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XLMonkey
1st October 2015, 13:44
Bit of a long post this... just thought it might be useful to share any responses that people have actually submitted to HMRC re. the IR35 consultation... This is the first part - looking at those lovely case studies

XLM

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Dear Sir/Madam

I am writing in response to the discussion document on the Intermediaries Legislation (IR35).

The discussion document sets out a number of legitimate concerns about the impact on the Exchequer of the avoidance of employment taxes. However, it makes a number of errors in framing the consultation questions which I want to address before responding to the questions themselves.

The two case studies set out at the beginning of the paper are entirely unrealistic

The main errors relate to the case studies that are used to illustrate the problem being addressed in the document. They are both entirely unrealistic.

- Case study 1 sets out two hypothetical individuals - Jo and Ben - engaged to undertake legal work for gross payments of £70,000 per year, and then outlines the tax saved by the Ben of £5,171 and by the engager of 8,541. This tax saving is achieved by both parties due to the fact that Ben operates via a limited company and invoices the legal company for services rendered, whereas Jo is an employee.

This scenario is unrealistic because Ben has no surety of receiving £70,000 per year at the outset of the contract, whereas Jo does. This is a central difference between freelance work and employment. At any point during the year Ben’s engagement could have been terminated by the legal company without liability - for example if the flow of cases had reduced or the profitability of those cases had proven insufficient to justify his costs. That is not the case for Jo, who would have had a statutory notice period in her contract, along with redundancy and other rights that may have accrued.

If Ben had been assured of the £70,000 from the outset, and assured of a continued flow of work to do, then the argument of loss to the exchequer might be sustained. However, this scenario is already well provided for within current employment legislation, where mutuality of obligation (on an employer to provide work and an employee to do it) is one of the central tests of IR35 compliance.

If Ben is not assured of the £70,000 from the outset, then it is likely that he would have fallen outside the scope of IR35, and thus no additional tax would have been due. Since the discussion document asserts that the government does not wish to extend the scope of IR35 in the first place, then there is no loss to the exchequer.

- Case study 2 sets out a similar scenario, albeit this time in the context of an NHS trust, but varies it by suggesting that the NHS trust negotiates a reduction in salary to cover the employers national insurance contributions that it saves. This implicitly makes the same mistake as the first case study by use of the word salary to refer to Sarah’s income. It assumes that Sarah has the same security of tenure that Mark does when clearly she does not. If that were the case, she would fall inside the scope of IR35 as currently defined.

This scenario is also unrealistic because it assumes that the only cost to the employer is national insurance. Any NHS employee will receive pension contributions from their employer of a minimum of 14.3% effective 1 April 2015 (see link http://www.nhsbsa.nhs.uk/i/Pensions/Tiered_Contributions_for_Scheme_years_2015-16_to_2018-19_-_Update_V1.pdf). Similarly, most employers have a range of costs associated with paid holidays, sick pay, training and other entitlements that would not normally be subject to employers or employees national insurance or tax. In fact, all statutory employment rights have the same economic effect as national insurance - they increase the relative cost of employing people as compared with other types of investment.

These are real costs, and affect the decision that a trust may make about whether it can afford to take on a full time member of staff, and about the relative costs and benefits of doing so vs. using temporary staff.

Finally, both of these case studies ignore the costs associated with operating a limited company, which would substantially reduce the effective income that you have outlined.

To make the point as clearly as possible, here are more representative costs for your scenario 2.

Mark - gross salary 27,345, net income 21,684
Sarah - limited company turnover £30,000, net income 25,800
- minus £3910 (to match the pension contributions made on Mark’s behalf by the NHS trust)
- minus £2379 (27 days holiday entitlement out of a total 246 working days in each year, which Mark would be entitled to but Sarah would not)
- minus £1100 operating costs associated with running a personal service company (principally accountancy and payroll administration costs)
- plus gain on Flat Rate VAT Scheme of £1050 (assuming that the gain results in a profit post corporation tax of 3.5%, which is typical for a personal service company)

Sarah’s net income is in fact £19,461, not 25,800. This of course ignores the value of sickness pay, training and redundancy entitlements that Mark might expect to accrue over a period of time that Sarah would not receive.

LisaContractorUmbrella
1st October 2015, 14:14
Ours can be found here: HMRC issue discussion document on IR35 Legislation, AUCAE urge contractors to #haveyoursay - All Umbrella Companies Are Equal (http://www.allumbrellacompaniesareequal.com/aucae-surveys.html) - follow the 'click here to find out more links'

TheFaQQer
1st October 2015, 15:37
The IPSE response to the IR35 consultation can be found here (https://www.ipse.co.uk/sites/default/files/documents/policy/IR35_discussion_doc_response_2015_final.pdf).

XLMonkey
1st October 2015, 19:09
Ours can be found here: HMRC issue discussion document on IR35 Legislation, AUCAE urge contractors to #haveyoursay - All Umbrella Companies Are Equal (http://www.allumbrellacompaniesareequal.com/aucae-surveys.html) - follow the 'click here to find out more links'

Thanks Lisa

I clicked on the link but the response doesn't appear to be live yet? (text on the website says click here, but no actual link)

mudskipper
2nd October 2015, 06:07
Thanks Lisa

I clicked on the link but the response doesn't appear to be live yet? (text on the website says click here, but no actual link)

Not working for me either.

LisaContractorUmbrella
2nd October 2015, 06:21
Sorry chaps - obviously got a gremlin in the works - try this one HMRC issue discussion document on IR35 Legislation, AUCAE urge contractors to #haveyoursay - All Umbrella Companies Are Equal (http://www.allumbrellacompaniesareequal.com/ir35-discussion-document_sept15.html) and the response to the T&S survey can be found here Budget 2015 : AUCAE launch survey urging contractors and recruiters to have their voice heard. - All Umbrella Companies Are Equal (http://www.allumbrellacompaniesareequal.com/national-contractor-ts-survey_sept15.html)

WordIsBond
2nd October 2015, 19:10
Glad to see the final form of the IPSE response, something I can definitely get behind.

