eek
19th August 2015, 11:55
"The one in ten people potentially bogusly self-employed figure was derived by looking at Indicators including whether they choose the hours that they work, provide their own equipment and if their employer deducts tax from their payslip. Respondents were classed as potentially bogus self-employed where they hit three or more markers."

A google gold star for anyone who can find out the whole list.

Or you could just go and ask CAB for the full report :smokin

I won't get a chance to read or post anything until tonight though...

Zero Liability
19th August 2015, 11:56
As Eek says, I think it has a lot to do with the number of workers being pushed towards brollies or PSC's by companies that previously had them on their books. I also think it's to do with Public appeasement - the media has labelled PSC's and brollies tax avoidance vehicles and it will earn HMG brownie points with the voters if they're seen to be stamping on it.

From HMRC's point of view I would guess that HMG have been nagging them about 'off payroll' for years and about how ineffective their attempts to deal with it have been up until now i.e. IR35 If these proposals go ahead the problem will go away and it will be one less thing for HMRC to worry about

Yes, I think I need to take off my economist hat and put on the politician hat, as I've been looking at the IR35 bit from a yield perspective, rather than political appearances, which probably explains the deficit of hard facts in pushing through this reform.

eek
19th August 2015, 12:10
Yes, I think I need to take off my economist hat and put on the politician hat, as I've been looking at the IR35 bit from a yield perspective, rather than political appearances, which probably explains the deficit of hard facts in pushing through this reform.

From a political point of view, its a mess that doesn't work but they can't get rid of it... And they need a win on some sorts that ensures those who are taking the absolute mickey like the examples they use cannot do so any more...

WordIsBond
19th August 2015, 12:18
The dividend tax is probably just an old fashioned tax increase. I think it could decrease the potential tax take to £230m or so.

This is based on the Supposedly 100,000 freelancers who should be subject to ir35 (would love to see evidence behind that figure) which would increase current tax take by £430m or £4300 a year.
Yes, even if their own figures are to be believed, the dividend tax has slashed anything they could gain from IR35 in half.

WordIsBond
19th August 2015, 12:29
As Eek says, I think it has a lot to do with the number of workers being pushed towards brollies or PSC's by companies that previously had them on their books.
Sorry, but I don't actually believe this is really a factor at all.

It is about revenue. And they are dressing it up as "protecting the workers from the big bad corporations who are pushing them off the books and stealing their benefits." That way, they look good doing it.

But if it really is only about protecting the low-paid, this wouldn't be about IR35, because IR35 does NOT confer employment rights and it hits the worker, not the engager. And "jointly and severably liable" hits the worker, too.

jamesbrown
19th August 2015, 12:34
Their focus on SDC without recognising real businesses is throwing the burden of employers NI onto the workers. That's a formula for giving them some really bad press.

Where do you think the burden falls now? The employer remits employer's NI. Don't confuse remittance with who actually pays. The scope for bad press is really quite limited. The real risk, in terms of bad press, is the persistence of off-payroll arrangements in the public sector on other cases of blatant avoidance that counteract their mantra of cracking down on avoidance. There's only upside to a more robust regime. A little squealing from trade bodies is too easily dismissed (vested interests etc.).


I think a focus on case law is not at all helpful here.

You may not like it, but they've set out their stall on SDC and this is well-rehearsed in case law.


I don't actually think this is true. If the rules are based on reality, it should be easy to construct some simple rules that put most cases either clearly inside or clearly outside, and significantly reduces the number of murky cases.

Of course they can do that! That's bloody easy. Look at other jurisdictions with similar legal systems that have "strict deeming criteria": Australia, Canada, NZ. I don't think you'll find any contractors in those jurisdictions that are supportive of the rules imposed. Not only are they strict, but there's still scope for confusion and uncertainty, not least because legislators like to keep legislating. They are incessant tweakers.


Something that is so drastically open to interpretation cannot be applied without fear or favour. Nor is it equitable. IR35 already skews the B2B relationship heavily in favour of the engager. If they go solely with SDC, that will make it worse.

I think you're confusing the criteria with the administration. It's the latter that HMRC are interested in, primarily, and shifting the enforcement (and liability) to the client will have a massive impact, regardless of where the criteria may focus. It won't be equitable, but it won't be in favour of the engager either. It will achieve the objective of dramatically increasing the tax take from IR35. That is the stated objective. The shift to SDC isn't the real issue here (as I keep saying).


Really? Statutory law is full of specifications of cases that aren't in the scope of the legislation.

How does this fit with the stated objective of increasing the tax take from IR35? They are not in the business of clearly placing PSCs outside, only maintaining the deterrent effect and clearly positioning some inside. If there are good criteria (ones that bear some resemblance to employment status and are not easily circumvented), I think they will listen. The point is there aren't. If there were, they'd be in place. Look at the other jurisdictions that use strict deeming and you'll find that the criteria are pretty arbitrary and bear little resemble to factors supported by case law on employment status. You seem to be arguing for simple criteria that are valuable because they are....simple. Not because they are fundamentally useful in distinguishing employees from the self-employed. Moreover, if you think that simple criteria will be less discriminatory towards a typical contractor than SDC, you're likely to be disappointed. The aim is to increase tax take. In doing so, it will utterly fail to distinguish between employees and the self-employed. I'd much prefer SDC, thanks. The elephant in the room is administration, not SDC.


Doesn't affect me much because I mostly WFH. But the proposals are terrible.

Likewise, and I don't fall within the agency legislation either. However, we need to think collectively. This is why I'm inherently against measures that discriminate between businesses on the basis of what they do, how much they do it, where they do it, and what they get paid for it, but I also agree with Eek and Lisa that excessive incorporation (and the deficit) is a motivating factor and that issue is mainly focused on low paid workers. As Lisa and Eek have said, no one has proposed a concrete alternative. I can't think of one that isn't difficult and expensive (i.e. focused on the causes).


An insurance policy would name the engager as the beneficiary for the employers NI portion. So it wouldn't die with a PSC. So indemnification via insurance can work. The insurers will be offering products like that if the engager becomes liable.

Let's not debate the specifics of insurance, because it's moot. With joint and several liability, who do you think HMRC will pursue? How much will that cost them in legal fees, let alone any tax plus interest and penalties? The engager will default to SDC, we all know that, unless there's a very good reason not to. Even if we can think of a good reason not to, they'll still need to insure/budget for a host of associated liabilities, including legal fees.

WordIsBond
19th August 2015, 13:20
The scope for bad press is really quite limited.
Really? We just had press about employers pushing people off payroll. Why can't someone (IPSE, if they are such a wonderful representative for us) start banging the drum that not only are employers doing it, but the government is making it worse with IR35 by punishing the workers?


I think a focus on case law is not at all helpful here.

You may not like it, but they've set out their stall on SDC and this is well-rehearsed in case law.
I probably wasn't clear. We're in a political fight here, and talking about case law in discussing how it should be fought isn't going to help. There is almost certainly going to be statutory law, and we'd do better to be trying to frame the discussion of what it should say.


I think you're confusing the criteria with the administration. It's the latter that HMRC are interested in, primarily, and shifting the enforcement (and liability) to the client will have a massive impact, regardless of where the criteria may focus. It won't be equitable, but it won't be in favour of the engager either. It will achieve the objective of dramatically increasing the tax take from IR35. That is the stated objective. The shift to SDC isn't the real issue here (as I keep saying).
Of course they want to shift enforcement and liability to the client. But big business has a seat at the table in Downing Street and we don't, and they'll say (reasonably) that it isn't workable. So what will be the compromise? Big business will say, "Ok, we'll help with enforcement by certifying inside or outside, but we aren't going to pay a thing. We certainly aren't going to pay employers NI or income tax." And so the worst happens.

I'm proposing something that is actually politically palatable for HMG, limits client exposure, and at least gives us a chance of some contracts being outside IR35.


How does this fit with the stated objective of increasing the tax take from IR35? They are not in the business of clearly placing PSCs outside, only maintaining the deterrent effect and clearly positioning some inside.
On its own, it doesn't. But the whole package of what I suggested does. If we're going to start making concessions (FLC), at least let's get some concessions in return. And the one I proposed is actually something that is easy to explain -- "of course we aren't targeting those who really have their own business, we are targeting those who are employees and have been for years doing the same thing."



Likewise, and I don't fall within the agency legislation either. However, we need to think collectively.
Agreed, of the four contracts we've got running right now, only one is agency. A lot of this stuff doesn't affect me. And if they start relying on clients for IR35 admin, I doubt it will hurt me much since many of my clients will be in Europe or America. With those clients, I'm pretty much IR35 proof right now, and the more it goes to SDC, the more IR35 proof I get. But if they keep down this line, they'll get me, too, eventually.


I also agree with Eek and Lisa that excessive incorporation (and the deficit) is a motivating factor and that issue is mainly focused on low paid workers.
Well, maybe, but I'm dubious.


Let's not debate the specifics of insurance, because it's moot. With joint and several liability, who do you think HMRC will pursue? How much will that cost them in legal fees, let alone any tax plus interest and penalties? The engager will default to SDC, we all know that, unless there's a very good reason not to. Even if we can think of a good reason not to, they'll still need to insure/budget for a host of associated liabilities, including legal fees.
This is why I suggested a proposal that, while not eliminating client liability, limits it to strictly employers NI. That CAN relatively easily be insured against, and the cost of that insurance will be small enough that contractors could even offer to pay for it as part of the negotiation process.

Joint and several liability for all taxes is a dead issue. It isn't going to happen. Clients won't accept it and everyone will be umbrella, unless an alternative is raised.

And clients ARE going to be dragged into enforcement. That IS going to happen. So we'd do well to try to come up with proposals that involve clients in enforcement and at least place some of the burden on them if they throw us into IR35. Employers NI is the obvious target.

Engagers will (understandably) fight hard against any structure that holds them liable for employee NI or income tax. But they'll have a hard time claiming (via SDC) that we should be taxed as employees if they aren't willing to pay the employers NI. It just seems a reasonable compromise that also gives them at least some incentive to not reflexively throw us all into IR35.

LisaContractorUmbrella
19th August 2015, 13:31
Sorry, but I don't actually believe this is really a factor at all.

It is about revenue. And they are dressing it up as "protecting the workers from the big bad corporations who are pushing them off the books and stealing their benefits." That way, they look good doing it.

But if it really is only about protecting the low-paid, this wouldn't be about IR35, because IR35 does NOT confer employment rights and it hits the worker, not the engager. And "jointly and severably liable" hits the worker, too.

The T&S changes were originally quoted as netting the Treasury £400m -that's now been downgraded to £265m which would keep HMRC going for about a month or the NHS going for about an hour and a half - in the grand scheme of things it's peanuts.

If SDC is applied to IR35 with debt transfer to the end client, the tax take is likely to be higher but, again, not enough to warrant the sledgehammer approach.

WordIsBond
19th August 2015, 13:48
The T&S changes were originally quoted as netting the Treasury £400m -that's now been downgraded to £265m which would keep HMRC going for about a month or the NHS going for about an hour and a half - in the grand scheme of things it's peanuts.

If SDC is applied to IR35 with debt transfer to the end client, the tax take is likely to be higher but, again, not enough to warrant the sledgehammer approach.
Yeah, you're right, it's peanuts. So maybe I'm wrong (again).

So why was our dear leader, er, beloved chancellor talking about "protecting the Exchequer"? Was that just window dressing?

jamesbrown
19th August 2015, 13:55
Really? We just had press about employers pushing people off payroll.

I thought I was being clear that the scope for bad press is minimal if they introduce a more robust regime. Indeed, it's the recent bad press from off-payroll arrangements that is motivating this, in part. From a bad press POV, it's clearly heading in one direction, towards a more robust regime. A few lobbying groups and trade bodies are small potatoes.


