PDA

View Full Version : IR35 - Back to first principles....



eek
22nd August 2015, 15:19
Reading the discussion document again (its too hot outside and unless I do it now I'll only have to do it later) I'm struck by a simple question....

What do all the parties actually want from the issue / IR35 marketplace?

HMRC - want as many people as possible paid by PAYE especially those who work for companies who force self employment or support staff to pretend to be self employed when clearly working like permanent staff... They also what as much money as possible (but that goes without saying)...

Some companies - want people to be bogusly self-employed to save them costs and responsibilities.

Consultancies and our end clients - want contractors either for specific periods / projects (to fill a resourcing or skills gap) or because the market can't provide those skills within the permanent market

Us - we want to be freelance because of our skill sets (or possibly just the cash). We pretend to be able to provide substitutes for the sake of it, happily use Moo and try to ignore the whole SDorC thing.

Other freelancers - may simply want to know who their employer is and being treated as an employee (examples from the CAB bogus employment survey are available)...

Some freelancers - are actually permanent staff but want the tax saving options and flexibility..

We know that every test HMRC have used for IR35 is insane and has made things worse. The question is can we identify the view point from all participants (I'm probably missing loads in the few actors above) and see if there are some sane features that could be used instead...

Jessica@WhiteFieldTax
22nd August 2015, 17:15
Good set of questions, and analysis.

It's struck me for a while the missing link is integration.

A genuine freelancer/contractor/consultant won't be integrated into the client business.

An interim manager might be, slightly separate discussion.

But the integration question could well solve 80% of cases to a common sense conclusion.

Years ago I remember a HMRC status inspector telling me about a case he had in where a cafe claimed the waitress was a freelancer, and another where the secretary in a building company was self employed. These cases, along with the low end mass transfers (which I refer to as the polish car valeters) clearly fall the wrong side of integration.

Danglekt
22nd August 2015, 17:29
I dunno why there can't be a very simple time based rule, if you are at one client for longer than X months - you are classed as a employee (temporary or otherwise), if you are there for less you are a freelancer.

Highly simplistic, but gets around low end "outsourcing" done by large companies to drop their NI bill.

If you are on a gig which is likely to last longer than X months, then you and client know that walking into it (or during extension talks) and make the relevant arrangements.

Problem comes that some projects do last 2 years +, but then I would argue that in reality in that time, no matter how much you pretend otherwise you are part of the furniture and should swallow the implications. I know a lot of perm jobs that don't last longer than that.

jamesbrown
22nd August 2015, 17:45
Good set of questions, and analysis.

It's struck me for a while the missing link is integration.

A genuine freelancer/contractor/consultant won't be integrated into the client business.

An interim manager might be, slightly separate discussion.

But the integration question could well solve 80% of cases to a common sense conclusion.

Years ago I remember a HMRC status inspector telling me about a case he had in where a cafe claimed the waitress was a freelancer, and another where the secretary in a building company was self employed. These cases, along with the low end mass transfers (which I refer to as the polish car valeters) clearly fall the wrong side of integration.

What do you have in mind in terms of defining "integration"? One aspect is being "part-and-parcel". Another is delivering specialist services or services that are not the main business of the client or not being delivered by equivalent staff through a different mechanism (i.e. permies). The former could be relatively benign for the majority of contractors. The latter, particularly the presence of permies doing the same or a similar job, could be a rather difficult and divisive test. It depends whether you believe that temporary staff doing a similar job to other permies should be on payroll, regardless of whether the work they are doing is project based on not. My personal view is that some form of "project-based" criterion would also catch a lot of the egregious cases you refer to. In other words, if you're doing work for a defined project with a discrete scope and timeframe, that should be acceptable (although it doesn't address the issue of SDC).

jamesbrown
22nd August 2015, 17:50
I dunno why there can't be a very simple time based rule, if you are at one client for longer than X months - you are classed as a employee (temporary or otherwise), if you are there for less you are a freelancer.

Because it's silly and arbitrary and is established as having no bearing on employment status. Depending on the industry in which you're engaged, it's likely discriminatory too, because projects will have a defined scope and timeframe that defies any "simple time based rule", especially something on the order of months. Having something project-based seems reasonable, but something time-based is a non-starter, probably also from HMRC's perspective, as short-term "temps" will often be subject to a high degree of SDC.

Jessica@WhiteFieldTax
22nd August 2015, 18:28
What do you have in mind in terms of defining "integration"? One aspect is being "part-and-parcel". Another is delivering specialist services or services that are not the main business of the client or not being delivered by equivalent staff through a different mechanism (i.e. permies). The former could be relatively benign for the majority of contractors. The latter, particularly the presence of permies doing the same or a similar job, could be a rather difficult and divisive test. It depends whether you believe that temporary staff doing a similar job to other permies should be on payroll, regardless of whether the work they are doing is project based on not. My personal view is that some form of "project-based" criterion would also catch a lot of the egregious cases you refer to. In other words, if you're doing work for a defined project with a discrete scope and timeframe, that should be acceptable (although it doesn't address the issue of SDC).

Project work points to non integration, being part and parcel points to integration.

Problem is although "part and parcel" is often talked about it doesn't have the status of the big three - mutuality, personal service, control, and in many cases, not all, it provides a sensible answer. Of course those the wrong side of the answer won't always agree.

The presence of a permie doing the same need not be an issue - enageagement terms, recruitment methods, what happens at end of project all differentiate.

Agree with your thoughts on project work. Ideally ought to be a clear passport out of IR35 for both sides (HMRC and contractors), although doubtless there would be a new avoidance industry around "making your workers project conctractors" and "HMRC anti-project avoidance teams"

WordIsBond
22nd August 2015, 18:35
What do all the parties actually want from the issue / IR35 marketplace?

HMRC - want as many people as possible paid by PAYE especially those who work for companies who force self employment or support staff to pretend to be self employed when clearly working like permanent staff... They also what as much money as possible (but that goes without saying)...

This is a good approach. If you want to find a win/win, you always do well to identify what people want. You may not be able to find a win/win, especially with competing interests, but you won't do it if you don't identify interests.

I would break HMRC down between HMG and HMRC.

HMG
a) They want to be seen to be protecting low-paid employees from rogue employers
b) They want to be seen to be fair, including preventing anyone from "paying less than their fair share" ("fair share" being a rather nebulous, ill-defined, and logically offensive concept, but we're talking politics and the media here so that doesn't matter)
c) They want to be seen to be a government that is on the side of small business
d) They want to extract as much cash as they can without interfering with b) an c)

HMRC
a) They want to serve HMG's agenda as described above
b) They want rules to be easy to enforce, and taxes easy to collect. That does not NECESSARILY require people to be PAYE, but that is a system that works well for them, so getting as many people possible under PAYE is preferable, but they would accept alternatives that are easy.

One point of leverage that we have is that HMG's c) is in direct conflict with HMRC's preferred option for b) -- getting everyone under PAYE. And they've already damaged themselves with small business with the dividend tax.

WordIsBond
22nd August 2015, 18:41
But the integration question could well solve 80% of cases to a common sense conclusion.
What if the guy who is part and parcel does a fixed cost job, though? If IR35 is on a contract-by-contract basis, then his other work for that client (as part and parcel) should legitimately be inside IR35, but shouldn't a fixed bid contract be outside? Employees don't do fixed bid contracts....

Jessica@WhiteFieldTax
22nd August 2015, 19:08
What if the guy who is part and parcel does a fixed cost job, though? If IR35 is on a contract-by-contract basis, then his other work for that client (as part and parcel) should legitimately be inside IR35, but shouldn't a fixed bid contract be outside? Employees don't do fixed bid contracts....

If it's fixed cost, it really has to be a project, no? You can't do a fixed price on something that isn't defined.

But I agree, fixed price ought to be a passport.

eek
22nd August 2015, 19:09
What if the guy who is part and parcel does a fixed cost job, though? If IR35 is on a contract-by-contract basis, then his other work for that client (as part and parcel) should legitimately be inside IR35, but shouldn't a fixed bid contract be outside? Employees don't do fixed bid contracts....

I think that would probably fall apart under https://en.wikipedia.org/wiki/Autoclenz_Ltd_v_Belcher . If would be different if they weren't previously an employee but I'm not sure on that..

Oops probably should be clearer... One off or very occasional fixed price jobs should be fine but you can imagine people claiming piece work (say car valeting) is fixed price rather time and materials.

northernladuk
22nd August 2015, 19:11
Part and parcel is something that happens over time and is the straw that could break the camels back in a close case. Fixed price is a pretty strong indicator that would trump part and parcel. I'd argue that a fixed price job wouldn't normally last ling enough for P&P to be an issue.

WordIsBond
22nd August 2015, 19:59
I'd argue that a fixed price job wouldn't normally last ling enough for P&P to be an issue.
Well, I was just asked to bid on a fixed price job with my former employer that will be at least a year. And since I was with them for more than 15 years and had such a senior role, I'd be part and parcel as soon as I became involved with them again. It would be almost impossible, because of personal relationships, to fight that -- people would just interact as they always did.

It's fixed cost, I'm off site, no SDC (I'll be the one exercising SDC), using my own hardware, taking random days off at my discretion, ticking all the boxes to make sure I'm outside IR35, but I know the kind of phone calls that would happen, the advice, the interactions with sales, the coordination with their coders, etc, etc. I'll be asked to chime in on performance appraisals. I'm already on a retainer to provide "as we need it" work (20 hours a month, not much) that I'm operating under IR35, because I was just too much part and parcel to get outside IR35.

So yeah, part and parcel can go with fixed price. Seems clearly outside IR35, though, even though the other work is inside.

I bring it up to show that "part and parcel" isn't a silver bullet to solve this problem. I agree with Lisa that it is generally a good common sense guide. Perhaps, in an ideal world, it would have as much weight as the big three of substitution, MOO, and SDC. But it is also like SDC, it is hard to specifically define, so I'm not sure it would really bring us much further forward.

jamesbrown
22nd August 2015, 20:03
Project work points to non integration, being part and parcel points to integration.

Problem is although "part and parcel" is often talked about it doesn't have the status of the big three - mutuality, personal service, control, and in many cases, not all, it provides a sensible answer. Of course those the wrong side of the answer won't always agree.

The presence of a permie doing the same need not be an issue - enageagement terms, recruitment methods, what happens at end of project all differentiate.

Agree with your thoughts on project work. Ideally ought to be a clear passport out of IR35 for both sides (HMRC and contractors), although doubtless there would be a new avoidance industry around "making your workers project conctractors" and "HMRC anti-project avoidance teams"

Yes, we're on the same page. I'd be supportive of a project-based criterion. I'm not overly concerned about the payment mechanism, as fixed price and T&M can both make sense in different contexts; by way of example, I've had contracts with both mechanisms for different parts of the same project. Likewise, you could obtain a project by bidding/tendering or through a traditional agency arrangement. Some of these things may be somewhat less indicative of employment (fixed price, tendering), but I don't think we'd want to over-prescribe the ways in which work is obtained, because there are different industry norms.

Having a project with discrete scope and deliverables seems to be a good starting point. Of course, as you rightly point out, the problem with any simple rule is the scope for avoidance and I think that SDC is inevitably going to feature for that reason (i.e. simple rules will work on top of SDC in fixing inside cases and hopefully outside ones too). It's straightforward to identify when a contract is project-based via the schedule of work (i.e. named project, discrete deliverables, discrete timeframe). It should also be possible to identify when a project is real versus contrived. For example, it would be utterly impossible to formulate a project-based contract for the waitress scenario. For the secretary, it may be possible, but it would be hopelessly contrived and transparent. The point of project-based work is that you're contractually obliged to deliver a discrete project and nothing outside that. Anything else would require a new contract and negotiation.

expat
22nd August 2015, 20:15
I think eek's approach of going back to ask what each party really wants is stunningly sensible.

However I have one point that is very important to me, but not easily testable and not perhaps part of any other parties' ideas, though I would bet that a lot of other contractors feel the same in their bones: I am not part and parcel of the client, ever, simply because I do not intend to be. I don't care whether the client wants a project milestone met or just a bum on a seat for a while, I don't care whether HR see me as an employee or not, I don't care how long the contract turns out to be, I don't care what anyone else thinks, I know that I am not and never will be part of the organisation (that is exactly why I am a contractor), I know that I have one single lifetime career, and that is freelance contractor.

That's what I want recognised.

jamesbrown
22nd August 2015, 20:21
So yeah, part and parcel can go with fixed price. Seems clearly outside IR35, though, even though the other work is inside.

The weakness with part and parcel is that it's highly subjective, even more so than SDC, so I think it depends on the specifics of what is meant by integrated, as I mentioned above. I think project-based work makes sense. Being part and parcel in a more subjective sense, I'm less enthused about, because it's difficult to define and, aside from a few edge cases, difficult to identify. I think the nod to SDC is an acceptance that simple rules alone won't work, but from HMRC's perspective, SDC has the advantage of tying together a few pieces of legislation. Once you get into things like part and parcel on top of SDC, you're back at the current formulation of IR35.

northernladuk
22nd August 2015, 20:34
The weakness with part and parcel is that it's highly subjective, even more so than SDC, so I think it depends on the specifics of what is meant by integrated, as I mentioned above. I think project-based work makes sense. Being part and parcel in a more subjective sense, I'm less enthused about, because it's difficult to define and, aside from a few edge cases, difficult to identify. I think the nod to SDC is an acceptance that simple rules alone won't work, but from HMRC's perspective, SDC has the advantage of tying together a few pieces of legislation. Once you get into things like part and parcel on top of SDC, you're back at the current formulation of IR35.