Thank you to Lisa for all your work.

TykeMerc
2nd October 2015, 21:39
I've read the IPSE document and acknowledging that I am biased as I despise the organisation I'm not overly impressed.

It mostly seems to be moaning rather than presenting a rational analysis and feedback, at least when I read it. I also feel that the entire submission can (and will be if HMRC have anyone with at least 2 working braincells) be entirely discredited with a single question.

How many members does IPSE have on its books?

Section 1 of the doc which is there to set the submission in context, after the usual nauseating big words on the cover page as first bullet has :-

The Association of Independent Professionals and the Self Employed (IPSE) represents the estimated 4.5 million individuals working for themselves in the UK.

Putting aside the colossal and totally untrue statement that IPSE represents all the self employed.

That implies that the submission was written with the backing of 4.5 million members, that's patently a load of totally fabricated nonsense (polite version). If IPSE had even a million members it would be about the largest representative organisation in the UK and the last I heard the number 20,000 was mentioned. That's 0.44% of 4.5 million.
As soon as they look at the membership numbers vs the headline implication it makes the whole organisation look as trustworthy as a FIFA official and any merits the document have are immediately binned.

Hell if it's aright to use that 4.5m outright lie then I can get the chap down the road who's a self employed man in a van to join a new organisation we dream up tomorrow and make a similar claim in a glossy presented document.

SueEllen
3rd October 2015, 04:55
I strongly doubt both documents will be studied in depth.

However Lisa's at least has the has advantage of clearly pointing out the problems that lay ahead for the government if they go down the path they want with T&S with clear examples using gathered facts, a legal expert etc and proposed solutions.

The IPSE document does not offer a solution to IR35 and relies just on case law.

Both documents make it clear that if the tax changes are put in place at some point there will be a legal challenge to get employment rights.

You can write in a contract what you like about it not being employed but if you are a lower paid worker contracted via an agency to work for the public sector then this isn't hard to image.

In regards to funding - if two people who work in a university can use crowd funding to raise money to challenge the civil partnership laws a care worker or teacher won't have a problem.

ShandyDrinker
3rd October 2015, 06:33
I've read the IPSE document and acknowledging that I am biased as I despise the organisation I'm not overly impressed.


As a collective I think we should be grateful to the likes of the IPSE (yes, I am a member) and people such as Lisa from ContractorUmbrella for taking the time to undertake surveys, build credible responses and generally fight our corner.

It's very easy to despise an organisation such as the IPSE. However, if more contractors got behind them, the more clout we'd have. Sure, they may make some mistakes (the FLC proposal was a joke), but in addition to lobbying they provide a useful service to people such as support to Geoff and Diana Jones in the Arctic Systems case. I know that in the event of any investigation they will be my first port of call.

Even if people don't want to join the IPSE, I hope at the very least many have taken the time to take some form of action on both the IR35 and the T&S consultations.

TykeMerc
3rd October 2015, 07:57
I see no reson to line up behind IPSE, they have suffered from incurable arrogance since the early days of the PCG which at least had an honest agenda, these days it's just an insurance funded lobby group stroking the ego's of their management. As I stated in my earlier post their entire submission will be discredited and subsequently ignored if it's published unchanged from what I read.
Oh it missed the point almost entirely when it comes to the T&S proposals which are what will damage contracting more than what they addressed in the document.

It's at times like these that their mettle should be seen, tested and proven, so far it's been a farce with a poorly written survey that rather missed the point (until it was restricted to members only and after they'd "lost" a load of submissions) and attempts to drive all discussion into a members only closed forum in order to shape opinion and conceal dissent. The fact that until some of the CUK Forum posters stood for IPSE council membership and others engaged on their forums those forums were essentially silent is telling. Just how many of the IPSE "members" are purely insurance customers and have no idea that PCG was originally an anti IR35 campaign group?

I have a lot of respect for Lisa and Eek who arranged and collated data from surveys and have actively driven debate (yes Eek was annoyed to the point of walking away by a moron who thought winding him up was funny) and I have filled in any and all surveys they arranged. I have responded to their questions freely, the one Lisa published a week or so back had a fair amount of free space to provide verbose responses to questions where it was helpful, incidentally I felt that their surveys were far more professionally worded than the IPSE ones.

Yes this is a bit of an anti IPSE rant, but if, as they claim, they represent such a massive constituency then they could and should have done a vastly better job with this important issue.

ShandyDrinker
3rd October 2015, 08:53
I see no reson to line up behind IPSE, they have suffered from incurable arrogance since the early days of the PCG which at least had an honest agenda, these days it's just an insurance funded lobby group stroking the ego's of their management. As I stated in my earlier post their entire submission will be discredited and subsequently ignored if it's published unchanged from what I read.
Oh it missed the point almost entirely when it comes to the T&S proposals which are what will damage contracting more than what they addressed in the document.

It's at times like these that their mettle should be seen, tested and proven, so far it's been a farce with a poorly written survey that rather missed the point (until it was restricted to members only and after they'd "lost" a load of submissions) and attempts to drive all discussion into a members only closed forum in order to shape opinion and conceal dissent. The fact that until some of the CUK Forum posters stood for IPSE council membership and others engaged on their forums those forums were essentially silent is telling. Just how many of the IPSE "members" are purely insurance customers and have no idea that PCG was originally an anti IR35 campaign group?

I have a lot of respect for Lisa and Eek who arranged and collated data from surveys and have actively driven debate (yes Eek was annoyed to the point of walking away by a moron who thought winding him up was funny) and I have filled in any and all surveys they arranged. I have responded to their questions freely, the one Lisa published a week or so back had a fair amount of free space to provide verbose responses to questions where it was helpful, incidentally I felt that their surveys were far more professionally worded than the IPSE ones.