But big business has a seat at the table in Downing Street and we don't, and they'll say (reasonably) that it isn't workable. So what will be the compromise? Big business will say, "Ok, we'll help with enforcement by certifying inside or outside, but we aren't going to pay a thing. We certainly aren't going to pay employers NI or income tax." And so the worst happens.

Perhaps, but you need to understand that this Tory government is claiming the "centre ground". They are out-Labouring Labour. They are more than willing to stomach a little whining from a few clients (many of them are gov't departments!) and trade bodies, and all of this will actually benefit the larger consultancies that donate to the Tories.


I'm proposing something that is actually politically palatable for HMG, limits client exposure, and at least gives us a chance of some contracts being outside IR35.

I don't think it's any of those things, but we can argue about that all day.



Agreed, of the four contracts we've got running right now, only one is agency. A lot of this stuff doesn't affect me.

We appear to be in a very similar position. I'm about as far away from this mess as one can possibly be and, worst case scenario, I can easily move overseas, but I don't want do do that, and I am concerned about contracting in general in this country.



Joint and several liability for all taxes is a dead issue.


I'm not sure it is. Look at this from HMRC's perspective. It's so much easier to chase a few, large and solvent, clients than thousands of PSCs. We'll get the first indication in FB15 when the new T&S legislation comes into force, because one option is precisely that (Option 1 in fact :D). I suspect, in practice, liability will remain with the PSC, but a penalty regime will be applied to the clients.

LisaContractorUmbrella
19th August 2015, 14:11
Yeah, you're right, it's peanuts. So maybe I'm wrong (again).

So why was our dear leader, er, beloved chancellor talking about "protecting the Exchequer"? Was that just window dressing?

Yes I think it was just window dressing - what greater deterrent is there for a business than to say - Ok, if you keep forcing your workers to a brolly/PSC and you can't prove something which is utterly objective in law and also proving a negative then you are liable for their taxes and/or interest and/or penalties. It's a bit of a no brainer for a business owner as they'll no longer have the cost savings that encouraged them to make those decisions in the first place. Most of the workers who are being forced into these situations are low paid - care workers, drivers, child minders etc etc and should be in permanent employment - these changes in legislation will possibly ensure that happens BUT if it doesn't work then the worker will be negatively financially impacted and if it does work then a load of contractors will have been (IMHO) unfairly penalised. It would be far better to introduce legislation which guaranteed that low paid workers could not be moved from permieland to brolly or PSC in the first place.

WordIsBond
19th August 2015, 14:13
Joint and several liability for all taxes is a dead issue.

I'm not sure it is. Look at this from HMRC's perspective. It's so much easier to chase a few, large and solvent, clients than thousands of PSCs. We'll get the first indication in FB15 when the new T&S legislation comes into force, because one option is precisely that (Option 1 in fact :D). I suspect, in practice, liability will remain with the PSC, but a penalty regime will be applied to the clients.
When I say it is a dead issue, I mean that there is no way clients will be left open to joint and several liability on all taxes. They just won't do it. If they have to force everyone under umbrellas, they will. In practice, there aren't going to be clients out there accepting these kinds of liabilities.

If, however, we can find a middle ground where employers' liability remains with the client, we might have a shot at getting something like that passed. And that is something clients might be willing to accept, or at least accept if insured.

If New Labour (that's what I'm calling Davie and Georgie now) keep listening to the unions and take IR35 where it looks like it is going, everyone will be in brollies. You may not like what I suggested, but it would be better than THAT and would still increase HMG's take substantially.

WordIsBond
19th August 2015, 14:17
Yes I think it was just window dressing
So do we now believe that really, they are just trying to be nice to the low-paid and none of this was intended to target micro-businesses at all? That they aren't malicious, just incompetent?

I admit I don't find the incompetence part hard to believe, but I'm not quite ready to exonerate their intentions and think this was all Mr Good Guy.

eek
19th August 2015, 14:33
So do we now believe that really, they are just trying to be nice to the low-paid and none of this was intended to target micro-businesses at all? That they aren't malicious, just incompetent?

I admit I don't find the incompetence part hard to believe, but I'm not quite ready to exonerate their intentions and think this was all Mr Good Guy.

I don't necessarily think they are out to be nice to the low paid, however, I think some of us are and might have found a clean, simple way to do just that in the T&S consultation... The problem then is how ruthless HMRC wants to be with those companies who abuse the low paid. I personally hope for something like if less than £x no expenses allowed but with laws brought into effect that says that companies have to treat them as employees after x weeks... In theory that is the case now but there are get out tricks that need to be removed...

For the IR35 discussion still not a clue.. I'm looking forward to my train reading this evening...

jamesbrown
19th August 2015, 15:48
When I say it is a dead issue, I mean that there is no way clients will be left open to joint and several liability on all taxes. They just won't do it. If they have to force everyone under umbrellas, they will. In practice, there aren't going to be clients out there accepting these kinds of liabilities.

If, however, we can find a middle ground where employers' liability remains with the client, we might have a shot at getting something like that passed. And that is something clients might be willing to accept, or at least accept if insured.

If New Labour (that's what I'm calling Davie and Georgie now) keep listening to the unions and take IR35 where it looks like it is going, everyone will be in brollies. You may not like what I suggested, but it would be better than THAT and would still increase HMG's take substantially.

Oh, I think I see what you mean (BTW I meant FB16, not FB15). I think you're suggesting that the client should be liable for the employer's NI only and the PSC should be liable for all other taxes in the event that an SDC decision goes against them? Seems reasonable. However, I think the upshot would be similar, namely that clients would force PSCs towards a PAYE solution (whether umbrella or operated via the PSCs own payroll). What they won't accept is having them on payroll. But I quite like the symmetry of this (i.e. the shared liability).

WordIsBond
19th August 2015, 17:10
Oh, I think I see what you mean (BTW I meant FB16, not FB15). I think you're suggesting that the client should be liable for the employer's NI only and the PSC should be liable for all other taxes in the event that an SDC decision goes against them?
Yes, mostly. The client has to certify SDC, yes or no. That makes HMRC happy because administration gets a lot easier. If client certifies SDC, they pay employers NI, and their problem is done.

In the event that the contractor wants to fight it, or claim that substitution / MOO means he's not under IR35, well, he can try. But he's likely to get hammered by penalties if he loses, and the insurers probably won't touch him. And if he goes with IR35, well, at least he doesn't have to pay employer NI. So few will fight it, and that means a lot of contracts immediately move under IR35. Big win for HMRC.


However, I think the upshot would be similar, namely that clients would force PSCs towards a PAYE solution (whether umbrella or operated via the PSCs own payroll). What they won't accept is having them on payroll. But I quite like the symmetry of this (i.e. the shared liability).
That's where the insurance comes in. If the contractor looks at it and says, "This isn't an SDC job," he can offer to buy an insurance policy on client's behalf. Then, the client has no risk at all -- but it brings the client on board to protect against SDC creep.

And while a lot of clients won't want to be bothered, there will be those who will say, "Sure, if you'll pay for my insurance, I'll save that 10% employers NI." So contractors may get hit with IR35 more, but it won't be as painful if the burden is shared, and sometimes a simple insurance premium will keep the contracts outside it.

But this is all a huge win for HMRC, and it should be possible to trigger some concessions (thus the point about specifying certain conditions that are clearly outside). That way, if a client gets someone in that they've never seen before to do a limited job for a few months, nobody has to even think about this at all. All the nonsense about how much notice period, and MOO, and SDC, and all this other somewhat arbitrary and confusing hodge-podge of arcane case law gets swept away, because it obviously is a short term contract between two businesses.

Help them catch the real disguised employees and make the engagers be part of the enforcement / admin process. But stop making real businesses have to worry about accidentally getting caught by some silly provision when everyone knows they aren't really employees and will be moving on as soon as the contract is over.

eek
19th August 2015, 17:12
So do we now believe that really, they are just trying to be nice to the low-paid and none of this was intended to target micro-businesses at all? That they aren't malicious, just incompetent?

I admit I don't find the incompetence part hard to believe, but I'm not quite ready to exonerate their intentions and think this was all Mr Good Guy.

Also I think they have to be seen to do something. And that something could impact all of us unless we provide them with a solution that gives them the brownie points without us being impacted.

jamesbrown
19th August 2015, 17:46
Yes, mostly. The client has to certify SDC, yes or no. That makes HMRC happy because administration gets a lot easier. If client certifies SDC, they pay employers NI, and their problem is done.

I like the idea that the employer is liable for the employer's NI portion, but I'm not sure I see the incentive either for the contractor or the client when IR35-caught. In the event that SDC applies, this would mean the PSC would effectively disappear and a particular individual would need to be on the client's payroll. I think that's a big risk to the client (almost as big as having the tax liability). It essentially spells the end of contracting for an unspecified number of people, who would no longer have a PSC and would effectively pay the employer's NI via a low permie salary (perhaps administered via an FTC or zero-hours contract or whatever).

In the event that SDC doesn't apply, the client would process a B2B payment as usual and would only be liable for the employer's NI portion in the event that the SDC determination was subsequently found wrong, but they wouldn't pay this upfront. That aspect can probably be covered by insurance one way or another. I think the real problem is with the IR35-caught scenario, on the one hand, and with convincing clients to support contracts that were genuinely not caught, on the other. When a contract is caught, the engager will be pushing to have the PSC operate a deemed payment, rather than have them on payroll, and I think the contractor would prefer this too, as they may operate other contracts that are not IR35-caught.

However, I think the idea of shared liability is a good one, and the employer's NI is a natural boundary. But, for the IR35-caught scenario, I would favor an approach whereby the contractor (PSC) could operate a deemed payment, rather than transfer to the client payroll. This might be augmented by a simple rule (as Eek and Lisa suggested) to avoid having unscrupulous employers force lower paid workers into a PSC arrangement (i.e. SDC by default for certain conditions). Likewise, perhaps HMRC would be willing to define some cases where SDC was clearly not applicable. So, not withstanding some details, I think I broadly agree with what you're saying and it may be workable, if not ideal (ideal left the building with Dim Prawn). The "clearly not caught" scenarios would require some thought. I don't think contract length is good enough (from either side of the fence).

Also, FWIW, I think one conceptual point of departure between us is probably how we view the employer's NI. In my view, the employee ultimately pays for the employer's NI, even if the employer remits it to HMRC. Having the client remit this isn't really a "win" for the IR35-caught contractor (they pay via a crappy FTC or similar). However, when a contract isn't caught I think it does make sense for the liability on that portion to rest with the client.

eek
19th August 2015, 17:57
We are never going to get ideal. It the moment I think I would take just about plausible without destroying the entire marketplace.

I have CAB's bogus self employment report now. I'm not sure about the size of the survey (Lisa definitely has more responses, I'm rapidly hitting that level) but some of the anecdotes and quotes are :eek and :eek:..


“I work in a pub where I used to be employed but then was told I must be paid as self-employed because there was not enough work. The pub owner can now employ me when he wants for whatever hours he wants and can also decide how much I get paid per hour”

Now I know we are digging up the dregs of worst examples here but really....

jamesbrown
19th August 2015, 17:59
We are never going to get ideal. It the moment I think I would take just about plausible without destroying the entire marketplace.

You're right. That's absolutely my mentality too; we need to salvage something from this, because I think the writing is on the wall with SDC and client involvement. The FLC response to this beggars belief...

Zero Liability
19th August 2015, 18:22
Yes I think it was just window dressing - what greater deterrent is there for a business than to say - Ok, if you keep forcing your workers to a brolly/PSC and you can't prove something which is utterly objective in law and also proving a negative then you are liable for their taxes and/or interest and/or penalties. It's a bit of a no brainer for a business owner as they'll no longer have the cost savings that encouraged them to make those decisions in the first place. Most of the workers who are being forced into these situations are low paid - care workers, drivers, child minders etc etc and should be in permanent employment - these changes in legislation will possibly ensure that happens BUT if it doesn't work then the worker will be negatively financially impacted and if it does work then a load of contractors will have been (IMHO) unfairly penalised. It would be far better to introduce legislation which guaranteed that low paid workers could not be moved from permieland to brolly or PSC in the first place.