Indeed. It is difficult to define but at some point it is pretty clear if you are or not. A large number of contractors would fail on the part and parcel test if there was one. Anyone that thinks they are employed a will do anything they are asked and attend things they shouldn't are P&P. I dont agree it's a given in any case like projects or even enduring roles as it's mentality. If there are assumptions made by the client and contractor and there is a relaxed relationship P&P is blatantly clear. It can't be measured but I do wish it would have been more part of IR35. JLJ case got stung because if it.

Zero Liability
22nd August 2015, 20:52
The weakness with part and parcel is that it's highly subjective, even more so than SDC, so I think it depends on the specifics of what is meant by integrated, as I mentioned above. I think project-based work makes sense. Being part and parcel in a more subjective sense, I'm less enthused about, because it's difficult to define and, aside from a few edge cases, difficult to identify. I think the nod to SDC is an acceptance that simple rules alone won't work, but from HMRC's perspective, SDC has the advantage of tying together a few pieces of legislation. Once you get into things like part and parcel on top of SDC, you're back at the current formulation of IR35.

Agreed, the last thing that is needed is yet more subjective rules, where it depends on whom you ask what answer you get. The project-based approach does seem more fruitful and more (if not entirely) amenable to objective criteria.

jamesbrown
22nd August 2015, 20:52
Indeed. It is difficult to define but at some point it is pretty clear if you are or not. A large number of contractors would fail on the part and parcel test if there was one. Anyone that thinks they are employed a will do anything they are asked and attend things they shouldn't are P&P. I dont agree it's a given in any case like projects or even enduring roles as it's mentality. If there are assumptions made by the client and contractor and there is a relaxed relationship P&P is blatantly clear. It can't be measured but I do wish it would have been more part of IR35. JLJ case got stung because if it.

I think that speaks to the SDC point though and the JLJ case is an interesting example. The latter portion of the JLJ case was lost on any number of things but, in particular, the transition from doing project-based work to rolling contracts that were not project-based and were, therefore, subject to a strong element of SDC. Being part and parcel in this case amounted to a subjective summary of a host of specific things w/r to integration, notably doing work that was not project-based and was subject to SDC. It was that break in the link with project-based work on which JLJ was most emphatically lost.

Edit: quick summary of JLJ here (http://www.contractorumbrella.com/ir35_and_six_figure_tax_bill.html) for those interested.

JB3000
23rd August 2015, 08:07
I think we are heading to a situation where the end client will need to issue a 1 page doc for all gross payments made for workers' services (including payments to agencies) clearly stating if the "project worker" or "temp" will be SDorC or not. If there's an agency in the chain this detail should be included in the employment intermediary report.

This compulsory page should be part of the contract.

If the end client gets their decision wrong (i.e. they say no SDorC even when SDorC applies) the end client will folk out the extra cash when hector comes knocking.

Any end client not willing to make a in or out SDorC decision would need to put the "project worker" or "temp" onto payroll.

It seems like the only unambiguous long term way forward. :igmc:

eek
23rd August 2015, 08:33
I think eek's approach of going back to ask what each party really wants is stunningly sensible.

However I have one point that is very important to me, but not easily testable and not perhaps part of any other parties' ideas, though I would bet that a lot of other contractors feel the same in their bones: I am not part and parcel of the client, ever, simply because I do not intend to be. I don't care whether the client wants a project milestone met or just a bum on a seat for a while, I don't care whether HR see me as an employee or not, I don't care how long the contract turns out to be, I don't care what anyone else thinks, I know that I am not and never will be part of the organisation (that is exactly why I am a contractor), I know that I have one single lifetime career, and that is freelance contractor.

That's what I want recognised.

I can see the viewpoint but sadly HMRC wants change. And they want to move the onus not on the individual to decide and review but on the end client (with guidance to decide). Sadly their suggested criteria is currently so broad everyone would be subject to it.

Now an FLC type entity may be created and it may allow you to do just that. I think you can probably guess that my expectations of it succeeding are far lower than others elsewhere.. And even then I don't think it would be the safe harbour IPSE claim it will be. So I do think we need to try and identify something else.

The idea of a simple set of rules with SDorC as the default position is probably what HMRC want (they categorically claim that they don't want added work given to them)..

So far we seem to have:-

Part and parcel (Secretary, Waitress) - clearly inside - very hard to define so probably not a suitable criteria

Project based work (non contrived) - clearly points to being outside - easy to define - a none contrived spec or set of deliverables, a schedule and some corporate overview overall budget

Looking at the examples we have to hand:-

Ben the Lawyer - needs to be inside - could move to project based work but that would need to be on a customer by customer basis so a lot of small projects.
Sarah the nurse - clearly inside (nursing is not project based).

The other examples from CUK this week:-
Backfill engineer (because between bid and contract win staff left) - clearly outside. project based.
Additional University help - not project based so probably inside...

The BBC bogus employment example:
Help desk worker - (personally) clearly inside

However some on here would argue that that help desk worker is one of our own. Personally I think its just a fixed term permanent job (identical to Ben the lawyer) but I can imagine there are people here like him who will dispute that...

So what can we use to define a project in a what that isn't easily contrivable...

eek
23rd August 2015, 08:36
I think we are heading to a situation where the end client will need to issue a 1 page doc for all gross payments made for workers' services (including payments to agencies) clearly stating if the "project worker" or "temp" will be SDorC or not. If there's an agency in the chain this detail should be included in the employment intermediary report.

This compulsory page should be part of the contract.

If the end client gets their decision wrong (i.e. they say no SDorC even when SDorC applies) the end client will folk out the extra cash when hector comes knocking.

Any end client not willing to make a in or out SDorC decision would need to put the "project worker" or "temp" onto payroll.

It seems like the only unambiguous long term way forward. :igmc:

I believe that is exactly what HMRC are proposing. The question is what simple proof / barrier can be used to allow a company to decide whether SDorC applies or not in such a way that a company will have confidence in their decision.

Otherwise we will end up with a default blanket answer of you are under SDorC tough...

eek
23rd August 2015, 09:12
Thinking about it more if the logic is that the end client has to decide I think part and parcel can be part of the test.

1) Would an outside observer believe the worker to be part and parcel of the company - Y/N

1b) if No why do you believe that

i) project based work of a one off nature....
ii) additional resources for project work...

What other valid excuses are there for not being part and parcel?

jamesbrown
23rd August 2015, 11:31
Thinking about it more if the logic is that the end client has to decide I think part and parcel can be part of the test.

1) Would an outside observer believe the worker to be part and parcel of the company - Y/N

1b) if No why do you believe that

i) project based work of a one off nature....
ii) additional resources for project work...

What other valid excuses are there for not being part and parcel?

It's not the way the question is posed that makes P&P difficult. Without breaking it down into smaller attributes that can be measured, it is both ambiguous (i.e. unclear about what attributes need to be measured) and subjective (i.e. unclear about the degree of integration required). If we're going to suggest simple criteria, they need to meet all of these requirements:


Objective (as unambiguous as possible)
Straightforward to evidence directly (e.g. via the contract/schedule of work) or through third-party checks
Powerful (identifying the desired groups)


Obviously, the last one is somewhat divisive and will lead to different opinions, but we need to straddle the fence between us and HMRC here. There's no point in suggesting something that doesn't address the case studies they provide (however bad they may be) or addresses only edge cases, because they're looking to increase tax take.

The problem with P&P is that it's difficult to break down into small pieces without having a very large number of small pieces (as some other posters alluded to, it may be greater than the sum of its parts when you get a lot of small pointers than need to be assessed in the round). Nevertheless, perhaps there are some elements we can point to that are more powerful and straightforward than others and capture some aspects of being P&P. Let's try. Here's one list of possibilities (some of them are trivial, others more powerful):

IR35 - Part and parcel of the organisation :: Contractor UK (http://www.contractoruk.com/ir35/part_and_parcel_of_the_organisation.html)

Personally, I would view attending non-project-related meetings (i.e. all hands meetings, generic training) as a strong indicator of being P&P. This should be easy to evidence from the client-side (i.e. any such meetings or training are beyond the scope of your contract). Conversely, working offsite would be a strong indicator of not being P&P. Again, this would be easy to demonstrate, but it would be a much tougher test. If you're going to consider multiple factors in the round, you'd have to meet a certain fraction of them, I suppose.

jamesbrown
23rd August 2015, 11:35
So what can we use to define a project in a what that isn't easily contrivable...

I would think this could be achieved with a schedule of work that prescribes:


A named project
A set of objectives/deliverables
A fixed timeframe
A fixed budget/allowance for the contractor's work (e.g. T&M for a fixed number of days)


Perhaps there are other elements too...

yakitoo
23rd August 2015, 12:40
I would think this could be achieved with a schedule of work that prescribes:


A named project
A set of objectives/deliverables
A fixed timeframe
A fixed budget/allowance for the contractor's work (e.g. T&M for a fixed number of days)


Perhaps there are other elements too...

How does the idea of having staged (regular or irregular) payments impact of the project model?

jamesbrown
23rd August 2015, 12:58
How does the idea of having staged (regular or irregular) payments impact of the project model?

Generally speaking, basis of payment has been established as only a weak indicator of employment status, because there are different standards across different industries w/r to frequency and units of payment. With any project based work, you'd expect invoices to reference the work completed under specific project milestones during the invoiced period of performance, rather than simply X days at Y per day, but the basis of payment is otherwise inconclusive. Fixed price work, for which payments are made on the completion of project milestones, would be somewhat more indicative of self-employment, and I think that is also emphasized in HMRC guidance, but it isn't necessarily conclusive. Thus, IMHO, there needs to be a separation between the nature of the work as being project-based and the basis of payment.

BTW, while I remember, another indicator of being P&P would be a contract that requires exclusivity, but I assume these clauses are very rare. Conversely, having multiple clients at once is probably indicative of not being P&P of any one client (edit: although these could also fall into other categories of indicator than P&P).

IR35 Avoider
23rd August 2015, 14:22
HMRC's problem stems from the inconsistency of the tax system. There's no particular reason why two people who each have X thousand pounds of income should be taxed at different rates. In particular there's no reason for self-employment to be taxed less than employment. (The historical justification was less benefits for self-employed, years of social security system evolution have killed that.)

With that in mind, the ultimate simplification of the tax system would be to abolish NI and raise income tax.
a) all income above the personal allowance taxed at a single rate, whatever was needed to preserve current revenues, so probably somewhere over 40%
b) transitional arrangement for pensioners, to prevent the shock of basic rate marginal rate doubling, give them a larger personal allowance so that the total tax collected from them is initially unchanged, but freeze the allowance until eventually after a decade or three, the non-pensioner personal allowance catches up, thereafter age-based discrimination can be eliminated.
c) transitional arrangement for employer's NI, rename it employer's income tax contribution, as such it becomes part of employee's taxable income as a taxable benefit, being a part-payment of the employees tax bill. Then reduced it by 1% a year until it vanishes. So effectively employees would initially only be paying aprox. 30% rather than 40% on their contractual salary, same as now.
d) self-employed transitional arrangement ... something, cba.
e) investment income: credit given for tax already incurred in the underlying investment, so dividend for listed company would have a small credit, dividend from a PSC would have a 20% credit, with another 20% to pay.

IR35 would then be irrelevant, as employment status would be irrelevant.

(I realise such utopian simplification will never happen, as it will make people realise just how much tax they are paying, and probably rebel. Even blue governments actually need/want tax revenues, so won't want to do this.)

squirrel99
23rd August 2015, 15:03
So do you think contractor working as a 'project support' can in any way be outside IR35?

cojak
23rd August 2015, 15:22
So do you think contractor working as a 'project support' can in any way be outside IR35?
This is a discussion about possible future, not current, legislation.

Do you mean 'could' rather than 'can'?

squirrel99
23rd August 2015, 15:35
This is a discussion about possible future, not current, legislation.

Do you mean 'could' rather than 'can'?

Sorry, I should have been clearer.

I was referring to Eek's comment (sentence below). Does this mean that a person providing support would be 'clearly inside' of IR35?

'Part and parcel (Secretary, Waitress) - clearly inside - very hard to define so probably not a suitable criteria'

fool
23rd August 2015, 16:49
Reading the discussion document again (its too hot outside and unless I do it now I'll only have to do it later) I'm struck by a simple question....

What do all the parties actually want from the issue / IR35 marketplace?

HMRC - want as many people as possible paid by PAYE especially those who work for companies who force self employment or support staff to pretend to be self employed when clearly working like permanent staff... They also what as much money as possible (but that goes without saying)...

Some companies - want people to be bogusly self-employed to save them costs and responsibilities.

Consultancies and our end clients - want contractors either for specific periods / projects (to fill a resourcing or skills gap) or because the market can't provide those skills within the permanent market

Us - we want to be freelance because of our skill sets (or possibly just the cash). We pretend to be able to provide substitutes for the sake of it, happily use Moo and try to ignore the whole SDorC thing.