Yes this is a bit of an anti IPSE rant, but if, as they claim, they represent such a massive constituency then they could and should have done a vastly better job with this important issue.

All good points. It's a shame the IPSE have kept the discussion a closed shop as you're spot on with your observation. Sadly I think their forums are nowhere near as active as these ones. Lisa and Eek should definitely be applauded for their separate surveys/approaches on this.

Perhaps wider than the discussion about the merits (or otherwise) of the IPSE, what I have found over the last 6 or so months since the 2 bombshell budgets, is the apathy that many contractors I've worked with have shown to the proposed changes to T&S and IR35. Some of that may be down to the fact that I was working at an IB in Canary Wharf where many of the contractors were local anyway (and only ever seemed to take local contracts) so the T&S changes may not affect them too much. For those of us choosing not to live in London these changes will have a real impact on our businesses. In short many contractors just don't seem to care about T&S or IR35.

While these forums have a number of very active members who I've no doubt have got involved, the numbers on here pale into insignificance compared to the number of contractors out there. Ultimately if contractors don't do their bit and educate themselves as to the changes which are afoot, we'll end up with changes forced upon us whether we like it or not. We're hardly likely to get much sympathy from the vast majority of the "employed" public.

cojak
3rd October 2015, 09:56
I suspect that some savvy end-of-career contractors will cherry pick the best-paying permie jobs over the next 6 months, leaving the vast majority of the blissfully ignorant (non hard core) to scamble after poorly paid jobs come May 2016 (they'll only just find out in April).

Lots of contracts will be going begging to those who tough it out...

ShandyDrinker
3rd October 2015, 10:43
I suspect that some savvy end-of-career contractors will cherry pick the best-paying permie jobs over the next 6 months, leaving the vast majority of the blissfully ignorant (non hard core) to scamble after poorly paid jobs come May 2016 (they'll only just find out in April).

Lots of contracts will be going begging to those who tough it out...

While I agree with you to a certain extent, unless the rates rise significantly for those who do choose to tough it out, the contractor will end up being worse off than the permie simply through the additional taxes that we could be forced to pay if the changes do go through.



Both documents make it clear that if the tax changes are put in place at some point there will be a legal challenge to get employment rights.

Bar a miracle happening, I think this will be the main point if the changes go through as expected. Ultimately if the government/treasury/HMRC want to play the game of saying that IR35 caught contracts mean that the person is a disguised employee, they should get employee rights such as holiday, pensions, etc. Although I don't know if there is precedence in law of the Duck Test (https://en.wikipedia.org/wiki/Duck_test) there should be. The same should be applied to IR35 and employment rights.

Having watched an interesting document on Scientology (not that I'm a big fan of cults) the other day (Going Clear), their members played a blinder with the IRS in the US by tying them up in litigation to ensure that Scientology was tax exempt. If all the proposed changes do go through, I for one would like to see HMRC (and potentially clients) tied up in litigation such that if contractors are classed as employees, they should get all the benefits of being employees.

Zero Liability
3rd October 2015, 12:27
Glad to see the final form of the IPSE response, something I can definitely get behind.

Thank you to Lisa for all your work.

Yeah, I think the substance of it was pretty good. IMO, Lisa (and the combined efforts of others that went into it) outdid them in terms of the thoroughness of the reply, and in suggesting the hopelessness of their proposed changes and in pointing out better alternatives. Of course, with regard to the consultation in the OP, they really should adopt a "wait and see" approach given the new dividend tax, as it may suggest outright abolition even from HMG's POV, something I'd recommend they considered regardless given its present form. I may have missed it but did the suggestion of a project-based test as an alternative criterion not end up making it in?

Now whether they read it, read it in any depth or just toss it in the shredder, remains to be seen. :D

TykeMerc
3rd October 2015, 16:26
I suspect that some savvy end-of-career contractors will cherry pick the best-paying permie jobs over the next 6 months, leaving the vast majority of the blissfully ignorant (non hard core) to scamble after poorly paid jobs come May 2016 (they'll only just find out in April).

Lots of contracts will be going begging to those who tough it out...

As a more than 20 year contractor this has more than crossed my mind on several occasions. I've been taking time off and have just started to look for the next role and for the first time in over a decade my search parameters have included permie roles. I'm not actively looking to get out, but I'm seriously thinking about it, it's more than a little weird if I'm honest.

As Zero Liability said the response driven and informed by Lisa and Eek's surveys and soundings is pretty sound and I'm comfortable with the content, the IPSE one though is just begging to be filed under bin by merit of the bare faced untruths in section 1, if they've published that version as their formal response and sent it to HMRC and HMG then they deserve to be caught out. I admit, being somewhat anti that organisation, I'm struggling with a personal decision on that front, obviously that dilemma goes away if the truth is published instead.

mudskipper
3rd October 2015, 17:58
Sorry chaps - obviously got a gremlin in the works - try this one HMRC issue discussion document on IR35 Legislation, AUCAE urge contractors to #haveyoursay - All Umbrella Companies Are Equal (http://www.allumbrellacompaniesareequal.com/ir35-discussion-document_sept15.html) and the response to the T&S survey can be found here Budget 2015 : AUCAE launch survey urging contractors and recruiters to have their voice heard. - All Umbrella Companies Are Equal (http://www.allumbrellacompaniesareequal.com/national-contractor-ts-survey_sept15.html)

Thanks Lisa, good stuff.

mudskipper
3rd October 2015, 18:02
(yes Eek was annoyed to the point of walking away by a moron who thought winding him up was funny)

I think you need to recheck the thread. The 'moron' had provided a genuine offer of help, which eek hadn't received due to having said 'moron' on his ignore list. It was a misunderstanding. Eek then flounced as is his prerogative, but it was not down to the actions of any forum user.

mudskipper
3rd October 2015, 18:41
I'm very happy with the IPSE responses to both proposals too.