As I said, I think you and eek are probably correct on this, because after the dividend tax is accounted for, exactly how much is the measure "protecting" anyway? If this is all about upping yields, it's a daft way of going about it, and it will raise pitiful amounts whilst potentially doing severe damage to a portion of the British economy, which helped it weather out the recent recession better than economies with less flexible labour markets, and all predicated on highly dubious assumptions. Not that I think the dividend tax is particularly praiseworthy - I think it's just another stopgap measure to help plug the holes of this and previous governments' reckless spending and will have its own damaging effects - but it renders IR35 superfluous from that POV.

It does make more sense when looked at as a measure to prevent incorporations regarding "vulnerable" workers (in tandem with the T&S stuff), although as I've previously said, it may just signal to engagers that these individuals are now too expensive to be worth the hire, so unless some "sweeteners" are thrown in, they may end up even worse off than before. I think what the government should be assessing is why is permanent employment so expensive to begin with, but that would fall under a separate remit and may bring up topics they find more than a little uncomfortable, in spite of any ostensible musings that they'd like to consider a potential merger of NI and PAYE.

So from that perspective, suggesting an alternative method of delineating the workers the government is "concerned" about from those who are not being pushed into freelancing by employers does make a lot of sense, but I think the government will have to review its biases on this topic, because they don't seem at all connected to reality, if they're suggesting that this is what a reformed IR35 would achieve and what is required for it. If it is about the money, they're scrounging for pennies and potentially inflicting a lot of damage on the freelancing sector by doing so, hence why I regard the dividend tax as a better vehicle for that.

jamesbrown
19th August 2015, 18:59
why I regard the dividend tax as a better vehicle for that.

Yep, the dividend tax is going to bring in an order of magnitude more than the most optimistic assessments of the deterrent effect of IR35. The main reason being scope. At the same time, it isn't a game changer for contractors (at the moment), and I think they're looking forward to 2020 when the CT rates will be running at 18% and the basic and higher rates will be significantly higher, increasing the incentives for TMI, as they call it. Also, if Osborne is serious about merging income tax and NI (he might be; he's certainly been talking about it for a long time), they will need a more robust enforcement against TMI, so long as dividends are free of NI. He's implementing or talking about a lot of mechanisms that point towards that eventual merger (including with pensions), but who knows whether it will actually happen...

eek
19th August 2015, 19:00
It's safe to say that the dividend tax isn't praiseworthy. It does however provide an argument that the expected revenue gain will at most be 1/2 of what it was and potentionally even less. However its purpose is not to take more money off us, its just to take more money full stop..

I think we need to look at the two attacks though and see what the purpose of them is.

The T&S one is clearly not aimed at the high level consultant. The permanent side of our work is explicitly excluded that's why I don't think it's aimed at us and why a simple barrier approach could be used.

The ir35 discussion is however also aimed at people higher up the pay scale. The lawyer example is a clear demonstration of that. How we attack that is harder though as I'm sure we all know people who match that example.

WordIsBond
19th August 2015, 20:06
I like the idea that the employer is liable for the employer's NI portion, but I'm not sure I see the incentive either for the contractor or the client when IR35-caught. In the event that SDC applies, this would mean the PSC would effectively disappear and a particular individual would need to be on the client's payroll.
I definitely wouldn't go that far.

The simplest thing would be, if the client declares a contract with a Ltd Co contractor to be SDC, to have a new class of NI. Say class 5 NI, which would be 8-9% of all Ltd Co. payments (less than 13.8% because of the monthly tax-free amount, pension contributions, etc).

Would contractors really be paying it? Perhaps. My guess is in some cases client would eat some of that cost, but it would drag on contractor compensation. It's a small enough amount that clients won't automatically say, "Ok, we need to slash the rates we're going to pay." Ultimately, supply and demand would determine rates.

jamesbrown
19th August 2015, 20:29
It's safe to say that the dividend tax isn't praiseworthy. It does however provide an argument that the expected revenue gain will at most be 1/2 of what it was and potentionally even less

I think we need to look at the two attacks though and see what the purpose of them is.

The T&S one is clearly not aimed at the high level consultant. The permanent side of our work is explicitly excluded that's why I don't think it's aimed at us and why a simple barrier approach could be used.

The ir35 discussion is aimed at people higher up the pay scale. The lawyer example is a clear demonstration of that. How we attack that is harder though as I'm sure we all know people who match that example.

Yes, I agree with that assessment, but I think it will be easier to sell if any proposal has broad applicability (i.e. across several pieces of legislation). Although the T&S consultation is much further along, it seems to me that one or two simple rules could eliminate quite a lot of the abuse there. However, the SDC and others aspects strike me as a done deal because they tie in too nicely with the agency legislation (deals with earned/employment income subject to SDC) and what they're planning for IR35 (deals with unearned/dividend income subject to SDC). Any screening rules will probably sit on top of the SDC rules in terms of identifying scenarios that are SDC by statute (i.e. no T&S relief and IR35-caught), but it will be tougher to argue for scenarios that are not SDC by statute, because HMRC operates on FUD, and it will be near-impossible to convince clients to take a risk without that clarity.

eek
19th August 2015, 20:30
I definitely wouldn't go that far.

The simplest thing would be, if the client declares a contract with a Ltd Co contractor to be SDC, to have a new class of NI. Say class 5 NI, which would be 8-9% of all Ltd Co. payments (less than 13.8% because of the monthly tax-free amount, pension contributions, etc).

Would contractors really be paying it? Perhaps. My guess is in some cases client would eat some of that cost, but it would drag on contractor compensation. It's a small enough amount that clients won't automatically say, "Ok, we need to slash the rates we're going to pay." Ultimately, supply and demand would determine rates.

I think any person caught as under new IR35 would end up paying the full amount because HMRC are not and actually legally cannot settle for less than the full amount. So bang goes that class 5 NI example. Remember all recent settlements have been full tax due (the only thing we are offering is no potential court visit and no additonal fines).. My expectation would be no special treatment full tax (somehow or other by either the contractor's company or the end client) including Employers NI would need to be paid...

And companies (especially large companies who are very risk adverse when it comes to this stuff) will as soon as they become potentially liable insist and ensure that they will not end up responsible for the full amount. No company or agency will take the risk of allowing you to use your own limited company (of any type). They will insist that a trusted umbrella is used...

I can see how an insurance policy would fix that problem however I really can't see it being affordable in the first few years... Given the amount of money that would need to be insured and the difficulty of winning an no SDorC case I can't imagine many insurance companies will be creating affordable (£200 or so) policies that cover the possible tax...

jamesbrown
19th August 2015, 20:37
I definitely wouldn't go that far.

The simplest thing would be, if the client declares a contract with a Ltd Co contractor to be SDC, to have a new class of NI. Say class 5 NI, which would be 8-9% of all Ltd Co. payments (less than 13.8% because of the monthly tax-free amount, pension contributions, etc).

Would contractors really be paying it? Perhaps. My guess is in some cases client would eat some of that cost, but it would drag on contractor compensation. It's a small enough amount that clients won't automatically say, "Ok, we need to slash the rates we're going to pay." Ultimately, supply and demand would determine rates.

The IR35 deemed payment already does this to some degree (when compared to the total cost of employment through PAYE w/ both NICs). In other words, you're somewhat better off operating an IR35 deemed payment versus PAYE umbrella (for example), and you still have the option to take other contracts that are outside IR35. This will further improve w/ the zero-rated dividend tax allowance, because the 5% allowance w/ IR35 (or a fraction thereof) can be taken as a dividend and the dividend allowance applies to all marginal rates (except 45% IIRC).

eek
19th August 2015, 21:01
Yes, I agree with that assessment, but I think it will be easier to sell if any proposal has broad applicability (i.e. across several pieces of legislation).

Although the T&S consultation is much further along, it seems to me that one or two simple rules could eliminate quite a lot of the abuse there. However, the SDC and others aspects strike me as a done deal because they tie in too nicely with the agency legislation (deals with earned/employment income subject to SDC) and what they're planning for IR35 (deals with unearned/dividend income subject to SDC). Any screening rules will probably sit on top of the SDC rules in terms of identifying scenarios that are SDC by statute (i.e. no T&S relief and IR35-caught), but it will be tougher to argue for scenarios that are not SDC by statute, because HMRC operates on FUD, and it will be near-impossible to convince clients to take a risk without that clarity.

Yep, SDC is a done deal because its the only bit of the employment law that is left standing that HMRC win on.

I do however wonder if we are looking at this too deeply and whether something as simple as the tier 2 visa rules will work...

1) does someone in the organisation already do this job Y/N - (solves the specialist contractor issue there before you go any further)...
2) when you advertised the vacancy as a permanent / fixed term contract did viable CVs come in (simple third party check there)..
3) if not then potentially not under IR35 subject to additional checks....

The advantage of the above would be that it can be shown to both protect HMRC from IR35 abuses (the examples in the discussion document are caught) while promoting a flexible economy when a company needs to solve a skill / capacity issue. It ain't great but as these are the rules already used for skill shortages in two departments its not something they can really argue against..

WordIsBond
19th August 2015, 21:01
I think any person caught as under new IR35 would end up paying the full amount because HMRC are not and actually legally cannot settle for less than the full amount. So bang goes that class 5 NI example.
We're discussing replacing the current IR35 fiasco with something that A) involves the engagers in enforcement and B) dumps some liability onto the engagers and C) actually works. That's what the consultation is talking about.

If the government wanted to pass legislation that made clients liable for Class 5 for SDC contracts, and said there is no longer employers NI under IR35, it certainly would be legal. Sure, it would require legislation to change the current rules, but that's the whole point. They are going to change the rules.

My expectation would be no special treatment full tax (somehow or other by either the contractor's company or the end client) including Employers NI would need to be paid...
If end client paid 8-9% of contract amount it would be very close to full Employers NI on a deemed payment, after expenses, pension, and monthly NI allowance are deducted. I'm not proposing the government get less money. Under my proposal, they would get more and it would cost them less to administer it.


I can see how an insurance policy would fix that problem however I really can't see it being affordable in the first few years... Given the amount of money that would need to be insured and the difficulty of winning an no SDorC case I can't imagine many insurance companies will be creating affordable (£200 or so) policies that cover the possible tax...
Really? If the employer's liability is 8-10% of the contract amount?

We're wrapping up a 60K contract right now. Under this scenario, engager liability would be maybe 6K or so. Sure, if the ruling went against us in 4 years it might climb to 12K, maybe even £15K, with interest and penalties. What is it going to cost to insure that amount? Less than £1K, easily.

Would you pay £500-1000, if needed, to get a £60K contract outside of IR35? I would. Simple business decision. If a client says you have to have so much PII, you go get it. If they said you had to have NI5 Indemnity Insurance for them to certify the contract non-SDC, you'd go get it. It wouldn't be that expensive because it wouldn't cover that much. It would only cover 1/3 of the current TLC35 cover (the employers NI portion).

QDOS would lose a lot of clients on their current IR35 cover, but they'd make a killing on this new insurance.

WordIsBond
19th August 2015, 21:06
The IR35 deemed payment already does this to some degree (when compared to the total cost of employment through PAYE w/ both NICs). In other words, you're somewhat better off operating an IR35 deemed payment versus PAYE umbrella (for example), and you still have the option to take other contracts that are outside IR35. This will further improve w/ the zero-rated dividend tax allowance, because the 5% allowance w/ IR35 (or a fraction thereof) can be taken as a dividend and the dividend allowance applies to all marginal rates (except 45% IIRC).
Agreed. If we all end up permanently IR35 caught, Osborne actually did us a favour with the dividend tax change. :laugh

eek
19th August 2015, 21:10
We're discussing replacing the current IR35 fiasco with something that A) involves the engagers in enforcement and B) dumps some liability onto the engagers and C) actually works. That's what the consultation is talking about.