Other freelancers - may simply want to know who their employer is and being treated as an employee (examples from the CAB bogus employment survey are available)...

Some freelancers - are actually permanent staff but want the tax saving options and flexibility..

We know that every test HMRC have used for IR35 is insane and has made things worse. The question is can we identify the view point from all participants (I'm probably missing loads in the few actors above) and see if there are some sane features that could be used instead...

If we imagine that HMG is acting on good faith and not just trying to serve larger consultancies interests then rather than going down the rabbit hole of legislating small businesses, significantly stifling one of the few ways where we actually have social mobility, then we should probably suggest they tackle the problem at hand.

You don't like companies forcing the incorporation of staff, then you should legislate that companies can't have business to business relationships providing people under a certian limit. That way you have a couple of choices; You hire the staff directly, you pay another company that hires the staff, or you pay enough for it to be allowed.

There would obviously be some caveats that need to be worked out but it'd be well worth it to remove the ir35 mess. If you need some more flexibility, then the size of the company and the % of outsourced work comes into play.

The onus should be on big business to be regulated, they can afford to understand it, can afford to take the hit, and since theres less of them, will cost less to regulate.

On the fairness issue, get merge both ni's and income tax and raise dividends tax bands. I'd rather not be paying higher taxes, but it's preferable to dealing with this god awful tulip.

eek
23rd August 2015, 17:06
If we imagine that HMG is acting on good faith and not just trying to serve larger consultancies interests then rather than going down the rabbit hole of legislating small businesses, significantly stifling one of the few ways where we actually have social mobility, then we should probably suggest they tackle the problem at hand.

You don't like companies forcing the incorporation of staff, then you should legislate that companies can't have business to business relationships providing people under a certian limit. That way you have a couple of choices; You hire the staff directly, you pay another company that hires the staff, or you pay enough for it to be allowed.

There would obviously be some caveats that need to be worked out but it'd be well worth it to remove the ir35 mess.

That is basically at the heart of the proposal Lisa and I (among others) will be suggesting for the T&S consultation. Anyone paid less than national living wage * x is not covered by expenses (and ideally has to be paid PAYE)...

Then we have the IR35 discussion document where we can probably directly suggest if people who are not paid national living wage * x should be subject to the legislation (and therefore will have to be paid via PAYE)...

Yes the idea probably upsets a lot of people both here and elsewhere but since we started suggesting this as an option no one has come up with anything better... However its not enough for the IR35 discussion document as case study 1 is a lawyer paid well above the average wage...

eek
23rd August 2015, 17:09
Sorry, I should have been clearer.

I was referring to Eek's comment (sentence below). Does this mean that a person providing support would be 'clearly inside' of IR35?

'Part and parcel (Secretary, Waitress) - clearly inside - very hard to define so probably not a suitable criteria'

I can't see how tier 1 support could not be part and parcel of an organisation (as they take whatever calls come in)..

I guess tier 2 or tier 3 (especially tier 3) probably could have a contract which places them in a project based environment. I think it would be incredibly hard to make that a project based full time job though.

I know that's probably not what you want to hear but sadly HMRC want everyone on PAYE. We really need to find an approach that works for as many people as possible while not providing some companies with new means for them to abuse the system...

fool
23rd August 2015, 17:17
That is basically at the heart of the proposal Lisa and I (among others) will be suggesting for the T&S consultation. Anyone paid less than national living wage * x is not covered by expenses (and ideally has to be paid PAYE)...

Then we have the IR35 discussion document where we can probably directly suggest if people who are not paid national living wage * x should be subject to the legislation (and therefore will have to be paid via PAYE)...

Yes the idea probably upsets a lot of people both here and elsewhere but since we started suggesting this as an option no one has come up with anything better... However its not enough for the IR35 discussion document as case study 1 is a lawyer paid well above the average wage...

So I expanded slightly, but the key point I was trying to make is IR35 shouldn't exist. HMG & HMRC need to stop caring about what type of companies we are or what our working conditions are. It's impossible to police and they really have no place deciding what's good for small business.

Anybody who wants to incorporate should be able to, even if they're just doing it to avoid tax. Minimizing your tax bill is natural and if the guy running a 200 person company is able to do it, then you and I should be able to too. That should be the fairness that HMG is talking about.

squirrel99
23rd August 2015, 17:28
I can't see how tier 1 support could not be part and parcel of an organisation (as they take whatever calls come in)..

I guess tier 2 or tier 3 (especially tier 3) probably could have a contract which places them in a project based environment. I think it would be incredibly hard to make that a project based full time job though.

I know that's probably not what you want to hear but sadly HMRC want everyone on PAYE. We really need to find an approach that works for as many people as possible while not providing some companies with new means for them to abuse the system...

Thanks, Eek. Of course, I would like to be outside of IR35 and Qdos said my contract passes for 'outside IR35'.

I will be contracting as a Programme Support Admin which is supporting PM's on budget management, project plan updates etc. They didn't provide a schedule of deliverables, but I am still negotiating.

I feel like it would be hard to prove that I am not under control of a client though.

WordIsBond
24th August 2015, 05:42
That is basically at the heart of the proposal Lisa and I (among others) will be suggesting for the T&S consultation. Anyone paid less than national living wage * x is not covered by expenses (and ideally has to be paid PAYE)...

The problem with this solution is that it punishes the worker rather than the engager.

That's the problem with HMRC's approach, too. They are claiming that the problem they are trying to solve with this expenses thing is to combat employers pushing low-paid employees into self-employment / Ltd Co contracting. So what are they going to do? Punish the workers who already lost their employment rights by taking away their expenses, too, so they have to pay more taxes.

What a very good idea.

cojak
24th August 2015, 05:57
The problem with this solution is that it punishes the worker rather than the engager.

That's the problem with HMRC's approach, too. They are claiming that the problem they are trying to solve with this expenses thing is to combat employers pushing low-paid employees into self-employment / Ltd Co contracting. So what are they going to do? Punish the workers who already lost their employment rights by taking away their expenses, too, so they have to pay more taxes.

What a very good idea.

But shouldn't those workers be permanent employees? I guess that HMG/HMRC need to do something to make that happen.

eek
24th August 2015, 06:04
But shouldn't those workers be permanent employees? I guess that HMG/HMRC need to do something to make that happen.

Which is why I think the ir35 discussion document is such a catch all document. As that is the piece that forces everyone to paye.

You could argue that the one bit of the actual problem here is the agencies themselves. Malvlio pointed out elsewhere that he thought everyone will end up in an office angels situation. I think your typical bogus self employed person would like that as it would remove the umbrella charges from their pay.

Sadly the office Angels approach of paying directly via paye disappeared years ago for many agencies.

Oh and yes the argument that the low paid should be able to claim expenses was lost in the discussion phase. (I lot of my Saturday reading was the responses to that and the low pay campaigners all emphasized that point). What is now left is hmrc wanting to put everyone on an even footing. The problem is that by fixing the problem to be fair for the low paid permanent employee they are about to screw up things for me (and the company's that require my reasonably expensive skills).

teapot418
24th August 2015, 06:05
I like the idea of the 'part and parcel' test. It could nicely encompass some aspects of the existing criteria, such as MOO.

Could it give more confidence to umbrella users that they're outside? I guess that would be a no-no for HMRC.

eek
24th August 2015, 06:30
I like the idea of the 'part and parcel' test. It could nicely encompass some aspects of the existing criteria, such as MOO.

Could it give more confidence to umbrella users that they're outside? I guess that would be a no-no for HMRC.

The problem there is that we need a part and parcel tat hat would actually work.

Sadly moo and substation are things hmrc want gone as they have been abused in the past by people who are part and parcel

teapot418
24th August 2015, 06:39
The problem there is that we need a part and parcel tat hat would actually work.

Sadly moo and substation are things hmrc want gone as they have been abused in the past by people who are part and parcel

I suppose I was thinking that MOO could indicate that you were part and parcel, as opposed to lack of it indicating that you weren't - so from HMRC's point of view they get a benefit, without the absence of MOO automatically putting you outside.

eek
24th August 2015, 07:28
I suppose I was thinking that MOO could indicate that you were part and parcel, as opposed to lack of it indicating that you weren't - so from HMRC's point of view they get a benefit, without the absence of MOO automatically putting you outside.

Moo works as a partial valid test for part and parcel - company believe there is a mutual obligation, PAYE. I don't think it adds much though as the companies we need to capture are those who do everything to pretend their part and parcel workers (care assistants say) are not employees.

Zero Liability
24th August 2015, 07:38
The thing with P&P is that it's just yet another highly subjective criterion. I think the ability to relate a role to a specific project, in conjunction with some minimum cut off point for when one can be engaged via a ltd, looks more promising and amenable to relatively more objective criteria and limits the scope where an employer can encourage a Fri-Mon scenario.

eek
24th August 2015, 07:43
The thing with P&P is that it's just yet another highly subjective criterion. I think the ability to relate a role to a specific project, in conjunction with some minimum cut off point for when one can be engaged via a 3rd party (ltd / umbrella), looks more promising and amenable to relatively more objective criteria and limits the scope where an employer can encourage a Fri-Mon scenario.

ftfy... but more to emphasis how much Lisa is potentionally attacking her own vested interest for a greater good...

Contreras
24th August 2015, 08:06
That is basically at the heart of the proposal Lisa and I (among others) will be suggesting for the T&S consultation. Anyone paid less than national living wage * x is not covered by expenses (and ideally has to be paid PAYE)...

Then we have the IR35 discussion document where we can probably directly suggest if people who are not paid national living wage * x should be subject to the legislation (and therefore will have to be paid via PAYE)...

Yes the idea probably upsets a lot of people both here and elsewhere but since we started suggesting this as an option no one has come up with anything better... However its not enough for the IR35 discussion document as case study 1 is a lawyer paid well above the average wage...

Add to that a case study of the aspiring self-employed cleaner who incorporates to ltd with ambitions of growing the business. They may initially be on low rates, perhaps even sub-NMW, but why should they be penalised for this personal choice?

Applying different rules based upon a pay threshold is flawed in principle IMHO, sorry to bash the idea.



But shouldn't those workers be permanent employees? I guess that HMG/HMRC need to do something to make that happen.

Yes quite. And all the trimmings that go with it (sick pay, etc.). A right wing gov are not going to champion that cause though are they?

IR35 back to first principles is about "disguised employment". In effect employment without statutory rights (and a consequential loss of tax).

Clients are prepared to pay more to compensate for this and the convenience of being able to bin someone easily.

Now if clients are to become IR35 gatekeepers - to ensure the correct tax is collected from their disguised employees - then at the very least they need their cages rattling wrt the risk of defending an employment tribunal in certain cases. Anything less will be too bloody one-sided IMHO.

I think the fact that many of 'us' contractors seem to embrace the lack of statutory rights so willingly is one reason the IR35 debate becomes so tortured. It shouldn't blind us to arguments that could ultimately lead to not being treated (and taxed) as an employee.

SimonMac
24th August 2015, 08:07
(haven't read the whole thread, so excuse if this has already been raised and dismissed)

I think the sensible approach is a move towards abolishing NI, and incoporating that into income tax, however this will never happen as people don't see NI as a tax, and no one wants to be seen to raise a new tax, even if it's merely replacing an existing one.

The problem is that we contractors want to be treated individually, we are a special case but HMRC can't be seen to give us an exception, or create a series of tax law which benefits us without a clear definition of what we are, even the PSC definition was mired with confusion as in the scheme of things we are still a small body of people.

eek
24th August 2015, 08:19
(haven't read the whole thread, so excuse if this has already been raised and dismissed)

I think the sensible approach is a move towards abolishing NI, and incoporating that into income tax, however this will never happen as people don't see NI as a tax, and no one wants to be seen to raise a new tax, even if it's merely replacing an existing one.

The problem is that we contractors want to be treated individually, we are a special case but HMRC can't be seen to give us an exception, or create a series of tax law which benefits us without a clear definition of what we are, even the PSC definition was mired with confusion as in the scheme of things we are still a small body of people.

I don't want to be treated as special and thats one reason why I believe the FLC is nonsensical and utterly insane (because the IPSE believe all their members are special and should be treated as such).

HMRC's current stance is everyone paid via PAYE with the decision for SDorC made by the end client. That will result in a default viewpoint of you are being paid by PAYE as its utterly impossible to argue a client doesn't have the right to one of SDorC (why take the risk). So we need to create some simple tests that allow an end client to bring in a contractor to complete a specific task / project to have certainty that their decision won't come back to haunt them.

malvolio
24th August 2015, 08:39
I don't want to be treated as special and thats one reason why I believe the FLC is nonsensical and utterly insane (because the IPSE believe all their members are special and should be treated as such).

HMRC's current stance is everyone paid via PAYE with the decision for SDorC made by the end client. That will result in a default viewpoint of you are being paid by PAYE as its utterly impossible to argue a client doesn't have the right to one of SDorC (why take the risk). So we need to create some simple tests that allow an end client to bring in a contractor to complete a specific task / project to have certainty that their decision won't come back to haunt them.
You could read that as saying you don't want a specific set of objective criteria set up to distinguish between genuine business and pseudo-employee but instead want a specific set of objective criteria set up to distinguish between business and pseudo-employee except in your case you want it defined by the end client. After all, they are the ones defining the contract terms.