TykeMerc
3rd October 2015, 22:41
I'm very happy with the IPSE responses to both proposals too.

You're happy with the claim to represent the interests and opinions of 4.5 million contractors which is at best a wild fabrication and in reality an abject lie? Fine that helps to reduce the dilemma, if that's the published issue then I know how to act.

Ignore list or not the way I read the thread, Eek who was clearly feeling the strain found the SY01 posted "comedy" unfunny and irritating in the extreme so he decided to absent himself from CUK. Eek was one of the few willing to step up to the plate on behalf on contractors, his self enforced holiday is a great shame.

jamesbrown
4th October 2015, 00:15
I'm very happy with the IPSE responses to both proposals too.

I thought the response to the T&S consultation was very good, which arguably matters more given the order in which these will reach legislation. However, I thought the response to the IR35 discussion was (much) less well structured and argued. Incidentally, I thought Abbey Tax put together a very well-argued response to both, here (http://abbeytaxblog.co.uk/). (FWIW, I don't agree with all of it, but it is well-argued and evidenced).

ShandyDrinker
4th October 2015, 07:49
I thought the response to the T&S consultation was very good, which arguably matters more given the order in which these will reach legislation. However, I thought the response to the IR35 discussion was (much) less well structured and argued. Incidentally, I thought Abbey Tax put together a very well-argued response to both, here (http://abbeytaxblog.co.uk/). (FWIW, I don't agree with all of it, but it is well-argued and evidenced).

Thanks for the Abbey Tax links. I agree with you and don't agree with all of the points, but well put together and another voice to argue against both the T&S and IR35 consultations.

mudskipper
4th October 2015, 09:00
Eek was one of the few willing to step up to the plate on behalf on contractors, his self enforced holiday is a great shame.

I don't disagree with that - but nor do I agree that it's fair to blame someone who was making a genuine offer of help, no matter how much you may personally dislike them, for his decision.

TykeMerc
4th October 2015, 10:13
Abbey Tax put together a very well-argued response to both, here (http://abbeytaxblog.co.uk/). (FWIW, I don't agree with all of it, but it is well-argued and evidenced).

Thanks for the link, I hadn't seen it before.

As you say the response from Abbey Tax is excellent, it's well written, has no emotive statements, avoids heading down the "fairness" rabbit hole and it provides a reasoned analysis with proposed action. I strongly support their points, it's clear they have a good understanding of the current and possible future situations.

Zero Liability
4th October 2015, 11:03
They didn't address the flaws in calculating the 'protected yield' or the Ben/Jo cases, however, which the reply Lisa put forward did, as did IPSE's to a lesser extent; I think it's significant, because hector is using pre-dividend tax figures and a lot of incomplete/shoddy analysis to try make their case that there is a 'problem'. It is however a very good reply, particularly in analysing the alternative put forward in the discussion doc, and suggesting how it isn't going to be effective and may have severe downsides to it, plus in pointing out where they're currently going wrong. Like James, I don't agree with all of it, but the main issue is getting it through that the current proposals are unrealistic and may have severe (possibly) unintended consequences.

It's best to view them as complementary, as the discussion doc contained a lot of material, and Lisa's and IPSE's covers all these more broadly, whereas the AT is more focused on their proposed alteration of the 'tests' employed and possible better alternatives, including relating control to a project-based criterion.

mudskipper
4th October 2015, 11:08
They didn't address the flaws in calculating the 'protected yield' or the Ben/Jo cases, however, which the reply Lisa put forward did, as did IPSE's to a lesser extent; I think it's significant, because hector is using pre-dividend tax figures and a lot of incomplete/shoddy analysis to try make their case that there is a 'problem'. It is however a very good reply, particularly in analysing the alternative put forward in the discussion doc, and suggesting how it isn't going to be effective and may have severe downsides to it, plus in pointing out where they're currently going wrong.

It's best to view them as complementary, as the discussion doc contained a lot of material, and Lisa's and IPSE's covers all these more broadly, whereas the AT is more focused on their proposed alteration of the 'tests' employed and possible better alternatives.

And I think that's good - lots of identical responses don't add anything. All the responses I've seen make good points - not always in agreement, but together they're pretty compelling. Whether that will have any effect remains to be seen...

Zero Liability
4th October 2015, 11:15
Yes, precisely. I can see what James means in terms of the professionalism/focus of the AT reply, but as this is only stage 1 anyway and as the documents concerned all touch on different points, can't say I'm really dissatisfied with any of them. Now to see what is actually absorbed.

webberg
21st October 2015, 17:30
The following was our contribution to the debate.

We have also made some points about poorly thought through new legislation likely to see the growth of "solutions" and the inability (or unwillingness) of HMRC to intervene early to kill the "unacceptable" versions leading to huge problems in the future. However these were eventually deemed to be off message and distracting and were excluded.

Nothing new in the note below perhaps and apologies for the length:

HMRC Discussion document of 17 July 2015 on
Intermediaries Legislation (IR35).

Preamble

WTT considers that the rationale for changing the present regime is flawed. It must be a core tenet of UK law that an individual can organise their business affairs in a manner that best suits them and their customers. Self employed individuals are a fundamental part of the UK’s working population and often described as the engine of growth. Any change of law that damages that part of the population will be counter productive for the economy of UK Plc.

The assumption that that those using PSC’s are doing so as an “unfair manipulation” of the IR35 rules is unproven and exposes the real rationale for the proposed change which is that the tax take has been disappointing and needs to increase. The price of self assessment and the huge savings it has brought to HMRC’s budget, is the reliance upon the goodwill and ingrained desire of the huge majority of the population to be law abiding citizens.