If the government wanted to pass legislation that made clients liable for Class 5 for SDC contracts, and said there is no longer employers NI under IR35, it certainly would be legal. Sure, it would require legislation to change the current rules, but that's the whole point. They are going to change the rules.

If end client paid 8-9% of contract amount it would be very close to full Employers NI on a deemed payment, after expenses, pension, and monthly NI allowance are deducted. I'm not proposing the government get less money. Under my proposal, they would get more and it would cost them less to administer it.


Really? If the employer's liability is 8-10% of the contract amount?

We're wrapping up a 60K contract right now. Under this scenario, engager liability would be maybe 6K or so. Sure, if the ruling went against us in 4 years it might climb to 12K, maybe even £15K, with interest and penalties. What is it going to cost to insure that amount? Less than £1K, easily.

Would you pay £500-1000, if needed, to get a £60K contract outside of IR35? I would. Simple business decision. If a client says you have to have so much PII, you go get it. If they said you had to have NI5 Indemnity Insurance for them to certify the contract non-SDC, you'd go get it. It wouldn't be that expensive because it wouldn't cover that much. It would only cover 1/3 of the current TLC35 cover (the employers NI portion).

QDOS would lose a lot of clients on their current IR35 cover, but they'd make a killing on this new insurance.

My fear is that its currently fairly easy to win an IR35 case. You show Moo or substitution and your done.

Proving a negative and showing that you were never under the hypothetical threat of SDC is a far harder task. Even when the cowboy companies have tried to cover all three employment tests in their scheme designs I can't think of one that has managed to convince a tribunal that their non-"employees" were not under SDC...

Insurance may work as its rarely required, and so it may be cheap. My fear is that it won't be because the test needed to avoid paying out is far, far harder to pass.

jamesbrown
19th August 2015, 21:11
Yep, SDC is a done deal because its the only bit of the employment law that is left standing that HMRC win on.

I do however wonder if we are looking at this too deeply and whether something as simple as the tier 2 visa rules will work...

1) does someone in the organisation already do this job Y/N - (solves the specialist contractor issue there before you go any further)...
2) when you advertised the vacancy as a permanent / fixed term contract did viable CVs come in (simple third party check there)..
3) if not then potentially not under IR35 subject to additional checks....

The advantage of the above would be that it can be shown to both protect HMRC from IR35 abuses (the examples in the discussion document are caught) while promoting a flexible economy when a company needs to solve a skill / capacity issue. It ain't great but as these are the rules already used for skill shortages in two departments its not something they can really argue against..

Yes, I recall you mentioned this before, and I see what you mean now. What I'm about to say should be taken with a pinch of salt because I'm not an average contractor w/r to how I work, and this would benefit me, but anyway... I can definitely see the elements of scenarios that are not SDC caught along the lines of your (1) and (2) because they point to a distinct need for a specialist competence that is not readily available within the organisation. I think that's pretty clearcut w/r to SDC. Likewise, I can also see the case for a scenario that involves 100% working offsite, i.e from a site that is not under the control of the client (the same scenario puts you outside the agency legislation, along with being an entertainer and a couple of other things).

So I think there are some clearcut scenarios that could be developed, but they are so narrow in scope as to be useless for the majority of contractors, and the bulk of those contractors are still nothing like employees; I also hate the divide and conquer aspect of making these distinctions. At the same time, I'm struggling to see any scenarios being acceptable unless they meet two conditions: 1) they are exceptionally clearcut in terms of SDC; and 2) they are relatively simple to demonstrate on request or by making third-party checks.

jamesbrown
19th August 2015, 21:12
Agreed. If we all end up permanently IR35 caught, Osborne actually did us a favour with the dividend tax change. :laugh

:laugh:laugh

WordIsBond
19th August 2015, 21:57
My fear is that its currently fairly easy to win an IR35 case. You show Moo or substitution and your done.
Yeah, I'm the opposite. I can't substitute because I'm the only guy I know who does what I do. My market is very narrow, but I'm very, very specialist, so SDC is easy for me to win on.

Under what I proposed, the contractor could still refuse to operate under IR35 if he thought he could beat it on the other tests -- say you substituted during the contract. But he'd be more likely to be investigated, and more likely to lose, if the client affirmed he was under SDC.

Proving a negative and showing that you were never under the hypothetical threat of SDC is a far harder task.
True. But if both engager and contractor affirm you weren't under SDC, doesn't that shift the burden of proof to HMRC?


Insurance may work as its rarely required, and so it may be cheap. My fear is that it won't be because the test needed to avoid paying out is far, far harder to pass.
See my point on burden of proof.

How do you show, today, that you aren't SDC? The first step is get a confirmation of arrangements, right? Basically all I'm saying is the client gives you a confirmation of arrangements that you aren't SDC, and if they don't, they have to pay Class 5 (or whatever we want to call it). But if they do give you that confirmation of arrangements, it's going to be hard for HMRC to nail you (and them).

So I do think the insurance would be cheap, and few cases would be lost. The increased IR35 revenue would come from the contracts where clients just don't want to be bothered or think about it, and so they just declare it under SDC and pay their share. And most contractors would then shrug and say, "OK, this one's IR35, but at least I don't have to pay employer's NI." And a lot of contracts would go that way -- but insurance would give contractors a chance to convince some clients to take it the other direction.

sapexpert
19th August 2015, 22:44
The whole problem lies that everyone is trying to find a solution to a problem that is not one problem, but various: mainly the low-end market and the contractor that is ex-employee and never had other roles and/or does the same job as any other internal staff for many years and not just a quick gig/project.

If I ring a plumber and hire his services, to do the plumbing on my new self built house, is he my employee?
What if my Ltd rings the same plumber to do the plumbing, for 6 months, on our brand new office, is he our employee?
I think is fair to say that HMRC would say: no, he is not your employee.

Thus, why should I, an expert in a particular software working for companies that do not produce this software, but use it, be considered their employee?

Their employees cannot code, cannot configure and don't know all the ins and out of the software.

I invest money and time in being the best in what I do, and do it for more than one customer at present, plus did it for many in many jurisdictions/continents. I keep expanding business relationships with other companies, partners, events, etc.
Why should my company or our customer have to deal with the problem of the low-end market being exploited or the 'contractor' that was an employee of the same company before and is now 'contracting' on the same role for 8-10-15 years and had no other customer?

Is rather easy to come up with rules based on real life on about what is a real company and what is just disguised employment.

Plus, would the other Ltd companies from the EU have to deal with this nonsense?

My 2p.




Yeah, I'm the opposite. I can't substitute because I'm the only guy I know who does what I do. My market is very narrow, but I'm very, very specialist, so SDC is easy for me to win on.

Under what I proposed, the contractor could still refuse to operate under IR35 if he thought he could beat it on the other tests -- say you substituted during the contract. But he'd be more likely to be investigated, and more likely to lose, if the client affirmed he was under SDC.

True. But if both engager and contractor affirm you weren't under SDC, doesn't that shift the burden of proof to HMRC?


See my point on burden of proof.

How do you show, today, that you aren't SDC? The first step is get a confirmation of arrangements, right? Basically all I'm saying is the client gives you a confirmation of arrangements that you aren't SDC, and if they don't, they have to pay Class 5 (or whatever we want to call it). But if they do give you that confirmation of arrangements, it's going to be hard for HMRC to nail you (and them).

So I do think the insurance would be cheap, and few cases would be lost. The increased IR35 revenue would come from the contracts where clients just don't want to be bothered or think about it, and so they just declare it under SDC and pay their share. And most contractors would then shrug and say, "OK, this one's IR35, but at least I don't have to pay employer's NI." And a lot of contracts would go that way -- but insurance would give contractors a chance to convince some clients to take it the other direction.

eek
20th August 2015, 06:00
Yeah, I'm the opposite. I can't substitute because I'm the only guy I know who does what I do. My market is very narrow, but I'm very, very specialist, so SDC is easy for me to win on.

Under what I proposed, the contractor could still refuse to operate under IR35 if he thought he could beat it on the other tests -- say you substituted during the contract. But he'd be more likely to be investigated, and more likely to lose, if the client affirmed he was under SDC.

True. But if both engager and contractor affirm you weren't under SDC, doesn't that shift the burden of proof to HMRC?


See my point on burden of proof.

How do you show, today, that you aren't SDC? The first step is get a confirmation of arrangements, right? Basically all I'm saying is the client gives you a confirmation of arrangements that you aren't SDC, and if they don't, they have to pay Class 5 (or whatever we want to call it). But if they do give you that confirmation of arrangements, it's going to be hard for HMRC to nail you (and them).

So I do think the insurance would be cheap, and few cases would be lost. The increased IR35 revenue would come from the contracts where clients just don't want to be bothered or think about it, and so they just declare it under SDC and pay their share. And most contractors would then shrug and say, "OK, this one's IR35, but at least I don't have to pay employer's NI." And a lot of contracts would go that way -- but insurance would give contractors a chance to convince some clients to take it the other direction.

The other tests have however gone. In ir35 mark 2 the only test is the client is no exercising SDC and has no right to SDC.

That is why I think the insurance might be expensive as it's probably very easy to show sdc, 1 badly worded request could do it.

Insurance could be a possible mitigation. I just don't see it being as practical and easy as you think it is.

LisaContractorUmbrella
20th August 2015, 06:31
Oh, I think I see what you mean (BTW I meant FB16, not FB15). I think you're suggesting that the client should be liable for the employer's NI only and the PSC should be liable for all other taxes in the event that an SDC decision goes against them? Seems reasonable. However, I think the upshot would be similar, namely that clients would force PSCs towards a PAYE solution (whether umbrella or operated via the PSCs own payroll). What they won't accept is having them on payroll. But I quite like the symmetry of this (i.e. the shared liability).

The problem with leaving the liability anywhere other than with the client is that the client is the only one in a position to determine whether or not they are going to exercise or retain the right to exercise SDC. It doesn't matter what the contractor does or says or what's written in a contract (to a degree) - this is something the contractor or the agency will have no control over whatsoever. Therefore the liability for an incorrect judgement must lie with the end client which is why IMHO the chances of anyone falling outside these proposed changes are slim to none

WordIsBond
20th August 2015, 06:51
So, was talking to my co-director last night about this mess after we went to bed. If it really is just about protecting the low-paid from being pushed into self-employment, propose something like this.

WHAT'S OUT OF SCOPE OF THE NEW LEGISLATION
1. Work for the same engager totaling less than one month in a calendar year. (Excludes the plumber, gardener, freelance photographer.)
2. Fixed-price jobs. (Excludes the builder who gives me a quote on a house extension.) We're only talking about jobs paid on a daily / hourly / weekly basis.
3. Work paying more than 150% of the Living Wage. (Excludes contracts where the contractor Ltd Co can afford to pay taxes on the deemed payment, provide benefits, and still pay a Living Wage.)

So, draw it narrowly to engagements longer than a month on an hourly / daily rate at low pay.

WHAT THE LEGISLATION DOES FOR IN SCOPE CONTRACTS
The engager is liable for the IR35 tax on the deemed payment, if the contract is found to be subject to IR35. That's it.

BENEFITS
Those who are legitimately going into business but not making much money yet aren't hindered from getting a limited company if they need one.

You completely put out of scope the kind of contracts that this isn't trying to solve.

You protect workers from the tax liability / penalties if their employers have behaved badly. It's on the employer.

You give engagers using these kinds of services three choices: A) Pay the Ltd company enough so they can pay taxes, provide some benefits, and still pay a living wage. B) Bring the worker onto your payroll. C) Assume a big risk.