Also you would still miss a fair proportion of contractors. I do high level business architecture and consultancy where I'm telling the client what needs to happen. Normally I will be well outside the SDandC boundary but not an SDorC one, and my work is not easily framed in terms of discrete deliverables (unless you count "make it better" as a deliverable). Equally, workers at the other end of the spectrum, such as agile delivery and testing teams and technical support would be out of scope, when in reality clients rely on that temporary resource for all sorts of reasons without them being pseudo employees or even subject to P&P. We mustn't lose sight of what the overall objective here really is; to preserve the status of the people who deliver the flexible workforce.

So a good idea in principle but it needs a bit of work, I feel...

eek
24th August 2015, 08:48
You could read that as saying you don't want a specific set of objective criteria set up to distinguish between genuine business and pseudo-employee but instead want a specific set of objective criteria set up to distinguish between business and pseudo-employee except in your case you want it defined by the end client. After all, they are the ones defining the contract terms.

Also you would still miss a fair proportion of contractors. I do high level business architecture and consultancy where I'm telling the client what needs to happen. Normally I will be well outside the SDandC boundary but not an SDorC one, and my work is not easily framed in terms of discrete deliverables (unless you count "make it better" as a deliverable). Equally, workers at the other end of the spectrum, such as agile delivery and testing teams and technical support would be out of scope, when in reality clients rely on that temporary resource for all sorts of reasons without them being pseudo employees or even subject to P&P. We mustn't lose sight of what the overall objective here really is; to preserve the status of the people who deliver the flexible workforce.

So a good idea in principle but it needs a bit of work, I feel...

There has never been an SDandC test, that's the problem. Its always been not subject to SDorC and HMRC are looking to change that to subject to SDorC....

And yes anything suggested will need work but if end clients have to determine status (and that is what HMRC says they want) they will need tests that allow them to confident in their decision that the person is inside / outside and paperwork that can just be filed away knowing that they can argue their point...

malvolio
24th August 2015, 09:04
There has never been an SDandC test, that's the problem

Ermm, sorry? The original RMC decision was based on all three needing to be present to determine an employee relationship, not any one of the three, and that hasn't changed.

[EDIT] Sorry, I see what you mean.... However framing a three-cornered test is a lot harder than an any-one-of-three test.


Its always been not subject to SDorC and HMRC are looking to change that to subject to SDorC....

And yes anything suggested will need work but if end clients have to determine status (and that is what HMRC says they want) they will need tests that allow them to confident in their decision that the person is inside / outside and paperwork that can just be filed away knowing that they can argue their point...

And I suggest those tests really need to be outside the determination of the client and not dependent on the contractual requirements of the work, else you are doing nothing to counter abuse of the system. YMMV...

eek
24th August 2015, 09:10
Ermm, sorry? The original RMC decision was based on all three needing to be present to determine an employee relationship, not any one of the three, and that hasn't changed.



And I suggest those tests really need to be outside the determination of the client and not dependent on the contractual requirements of the work, else you are doing nothing to counter abuse of the system. YMMV...

You had better reread the proposals then. Especially the detail carefully hidden in the middle of paragraphs (in such a way that its not clear)..

You of all people should remember what Andy commented on from the 7th... Read that comment again and then revisit the discussion document to identify where that statement from HMRC is hidden within it. (Its there you just have to find all the hidden (within paragraphs) clues...

Finally given that the end client is going to be jointly liable for (at least some) of the tax with the added joy of being named and shamed in a tribunal do you really think any client is ever going to say outside unless HMRC provides fairly clear cut guidance to allow them to decide that work is outside....

malvolio
24th August 2015, 09:30
You had better reread the proposals then. Especially the detail carefully hidden in the middle of paragraphs (in such a way that its not clear)..

You of all people should remember what Andy commented on from the 7th... Read that comment again and then revisit the discussion document to identify where that statement from HMRC is hidden within it. (Its there you just have to find all the hidden (within paragraphs) clues...

Finally given that the end client is going to be jointly liable for (at least some) of the tax with the added joy of being named and shamed in a tribunal do you really think any client is ever going to say outside unless HMRC provides fairly clear cut guidance to allow them to decide that work is outside....
I know the proposal fairly well, thanks. In a small way I helped create it. It is also a work in progress and may well change as a result of the on-going consultation, removing some of the current inconsistencies.

It still all hinges on who determines that a given worker - not a single contract - is in business and therefore outside IR35 (and, not coincidentally, therefore entitled to T&S expenses as part of their trade) and also not pretending to be a contractor because their ex-employer s looking to save themselves some money.

eek
24th August 2015, 10:45
I know the proposal fairly well, thanks. In a small way I helped create it. It is also a work in progress and may well change as a result of the on-going consultation, removing some of the current inconsistencies.

It still all hinges on who determines that a given worker - not a single contract - is in business and therefore outside IR35 (and, not coincidentally, therefore entitled to T&S expenses as part of their trade) and also not pretending to be a contractor because their ex-employer s looking to save themselves some money.

The problem is not that the contractor may be pretending because his ex-employer wants to save money, its that his ex-employer is pretending that the contractor is self employed when that person would prefer not to be... And as the FCSA (who are they by the way) says its more likely that this is an issue for lower paid workers forced into it as their industry fights a race to the bottom (you can watch it play out in the care industry at the moment)..

That is an angle HMRC are very happy to emphasis at the moment and I think we'll have a very good idea tomorrow night as too how much they want to emphasis it...

Danglekt
24th August 2015, 11:46
The part and parcel test might be easy to apply for certain roles, but not others. Especially more senior ones.

I provide support similar to how large consultancies do, its always on a project, but often the client doesn't know what the project is, let alone have clear deliverables etc to neatly pop my name against - it's exactly these ambiguous poorly defined messes I get pulled into to sort out.

I am a project worker, am in situ for under a year, use my own kit, pick when and where I work, and define how I work and how others should interact with me - but I do attend their board meetings etc. to advise on progress and force some decisions to be made. I often seem to care more about getting the objectives done than the people who work there.

It's this ambiguous area where I wouldn't get very far if I through my hands up every 5 minutes shouting, "I'm a contractor, I can't do that!" They buy my time so I can solve problems, not make more. But I am 100% not part of their company.

jamesbrown
24th August 2015, 12:16
The part and parcel test might be easy to apply for certain roles, but not others. Especially more senior ones.

I provide support similar to how large consultancies do, its always on a project, but often the client doesn't know what the project is, let alone have clear deliverables etc to neatly pop my name against - it's exactly these ambiguous poorly defined messes I get pulled into to sort out.

I am a project worker, am in situ for under a year, use my own kit, pick when and where I work, and define how I work and how others should interact with me - but I do attend their board meetings etc. to advise on progress and force some decisions to be made. I often seem to care more about getting the objectives done than the people who work there.

It's this ambiguous area where I wouldn't get very far if I through my hands up every 5 minutes shouting, "I'm a contractor, I can't do that!" They buy my time so I can solve problems, not make more. But I am 100% not part of their company.

But this all comes down to the specifics of how project-based work and P&P are defined. In your example, it seems to me that you would have a phased project. The first phase is gathering requirements. Obviously, one doesn't define deliverables upfront that are unknown, but these deliverables become known following some deeper specification. Unless you are performing an enduring role/job at the client (in which case, I think you are unfortunately a target), it should be possible to prescribe things under the umbrella of a discrete project, even if that discrete project cuts across several activities that the client is engaged with and requires you to attend high-level meetings.

Likewise, with P&P, it comes down to the details. For example:

Are you required to participate in generic training, meetings or team-bonding sessions that are unrelated to the project?
Are you subject to performance reviews or required to conduct performance reviews of client staff?
Do you perform an enduring role at the client or one that is performed by permanent staff; for example, are you covering for a permanent staff member on leave?

There are many other possibilities. They need to be objective, straightforward to evidence, and powerful in distinguishing.

We also need to be mindful of what HMRC are trying to do, namely to increase tax take, including from skilled professionals (not just the lower end of the market). We can either let HMRC prescribe things without our constructive feedback or we can do our best to capture the essence of what contracting is about for the majority of us. The advantage of having this debate is that we have a fairly broad range of industries and contractors represented here, so it should be possible to arrive at something that is broadly applicable. The analysis is very straightforward (including w/r to the bigger picture of tax simplification). The solution is difficult to arrive at and divisive.

Danglekt
24th August 2015, 14:16
I agree with all your points James, and thankfully in terms of the queries you raise - no - I don't personally do any of those things.

I was just adding to the conversation to make sure we don't end up focusing too heavily on IT project style roles where things may be a little more clear cut, at the expense of other freelancers/contractors/jack of all trades :D

jamesbrown
24th August 2015, 15:37
I agree with all your points James, and thankfully in terms of the queries you raise - no - I don't personally do any of those things.

I was just adding to the conversation to make sure we don't end up focusing too heavily on IT project style roles where things may be a little more clear cut, at the expense of other freelancers/contractors/jack of all trades :D

Totally agree. FWIW, I'm not in IT either. The more voices the better; it's very easy to lose sight of the bigger picture :D

eek
24th August 2015, 15:44
I know the proposal fairly well, thanks. In a small way I helped create it. It is also a work in progress and may well change as a result of the on-going consultation, removing some of the current inconsistencies.

It still all hinges on who determines that a given worker - not a single contract - is in business and therefore outside IR35 (and, not coincidentally, therefore entitled to T&S expenses as part of their trade) and also not pretending to be a contractor because their ex-employer s looking to save themselves some money.

I don't think it does or ever will hinge on a given worker. HMRC want to look at individual contracts and believe that every contract should be judged on the merit of that contract...

WordIsBond
24th August 2015, 16:06
I don't think it does or ever will hinge on a given worker. HMRC want to look at individual contracts and believe that every contract should be judged on the merit of that contract...
Are we sure that is what HMRC wants? They've looked at individual contracts on IR35, but when they put together the BETs, it was more focused on the individual worker and whether he could demonstrate that he was running a business.

I suspect, if they had their choice, they would rather NOT look at it on a contract by contract basis. They'd rather be able to say, "This guy's an employee," "that guy isn't," and act accordingly. Remember they want it simple to enforce. Having to look at each contract in isolation isn't simple to enforce.

eek
24th August 2015, 16:14
Are we sure that is what HMRC wants? They've looked at individual contracts on IR35, but when they put together the BETs, it was more focused on the individual worker and whether he could demonstrate that he was running a business.

I suspect, if they had their choice, they would rather NOT look at it on a contract by contract basis. They'd rather be able to say, "This guy's an employee," "that guy isn't," and act accordingly. Remember they want it simple to enforce. Having to look at each contract in isolation isn't simple to enforce.

If they do then the FLC has a chance. Looking at the examples though I wonder if its more these company's (the NHS trust, the law firm) are abusing the system / allowing the system to be abused and want to attack those companies...

Problem is that without clear guidance (and we haven't got any nor will we) we haven't a clue why HMRC are suggesting moving the responsibility from the contractor towards the end client / paying company...

SueEllen
25th August 2015, 00:47
Add to that a case study of the aspiring self-employed cleaner who incorporates to ltd with ambitions of growing the business. They may initially be on low rates, perhaps even sub-NMW, but why should they be penalised for this personal choice?



The reason is that people delivery drivers - (remember Citi Link ) and car valets are forced down the self-employed route, when they should be employees or at least temps were the NMW is guaranteed.

If we can advocate they get paid properly then other low paid workers e.g. carers will have to get proper payment.

In the case of the cleaner they could easily be exempt if they employed at least one non-family member for 8 hours a week. (This gives them leeway to employ an 18 year old on NMW on a Saturday.)

I've met people who built up digital and marketing agencies who didn't pay themselves when they were building up their businesses but they had employees not related to them.

Also if you have direct clients while you may want to incorporate you don't have to. It's only people who use recruitment agencies who have to.

Contreras
25th August 2015, 07:20
The reason is that people delivery drivers - (remember Citi Link ) and car valets are forced down the self-employed route, when they should be employees or at least temps were the NMW is guaranteed.

Not just NMW but other statutory rights too.

Maybe my post wasn't clear - I am more awake now so will try again ;). The idea that a pay threshold can be set only above which T&S can be claimed would a) be seen as grossly unfair, b) penalise the aspiring individual who intentionally takes on low-paid contracts to build a business (the additional test case I proposed).

What I was advocating, if clients are to become IR35 gatekeepers, is to associate any declaration of SDC by the client with a risk of employment claims against the client.

I believe this addresses both issues:
- low-paid workers forced into self-employed primarily to avoid statutory employment rights.
- genuine contractors being forced into IR35 by risk-averse clients pre-judging SDC because it carries no downside.

I would like to imagine some support/collaboration from the unions too.

Note, for the avoidance of doubt, I am not advocating employment rights for contractors, just that clients need to include this in their risk assessment before throwing us to the IR35 dogs.

eek
25th August 2015, 07:35
Not just NMW but other statutory rights too.