Any change based on increasing tax collection is inherently unfair and should be used with great caution if trust and confidence in the tax system as a whole is to be preserved. By making arbitrary changes to law designed to increase taxes and with little evidence of malpractice, the Government risks being seen as failing to honour its side of the tax covenant.

Addressing the questions:

Any evidence on the use of other types of intermediaries, aside from PSC’s, to which IR 35 may apply?
Any evidence for how PSC’s currently operate IR35 and the issues the rules create for individuals and businesses across the market?

WTT has no specific evidence to offer.

Anecdotally the growth and membership of Umbrella schemes and similar arrangements and the proliferation of providers offering “IR35 compliant solutions” indicate that the confusing and complicated IR35 rules and the dangers of interpretation being applied in retrospect have convinced many contractors that their best option is to reach for an “expert” who can “solve” the problem.

Any proposals for how to improve the effectiveness of IR35 that meet the objectives outlined in this document?

The ENGAGER should at all times be responsible for determining status of the contractor.

History shows that the complicated and unworkable nature of the rules cannot be applied by individuals who are expert in other fields. Instead they turn to (and are exploited by) firms who are allegedly expert but who have a track record of creating more tax problems than are solved.

With the observation that the objectives as outlined are not justified by the reasoning given, it is clear that the complexity and uncertainty created by the rules, both existing and proposed, will further distance the ability of those impacted by them, to understand and implement them correctly. With many contractors already making valid accusations of HMRC being at least partly responsible for their current uncertain position, adding salt to the wound should be avoided.

The onus for determination should be placed upon the engager. It is the engager who has scoped the work, knows what is required, for how long and what degree of supervision is needed.

Perhaps the first series of tests should be time driven. A contract for 6 months or less where the contractor is not retained or reengaged for a minimum of a month after the end of the contract, should be seen as the contractor being genuinely self employed (or as necessary, the PSC being applied as envisaged) and all payments etc as being outside IR35.

Where the contract is longer than 6 months but less than 24 months (the minimum required for many employment benefits to kick in), the degree to which the engager can demonstrate that the necessary skills were not “in house” at the outset, nor at critical milestones, is determinative. The concept here is that an engager who truly wishes to exercise enough supervision, direction and control of a project or its outcome will engage that resource at some point in the process.

The exception is where the engager recruits resource to operate the results of the project rather than work on the project creation. There is an inevitable overlap as projects near completion and are fine tuned to be useful to the engager.

Contracts or a series of contracts on essentially the same terms or where the project parameters are substantially the same and which are written at the outset for more than 24 months, or which eventually extend more than 24 months, should render a contractor engaged for the entire period as being within IR35, irrespective of vehicle used to supply services.

Where a time basis is inappropriate, perhaps because of the uncertain nature of the project or a change in objective for a project at some point, a “skills gap” test is possible.

Does the engager have the skills required within its workforce or not? If not, does the engager intend to acquire that resource but needs the project to begin immediately? Does the engager require the initial contractor to teach a new employee the project and eventually take over?

If the answers are that the engager has a skills gap which is expected at the outset to be temporary then the contractor is outside IR35. This is a position to be reviewed at say 3 month intervals.

Finally, where a contractor is engaged and over time comes to be regarded as an employee, the benefits of employment should be immediately due, with recognition of time served. This is likely to be a major burden for engagers but will mean that the potential cost of getting the question wrong, will force a conservative and consistent approach.

In an ideal world, the engager (and the contractor?) would be able to approach HMRC for an advance ruling. Whilst this would be a paid for service, there are practical concerns in that HMRC is unlikely to be able to respond quickly enough and would be unwilling to give an advance assurance that a particular situation is within or without IR35. Unfortunately therefore this option to resolve the situation is considered unworkable at this time.

Respondent

WTT Consulting Ltd is a tax enquiry advisory firm. We have a large number of contractors who are clients and who seek help in understanding their position for schemes provided in the past 10 years, which they were assured were “tax compliant” and which, despite 10 years of HMRC enquiry, remain unresolved.
The need to avoid similar situations in the future is critical.

Director WTT Consulting Ltd

GB9
22nd October 2015, 08:49
Your suggestions sound sensible. The only one I disagree with is that any contract 'extending' over 24 months should be deemed as being inside ir35 for the whole duration. This would lead to either a significant overdue tax liability for the psc, or more likely, the psc declining the extension over 24 months to avoid the back tax.

Surely anything post 24 months being treated as within IR35 would be more sensible? This would also fall in line with a previous ir35 judgement deciding that a psc had not become embedded into the client until after 4 years.

northernladuk
22nd October 2015, 09:38
Your suggestions sound sensible. The only one I disagree with is that any contract 'extending' over 24 months should be deemed as being inside ir35 for the whole duration. This would lead to either a significant overdue tax liability for the psc, or more likely, the psc declining the extension over 24 months to avoid the back tax.

Surely anything post 24 months being treated as within IR35 would be more sensible? This would also fall in line with a previous ir35 judgement deciding that a psc had not become embedded into the client until after 4 years.

Not really. If a gig goes over 24 months then the reasoning is it wasn't a contracting gig. It was always going to be an enduring one from day one. It's the type of work they are trying to clarify. If it's short term it's a contract gig but if it's long term it's a disguised permie role so will be inside. Makes sense to me.

TheFaQQer
22nd October 2015, 09:47
Not really. If a gig goes over 24 months then the reasoning is it wasn't a contracting gig. It was always going to be an enduring one from day one. It's the type of work they are trying to clarify. If it's short term it's a contract gig but if it's long term it's a disguised permie role so will be inside. Makes sense to me.

So anyone brought in for their implementation expertise for the life of the project is a disguised employee?

Seems like a licence to stop work after 23 months and 29 days to me rather than being the sign of being a contractor or an employee.

northernladuk
22nd October 2015, 09:54
So anyone brought in for their implementation expertise for the life of the project is a disguised employee?