And other than a few rogue employers, they won't want to assume the risk. So they will do A or B. And A could actually encourage more people into really becoming self-employed, by paying them enough to make it work, and that's not so bad. The "party that is a friend of small business" should like that if it happens. But if it makes sense, most engagers will do B for these low-paid jobs and keep them on payroll, and that's what HMRC wants. So it will protect the Exchequer.

And for the rogues who just assume the risk (C), at least their poor workers aren't on the hook for IR35.

This is a minimalist approach to a narrowly drawn problem which would, in most cases, accomplish what the government wants.

The first rule of good legislation is to draw it as narrowly as possible to still accomplish the purpose, so as to avoid unintended consequences. The second rule is to legislate with the lightest touch possible to accomplish the goal, so as to protect freedom. You shouldn't ban a Ltd Co for low paid people, there are plenty of reasons why some low-paid people would want and even need a Ltd Co.

My co-director, despite having married me, is no fool.

WordIsBond
20th August 2015, 06:56
The other tests have however gone. In ir35 mark 2 the only test is the client is no exercising SDC and has no right to SDC.
IR35 mark 2 is not law, it's a discussion, and I don't think SDC as a sole test is a done deal, especially if clients have liability. There are two many unintended consequences to engagers, and the Tory party is going to lose its financial backing if it pushes too far down this road.

My suggestion was a counter-proposal.

eek
20th August 2015, 07:23
IR35 mark 2 is not law, it's a discussion, and I don't think SDC as a sole test is a done deal, especially if clients have liability. There are two many unintended consequences to engagers, and the Tory party is going to lose its financial backing if it pushes too far down this road.

My suggestion was a counter-proposal.

I know it was. And as you say its a counter proposal. But as it is a discussion and as the big question left at the end of it is why can't this work its probably more important to work out and demonstrate why and where it won't work...

Once we have a set of clear cut examples where it doesn't work (project based work, specialist skills, short term surge requirements) we can then look at solutions to fix those bits or simple rules that will allow companies to show that it is excluded.

But those rules need to be simple as the drive towards self-employment is marching forward and HMRC really doesn't like it encouraged by the unions and the media on the sidelines (this battle is absolute middle ground political territory its not right wing thinking of a Tory Government). If no one can find simple tests to exclude a/b because of c/d HMRC will just go SDC = liable...

Oh and its not just the low paid that is in focus here. Yes they are at the core of the T&S discussion but the very first example in the IR35v discussion document is a £70k lawyer doing the exact same job as another £70k lawyer being paid via PAYE.... Any set of rules has to have him explicitly caught while keeping the £100k a year trouble shooter pm on a 3 month fix this project contract excluded...

LisaContractorUmbrella
20th August 2015, 07:37
So, was talking to my co-director last night about this mess after we went to bed. If it really is just about protecting the low-paid from being pushed into self-employment, propose something like this.

WHAT'S OUT OF SCOPE OF THE NEW LEGISLATION
1. Work for the same engager totaling less than one month in a calendar year. (Excludes the plumber, gardener, freelance photographer.)
2. Fixed-price jobs. (Excludes the builder who gives me a quote on a house extension.) We're only talking about jobs paid on a daily / hourly / weekly basis.
3. Work paying more than 150% of the Living Wage. (Excludes contracts where the contractor Ltd Co can afford to pay taxes on the deemed payment, provide benefits, and still pay a Living Wage.)

So, draw it narrowly to engagements longer than a month on an hourly / daily rate at low pay.

WHAT THE LEGISLATION DOES FOR IN SCOPE CONTRACTS
The engager is liable for the IR35 tax on the deemed payment, if the contract is found to be subject to IR35. That's it.

BENEFITS
Those who are legitimately going into business but not making much money yet aren't hindered from getting a limited company if they need one.

You completely put out of scope the kind of contracts that this isn't trying to solve.

You protect workers from the tax liability / penalties if their employers have behaved badly. It's on the employer.

You give engagers using these kinds of services three choices: A) Pay the Ltd company enough so they can pay taxes, provide some benefits, and still pay a living wage. B) Bring the worker onto your payroll. C) Assume a big risk.

And other than a few rogue employers, they won't want to assume the risk. So they will do A or B. And A could actually encourage more people into really becoming self-employed, by paying them enough to make it work, and that's not so bad. The "party that is a friend of small business" should like that if it happens. But if it makes sense, most engagers will do B for these low-paid jobs and keep them on payroll, and that's what HMRC wants. So it will protect the Exchequer.

And for the rogues who just assume the risk (C), at least their poor workers aren't on the hook for IR35.

This is a minimalist approach to a narrowly drawn problem which would, in most cases, accomplish what the government wants.

The first rule of good legislation is to draw it as narrowly as possible to still accomplish the purpose, so as to avoid unintended consequences. The second rule is to legislate with the lightest touch possible to accomplish the goal, so as to protect freedom. You shouldn't ban a Ltd Co for low paid people, there are plenty of reasons why some low-paid people would want and even need a Ltd Co.

My co-director, despite having married me, is no fool.

The only problem with all of this is that, with the client liable for taxes, there will be every incentive for them to put everyone inside IR35 - why take a risk when it has no benefit to you

WordIsBond
20th August 2015, 07:43
The only problem with all of this is that, with the client liable for taxes, there will be every incentive for them to put everyone inside IR35 - why take a risk when it has no benefit to you
The scope is limited to the low-paid. Allegedly, what they are trying to accomplish is to get the low paid back on payroll. This would do that and not impact anyone else, because of the scope limitations. The client liability under IR35 would only apply to the low-paid.

LisaContractorUmbrella
20th August 2015, 08:09
The scope is limited to the low-paid. Allegedly, what they are trying to accomplish is to get the low paid back on payroll. This would do that and not impact anyone else, because of the scope limitations. The client liability under IR35 would only apply to the low-paid.

So, if I understand you, low-paid would pretty much be inside IR35 when would the client liability come into play immediately (so full employer tax liability from the word go) or in the event of the workers operating outside?

WordIsBond
20th August 2015, 08:25
Low-paid wouldn't HAVE to be inside IR35, but the client would be liable for the full hit if they operate outside it and are later ruled to be inside it.

Clients would never want that open-ended liability. So they would either A: put the worker on payroll or B: insist on an umbrella they trust to operate PAYE (which pushes up the cost, since the worker still has to get Living Wage) or C: increase the rate above the low-pay threshold.

In the real world, it will kill over 90% of low-paid Ltd Co contracting, because engagers won't have much benefit in pushing the low-paid off of payroll anymore. But the legislation would allow it in the cases where it does make sense, and wouldn't hinder real businesses who are struggling / just starting up / going through a non-revenue product development stage.

LisaContractorUmbrella
20th August 2015, 08:58
The scope is limited to the low-paid. Allegedly, what they are trying to accomplish is to get the low paid back on payroll. This would do that and not impact anyone else, because of the scope limitations. The client liability under IR35 would only apply to the low-paid.

I can see that it would take the low paid workers out of the loop but we'd still be left with the employment status based test of IR35 wouldn't we? If so, that still leaves legislation which is hard to police and even harder to produce a definitive test which historically has been the pain in the backside for HMRC and HMG

Guesstimator
20th August 2015, 09:05
Oh and its not just the low paid that is in focus here. Yes they are at the core of the T&S discussion but the very first example in the IR35v discussion document is a £70k lawyer doing the exact same job as another £70k lawyer being paid via PAYE.... Any set of rules has to have him explicitly caught while keeping the £100k a year trouble shooter pm on a 3 month fix this project contract excluded...

That example is the one that makes little sense and IMO should be countered robustly, indeed they both should actually. The focus needs to be moved from "income to Government coffers" to "cost to engager" to fully appreciate the two stated objectives of the discussion (protect the coffers/level the playing field) and to understand why contractors are used.

In neither of cases given is the real cost to the engager being shown (PAYE includes sundry non-taxed benefits, plus the less quantifiable overhead of fixed workforce) thus when comparing the workers they are not comparing apples with apples; instead it's comparing one person that costs 70k "plus" with one that costs 70k flat. Naturally there's a difference in tax take from the two because one is effectively earning less than the other.

I also seriously call into question the likelihood of a contractor accepting the same "income" as PAYE at the lawyer end of the skills scale (not that I particularly want to draw any distinctions but evidently there is abuse by some employers at the other end). To enable a "levelling of the playing field" to offset lack of employee benefits (and coincidentally take the burden off the engager) I would anticipate a much higher rate than the PAYE employee, which would result in higher tax being paid.

Hang on....that looks suspiciously like the flipside of the same issue mentioned above...

The two objectives of the discussion are intertwined in a way that the example cases wholly misrepresent, nevermind the "difficult to price" but evident advantage that engagers see in having the ability to hire/fire/plan with ease.

What the discussion document thinks it's fixing is not real, or at best is not real to the degree it thinks it is though sadly I realise it's futile to try to change the focus of the discussion to something that resembles actuality :(

WordIsBond
20th August 2015, 09:13
I can see that it would take the low paid workers out of the loop but we'd still be left with the employment status based test of IR35 wouldn't we? If so, that still leaves legislation which is hard to police and even harder to produce a definitive test which historically has been the pain in the backside for HMRC and HMG
Sure. But if we're being told that all they want to do is solve the problem of low-paid workers being pushed off of payroll by unscrupulous employers, then this solves it. I thought you were telling us that it isn't about raising revenue, that it really is primarily about the low-paid. You don't really have to have IR35 working well if the engager is liable, all you need is the threat of it in most cases.

But if the problem is they want more revenue from us, that's a separate issue which is at least half solved with the dividend tax. At which point they need to ask the question of how big of a problem they really have any longer, and how much damage do they want to do to the flexible workforce (and the economy) to try to solve it.

So we come to the question -- are you trying to protect the low-paid, or are you trying to nail well-paid contractors?

If the former, they should do something like what I suggested.

If the latter, they need to come up with a solution that doesn't completely destroy the flexible workforce market or skew it heavily in favour of large consultancies vs the little guy. And they really should stop and consider that they've already done much of it with the dividend tax.

LisaContractorUmbrella
20th August 2015, 09:13
That example is the one that makes little sense and IMO should be countered robustly, indeed they both should actually. The focus needs to be moved from "income to Government coffers" to "cost to engager" to fully appreciate the two stated objectives of the discussion (protect the coffers/level the playing field) and to understand why contractors are used.

In neither of cases given is the real cost to the engager being shown (PAYE includes sundry non-taxed benefits, plus the less quantifiable overhead of fixed workforce) thus when comparing the workers they are not comparing apples with apples; instead it's comparing one person that costs 70k "plus" with one that costs 70k flat. Naturally there's a difference in tax take from the two because one is effectively earning less than the other.

I also seriously call into question the likelihood of a contractor accepting the same "income" as PAYE at the lawyer end of the skills scale (not that I particularly want to draw any distinctions but evidently there is abuse by some employers at the other end). To enable a "levelling of the playing field" to offset lack of employee benefits (and coincidentally take the burden off the engager) I would anticipate a much higher rate than the PAYE employee, which would result in higher tax being paid.

Hang on....that looks suspiciously like the flipside of the same issue mentioned above...

The two objectives of the discussion are intertwined in a way that the example cases wholly misrepresent, nevermind the "difficult to price" but evident advantage that engagers see in having the ability to hire/fire/plan with ease.

What the discussion document thinks it's fixing is not real, or at best is not real to the degree it thinks it is though sadly I realise it's futile to try to change the focus of the discussion to something that resembles actuality :(

You are exactly right in what you say - it's the fundamental difference between what Government thinks happens in business and what actually happens and it is important to move the focus of the discussion to that. What works in theory does not necessarily work in reality. We had this argument with HMRC when we met with them - their idea of applying SDC as a determining factor works if you apply their understanding of SDC as they use it in their internal manuals but it doesn't work as a single determinant in law 1. because you are trying to prove a negative and 2. because if you took the concept to the nth degree then no-one would be outside IR35. While there is the potential for HMRC lawyers to argue to the nth degree businesses are not going to take the risk of debt transfer. So, either we need to move away from SDC altogether or HMRC need to write clearly defined guidance which cannot later be subject to 'that's not what Government intended' as happens so often now.