Maybe my post wasn't clear - I am more awake now so will try again ;). The idea that a pay threshold can be set only above which T&S can be claimed would a) be seen as grossly unfair, b) penalise the aspiring individual who intentionally takes on low-paid contracts to build a business (the additional test case I proposed).

What I was advocating, if clients are to become IR35 gatekeepers, is to associate any declaration of SDC by the client with a risk of employment claims against the client.

I believe this addresses both issues:
- low-paid workers forced into self-employed primarily to avoid statutory employment rights.
- genuine contractors being forced into IR35 by risk-averse clients pre-judging SDC because it carries no downside.

I would like to imagine some support/collaboration from the unions too.

Note, for the avoidance of doubt, I am not advocating employment rights for contractors, just that clients need to include this in their risk assessment before throwing us to the IR35 dogs.

The thing is a company that wants to make use of bogus self employment will just claim all their staff are outside of SD&C... Its probably not difficult to do that and still have control of your staff when they are dependent on the company to get work the following day / week.

While we fear that the default mode for many companies will be everyone is inside IR35 due to SDorC, I'm sure a lot of firms would like to argue that their staff are outside SDorC to avoid those costs and rights.

Contreras
25th August 2015, 08:03
The thing is a company that wants to make use of bogus self employment will just claim all their staff are outside of SD&C... Its probably not difficult to do that and still have control of your staff when they are dependent on the company to get work the following day / week.

While we fear that the default mode for many companies will be everyone is inside IR35 due to SDorC, I'm sure a lot of firms would like to argue that their staff are outside SDorC to avoid those costs and rights.

If the workforce is judged by HMRC to be outside IR35 then I am comfortable with that.

eek
25th August 2015, 08:06
If the workforce is judged by HMRC to be outside IR35 then I am comfortable with that.

I don't think HMG / HMRC would be as that is the cause of a race to the bottom in industries such as couriers and care workers...

SueEllen
25th August 2015, 08:08
If the workforce is judged by HMRC to be outside IR35 then I am comfortable with that.

The issue we have is HMRC is going to argue every business who uses self-employed workers has then under SD or C.

If we can get them to distinguish between different groups of people especially the low paid it will help us.

yakitoo
25th August 2015, 09:02
The issue we have is HMRC is going to argue every business who uses self-employed workers has then under SD or C.

If we can get them to distinguish between different groups of people especially the low paid it will help us.

Much more important to make sure that it is S,D AND C that is used.

mudskipper
25th August 2015, 09:11
If we can get them to distinguish between different groups of people especially the low paid it will help us.

Bearing in mind most of us are on 10K a year...

SueEllen
25th August 2015, 09:12
Bearing in mind most of us are on 10K a year...

If we had to take NMW to be left alone we would probably do so.

eek
25th August 2015, 09:21
Much more important to make sure that it is S,D AND C that is used.

All case law is based on NOT subject to SD or C (which is nearly the same but not quite). The problem is that the current phrase is under SD or C with the NOT removed.

You can see how its occurred,

As the sentence says

people will NOT be able to claim expenses if subject to SD or C (any one puts you in).

When what we really want is something like

people will be able to claim expenses if NOT subject to SD or C (not subject to one of them puts you out).

eek
25th August 2015, 09:25
Bearing in mind most of us are on 10K a year...

Our company / umbrella companies do not receive £10k or so in total a year. Many other people forced to use Umbrellas or so do receive something like 10-15k or £200-300 a week / £800-1250 a month....

The problem there is that we don't really know as the umbrella's who deal with those type of workers typically aren't once we've heard of or wish to advertise themselves to anyone other than end clients trying to minimise costs..

WordIsBond
25th August 2015, 10:18
All case law is based on NOT subject to SD or C (which is nearly the same but not quite). The problem is that the current phrase is under SD or C with the NOT removed.

You can see how its occurred,

No programmer would do it. :D One more demonstration of how they don't understand the world in which we live and work.

eek
25th August 2015, 13:53
No programmer would do it. :D One more demonstration of how they don't understand the world in which we live and work.

Oh they understand it. They just hope no one notices and picks up on it....

DaveB
26th August 2015, 10:03
Two years is a valid number. I've been contracting for 23 years and the longest gig in that time went to 3 years, but that was with two very different outsource clients of the client. Also all the management I was working with were different.

Other rule would have to be number of contracts running at the same time. I would be unfair if you had a long running part time support / fix on fail type of contract that got caught by in the rule, but you were also doing several shorter say 3-6 month full time contracts. Plus a rule about a gap on returning to the same client, maybe 3 months to stay outside the PAYE/NI net.

I think this approach does have legs.

2 year limit ties in with the 2 year travel costs rule which is already accepted (although how well it is enforced is another thing). It would make reporting requirements easier, as clients or agents would only have to report on those contractors who have been there over 2 years.

Add in an exception for those running multiple contracts, which is already a solid IR35 defence, and it looks like somthing that would work.

The problem I could see is that you would still have unscrupulous employers who will simply bin people off after 2 years and replace them. Whether that would leave them open to employment tribunal claims could be something to be investigated. It may take a change in the rules to allow for this, I dont know.

SueEllen
26th August 2015, 11:47
There have been test cases where temps/contractors have argued they are employees and claimed unfair dismissal. The ones I can remember are the two cases that were lost.

However those removed and claiming discrimination can win.

Most tribunal cases don't go to a hearing so I suspect a lot of cases have resulted in pay offs as the judge can ask for action to be taken against a company.

Also people now have to pay to submit a employment tribunal claim.

eek
26th August 2015, 11:53
There have been test cases where temps/contractors have argued they are employees and claimed unfair dismissal. The ones I can remember are the two cases that were lost.

However those removed and claiming discrimination can win.

Most tribunal cases don't go to a hearing so I suspect a lot of cases have resulted in pay offs as the judge can ask for action to be taken against a company.

Also people now have to pay to submit a employment tribunal claim.

The thing you have to remember is that there is no actual definition of employment / self-employment. HMRC's definition of employment is not the same as an employment tribunals definition which isn't the same as the Home Office's or DWP's.

While you can emphasis this lack of joined up thinking I think its in the too big and complex to fiddle with category. Which is why HMRC rules are missing out most of the old tests (because they think they can)..

SueEllen
26th August 2015, 11:58
The thing you have to remember is that there is no actual definition of employment / self-employment. HMRC's definition of employment is not the same as an employment tribunals definition which isn't the same as the Home Office's or DWP's.

While you can emphasis this lack of joined up thinking I think its in the too big and complex to fiddle with category. Which is why HMRC rules are missing out most of the old tests (because they think they can)..

The two unfair dismissal cases I remember went to the appeal courts. The legal arguments where on SDC, MOO and the meaning of "service".

The discrimination cases are often more clear cut in this regard.

Danglekt
26th August 2015, 12:25
I've not yet heard a decent reason why the two year, with an exception for multiple clients isn't the most straight forward test.

We were asked to come up with some easy to test, easy to police, easy to understand option - that seems it to me.

fidot
26th August 2015, 12:57
I've not yet heard a decent reason why the two year, with an exception for multiple clients isn't the most straight forward test.

We were asked to come up with some easy to test, easy to police, easy to understand option - that seems it to me.

The biggest drawbacks with it are that it won't catch enough people for HMRC's liking (I suspect) and it's very easy to avoid.
It doesn't stop abuse of the system either. Employers who force low-paid employees to incorporate will now sack them just under the 2 years.

TheFaQQer
26th August 2015, 12:58
I've not yet heard a decent reason why the two year, with an exception for multiple clients isn't the most straight forward test.

We were asked to come up with some easy to test, easy to police, easy to understand option - that seems it to me.

Because the reward for business success shouldn't be increased uncertainty over taxation.

eek
26th August 2015, 13:03
The biggest drawbacks with it are that it won't catch enough people for HMRC's liking (I suspect) and it's very easy to avoid.
It doesn't stop abuse of the system either. Employers who force low-paid employees to incorporate will now sack them just under the 2 years.

+1. Abuse and forced self-employment is something we need to focus on. Otherwise it will be used to justify ignoring sane rules for their utterly insane ones.

And from what I heard yesterday utterly insane may be winning the day..

DaveB
26th August 2015, 13:05
Because the reward for business success shouldn't be increased uncertainty over taxation.

How is that increasing uncertainty?

You know up front that if you are with a client for more than 2 years you will be inside IR35. If you have multiple clients you will be outside anyway.

Everyone knows where they stand from day one.

Multiple extensions beyond 2 years are not automatic indicators of business success, it just says that Client Co. can't be arsed to recruit a permie to replace you. Having multiple clients is an indicator of success, and that you are behaving more like a genuine business.

jamesbrown
26th August 2015, 13:12
I've not yet heard a decent reason why the two year, with an exception for multiple clients isn't the most straight forward test.

We were asked to come up with some easy to test, easy to police, easy to understand option - that seems it to me.

No single test is going to be enough. All tests are likely to sit on top of SDC, but may allow us to mitigate the impacts of SDC (e.g. by providing scenarios where SDC is presumed to apply or not to apply).

A project-based test is preferable to any time-based test. Suppliers operate on project timeframes. The timeframes that you may be familiar with do not apply in all industries. For this reason, additional complexities must be introduced, such as the "multiple client" scenario you cite. But multiple clients over what period? What gap is acceptable? What happens when the criteria are breached part-way through a longer contract? When does the clock reset? On the latter point, one could adopt the current expenses rules, but these are going to be replaced soon. Furthermore, contract length has no basis in case law that distinguishes between employment and self-employment, whereas the project-based versus rolling distinction does have a basis in case law (whether or not you like the case law focus, it establishes principles that are meaningful in reality). Also, I can't see HMRC being particularly keen on a time-based test unless it is much shorter. I've made these points before. You may not feel that they are "decent reasons", but some specifics would help. Some combination of a project-based test and a few P&P indicators would be preferable in this area IMHO (as well as some more specific, if less common, scenarios that are emphatically outside).

Again, though, let's be completely clear about this; a single rule, whether a time-based rule or anything else, regardless or how simple or complex it might be, is not a remote possibility on its own. For example, with a time-based rule alone, there will be many short-term contracts (weeks or months) that involve a high degree of SDC, so should be emphatically caught (think "temp" staff that are covering someone on leave, for example).

eek
26th August 2015, 13:12
How is that increasing uncertainty?

You know up front that if you are with a client for more than 2 years you will be inside IR35. If you have multiple clients you will be outside anyway.

Everyone knows where they stand from day one.

Multiple extensions beyond 2 years are not automatic indicators of business success, it just says that Client Co. can't be arsed to recruit a permie to replace you. Having multiple clients is an indicator of success, and that you are behaving more like a genuine business.

+1

Unfortunately multiple clients as a test would be equally open to abuse (you can see care suppliers using multiple companies explicitly to break those rules)..

Danglekt
26th August 2015, 13:15
I understand the 2 years thing has down side but I don't see the minimum salary *x being any better an alternative in as much as they will all have down sides and unintended consequence.

My point is, shouldn't we be providing a range of alternative solutions for HMRC to consider rather than just focusing on one?

jamesbrown
26th August 2015, 13:17
Having multiple clients is an indicator of success, and that you are behaving more like a genuine business.

Not really. I'll often have periods when I have multiple clients, including some fixed-price work on a relatively short timeframe, coupled with some longer-term projects, often on a T&M basis or some combination of T&M and fixed price. At other times, I'll have a single client on T&M. Does a business become more and less genuine over time, depending on what work it is doing at that particular moment? Of course it doesn't.

jamesbrown
26th August 2015, 13:24
I understand the 2 years thing has down side but I don't see the minimum salary *x being any better an alternative in as much as they will all have down sides and unintended consequence.

My point is, shouldn't we be providing a range of alternative solutions for HMRC to consider rather than just focusing on one?

Sure, but we should start with the attributes of status that we're trying to represent, rather than starting with the rules and thinking about what status indicators they cover. For example, with time, I assume you're trying to capture the status of being P&P whereby someone becomes part of the client furniture, onsite for multiple years on a rolling contract, moving around without any prescribed projects, timeframes or deliverables in the contract? The issue here is not specifically "time", but being P&P (if that's what you're alluding to). Likewise, one could have a 6mo contract and become P&P by being engaged in performance reviews, generic training, and other client crap that should not apply to contractors.

DaveB
26th August 2015, 13:28
+1

Unfortunately multiple clients as a test would be equally open to abuse (you can see care suppliers using multiple companies explicitly to break those rules)..

Not sure the Care Suppliers example works.

Care Workers may be among those who are forced into self employment by their "Employers" but they dont work directly for the end recipients of the care, nor are they paid by them. Their relationship is with the larger Care Agencies that provide services, usually to a Council social service dept. and via that to the end recipients.

If the Care Workers are working for multiple Care Agencies then there is a legitimate argument that they are actually in business for themselves as permanent staff are not generally permitted to do this. They need to balance their clients requirements and meet SLA's much like a normal service company.

There are some instances of individual care workers having direct relationships with care recipients but these are on a one to one baisis, arranged privately and covered by normal employment law.