Seems like a licence to stop work after 23 months and 29 days to me rather than being the sign of being a contractor or an employee.

Indeed. I should have added the devil will be in the details and should look at other factors within the timescale rule to understand if this isn't single enduring role or multiple disassociated roles.

dynamicsaxcontractor
22nd October 2015, 10:04
Not really. If a gig goes over 24 months then the reasoning is it wasn't a contracting gig. It was always going to be an enduring one from day one. It's the type of work they are trying to clarify. If it's short term it's a contract gig but if it's long term it's a disguised permie role so will be inside. Makes sense to me.

So if you have a contract for ad hoc hours for a client where you work between 0 and 60 hours per week you say that should be classed as within IR35 if it runs for more than 24 months? I think people need to get the mind set right, there should be no inside/outside based on length of contract/rate or other tangible such as expenses claimed if x miles away etc. The only right way forward is to can IR35 and instead hammer the clients that abuse the system forcing perm people through umbrella/psc.

TheFaQQer
22nd October 2015, 10:07
Indeed. I should have added the devil will be in the details and should look at other factors within the timescale rule to understand if this isn't single enduring role or multiple disassociated roles.

The issue with any timescale is that there are always going to be issues with it.

If I have five different clients and work one day a week for each one over the course of multiple years, what is it about that contract that shows I am inside IR35 (either new or old rules)? Nothing - so why should I be described as an employee of each of those clients merely because I have a contract with them that has run for years?

jamesbrown
22nd October 2015, 10:09
I agree with some of the WTT response, but the time-based test is completely arbitrary and will tend to favour "temps" that clearly operate as employees, on the one hand, and to an arbitrary cessation of services at 24 months on the other. This will have sectoral impacts (e.g. in engineering and infrastructure) and the proposed mitigations are likely to be viewed as over-complicated and unworkable, in practice, when the risk for employment benefits applies. Also, while it's fine to argue against the constraints imposed upfront, it's worth noting that the discussion document explicitly states the absence of any intention to bring into line employment and tax law. In other words, they have pre-empted the suggestion to have employment liabilities as a backstop to a fair determination, and the practical outcome of the engager determining status will be a blanket decision in most cases.

GB9
22nd October 2015, 10:16
Not really. If a gig goes over 24 months then the reasoning is it wasn't a contracting gig. It was always going to be an enduring one from day one. It's the type of work they are trying to clarify. If it's short term it's a contract gig but if it's long term it's a disguised permie role so will be inside. Makes sense to me.

Ok, so in my position I have a large programme that is intended to run for 21 months. Slippage etc. takes it over the 24 month period. Client asks me to extend to finish the job. Under this proposal I would incur a large lump of back tax so my response would be, 'sorry Mr. Client, can't stay'. Client severely inconvenienced.

If on the other hand it would mean me being within IR35 for a few months to get the job done then I would stay.

Imagine if you got hit with the 24 month T&S rule and were told you had to pay tax on all expenses claimed to date. That is the equivalent of what this proposal is saying.

jamesbrown
22nd October 2015, 10:21
Imagine if you got hit with the 24 month T&S rule and were told you had to pay tax on all expenses claimed to date. That is the equivalent of what this proposal is saying.

Indeed, the retrospective element is ridiculous and contrary to case law on two counts, first that length of contract is established as having no direct bearing on status and, second, that status can change during a contract. I'd be wary of any suggestions that flatly contradict case law. A non-retrospective, project-based, test would be far more sensible as a test that a contract is a discrete piece of work, which is the aim and is not contradictory to case law (rather, supportive of it).

webberg
22nd October 2015, 11:03
Your suggestions sound sensible. The only one I disagree with is that any contract 'extending' over 24 months should be deemed as being inside ir35 for the whole duration. This would lead to either a significant overdue tax liability for the psc, or more likely, the psc declining the extension over 24 months to avoid the back tax.

Surely anything post 24 months being treated as within IR35 would be more sensible? This would also fall in line with a previous ir35 judgement deciding that a psc had not become embedded into the client until after 4 years.

I think the process we saw was that if the contract extended over 24 months then the contractor became an employee for tax purposes (liability to deduct resting on engager) at 24 months + 1 day, or the employment was backdated and the deemed employer would remain liable for tax that should have been deducted in the previous 24 months. Perhaps there would be a credit for tax paid (or due to be paid) by the contractor but any excess falls at the feet of the engager.

webberg
22nd October 2015, 11:13
Not really. If a gig goes over 24 months then the reasoning is it wasn't a contracting gig. It was always going to be an enduring one from day one. It's the type of work they are trying to clarify. If it's short term it's a contract gig but if it's long term it's a disguised permie role so will be inside. Makes sense to me.

We very much looked at what is objectively measurable and what is more subjective and decided that any system capable of working in most situations had to be weighted to the objective tests.

Objective tests were; time, contract value and location.

Subjective tests included; location (I know it's in twice), business criticality, SD&C, intent (both engager and contractor), legal contract documents.

Measuring subjective tests is a nightmare and not conducive to mass application. The final submission therefore stripped a lot of that material.

Objective tests were easier and time is a good start point. 24 months is a measure used in tax elsewhere, formally or informally, and therefore fits the system.

Contract value is useful. If somebody is being paid at a rate equal to or better than senior employees for more than say 6 months, that's an indication that they are a key person in that business and that losing them would be difficult and perhaps threaten their business.

Location is more difficult. For small engagers with limited central functions, it works. For large multinationals with many offices, it is much more difficult, hence it's included in both objective and subjective. The one exception was where a contractor works at home or in an office provider by his agent/business, with occasional visits to an engager. That might be more indicative of self employment.