LisaContractorUmbrella
20th August 2015, 09:19
Sure. But if we're being told that all they want to do is solve the problem of low-paid workers being pushed off of payroll by unscrupulous employers, then this solves it. I thought you were telling us that it isn't about raising revenue, that it really is primarily about the low-paid. You don't really have to have IR35 working well if the engager is liable, all you need is the threat of it in most cases.

But if the problem is they want more revenue from us, that's a separate issue which is at least half solved with the dividend tax. At which point they need to ask the question of how big of a problem they really have any longer, and how much damage do they want to do to the flexible workforce (and the economy) to try to solve it.

So we come to the question -- are you trying to protect the low-paid, or are you trying to nail well-paid contractors?

If the former, they should do something like what I suggested.

If the latter, they need to come up with a solution that doesn't completely destroy the flexible workforce market or skew it heavily in favour of large consultancies vs the little guy. And they really should stop and consider that they've already done much of it with the dividend tax.

I do believe it's about the numbers working off payroll but we need to consider how business would react to the change that you're suggesting - again are they going to run the risk of debt transfer? While IR35 still exists, if it's up to the client to decide whether people are in or out and they'd face penalties for getting it wrong, the less people are likely to fall outside - whether they are genuinely in business on their own account or not.

This is just my opinion and it could well be wrong but what is fantastic is that people on here are actually putting together viable proposals to give to HMRC as alternatives to what they've come up with - I don't think we've really done this before and with this and the surveys that are running, I think we have a real chance to get through some sensible changes :smile

Dylan
20th August 2015, 09:34
They will just do what they want.

WordIsBond
20th August 2015, 09:40
I do believe it's about the numbers working off payroll but we need to consider how business would react to the change that you're suggesting - again are they going to run the risk of debt transfer? While IR35 still exists, if it's up to the client to decide whether people are in or out and they'd face penalties for getting it wrong, the less people are likely to fall outside - whether they are genuinely in business on their own account or not.

This is just my opinion and it could well be wrong but what is fantastic is that people on here are actually putting together viable proposals to give to HMRC as alternatives to what they've come up with - I don't think we've really done this before and with this and the surveys that are running, I think we have a real chance to get through some sensible changes :smile
How would business react? They'd scream and yell and have a fit -- but if the scope of it is narrowly defined as the low-paid, they'll just scream at Davie and Georgie in private, because they don't want to be portrayed in the press as taking advantage of the low paid. And if you get the low-pay threshold right, so it really isn't costing them any more than an employee at Living Wage, and they can still be free of employment rights, they might not even scream that much.

But business won't be deciding "in or out" if HMG does something like I suggested on the low-paid. They'll be deciding to make sure it never comes to an "in or out" decision.

As to your second paragraph, I doubt the proposals we make on the Internet will go too far, but who knows? But the surveys you and others are running, and the level of responses, has to be sending a message that there are some people who are really unhappy with where they are going. And those people and their friends and families are voters, AND they are from the segment that they would normally expect to be Tory voters.

And it is also providing cold, hard facts (though I think the political calculations are more likely to have an impact than actual facts).

So what you are doing may have a huge impact, and we all should be very grateful.

eek
20th August 2015, 09:40
They will just do what they want.

Personally I don't think they will. HMRC want this fixed in a way that works and I believe if we provide viable alternatives that give them most of what they want to fix in a clean cut way they will run with and support those alternatives...

Remember we are not writing a responses that just says this is tulip its going to destroy our business.

We are producing

1) surveys that will show the size of the problem,
2) clear cut explanations of what is likely to happen if things are implemented in the suggested manner and
3) solutions that have been thought through from multiple different angles.

Yes we are trying to exclude ourselves from the pain but we are also trying to provide HMRC with solutions that solve most of the problems they have been told to fix in ways that are easy to implement and follow...

LisaContractorUmbrella
20th August 2015, 09:58
How would business react? They'd scream and yell and have a fit -- but if the scope of it is narrowly defined as the low-paid, they'll just scream at Davie and Georgie in private, because they don't want to be portrayed in the press as taking advantage of the low paid. And if you get the low-pay threshold right, so it really isn't costing them any more than an employee at Living Wage, and they can still be free of employment rights, they might not even scream that much.

But business won't be deciding "in or out" if HMG does something like I suggested on the low-paid. They'll be deciding to make sure it never comes to an "in or out" decision.

As to your second paragraph, I doubt the proposals we make on the Internet will go too far, but who knows? But the surveys you and others are running, and the level of responses, has to be sending a message that there are some people who are really unhappy with where they are going. And those people and their friends and families are voters, AND they are from the segment that they would normally expect to be Tory voters.

And it is also providing cold, hard facts (though I think the political calculations are more likely to have an impact than actual facts).

So what you are doing may have a huge impact, and we all should be very grateful.

The only political issue I can see remaining is if the client can still absolve themselves of any employment rights - this is the sort of thing that the left wing media and think tanks will run with and make an issue for the Government

Thanks for your kind comments :hug:

WordIsBond
20th August 2015, 10:18
The only political issue I can see remaining is if the client can still absolve themselves of any employment rights - this is the sort of thing that the left wing media and think tanks will run with and make an issue for the Government

Thanks for your kind comments :hug:
Yes, but if it is done through an umbrella, so employment rights/responsibilities are in the scope of the umbrella / worker relationship instead, how do you legislate against that?

Go back to a builder doing an extension on my house. If he hires someone to help him, are employment rights my responsibility or his? His, obviously, even if you say I'm the end client. Any legislation intended to put the responsibility for employment rights on the engager rather than the umbrella has to be written in a way that doesn't catch people it shouldn't catch.

Anyway, even if the employment rights problem isn't solved, I think what I proposed goes a long way towards solving the problem of low-pay contracting. Let the left complain if they want but it would be a substantive improvement and would put a lot more people back on payroll. And it's stupid to make the perfect the enemy of the good. Maybe "left" and "stupid" are synonymous, but that's not our problem.

jamesbrown
20th August 2015, 10:20
The problem with leaving the liability anywhere other than with the client is that the client is the only one in a position to determine whether or not they are going to exercise or retain the right to exercise SDC. It doesn't matter what the contractor does or says or what's written in a contract (to a degree) - this is something the contractor or the agency will have no control over whatsoever. Therefore the liability for an incorrect judgement must lie with the end client which is why IMHO the chances of anyone falling outside these proposed changes are slim to none

I don't agree with your analysis, but I do agree with your conclusion (as I've mentioned before, and this is what we need to focus on). In the current arrangement, the reality of the working practices are never entirely clear until the contractor is on site, and they are further at risk through the higher level contract in an agency arrangement. Thus, a contractor conducts their due diligence (or not) but has to trust the client in describing the working practices honestly and the agency in not implementing a contradictory upper contract. The contractor then mitigates that risk (or not) by taking insurance against legal costs and tax liabilities. In the new scheme, the contractor will have a better understanding, upfront, about the reality of the working practices (or at least, an understanding that is no worse) and will know that the client is onside and has a vested interest in describing those working practices truthfully.

Putting aside whether a client will take this risk, the risk must be borne on both sides; the contractor will have even more information about the reality of the working practices than they do currently, but they are still taking a risk, and that burden should be shared. In the event that the working practices change, the contractor can leave. It's possible for IR35 status to change (see JLJ). Furthermore, it will be very difficult for HMRC to demonstrate SDC through litigation when both the client and the contractor are in agreement. We've already had this discussion about SDC and how it is prosecuted through case law, so I don't intend to get into that again, but I'm sure you'd agree that it helps to have the client onside.

I think this will be palatable to HMRC because they will understand that most clients (probably all, realistically) will assume SDC by default. Compared to the current regime, the risk would be less about an outside determination being found wrong, and more about an outside determination not being available (i.e. client not onside); in short, very few cases would ever get to litigation. Unfortunately, if we can find a mechanism that encourages clients to make a realistic assessment on SDC, that might be less palatable to HMRC, because they'd be up against the client and the contractor saying the same thing (plus a clearly aligned lower and upper level contract in an agency arrangement) :laugh That said, while I don't believe they are focused only on low-paid employees, they are probably less concerned about the implications of an outside determination and more concerned about the (large) fraction of contractors that currently ignore IR35 all together.

jamesbrown
20th August 2015, 10:33
So we come to the question -- are you trying to protect the low-paid, or are you trying to nail well-paid contractors?

I'm afraid it's both of those things, to varying degrees, and those degrees also vary between the T&S consultation and the IR35 discussion, as Eek pointed out earlier. We only became in-scope of the T&S consultation following representations to the T&S discussion (i.e. a risk of mass incorporation for tax purposes). In contrast, and let's be very clear about this, we are squarely in scope for the IR35 discussion. We're going to struggle in furthering this debate unless we can agree on that (I don't mean you specifically, I mean all of us). For the IR35 discussion, it will not be enough to propose something that targets low-paid employees only.

eek
20th August 2015, 10:37
I'm afraid it's both of those things, to varying degrees, and those degrees also vary between the T&S consultation and the IR35 discussion, as Eek pointed out earlier.

T&S
We only became in-scope of the T&S consultation following representations to the T&S discussion (i.e. a risk of mass incorporation for tax purposes).

IR35
In contrast, and let's be very clear about this, we are squarely in scope for the IR35 discussion. We're going to struggle in furthering this debate unless we can agree on that (I don't mean you specifically, I mean all of us). For the IR35 discussion, it will not be enough to propose something that targets low-paid employees only.

+1.

T&S

we can show that its unfair and produces situations that are likely to fail a judicial review. We can also suggest variations on this that solves most of the problems..

IR35

We need to give HMRC something that puts the examples in the document firmly in scope. They are a £70k lawyer and a £30k nurse. Neither of those are low paid...

LisaContractorUmbrella
20th August 2015, 10:55
Yes, but if it is done through an umbrella, so employment rights/responsibilities are in the scope of the umbrella / worker relationship instead, how do you legislate against that?

Go back to a builder doing an extension on my house. If he hires someone to help him, are employment rights my responsibility or his? His, obviously, even if you say I'm the end client. Any legislation intended to put the responsibility for employment rights on the engager rather than the umbrella has to be written in a way that doesn't catch people it shouldn't catch.

Anyway, even if the employment rights problem isn't solved, I think what I proposed goes a long way towards solving the problem of low-pay contracting. Let the left complain if they want but it would be a substantive improvement and would put a lot more people back on payroll. And it's stupid to make the perfect the enemy of the good. Maybe "left" and "stupid" are synonymous, but that's not our problem.

This was why we came up with the idea of anyone on living wage plus 20%, for example, can't be paid through an intermediary - it takes all the low paid workers out of the equation and leaves them in permanent employment - HMRC's problem solved, political fallout averted :happy

WordIsBond
20th August 2015, 10:57
I'm afraid it's both of those things, to varying degrees, and those degrees also vary between the T&S consultation and the IR35 discussion, as Eek pointed out earlier. We only became in-scope of the T&S consultation following representations to the T&S discussion (i.e. a risk of mass incorporation for tax purposes). In contrast, and let's be very clear about this, we are squarely in scope for the IR35 discussion. We're going to struggle in furthering this debate unless we can agree on that (I don't mean you specifically, I mean all of us). For the IR35 discussion, it will not be enough to propose something that targets low-paid employees only.
OK.

Then if we are looking to target multiple problems, it is in most cases going to be a lot easier to solve them while avoiding unpleasant unintended consequences by formulating separate solutions. And that's a big part of the problem with IR35 as it stands right now, it is supposed to be solving multiple problems.