DaveB
26th August 2015, 13:30
Sure, but we should start with the attributes of status that we're trying to represent, rather than starting with the rules and thinking about what status indicators they cover. For example, with time, I assume you're trying to capture the status of being P&P whereby someone becomes part of the client furniture, onsite for multiple years on a rolling contract, moving around without any prescribed projects, timeframes or deliverables in the contract? The issue here is not specifically "time", but being P&P (if that's what you're alluding to). Likewise, one could have a 6mo contract and become P&P by being engaged in performance reviews, generic training, and other client crap that should not apply to contractors.

Yes you could, but the trade off here is that in return for the assumption that after 2 years you are automatically P&P, up until then is is assumed you are not.

eek
26th August 2015, 13:44
Not sure the Care Suppliers example works.

Care Workers may be among those who are forced into self employment by their "Employers" but they dont work directly for the end recipients of the care, nor are they paid by them. Their relationship is with the larger Care Agencies that provide services, usually to a Council social service dept. and via that to the end recipients.

If the Care Workers are working for multiple Care Agencies then there is a legitimate argument that they are actually in business for themselves as permanent staff are not generally permitted to do this. They need to balance their clients requirements and meet SLA's much like a normal service company.

There are some instances of individual care workers having direct relationships with care recipients but these are on a one to one baisis, arranged privately and covered by normal employment law.

I have seen a plan which was:

Care company becomes multiple new care companies (each dealing with a subset of clients).
Care workers / clients are assigned in such a way that they work across a few of the new care companies.
Care workers instantly have multiple employers paying them..

Added benefit is that it allows a care company to pretend to be competition for itself...

Two big abusers of the current system are home care workers and delivery companies both are in a race to the bottom to minimise costs...

DaveB
26th August 2015, 13:50
I have seen a plan which was:

Care company becomes multiple new care companies (each dealing with a subset of clients).
Care workers / clients are assigned in such a way that they work across a few of the new care companies.
Care workers instantly have multiple employers paying them..

Added benefit is that it allows a care company to pretend to be competition for itself...

Two big abusers of the current system are home care workers and delivery companies both are in a race to the bottom to minimise costs...

Similar to this one. I suspect HMRC will be looking for scams like this in future.

Recruitment firm Anderson Group facing HMRC crackdown over tax dodge scheme | This is Money (http://www.thisismoney.co.uk/money/news/article-3102286/Leading-recruitment-firm-facing-HMRC-crackdown-scheme-help-businesses-dodge-tax-revealed-secret-recording.html)

TheFaQQer
26th August 2015, 13:54
Multiple extensions beyond 2 years are not automatic indicators of business success, it just says that Client Co. can't be arsed to recruit a permie to replace you. Having multiple clients is an indicator of success, and that you are behaving more like a genuine business.

Likewise they are not automatic indicators of being part and parcel of the organisation.

jamesbrown
26th August 2015, 13:57
Yes you could, but the trade off here is that in return for the assumption that after 2 years you are automatically P&P, up until then is is assumed you are not.

What's the trade-off though? I can see how this would appeal to those who consistently operate contracts of less than two years, but that isn't a tradeoff in itself. There will be a large number of contracts less than two years that would be caught on other sensible measures. There will be a large number of contracts above two years that would not be caught on other sensible measures. So, what is the tradeoff? I don't think the aim is to offer "certainty" to a mixed subset of the overall population (mixed in terms of bearing the hallmarks of employment/self-employment). The aim is to better discriminate that mixed population while increasing tax take. I dare say that most of the potential tax take comes from contracts of less than two years (although I don't know this).

DaveB
26th August 2015, 13:59
Likewise they are not automatic indicators of being part and parcel of the organisation.

No, but as I said above, it's the trade off being made. Over 2 years, inside IR35. Under 2 years or having multiple clients, assumed outside.

Whetever they have said about IR35, the fact is that it has proven almost impossible to show people are actually caught unless they do something stupid.

It gives HMRC clear cut criteria that don't rely on interpretation of complicated rules against layers of contracts and working arrangements. It's currently far easier to defend an IR35 position than it is for HMRC to attack it. This helps solve that problem in a way that everyone can understand.

jamesbrown
26th August 2015, 14:02
I have seen a plan which was:

Care company becomes multiple new care companies (each dealing with a subset of clients).
Care workers / clients are assigned in such a way that they work across a few of the new care companies.
Care workers instantly have multiple employers paying them..

Added benefit is that it allows a care company to pretend to be competition for itself...

Two big abusers of the current system are home care workers and delivery companies both are in a race to the bottom to minimise costs...

A similar thing could happen for a time-based rule. This goes to the heart of why they are looking to adopt SDC as the main criteria and to have clients enforce it and be liable for that decision. It's FUD with a bigger stick.

eek
26th August 2015, 14:07
A similar thing could happen for a time-based rule. This goes to the heart of why they are looking to adopt SDC as the main criteria and to have clients enforce it and be liable for that decision. It's FUD with a bigger stick.

One thing that was pointed out to me yesterday is that tax liability can be passed back up the chain....

jamesbrown
26th August 2015, 14:09
What's the trade-off though? I can see how this would appeal to those who consistently operate contracts of less than two years, but that isn't a tradeoff in itself. There will be a large number of contracts less than two years that would be caught on other sensible measures. There will be a large number of contracts above two years that would not be caught on other sensible measures. So, what is the tradeoff? I don't think the aim is to offer "certainty" to a mixed subset of the overall population (mixed in terms of bearing the hallmarks of employment/self-employment). The aim is to better discriminate that mixed population while increasing tax take. I dare say that most of the potential tax take comes from contracts of less than two years (although I don't know this).

I just had a look at some of the PCG/IPSE benchmarking surveys, and around 20% of respondents (across several survey years) reported as being at the client site for more than 2 years. A relatively small fraction.

jamesbrown
26th August 2015, 14:10
One thing that was pointed out to me yesterday is that tax liability can be passed back up the chain....

This is the idea behind joint and several liability - it can be pursued anywhere in the chain.

eek
26th August 2015, 14:14
This is the idea behind joint and several liability - it can be pursued anywhere in the chain.

It becomes a different matter when you are asked to indemnify the other parties in the chain...

DaveB
26th August 2015, 14:22
I just had a look at some of the PCG/IPSE benchmarking surveys, and around 20% of respondents (across several survey years) reported as being at the client site for more than 2 years. A relatively small fraction.

Average tenure for permanent employees was around 9 years in 2011, according to

http://www.cipd.co.uk/binaries/megatrends_2013-job-turnover-slowed-down.pdf

And is one of the lowest in Europe.

It is unlikely to have shifted dramatically since then. 2 years as a cut off for employment status seems reasonable based on that.

jamesbrown
26th August 2015, 15:38
It becomes a different matter when you are asked to indemnify the other parties in the chain...

I get the sense that I'm missing something subtle in what you're saying... :D

In the event of joint and several liability, I would expect that the client would adopt a default position of inside, so the risk wouldn't be present. When the client agrees to an outside position, and subsequent evaluation finds differently, and HMRC decides to pursue the client, the implications of joint and several liability then kick in, i.e. the client must then pursue some or all of the amounts due from elsewhere in the chain. For example, there may be a clause to indemnify the client against certain costs, i.e. to chase the contractor. Is that what you're saying? That's where insurance would come in. In reality, the client would need to insure themselves too because the contractor could easily go tits up and leave a liability.

jamesbrown
26th August 2015, 15:40
Average tenure for permanent employees was around 9 years in 2011, according to

http://www.cipd.co.uk/binaries/megatrends_2013-job-turnover-slowed-down.pdf

And is one of the lowest in Europe.

It is unlikely to have shifted dramatically since then. 2 years as a cut off for employment status seems reasonable based on that.

Reasonable for what? Self-evidently it isn't reasonable for increasing tax take, as only a small fraction of contractors remain on the client site for more than 2 years. This would be even fewer with a new 2-year rule (i.e. the current rules reflect the current expenses regime). Furthermore, it isn't reasonable in distinguishing employment from self-employment. Thus, pretty unreasonable all around, I'd say.

eek
26th August 2015, 15:47
Current summary

We know its going to be SDorC - half this problem changes if they move back to the easier test of Not SDorC and
End clients will be responsible for deciding so the tests needed have to be end client focussed.

Part and Parcel seems to work but could not have sensible tests..
Project based work also seems to work but would need certain criteria
Time and multiple client solutions don't seem to work as they can be abused (and won't bring tax in if that's important).
If things can be abused they will be.

Anything I've missed or people want to argue with..

For entertainment value I want to add job title....

teapot418
26th August 2015, 15:54
Current summary

We know its going to be SDorC - half this problem changes if they move back to the easier test of Not SDorC and
End clients will be responsible for deciding so the tests needed have to be end client focussed.

Part and Parcel seems to work but could not have sensible tests..
Project based work also seems to work but would need certain criteria
Time and multiple client solutions don't seem to work as they can be abused (and won't bring tax in if that's important).
If things can be abused they will be.

Anything I've missed or people want to argue with..

For entertainment value I want to add job title....

We don't know anything yet - it's still a discussion document. :)

I ran a google search and filtered on results before 2002 - it does appear (as some have claimed) as if it has always been SD or C, and not always with the not! - but I couldn't find a result which was actually a date stamped document, so ICBW.

Anyone know what was actually proposed for the BETs before HMRC got their mitts on them - there might be some useful ideas in there?

teapot418
26th August 2015, 15:56
Reasonable for what? Self-evidently it isn't reasonable for increasing tax take, as only a small fraction of contractors remain on the client site for more than 2 years. This would be even fewer with a new 2-year rule (i.e. the current rules reflect the current expenses regime). Furthermore, it isn't reasonable in distinguishing employment from self-employment. Thus, pretty unreasonable all around, I'd say.

I agree, it wouldn't increase tax take, it would be far too easy to circumvent. "Clarity" isn't the primary objective here.

jamesbrown
26th August 2015, 16:01
Current summary

We know its going to be SDorC - half this problem changes if they move back to the easier test of Not SDorC and
End clients will be responsible for deciding so the tests needed have to be end client focussed.

Part and Parcel seems to work but could not have sensible tests..
Project based work also seems to work but would need certain criteria
Time and multiple client solutions don't seem to work as they can be abused (and won't bring tax in if that's important).
If things can be abused they will be.

Anything I've missed or people want to argue with..

For entertainment value I want to add job title....

:rollin:

Sadly, I think that's pretty much a true reflection of where we are. However, we'll keep trying. I wouldn't necessarily agree on the P&P tests, providing they meet the conditions I mentioned before (objective, powerful, readily evidenced), but P&P as currently defined (i.e. finger in the wind) would definitely not work.

We should perhaps think further about the SDC part too and whether there is anything we can do to soften it. I'm not sold on the discussion about SDC being different than the current idea of control, which encapsulates all of SDC (e.g. I'm not sold on the "or" being important, for example). Obviously, the loss of MoO and RoS is important. However, I don't mean to go through all that again, and a suitable fraction of CUK and status professionals/accountants do seem to be concerned about the details of SDC. Perhaps we can address this w/r to how it is explained in HMRC guidance and examples. I guess this guidance is important, even if HMRC guidance is not case law reality. In terms of a client getting nervous, however, my sense is that they won't really care about the details of SDC and its legal interpretation (i.e. default: run for the hills).

WordIsBond
26th August 2015, 16:42
Seems to me this thread has demonstrated one thing. The deeming criteria of what constitutes "employed" vs. "self-employed" / "in business for yourself" is extremely complicated, there is no good answer, and that is something HMG / HMRC are absolutely committed to change.

The only way they can change it to make it at all straightforward is to either make it too loose, letting people out of the net who should be caught, or too tight, catching people it shouldn't. Guess which they will choose?

So I keep going back to my earlier conclusion -- focusing on the deeming criteria is a loser's game for us, we need to come up with proposals that actually kill IR35 completely and replace it with something that is easy to administer (IR35 is a nightmare to administer, unless the deeming criteria are extremely draconian) and protect the Exchequer. And it needs to be something that doesn't destroy the flexible workforce.

HMG should be doing that themselves, of course. If they weren't incompetent, they should be able to see that IR35 as constructed is a nightmare, but throwing everyone into it is extremely short-sighted.

If you tweak the deeming criteria, a year later we'll hear that IR35 isn't working because someone is on the wrong side of the line, and then someone else, and someone else. And if you make engagers the enforcers, then everyone legit will be inside IR35 and everyone with the dodgy employers, the ones who will close down every three years, will be outside. So THAT isn't going to work, either.

HMRC should be collecting taxes, not playing at employment tribunal. Someone should go back to square one, and decide, if Gordon Brown hadn't given birth to a monster, what a reasonable government would come up with in its place. And IR35 should perish, and be replaced by that reasonable alternative.

jamesbrown
26th August 2015, 16:57
Seems to me this thread has demonstrated one thing. The deeming criteria of what constitutes "employed" vs. "self-employed" / "in business for yourself" is extremely complicated, there is no good answer, and that is something HMG / HMRC are absolutely committed to change.

The only way they can change it to make it at all straightforward is to either make it too loose, letting people out of the net who should be caught, or too tight, catching people it shouldn't. Guess which they will choose?

So I keep going back to my earlier conclusion -- focusing on the deeming criteria is a loser's game for us, we need to come up with proposals that actually kill IR35 completely and replace it with something that is easy to administer (IR35 is a nightmare to administer, unless the deeming criteria are extremely draconian) and protect the Exchequer. And it needs to be something that doesn't destroy the flexible workforce.