ALL of these tests to be done by the ENGAGER at the start of a contract and then every 3/6 months and if failed, then the ENGAGER becomes liable to deduct tax.

jamesbrown
22nd October 2015, 11:14
I think the process we saw was that if the contract extended over 24 months then the contractor became an employee for tax purposes (liability to deduct resting on engager) at 24 months + 1 day, or the employment was backdated and the deemed employer would remain liable for tax that should have been deducted in the previous 24 months. Perhaps there would be a credit for tax paid (or due to be paid) by the contractor but any excess falls at the feet of the engager.

These sorts of suggestions may work in the simplest of cases, but business relationships are complicated, and there are good reasons for a separation between employment and tax law. Let me give you a concrete example from my own current experience. I'm in the process of agreeing a contract with a US university for a piece of work that will extend over 3 years. This was based on a joint bid (between MyCo and the US university) to a US federal agency over two years ago, which we've now won. At most, this is going to amount to a few weeks of work in each of those three years, performed in the UK and, being R&D, completely absent any SDC, as well as having no MoO and an unfettered RoS. Are you suggesting that this type of arrangement should be caught? Are you suggesting that a US university can be treated as a UK employer for tax purposes or employment law? This is how real businesses work: across borders, and sometimes with complicated contractual arrangements.

eazy
22nd October 2015, 11:29
Duration should not count, it doesn't in actual B2B contracts, for an example my current client has had this engineering support contract with BP for 15 years, it gets renewed every 2-3 years based on good performance.

If both my client & their client can have this long term B2B relationship, why can't small businesses or one man bands?

webberg
22nd October 2015, 11:31
These sorts of suggestions may work in the simplest of cases, but business relationships are complicated, and there are good reasons for a separation between employment and tax law. Let me give you a concrete example from my own current experience. I'm in the process of agreeing a contract with a US university for a piece of work that will extend over 3 years. This was based on a joint bid (between MyCo and the US university) to a US federal agency over two years ago, which we've now won. At most, this is going to amount to a few weeks of work in each of those three years, performed in the UK and, being R&D, completely absent any SDC, as well as having no MoO and an unfettered RoS. Are you suggesting that this type of arrangement should be caught? Are you suggesting that a US university can be treated as a UK employer for tax purposes or employment law? This is how real businesses work: across borders, and sometimes with complicated contractual arrangements.

The above (and several other posters) all make valid points. The suggestion we made (using objective over subjective tests) was driven in part by my experience of dealing with the original introduction of IR35 and in part by trying to find a simple system.

As such we accept that it is crude and will not fit every case. The 23 months 29 day limit is an obvious area of potential abuse and rather than detail safeguards there, it is more sensible to await HMRC reaction.

We did think about whether the measure should be based on "full time equivalent" rules. At it's simplest, this says that if you work as an employee one day a week then you count as 20% of a full time equivalent. (There are several measurements used in this are and I've chosen the easiest).

Therefore if your contract was for 36 months (with provision to extend) but your hours worked over that period were say 1,500, then if this is less than 24 months of a full time equivalent, you remain a contractor.

This method easily leads into lots of detail on calculation, when to measure, etc and thus we left out the detail.

We accept that no single test is going to cover all situations. HMRC also know that but want to have a simple test administered by somebody other than them.

Our vision is a test applied by the engager with the repercussions of getting it wrong also with the engager.

If the engager gets it wrong and is picked up by HMRC then the liability for any alleged back tax is theirs.

This leads to a great mystery for me.

I would have thought that engagers would be raising hell over the change in rules as a lot of contractors will be saying, come April, "if you still want me, I must be an employee and at a higher rate than you currently pay, because my overheads (tax) have increased".

Are the engagers indifferent, thinking that there will be more supply than demand?

Are the engagers actually doing anything here and I'm just not hearing about it?

northernladuk
22nd October 2015, 11:31
Duration should not count, it doesn't in actual B2B contracts, for an example my current client has had this engineering support contract with BP for 15 years, it gets renewed every 2-3 years based on good performance.

If both my client & their client can have this long term B2B relationship, why can't small businesses or one man bands?

Because the line between a one man band being a company and a guy becoming a pseudo permie is very grey and can easily get overstepped... which is the whole point of it.

webberg
22nd October 2015, 11:38
Because the line between a one man band being a company and a guy becoming a pseudo permie is very grey and can easily get overstepped... which is the whole point of it.

Agreed.

The whole point here is to create more employees and less self employed.

The document specifically says that the IR35 rules have not worked because they have not forced enough people into the employee category. This alleged justification is nothing of the sort but it is indicative of the minds driving the process.

There is a big difference between a company offering support via a long term contract which has a rotating group of employees, business strategy, evolving products and resources, and a one man PSC.

GB9
22nd October 2015, 11:48
We very much looked at what is objectively measurable and what is more subjective and decided that any system capable of working in most situations had to be weighted to the objective tests.

Contract value is useful. If somebody is being paid at a rate equal to or better than senior employees for more than say 6 months, that's an indication that they are a key person in that business and that losing them would be difficult and perhaps threaten their business.


This again goes against recognised principles.

Businesses usually bring in specialist resource for specific pieces of work when they don't have anyone in their organisation to undertake the work themselves. The rate should be irrelevant. As a contractor I expect my Ltd. to be paid more than senior members of the client as I don't get their benefits.

As you have now shafted me twice, I am going off your proposals! :eyes

northernladuk
22nd October 2015, 11:50
Agreed.

The whole point here is to create more employees and less self employed.

The document specifically says that the IR35 rules have not worked because they have not forced enough people into the employee category. This alleged justification is nothing of the sort but it is indicative of the minds driving the process.

There is a big difference between a company offering support via a long term contract which has a rotating group of employees, business strategy, evolving products and resources, and a one man PSC.

That's completely wrong. The point is to close the tax advantages to fill the coffers. Not to create more employees. I don't think you could be further from the point with that.

jamesbrown
22nd October 2015, 12:11
The above (and several other posters) all make valid points. The suggestion we made (using objective over subjective tests) was driven in part by my experience of dealing with the original introduction of IR35 and in part by trying to find a simple system.