So, they want more money from contractors? Fine. They've hit us with the dividend tax, and taken away the employment allowance.

So here's something that is easy to enforce, easy to comply with, easy all around, on IR35.
1. Abolish IR35 except for the low paid, where (as I suggested above, the liability falls on the engager).
2. Increase the dividend tax another 2.5%. (Increase the dividend allowance to £10K for pensioners, this isn't about hitting them.)

Done and dusted. Dividend tax plus CT isn't that much less than employer NI, employee NI, and income tax combined. The amount of money we're talking about here is negligible. It probably tips the balance to self-employment rather than incorporation for anyone who can get away with that, but not enough to make incorporation punitive.

Everything is simpler, most contractors would be happy to pay another 2.5% on dividends if IR35 were completely gone, HMG gets more money and less hassle trying to collect it. The only people who really lose out are IPSE and QDOS who will lose a lot of their clients (yes, I just called IPSE "members" clients).

Expenses? They want more money? Change the 24 months to 18. Don't make it about SDC, which is a complex and subjective question. That just causes more angst, FUD. Just use a simple threshold.

LisaContractorUmbrella
20th August 2015, 10:59
I don't agree with your analysis, but I do agree with your conclusion (as I've mentioned before, and this is what we need to focus on). In the current arrangement, the reality of the working practices are never entirely clear until the contractor is on site, and they are further at risk through the higher level contract in an agency arrangement. Thus, a contractor conducts their due diligence (or not) but has to trust the client in describing the working practices honestly and the agency in not implementing a contradictory upper contract. The contractor then mitigates that risk (or not) by taking insurance against legal costs and tax liabilities. In the new scheme, the contractor will have a better understanding, upfront, about the reality of the working practices (or at least, an understanding that is no worse) and will know that the client is onside and has a vested interest in describing those working practices truthfully.

Putting aside whether a client will take this risk, the risk must be borne on both sides; the contractor will have even more information about the reality of the working practices than they do currently, but they are still taking a risk, and that burden should be shared. In the event that the working practices change, the contractor can leave. It's possible for IR35 status to change (see JLJ). Furthermore, it will be very difficult for HMRC to demonstrate SDC through litigation when both the client and the contractor are in agreement. We've already had this discussion about SDC and how it is prosecuted through case law, so I don't intend to get into that again, but I'm sure you'd agree that it helps to have the client onside.

I think this will be palatable to HMRC because they will understand that most clients (probably all, realistically) will assume SDC by default. Compared to the current regime, the risk would be less about an outside determination being found wrong, and more about an outside determination not being available (i.e. client not onside); in short, very few cases would ever get to litigation. Unfortunately, if we can find a mechanism that encourages clients to make a realistic assessment on SDC, that might be less palatable to HMRC, because they'd be up against the client and the contractor saying the same thing (plus a clearly aligned lower and upper level contract in an agency arrangement) :laugh That said, while I don't believe they are focused only on low-paid employees, they are probably less concerned about the implications of an outside determination and more concerned about the (large) fraction of contractors that currently ignore IR35 all together.

I agree with everything you say except that the stumbling block in the whole SDC thing is 'the right of' - the contractor can surely have no influence over that especially not in a tri-party arrangement and that right could reside anywhere in the chain

LisaContractorUmbrella
20th August 2015, 11:00
+1.

T&S

we can show that its unfair and produces situations that are likely to fail a judicial review. We can also suggest variations on this that solves most of the problems..

IR35

We need to give HMRC something that puts the examples in the document firmly in scope. They are a £70k lawyer and a £30k nurse. Neither of those are low paid...

Agreed. The comments about the low paid were in a meeting about the T&S expenses - the thinking behind IR35 may well go beyond that

jamesbrown
20th August 2015, 11:07
I agree with everything you say except that the stumbling block in the whole SDC thing is 'the right of' - the contractor can surely have no influence over that especially not in a tri-party arrangement and that right could reside anywhere in the chain

Yes, but I think that comes back to our earlier disagreement about what SDC means in practice. It is well-established through case law that the right to control is necessary and sufficient, and the determination is then based on the degree of (that right to) control. There is no requirement for actual control being imposed. Nothing has or will change w/r to control in my view, because SDC are all elements of control that are currently taken in the round (sorry to get into this again :laugh), but MoO and RoS will disappear as factors. So, I think we agree that SDC represents a tightening, but we differ on the details.

jamesbrown
20th August 2015, 11:13
OK.

Then if we are looking to target multiple problems, it is in most cases going to be a lot easier to solve them while avoiding unpleasant unintended consequences by formulating separate solutions. And that's a big part of the problem with IR35 as it stands right now, it is supposed to be solving multiple problems.

So, they want more money from contractors? Fine. They've hit us with the dividend tax, and taken away the employment allowance.

So here's something that is easy to enforce, easy to comply with, easy all around, on IR35.
1. Abolish IR35 except for the low paid, where (as I suggested above, the liability falls on the engager).
2. Increase the dividend tax another 2.5%. (Increase the dividend allowance to £10K for pensioners, this isn't about hitting them.)

Done and dusted. Dividend tax plus CT isn't that much less than employer NI, employee NI, and income tax combined. The amount of money we're talking about here is negligible. It probably tips the balance to self-employment rather than incorporation for anyone who can get away with that, but not enough to make incorporation punitive.

Everything is simpler, most contractors would be happy to pay another 2.5% on dividends if IR35 were completely gone, HMG gets more money and less hassle trying to collect it. The only people who really lose out are IPSE and QDOS who will lose a lot of their clients (yes, I just called IPSE "members" clients).

Expenses? They want more money? Change the 24 months to 18. Don't make it about SDC, which is a complex and subjective question. That just causes more angst, FUD. Just use a simple threshold.

Two issues here, I think. One is that the dividend tax and IR35 are not aligned, although the former obviously has implications for the Exchequer risk with the latter. We need to look forward to 2020 when the CT rates are lower and the basic and higher rate bands are higher (and the additional band is probably gone). It may well be that the dividend tax is increased with CT, but that doesn't address many of the problems that IR35 is aiming to solve. Moreover, HMG have a very clear position on IR35 now. That isn't to say Osborne couldn't be convinced otherwise (he's changed his position before now), but I seriously doubt it. Also, the optics of having one rule for the low paid and another for us would be terrible. However, I do agree that the solutions to these two things (T&S and IR35) aren't necessarily the same. Where possible, it would be good to propose things that have a degree of symmetry though, because that's where they're heading with SDC and it scores "simplification" points, if only superficially.

WordIsBond
20th August 2015, 11:14
+1.

T&S

we can show that its unfair and produces situations that are likely to fail a judicial review. We can also suggest variations on this that solves most of the problems..

IR35

We need to give HMRC something that puts the examples in the document firmly in scope. They are a £70k lawyer and a £30k nurse. Neither of those are low paid...
Or demonstrate, as with the lawyer, why it shouldn't be in scope at all, or at least that completely equal treatment isn't right because compensation isn't equal. The examples was one of the reasons I never thought this was about the low-paid, but I'm willing to concede that might be part of it.

I think, with the work you are doing, that you'll actually win major concessions on T&S. You should, anyway. What they proposed is so wrong-headed.

WordIsBond
20th August 2015, 11:18
This was why we came up with the idea of anyone on living wage plus 20%, for example, can't be paid through an intermediary - it takes all the low paid workers out of the equation and leaves them in permanent employment - HMRC's problem solved, political fallout averted :happy
Yes, but the problem is, it is too broad. It would be fine for long-term engagements but doesn't make sense for someone starting their own business and offering their services to multiple clients at cheap rates to build a client base. It's a sledgehammer where a scalpel is needed.

My proposal on the low-paid accomplishes most of the same thing but without the absolute prohibition, and absolute prohibitions usually bring unintended consequences and collateral damage.

jamesbrown
20th August 2015, 11:20
I think, with the work you are doing, that you'll actually win major concessions on T&S. You should, anyway. What they proposed is so wrong-headed.

Even though the T&S is in consultation, and the IR35 is only in discussion, I'm actually much more optimistic about achieving something with the T&S. It's a simpler problem and the solutions should be simpler too. The IR35 question is essentially unanswerable and it's about damage limitation and shifting liabilities.

WordIsBond
20th August 2015, 11:22
One is that the dividend tax and IR35 are not aligned
So? Who cares? IR35 is a mess, everyone knows it. So kill it and accomplish the purpose another way. If the purpose is to get more money out of us, do it in a simple way rather than the IR35 mess.

If the purpose is to protect the low-paid, fine, use IR35 in that case, but make it a weapon against the engager rather than the worker. There's no bad optics in that.

If you just start over and say, "Why should we keep something that GORDON BROWN invented and doesn't work?" you can actually come up with clean solutions to the problems you want to solve....

jamesbrown
20th August 2015, 11:28
So? Who cares? IR35 is a mess, everyone knows it. So kill it and accomplish the purpose another way. If the purpose is to get more money out of us, do it in a simple way rather than the IR35 mess.

If the purpose is to protect the low-paid, fine, use IR35 in that case, but make it a weapon against the engager rather than the worker. There's no bad optics in that.

If you just start over and say, "Why should we keep something that GORDON BROWN invented and doesn't work?" you can actually come up with clean solutions to the problems you want to solve....

You're preaching to the choir here, honestly :D However, I'm just trying to deal with the problems as presented, and IR35 is here to stay, I'm afraid. In other words, if our representation is that IR35 should go, I don't believe that will achieve anything.

WordIsBond
20th August 2015, 11:31
Even though the T&S is in consultation, and the IR35 is only in discussion, I'm actually much more optimistic about achieving something with the T&S. It's a simpler problem and the solutions should be simpler too. The IR35 question is essentially unanswerable and it's about damage limitation and shifting liabilities.
Agreed. The IR35 question is unanswerable. So what are the goals?

Protect the Exchequer. Level the playing field. And implicitly, get something that actually works, which means it needs to be simpler.

So throw the thing out and solve its problems with simple means rather than this monstrosity.

WordIsBond
20th August 2015, 11:34
In other words, if our representation is that IR35 should go, I don't believe that will achieve anything.
If that is the only representation we make, sure. You have to suggest something to replace it. A marginal increase to the dividend tax would be one option.

WordIsBond
20th August 2015, 11:35
Ok, I have to actually go work now. :D

jamesbrown
20th August 2015, 11:49
Yeah, me too. Even this discussion of IR35 is starting to cost me money :laugh

eek
20th August 2015, 12:04
If that is the only representation we make, sure. You have to suggest something to replace it. A marginal increase to the dividend tax would be one option.

Its not really an option as the dividend tax is nothing to do with IR35 - that is a tax grab for different reasons.

Yes it reduces the effectiveness of these T&S and IR35 changes but that is irrelevant to this argument. It does mean that arguing to increase it won't work as it would impact other people who receive dividend payments from companies they have invested in...

Zero Liability
20th August 2015, 12:09
Could they not simply apply it selectively to contractors engaged via an agency, as this is already reported? Obviously not fair and discriminatory but I think WIB's idea would be a blanket increase in it for contractors anyway, to achieve HMG's aims - leaving aside whether that should be the aim. As it stands, very few contractors would not end up falling under SDC as defined in these documents.

LisaContractorUmbrella
20th August 2015, 12:16
Yes, but the problem is, it is too broad. It would be fine for long-term engagements but doesn't make sense for someone starting their own business and offering their services to multiple clients at cheap rates to build a client base. It's a sledgehammer where a scalpel is needed.

My proposal on the low-paid accomplishes most of the same thing but without the absolute prohibition, and absolute prohibitions usually bring unintended consequences and collateral damage.