HMG should be doing that themselves, of course. If they weren't incompetent, they should be able to see that IR35 as constructed is a nightmare, but throwing everyone into it is extremely short-sighted.

If you tweak the deeming criteria, a year later we'll hear that IR35 isn't working because someone is on the wrong side of the line, and then someone else, and someone else. And if you make engagers the enforcers, then everyone legit will be inside IR35 and everyone with the dodgy employers, the ones who will close down every three years, will be outside. So THAT isn't going to work, either.

HMRC should be collecting taxes, not playing at employment tribunal. Someone should go back to square one, and decide, if Gordon Brown hadn't given birth to a monster, what a reasonable government would come up with in its place. And IR35 should perish, and be replaced by that reasonable alternative.

We've known this for decades though. What's the alternative? To put it differently, is there any jurisdiction anywhere in the world that hasn't addressed this problem through some version of IR35 that aims to differentiate between employees and the self-employed, using criteria that are draconian or subjective to varying degrees (generally, they are more draconian, as in Canada, NZ and Oz)? It's a game of classification or it's a game of massive tax simplification and, for the medium-term, it's most definitely the former.

Zero Liability
26th August 2015, 17:35
:rollin:

Sadly, I think that's pretty much a true reflection of where we are. However, we'll keep trying. I wouldn't necessarily agree on the P&P tests, providing they meet the conditions I mentioned before (objective, powerful, readily evidenced), but P&P as currently defined (i.e. finger in the wind) would definitely not work.
Is it even needed? I think SDC and a project-driven test would suffice, and they would cover much overlapping territory anyway.


We've known this for decades though. What's the alternative? To put it differently, is there any jurisdiction anywhere in the world that hasn't addressed this problem through some version of IR35 that aims to differentiate between employees and the self-employed, using criteria that are draconian or subjective to varying degrees (generally, they are more draconian, as in Canada, NZ and Oz)? It's a game of classification or it's a game of massive tax simplification and, for the medium-term, it's most definitely the former.

Well, the party that is the "friend" of small business and allegedly pro-free markets (we know their actual track record in these areas, but nevermind that) could always opt to make it one of the most business-friendly countries in the Anglo-saxon world for freelancers...

eek
26th August 2015, 20:36
Is it even needed? I think SDC and a project-driven test would suffice, and they would cover much overlapping territory anyway.



Well, the party that is the "friend" of small business and allegedly pro-free markets (we know their actual track record in these areas, but nevermind that) could always opt to make it one of the most business-friendly countries in the Anglo-saxon world for freelancers...

SDC, a project driven-test and some sanity when it comes to low paid workers would I'm sure suffice. The worst offenders are end clients who use low paid interchangeable staff as that allows them to claim they staff use MOO and substitution clauses and are self employed...

That isn't the law firm and the NHS trust in the case studies. That's the care company trying to delivery care as cheaply as possible by cutting every penny it can because their competitors have already done so.

jamesbrown
26th August 2015, 21:04
Is it even needed? I think SDC and a project-driven test would suffice, and they would cover much overlapping territory anyway.

Possibly not. The last thing we want to do is over-complicate things. OTOH, it would be nice to outline and justify as many clear-cut cases of being outside as we possibly can (including relatively simple criteria that move beyond SDC, without arriving back at IR35 as currently formulated), because the removal of MoO and RoS as considerations will also impact many legitimate contractors.


Well, the party that is the "friend" of small business and allegedly pro-free markets (we know their actual track record in these areas, but nevermind that) could always opt to make it one of the most business-friendly countries in the Anglo-saxon world for freelancers...

Yep. Rank and file politicians are generally good people IMO, but the leaders of all parties are unwavering pragmatists when they smell power and the Tory leadership saw an opportunity to occupy the centre ground (drawn with some space each way), forever removing Labour from the picture. It's New Labour Tory.

Zero Liability
26th August 2015, 21:26
How do you envision that a P&P test would achieve that? My worry is that it could end up becoming another case of he said/she said and this is already a case of introducing quite a lot of complexity to this area. Beyond that, by establishing a test that can relate a contract role to a definable, finite project and its budget, you've already gone quite some way to distinguish resource the client engages with a view to completing that project and its employees which it requires for enduring functions where it doesn't envision an expiry date. Even if a contractor goes from one project to the next, these are discrete in nature and relate to genuine business needs of the client; and this is consistent, anyway, with how businesses interact with suppliers that do a good job. So I think this is an excellent test in that respect, and better than arbitrary metrics like time spent at a client, multiple clients, % of business from 1 client etc.

Ultimately, all this is making the best of a bad situation. One thing the government is going to have to get to grips with is that, however unscrupulous some of these employers at the lower paid end may be, employment is costly. Come the next crisis, when cost-reduction really becomes a priority again, some of these people whom it now wishes to migrate to PAYE may simply not be employable at that cost; this may even be the case now but I think Gideon is throwing in some sweeteners to blunt the effect of that, as he did with the "living wage". That goes beyond the scope of either the IR35 discussion document or T&S consultation but what I am getting at is that longer term they will have to take some tough decisions and look to merging PAYE/NIC, rather than falling back on stopgap measures like these, which may be fine in the interim to prevent a race to the bottom but which still don't solve the root of the problem (which may also relate to low productivity levels, a broader economic issue).

Contreras
27th August 2015, 00:46
The two unfair dismissal cases I remember went to the appeal courts. The legal arguments where on SDC, MOO and the meaning of "service".

The discrimination cases are often more clear cut in this regard.

Doesn't that demonstrate a potential downside for clients judging everyone under SDC by default?

And if they judge workers not to be under SDC then they had better be sure this is reflected in reality (and no MoO either) or risk suffering penalties for mis-reporting?


It becomes a different matter when you are asked to indemnify the other parties in the chain...

Yes. Which in part is why I believe potential employment claims are the greatest concern for clients. Statutory rights cannot be so easily dismissed.

SueEllen
27th August 2015, 05:17
Doesn't that demonstrate a potential downside for clients judging everyone under SDC by default?

And if they judge workers not to be under SDC then they had better be sure this is reflected in reality (and no MoO either) or risk suffering penalties for mis-reporting?


Yes.

However the law does not align tax status, employment status and H&S status. If we worked out criteria that would work so the first two are aligned it would help us and those at the low pay end.

Though I can see care companies/agencies getting round everything e.g. unlike now all would ensure the same carers(s) cared for the same individual at the same time per day rather than just the better companies, the carers would only be employed part-time on specific days/hours forcing them to use other agencies to get a living wage, etc.

LisaContractorUmbrella
27th August 2015, 06:34
This case might be relevant FTT agrees no control over agency workers | Gabelle LLP Tax Consultants (http://www.gabelletax.com/blog/2014/07/04/ftt-agrees-no-control-over-agency-workers/). Could IR35 be determined according to whether or not the services that are provided are not the services that the client themselves provide? If you provide IT services to a bank you are offering a service which is not integral to their business and therefore you shouldn't be considered a deemed employee. Whereas if you provided financial analysis of some sort you would be doing something that's integral to the business.

Not perfect I know but might have some merit?

WordIsBond
27th August 2015, 07:16
What's the alternative?
Well, you could institute a dividend tax to discourage tax-motivated incorporation, thus narrowing significantly the gap between employment and self-employment taxation. Then, for one-man bands, you could remove the employment allowance (since it is intended to encourage employment, not be a nice bonus for one-man bands. And then, you could simply STOP since you've done enough. :D

But if you really, really need to do more, narrow the gap further between employment and non-employment taxes. That is simple and eliminates the need to establish somewhat arbitrary distinctions between what is and isn't employment for tax purposes.

jamesbrown
27th August 2015, 07:22
How do you envision that a P&P test would achieve that? My worry is that it could end up becoming another case of he said/she said and this is already a case of introducing quite a lot of complexity to this area. Beyond that, by establishing a test that can relate a contract role to a definable, finite project and its budget, you've already gone quite some way to distinguish resource the client engages with a view to completing that project and its employees which it requires for enduring functions where it doesn't envision an expiry date. Even if a contractor goes from one project to the next, these are discrete in nature and relate to genuine business needs of the client; and this is consistent, anyway, with how businesses interact with suppliers that do a good job. So I think this is an excellent test in that respect, and better than arbitrary metrics like time spent at a client, multiple clients, % of business from 1 client etc.


Yes, we're on the same page. Fundamentally, the P&P test, at least in terms of how it is traditionally defined, is a messy collection of subjective factors. It wouldn't meet the requirements of a test that is objective, powerful and straightforward to evidence. There are, however, elements of P&P that are more straightforward, such as participating in performance reviews or generic activities that are beyond the scope of a project. However, as you say, there is some overlap here between P&P and doing project-based work. I'm not ready to give up on any particular attribute, but P&P is a tough one, and is perhaps better formulated as a moderately good indicator for being inside (part of the client furniture) than a powerful indicator for being outside (not part of the furniture).

pr1
27th August 2015, 07:30
This case might be relevant FTT agrees no control over agency workers | Gabelle LLP Tax Consultants (http://www.gabelletax.com/blog/2014/07/04/ftt-agrees-no-control-over-agency-workers/). Could IR35 be determined according to whether or not the services that are provided are not the services that the client themselves provide? If you provide IT services to a bank you are offering a service which is not integral to their business and therefore you shouldn't be considered a deemed employee. Whereas if you provided financial analysis of some sort you would be doing something that's integral to the business.

Not perfect I know but might have some merit?

so in an engineering firm; all receptionist, HR, cleaners, tea ladies, IT helpdesk contractors would be fine (outside IR35) but all the contracted engineers would be inside?

far from perfect in my view!

jamesbrown
27th August 2015, 07:31
This case might be relevant FTT agrees no control over agency workers | Gabelle LLP Tax Consultants (http://www.gabelletax.com/blog/2014/07/04/ftt-agrees-no-control-over-agency-workers/). Could IR35 be determined according to whether or not the services that are provided are not the services that the client themselves provide? If you provide IT services to a bank you are offering a service which is not integral to their business and therefore you shouldn't be considered a deemed employee. Whereas if you provided financial analysis of some sort you would be doing something that's integral to the business.

Not perfect I know but might have some merit?

Yes, it definitely has merit, and can be formulated in terms of SDC (although it overlaps a few areas). I see this as being somewhat akin to cases where SDC is difficult to apply in principle. For example, it is difficult for a client to impose (or to seek to impose) the "how" element of control (very important) on a recognized expert conducting specialist work; this is established in case law. Obviously, it isn't entirely impossible if other experts are involved and imposing a structure for how the work is completed. I think the same applies to a worker that is delivering services outside the normal scope of the client's business. No indicators are perfect, but I definitely think this has merit and can be formulated in the context of SDC.

jamesbrown
27th August 2015, 07:34
far from perfect in my view!

It depends how you formulate it. I think it applies to "skilled" work, but obviously not to generic support workers for whom SDC will almost certainly apply (I don't mean that to come across in a condescending way, but I think it's a pointer in the context of SDC).

jamesbrown
27th August 2015, 07:37
Well, you could institute a dividend tax to discourage tax-motivated incorporation, thus narrowing significantly the gap between employment and self-employment taxation. Then, for one-man bands, you could remove the employment allowance (since it is intended to encourage employment, not be a nice bonus for one-man bands. And then, you could simply STOP since you've done enough. :D

But if you really, really need to do more, narrow the gap further between employment and non-employment taxes. That is simple and eliminates the need to establish somewhat arbitrary distinctions between what is and isn't employment for tax purposes.

You should work for the Treasury :D Wait a second... :laugh

I wouldn't argue against tax simplification as the end goal (for everyone concerned).

LisaContractorUmbrella
27th August 2015, 07:48
It depends how you formulate it. I think it applies to "skilled" work, but obviously not to generic support workers for whom SDC will almost certainly apply (I don't mean that to come across in a condescending way, but I think it's a pointer in the context of SDC).

Yes exactly

WordIsBond
27th August 2015, 07:53
You should work for the Treasury
https://www.gov.uk/government/organisations/hm-treasury/about/procurement

Their procurement pipeline is way out of date. :D

Danglekt
27th August 2015, 09:57
interesting point regarding liability.

Lets imagine a claims comes in retrospectively, the client then pursues the contractor and in doing so drums up £100k in legal nonsense (ok £100k is an exageration but you get my point).

Many a warchest (hate that phrase) will be bled dry by legal fees rather than the tax clawback. How do we protect against that mess?

DaveB
27th August 2015, 10:08
interesting point regarding liability.

Lets imagine a claims comes in retrospectively, the client then pursues the contractor and in doing so drums up £100k in legal nonsense (ok £100k is an exageration but you get my point).

Many a warchest (hate that phrase) will be bled dry by legal fees rather than the tax clawback. How do we protect against that mess?

Would your PI cover it or are we looking at a whole new insurance product ala IR35 cover?

jamesbrown
27th August 2015, 10:31
Would your PI cover it or are we looking at a whole new insurance product ala IR35 cover?

No, PI wouldn't cover it. In the current regime, IPSE and others offer legal expenses cover ("professional expenses insurance"). In addition to that, you can get tax liability insurance (covering tax, interest and penalties). However, if there's a material change in risk, there will be a material change in cost (probably not a material change in risk w/ client as gatekeeper, because the bar will be high).

WordIsBond
27th August 2015, 10:50
Would your PI cover it or are we looking at a whole new insurance product ala IR35 cover?
It would have to be a new product. It would be tied to the contract, and the client would be the beneficiary for any liability they have, so that if the contractor Ltd co goes out of business the client is still covered.

And either clients would purchase it directly or they would force contractors to purchase it on their behalf. That would be a negotiation point, like rate and other things -- who pays for the client's IR35 insurance?

fidot
27th August 2015, 16:24
But if a contractor is under the client's SDC, there's not much scope for pursuing the contractor legally.

It's why, pre IR35, that agency contracts tried to show that contractors were under the client's SDC, so that there was no come back on the agency.

mudskipper
30th August 2015, 19:54
I ran a google search and filtered on results before 2002 - it does appear (as some have claimed) as if it has always been SD or C, and not always with the not! - but I couldn't find a result which was actually a date stamped document, so ICBW.


Tried this - everything seems to come back dated 1/2/2001. Not convinced the results are accurate...

breaktwister
31st August 2015, 00:04
IR35 was poorly written, difficult to police and easy to circumvent. Everything I have read so far on the new issues can be circumvented by contractors buddying up and forming a ltd with 2 directors proving business services to 2 or more clients. Thus, such a company falls outside the definition of "an employment intermediary" and SDC, IR35 etc doesn't apply.

breaktwister
31st August 2015, 00:41
I am a little confused as to how the end client could possibly make a written determination about my personal status and SDC. As an individual, I have absolutely no legal relationship with the end-client. Only a business to business contract exists so if HMRC was to ask the end-client anything about me as an individual the correct legal position would be for them to refuse to respond and direct HMRC to my ltd for answers.

WordIsBond
31st August 2015, 07:08
IR35 was poorly written, difficult to police and easy to circumvent. Everything I have read so far on the new issues can be circumvented by contractors buddying up and forming a ltd with 2 directors proving business services to 2 or more clients. Thus, such a company falls outside the definition of "an employment intermediary" and SDC, IR35 etc doesn't apply.
That's great news! We're all rescued! Funny that none of the accountants, lawyers, or other experts noticed this, and that HMRC hasn't caught on and modified the rules to catch it.

Or, maybe this solves nothing....

WordIsBond
31st August 2015, 07:12
I am a little confused as to how the end client could possibly make a written determination about my personal status and SDC. As an individual, I have absolutely no legal relationship with the end-client. Only a business to business contract exists so if HMRC was to ask the end-client anything about me as an individual the correct legal position would be for them to refuse to respond and direct HMRC to my ltd for answers.
I do not recommend that you risk your financial future on the hopes that your end clients will adopt the position you've outlined here. Unless your end clients are outside the UK, they will answer any questions the tax man asks about the working arrangements you had with them. Even foreign clients might if they are somehow convinced by the tax man that they are being helpful.

jamesbrown
31st August 2015, 10:50
I am a little confused as to how the end client could possibly make a written determination about my personal status and SDC. As an individual, I have absolutely no legal relationship with the end-client. Only a business to business contract exists so if HMRC was to ask the end-client anything about me as an individual the correct legal position would be for them to refuse to respond and direct HMRC to my ltd for answers.

As you said, you're a little confused. A UK-based end-client is obliged to talk to HMRC. In principle, an overseas end-client can be obliged to talk to their local tax inspector (and thus HMRC) through the ordinary bilateral channels. In any case, the failure of HMRC to glean information from the end-client doesn't necessarily prevent them from building a case, although it does make things more difficult. You're also confused about the application of IR35; this doesn't simply apply to PSCs. The whole point of IR35 is to construct a hypothetical contract between an individual and the end-client (casting aside any intermediaries) in order to establish whether the indicia of employment are present.

IR35 Avoider
31st August 2015, 17:40
IR35 was poorly written, difficult to police and easy to circumvent. Everything I have read so far on the new issues can be circumvented by contractors buddying up and forming a ltd with 2 directors proving business services to 2 or more clients. Thus, such a company falls outside the definition of "an employment intermediary" and SDC, IR35 etc doesn't apply.

Creating a non-caught intermediary is possible, you need two modifications:-

1. It needs to be at least 20 contractors, none can own more than 5%.
2. There cannot be a provable direct correlation between what each contractor brings in and what they take out.

This was tried when IR35 was introduced, a vehicle was created by an accountant and vetted by lawyers. It failed to take off, attracting an insignificant number of contractors before it was abandoned in favour of a supposedly better idea several months later. I suspect point 2 in particular was a bit of a deal-breaker for most contractors. However if IR35 mk2 results in everyone being caught, and IPSE were to create/endorse a "large consultancy" vehicle that all contractors could join, maybe there would now be enough incentive and trust for this to work the second time around.

I think a new "large consultancy" vehicle can remain IR35-proof, no matter what tests are introduced in future. If large consultancies remain exempt then a contractor consultancy can be made to resemble them sufficiently in order to share that exemption. The difficulty is not designing the contractor vehicle, it's persuading a viable number of contractors to believe in it as the way forward.

expat
31st August 2015, 20:56
I am a little confused as to how the end client could possibly make a written determination about my personal status and SDC. As an individual, I have absolutely no legal relationship with the end-client. Only a business to business contract exists so if HMRC was to ask the end-client anything about me as an individual the correct legal position would be for them to refuse to respond and direct HMRC to my ltd for answers.It's actually quite simple: they can not correctly determine it; but they can be asked, if asked they will have to answer, they will answer, and right or wrong what they say will stand.

No they can't, and yes they will. Which reminds me to download some Kafka to my Kindle.

supersteamer
31st August 2015, 21:01
Personally (and I appreciate I'm in a small minority) I like the idea of a FLC - we're not employees and we're not big corporates either. A simple clear tax structure is worth something in terms of money, administrative burden and peace of mind. I just don't like the IPSE FLC as it doesn't seem to solve many of the problems and is still too woolly with regard to definitions.

Anything that involves defining "Part & Parcel", "Supervision", "Control" etc. is an immediate fail in my book (regardless if I determine it or my client) as it is too subjective to enforce properly and results in an unequal playing field between people quoting rates on different interpretations of taxes due.

Anyway, here's my proposal for a FLC which is JUST TICK BOX ACCOUNTING - no philosophical navel gazing about the distinction between employees and service providers:
First, up, make HMRC happy: all Income is treated as PAYE (!)

BUT - TO ALLOW FOR THE FACT WE ARE NOT EMPLOYEES THE FOLLOWING ADJUSTMENTS ARE ALLOWED:

1. Because our income is highly variable and some years may be very lean, any unused personal tax allowance may be carried back and a rebate claimed on higher rate taxes paid in previous 5 years. This will allow us to even out the good times with the bad without having to keep a war chest in the company coffers.

2. If HMRC want to tax us PAYE - fine, but that shouldn't mean having their cake and eating it: no more employers NI (PAYE is an employment tax!).

3. Expenses of running a business should be allowable as we will still have statutory requirements and contractual obligations that nobody else will pay for: accountants, insurance, IT equipment, telecoms etc. (many of which disallowed for no apparent reason under IR35)

4. T&S must remain allowable: we could say the first £x of travel expenses are not claimable where £x is the average permie commute cost. Expenses beyond this for those servicing distant clients seem entirely reasonable.

The above can't really be abused by "disguised employees" as they (1) won't have tax allowance to carry back as they are in continuous employment, (2) the allowed expenses are for boring things like accountants and insurance that nobody would want to buy unless they actually need them, and (3) the level of T&S they claim will typically be below the threshold where it's claimable.

A 1-person LTD would still be allowable for those intending to build a service based consultancy (as would be no client liability nobody would be forced to use a FLC) but IR35 reviews would be mandatory and the review industry properly regulated. Such companies should have a proper business plan for growth and would be downgraded to an FLC if they failed to expand to the point where they employ additional fee-earning staff after 4 years of operation.

malvolio
1st September 2015, 08:48
Firstly, before defining the workings of an FLC, perhaps we should see if the whole idea is viable and acceptable to HMG? Then we can argue the operational detail.

Secondly we need to be very careful about what tax concessions we would then ask for, since HMG's whole concern is to maximise tax recovery by HMRC. Aiming to retain the current net tax position is probably not the best approach (appealing as it is, of course!)

Thirdly, if the FLC concept is approved then surely the next step is to define precisely who can use one and under what circumstances so only genuine candidates need apply. Then we move on to how it works.

And finally, why split personal and FLC taxation if the whole point of the FLC is that it is a one man vehicle? Why not a single tax on the FLC's gross earnings, then allow the owner to withdraw money for living and working for free and let them work out how much they can save in the company for the bad times?

Just a thought...:wink

LisaContractorUmbrella
1st September 2015, 09:55
Tried this - everything seems to come back dated 1/2/2001. Not convinced the results are accurate...

Don't know if this will be any help http://www.law.ox.ac.uk/themes/tax/documents/WLDoc08-12-02.pdf article written in 2001 referring to the original IR35 proposals

WordIsBond
1st September 2015, 09:59
Firstly, before defining the workings of an FLC, perhaps we should see if the whole idea is viable and acceptable to HMG? Then we can argue the operational detail.

In principle this isn't bad. But to be clear, even if you think you are in a weak negotiating position, you don't make concessions without expecting concessions in return. The problem I have with IPSE's FLC is it appears to do exactly that -- make concessions without detailing any that HMG should make in return. (We HOPE that HMRC won't target FLCs for IR35, but we aren't insisting.)

If you think your position is weak, you may make larger concessions than you ask for, but you won't make concessions without any in return. That's surrender.

mudskipper
1st September 2015, 10:16
Don't know if this will be any help http://www.law.ox.ac.uk/themes/tax/documents/WLDoc08-12-02.pdf article written in 2001 referring to the original IR35 proposals

Interesting article, thanks Lisa. A sense of deja vu...

malvolio
1st September 2015, 10:48
In principle this isn't bad. But to be clear, even if you think you are in a weak negotiating position, you don't make concessions without expecting concessions in return. The problem I have with IPSE's FLC is it appears to do exactly that -- make concessions without detailing any that HMG should make in return. (We HOPE that HMRC won't target FLCs for IR35, but we aren't insisting.)

If you think your position is weak, you may make larger concessions than you ask for, but you won't make concessions without any in return. That's surrender.

Agreed, but the whole point of the exercise is to distinguish between one man businesses and those taking the Michael out of the tax and employment laws. We can argue for the status quo in terms of net taxation of course, but some degree of trade off will be necessary. To pitch the FLC as a taxation preservation vehicle would be counter-productive; that's not what it's for. Rather, it is meant to provide the separation and hence attract other "concessions" such as T&S and freedom from IR35 investigations.

Obviously the plan would be to pitch for as little taxation change as possible! I doubt zero would be achievable though, given HMG's current position.

sira
12th October 2018, 22:04
IR35 was poorly written, difficult to police and easy to circumvent. Everything I have read so far on the new issues can be circumvented by contractors buddying up and forming a ltd with 2 directors proving business services to 2 or more clients. Thus, such a company falls outside the definition of "an employment intermediary" and SDC, IR35 etc doesn't apply.

My accountant suggested this and he has already created one for his clients. Perfectly legal, as far as I'm aware.

jamesbrown
12th October 2018, 22:28
My accountant suggested this and he has already created one for his clients. Perfectly legal, as far as I'm aware.

It's also total nonsense and doesn't circumvent IR35. If the person providing the service retains a material interest, defined as control or ownership of 5% or more of the ordinary shares, then those services are within scope of IR35, other factors being equal (but not necessarily inside IR35). What you're describing is a sham. Obviously, if you were describing a real situation where a given service was being delivered by multiple people simultaneously to the same company or multiple companies simultaneously, those services would probably not be inside IR35, but the point stands that your suggested route to circumvent the legislation is total nonsense.

cojak
13th October 2018, 07:17
My accountant suggested this and he has already created one for his clients. Perfectly legal, as far as I'm aware.

Do you have that in writing?

This is where dealing with IR35 skids you into EBT-type Tax Avoidance schemes.

Take great care that you aren’t setting yourselves up to be moved into the HMRC Enquiries forum, people...

eek
18th October 2018, 07:08
It's also total nonsense and doesn't circumvent IR35. If the person providing the service retains a material interest, defined as control or ownership of 5% or more of the ordinary shares, then those services are within scope of IR35, other factors being equal (but not necessarily inside IR35). What you're describing is a sham. Obviously, if you were describing a real situation where a given service was being delivered by multiple people simultaneously to the same company or multiple companies simultaneously, those services would probably not be inside IR35, but the point stands that your suggested route to circumvent the legislation is total nonsense.

+1 - the contract itself is the item subject to IR35 - changing the entity that pays you doesn't fix the contract. So if the contract is for £100,000 that £100,000 has to be paid to you via PAYE....

To me the entire plan seems very similar to the Managed Companies schemes (where 20+ contractors were each given their own class of share and the accountant did all the work) that used to exist before HMRC shut them down many years ago....