There would still be the option to operate as a sole trader so plumbers, gardeners etc wouldn't be caught up there just wouldn't be the option to source through an agency

eek
20th August 2015, 12:43
Could they not simply apply it selectively to contractors engaged via an agency, as this is already reported? Obviously not fair and discriminatory but I think WIB's idea would be a blanket increase in it for contractors anyway, to achieve HMG's aims - leaving aside whether that should be the aim. As it stands, very few contractors would not end up falling under SDC as defined in these documents.

The big problem there is that the worst offenders are probably not agencies but companies offering it their own "employees"..

Zero Liability
20th August 2015, 12:53
I'm guessing you mean Fri-Mon scenarios where the contractor is engaged directly? If so their proposed revisions won't touch that either, as the presumption of SDC would be for those contracting via an agency.

eek
20th August 2015, 12:59
I'm guessing you mean Fri-Mon scenarios where the contractor is engaged directly? If so their proposed revisions won't touch that either, as the presumption of SDC would be for those contracting via an agency.

That's just an add on... Its not the core of the proposal....

Zero Liability
20th August 2015, 13:09
Right, my understanding of it is that it would put SDC at the centre (sole test) of whether you were inside or out, with the client potentially responsible for making that call, with the prospect of being stuck with the costs if they misrepresent the situation as 'outside' when not. The risks involved in so doing and the difficulty of proving a negative could make them risk averse, particularly when there is a presumption of SDC as with agencies. So is the point then that the deterrent effect would help reduce such 'direct' scenarios driven by the client? Or am I missing something?

WordIsBond
20th August 2015, 13:11
Its not really an option as the dividend tax is nothing to do with IR35 - that is a tax grab for different reasons.
Dividend taxation is everything to do with IR35. IR35 is intended to protect the Exchequer and level the taxation playing field between employees and non-employees doing the same work. The only reason that is even something they care about is because dividend taxation is low.

Dividend taxation is just another way to do what IR35 was supposed to do. It's IR35 by the back door, whether they intended it that way or not. The fact that it was a good old-fashioned tax grab doesn't change the fact that it already did a lot to level the taxation playing field, and grabbed half of the money that IR35 was supposed to be grabbing. And if you increase it a little more, you'd finish the job, render IR35 moot and make it feasible to kill Gordon Brown's monstrosity completely, and make everyone's life (ours, HMRC) easier.

eek
20th August 2015, 13:16
Dividend taxation is everything to do with IR35. IR35 is intended to protect the Exchequer and level the taxation playing field between employees and non-employees doing the same work. The only reason that is even something they care about is because dividend taxation is low.

Dividend taxation is just another way to do what IR35 was supposed to do. It's IR35 by the back door, whether they intended it that way or not. The fact that it was a good old-fashioned tax grab doesn't change the fact that it already did a lot to level the taxation playing field, and grabbed half of the money that IR35 was supposed to be grabbing. And if you increase it a little more, you'd finish the job, render IR35 moot and make it feasible to kill Gordon Brown's monstrosity completely, and make everyone's life (ours, HMRC) easier.

My gran (who has never done a days paid work since marrying in 1942) is going to be hit by the dividend tax. She has nothing to do with IR35... The dividend tax is an increase in tax, it hits us but has nowt to do with us bar allowing me to attack the figures mentioned in the T&S consultation and the IR35 discussion documents..

WordIsBond
20th August 2015, 13:16
There would still be the option to operate as a sole trader so plumbers, gardeners etc wouldn't be caught up there just wouldn't be the option to source through an agency
But builders / roofers / electricians might want to operate through Ltd Co rather than sole trader for liability reasons. Or mechanics. Sure, they aren't likely to be on that low of an hourly rate. But I'm sure there are those on low rates where liability could be a concern, they just aren't coming to mind right now. I like the goal of the blanket prohibition but it seems certain to hit someone you aren't intending to hit.

WordIsBond
20th August 2015, 13:25
My gran (who has never done a days paid work since marrying in 1942) is going to be hit by the dividend tax. She has nothing to do with IR35... The dividend tax is an increase in tax, it hits us but has nowt to do with us bar allowing us to reduce the figures mentioned in the T&S consultation and the IR35 discussion documents..
Yeah, well if we reduce those figures to nil we can kill the ugly stepchild.

I proposed increasing the divi allowance for pensioners. Starting next year, your gran will have presumably £16K of dividends tax free, then pay 7.5% after that. I proposed making it 21K tax free for pensioners, then 10% after that. Your gran's breakeven point would be at £31K -- under my proposal, she'd be better off than she will be next year if she makes less than that, a little worse off if she makes more than that in dividends. If she makes more than £31K in dividends she's probably going to be ok. If she makes $40K in dividends, she'd be £225 worse off under my proposal.

But really, I'd be fine with pushing the over 65s dividend allowance to £15K rather than £5K. That means pensioners only get hit by my proposal if they have over £45K in dividends. Any pensioner who is basic rate would be better off with that than with what Osborne did.

LisaContractorUmbrella
20th August 2015, 13:29
Right, my understanding of it is that it would put SDC at the centre (sole test) of whether you were inside or out, with the client potentially responsible for making that call, with the prospect of being stuck with the costs if they misrepresent the situation as 'outside' when not. The risks involved in so doing and the difficulty of proving a negative could make them risk averse, particularly when there is a presumption of SDC as with agencies. So is the point then that the deterrent effect would help reduce such 'direct' scenarios driven by the client? Or am I missing something?

Yep that's pretty much it but we reckon that the deterrent effect is likely to ensure that pretty much everyone will end up inside

LisaContractorUmbrella
20th August 2015, 13:31
But builders / roofers / electricians might want to operate through Ltd Co rather than sole trader for liability reasons. Or mechanics. Sure, they aren't likely to be on that low of an hourly rate. But I'm sure there are those on low rates where liability could be a concern, they just aren't coming to mind right now. I like the goal of the blanket prohibition but it seems certain to hit someone you aren't intending to hit.

Any changes are likely to hit a few people that shouldn't be hit but the proposed changes are going to hit loads of people who shouldn't be hit - it's sort of damage limitation

Zero Liability
20th August 2015, 13:34
Dividend taxation is everything to do with IR35. IR35 is intended to protect the Exchequer and level the taxation playing field between employees and non-employees doing the same work. The only reason that is even something they care about is because dividend taxation is low.

Dividend taxation is just another way to do what IR35 was supposed to do. It's IR35 by the back door, whether they intended it that way or not. The fact that it was a good old-fashioned tax grab doesn't change the fact that it already did a lot to level the taxation playing field, and grabbed half of the money that IR35 was supposed to be grabbing. And if you increase it a little more, you'd finish the job, render IR35 moot and make it feasible to kill Gordon Brown's monstrosity completely, and make everyone's life (ours, HMRC) easier.
It is true though that it affects a much broader swathe of the population, which no doubt makes simply increasing it politically unpalatable for a government that claims to be pro business/pro investor. So you would need a way to isolate any increase to a minority most are clueless about and therefore which the govt has little issue looting. Obviously it's easy enough for those operating via an agency, which is probably the bulk of contractors. In the end it'd be a reinvention of the measure without the benefit of the client bearing any liability. I think they could isolate potential Fri-Mon scenarios that are direct but same thing again.


Yep that's pretty much it but we reckon that the deterrent effect is likely to ensure that pretty much everyone will end up inside

Yeah, it's a very sloppy approach to it.

WordIsBond
20th August 2015, 13:45
It is true though that it affects a much broader swathe of the population, which no doubt makes simply increasing it politically unpalatable for a government that claims to be pro business/pro investor. So you would need a way to isolate any increase to a minority most are clueless about and therefore which the govt has little issue looting. Obviously it's easy enough for those operating via an agency, which is probably the bulk of contractors. In the end it'd be a reinvention of the measure without the benefit of the client bearing any liability. I think they could isolate potential Fri-Mon scenarios that are direct but same thing again.

True. Well, they already singled out one-man bands on employment allowance. So, here's an alternative. Instead of increasing dividend tax, they could slap a dividend surcharge of 2.5% on any dividends paid by a one-man band company "since they are using dividends rather than salary to avoid tax."

That would be worse than a higher dividend tax because it would presumably start with the first pound of dividends. But it would give them money and level the playing field even more, and again, I think most would say if they did that and killed IR35, it's not a horrible trade-off. Everyone could quit paying for contract reviews and wouldn't have to panic if a client asked us to go to a training session or a party.

eek
20th August 2015, 14:05
True. Well, they already singled out one-man bands on employment allowance. So, here's an alternative. Instead of increasing dividend tax, they could slap a dividend surcharge of 2.5% on any dividends paid by a one-man band company "since they are using dividends rather than salary to avoid tax."

That would be worse than a higher dividend tax because it would presumably start with the first pound of dividends. But it would give them money and level the playing field even more, and again, I think most would say if they did that and killed IR35, it's not a horrible trade-off. Everyone could quit paying for contract reviews and wouldn't have to panic if a client asked us to go to a training session or a party.

But that hits my 1 man band company which sells software services running on servers as well as the 1 man band company that sits providing Time and Materials development resources to a large Blue Chip consultancy...

Edit to say I'm not intended to play Mr No its not a good idea. I just want to show the flaw in the plan. But at least its a sane(ish) plan rather than IPSEs...

WordIsBond
20th August 2015, 14:12
But that hits my 1 man band company which sells software services running on servers as well as the 1 man band company that sits providing Time and Materials development resources to a large Blue Chip consultancy...

Edit to say I'm not intended to play Mr No its not a good idea. I just want to show the flaw in the plan. But at least its a sane(ish) plan rather than IPSEs...
Good response. I see the flaws, too.

In addition to which it doesn't affect me, even though I'm basically doing the same as many people here, but also hire out my kids. So I'm not a one-man band, and would be exempt, which is hardly fair. I think I SHOULD get the employment allowance (I've hired them and am paying them a salary, after all). But is it really equitable to hit you more on dividends than they hit me, just because I've hired my kids and have them working for clients? Not really.

But ZL was talking about specifically targeting contractors, and to do that, you have to have SOME definition of what makes a contractor who has that bullseye painted on his chest.

Zero Liability
20th August 2015, 14:40
Yeah, largely because if you don't target contractors specifically, there is no way the alternative would have any currency with the government, which is concerned with addressing the actions of a
tiny population. It makes sense that they'd rather go with the rest of the contracting population as collateral, rather than the larger and perhaps more politically important group comprising all those who draw dividends above the relevant thresholds.

They're both measures disproportionate to what they're attempting to achieve, IMO, and I think their proposal is better from the POV that it puts liability onto the engager. Both would be damaging to the bulk of contractors who'd end up as collateral.

sapexpert
21st August 2015, 17:01
“HMRC’s first consultation getting just three responses from contractors has wrongly led tax officials to believe that SDC’s impact on contractors will be minimal," said Smith. "Fill out this form to help put the Revenue right."

Industry body AUCAE has now sprung into action, by asking contractors to fill in a form (https://www.surveymonkey.com/r/AUCAEConDoc) asking how ‘SDC’ will affect them, so HMRC can see the true impact its proposal will have.

'Contractors, set HMRC straight on SDC's impact' :: Contractor UK (http://www.contractoruk.com/news/0012161contractors_set_hmrc_straight_sdcs_impact.h tml)

eek
21st August 2015, 17:11
“HMRC’s first consultation getting just three responses from contractors has wrongly led tax officials to believe that SDC’s impact on contractors will be minimal," said Smith. "Fill out this form to help put the Revenue right."

Industry body AUCAE has now sprung into action, by asking contractors to fill in a form (https://www.surveymonkey.com/r/AUCAEConDoc) asking how ‘SDC’ will affect them, so HMRC can see the true impact its proposal will have.

'Contractors, set HMRC straight on SDC's impact' :: Contractor UK (http://www.contractoruk.com/news/0012161contractors_set_hmrc_straight_sdcs_impact.h tml)

Don't worry about it. IPSE says that that conversation never occurred....