As such we accept that it is crude and will not fit every case. The 23 months 29 day limit is an obvious area of potential abuse and rather than detail safeguards there, it is more sensible to await HMRC reaction.

We did think about whether the measure should be based on "full time equivalent" rules. At it's simplest, this says that if you work as an employee one day a week then you count as 20% of a full time equivalent. (There are several measurements used in this are and I've chosen the easiest).

Therefore if your contract was for 36 months (with provision to extend) but your hours worked over that period were say 1,500, then if this is less than 24 months of a full time equivalent, you remain a contractor.

This method easily leads into lots of detail on calculation, when to measure, etc and thus we left out the detail.

We accept that no single test is going to cover all situations. HMRC also know that but want to have a simple test administered by somebody other than them.

Our vision is a test applied by the engager with the repercussions of getting it wrong also with the engager.

If the engager gets it wrong and is picked up by HMRC then the liability for any alleged back tax is theirs.

This leads to a great mystery for me.

I would have thought that engagers would be raising hell over the change in rules as a lot of contractors will be saying, come April, "if you still want me, I must be an employee and at a higher rate than you currently pay, because my overheads (tax) have increased".

Are the engagers indifferent, thinking that there will be more supply than demand?

Are the engagers actually doing anything here and I'm just not hearing about it?

I'm afraid you're over-selling this as being a necessarily simple solution that is inevitably imperfect. It is structurally flawed. If you want to have a discrete test, it should be a project-based test, not an arbitrary timeframe. Also, while I superficially agree that the engager is in a better position to determine status, they are not in a good position, and will make a blanket determination in the absence of a significant push factor towards a realistic review (a push factor that is stated upfront as being not under consideration). As I say, overseas clients will either completely ignore this or, in the case of overseas companies with a UK presence (i.e. companies with intel), look elsewhere for suppliers.

GB9
22nd October 2015, 12:11
That's completely wrong. The point is to close the tax advantages to fill the coffers. Not to create more employees. I don't think you could be further from the point with that.

+1

The point is to generate more tax revenue WITHOUT increasing the number of employees.

dynamicsaxcontractor
22nd October 2015, 12:13
Agreed.

The whole point here is to create more employees and less self employed.

The document specifically says that the IR35 rules have not worked because they have not forced enough people into the employee category. This alleged justification is nothing of the sort but it is indicative of the minds driving the process.

There is a big difference between a company offering support via a long term contract which has a rotating group of employees, business strategy, evolving products and resources, and a one man PSC.
You have lowered yourself to their level by suggesting these things and making a distinction between small and big companies. Why should I not be allowed to have the same contracts as Accenture/IBM/You name it without paying more tax (IR35 and Expenses).

It would be better for all if the same rules where there for everyone. Raise the tax for us contractors, but then raise it for the big ones too......

webberg
22nd October 2015, 12:38
Thanks all for this.

Firstly, it was not my intention to denigrate or "shaft" anybody. If my comments have come across that way, you have my apologies.

Secondly, it is a simple test and whilst it could be developed further, it is perhaps too simple.

Thirdly, I used the "employed to employee" analogy crudely. More accurately I should have said increase the tax take, so again my apologies.

Lastly, I have assumed that HMRC will treat one man bands differently from bigger companies. In theory they should not, in practice they do.

I'll cease defending this further.

jamesbrown
22nd October 2015, 12:40
+1

The point is to generate more tax revenue WITHOUT increasing the number of employees.

That is absolutely the stated aim in the discussion document. To paraphrase, we don't believe that IR35 is effective (=we want more tax) and we don't propose to merge tax and employment law (=we don't want more employees).

DaveB
22nd October 2015, 12:43
+1

The point is to generate more tax revenue WITHOUT increasing the number of employees.

^ This.

If HMRC proposes a system that forces clients to take on staff as employees when all they want is a short term resource they will face a huge backlash from business as it will push their costs up over the long term.

jamesbrown
22nd October 2015, 13:51
Thanks all for this.

Firstly, it was not my intention to denigrate or "shaft" anybody. If my comments have come across that way, you have my apologies.

Secondly, it is a simple test and whilst it could be developed further, it is perhaps too simple.

Thirdly, I used the "employed to employee" analogy crudely. More accurately I should have said increase the tax take, so again my apologies.

Lastly, I have assumed that HMRC will treat one man bands differently from bigger companies. In theory they should not, in practice they do.

I'll cease defending this further.

No need to apologise or feel bad about this. You also made some good points IMHO, and there are very few responses where I've agreed with everything raised. The fundamental problem arises at the point a particular model/approach is accepted as a starting point. If you accept case law as a starting point, that has both serious problems and advantages. If you accept a statutory test (deeming criteria) as a starting point, that has both serious problems and advantages. If you accept that employment status should be removed from the equation altogether and that the differences between self-employed and employed taxation should be much narrower, that also has serious problems (in the sense that HMG/HMRC aren't willing to go this far) as well as advantages. Much of this stems from the starting point, and HMG/HMRC have dispensed with some options upfront.

LisaContractorUmbrella
22nd October 2015, 14:02
That is absolutely the stated aim in the discussion document. To paraphrase, we don't believe that IR35 is effective (=we want more tax) and we don't propose to merge tax and employment law (=we don't want more employees).

Can't help thinking that the danger in taking this approach is that, at some point, tax law and employment law will be merged by some forward thinking Judge or other - if HMG believes that a large percentage of contractors are, in fact, disguised employees and disadvantage them through the tax system, how long will it be before someone challenges it from the employment law side and demands employee rights? The combination of changes to the dividend tax, proposed T&S changes and proposed IR35 changes would, effectively, disadvantage contractors to such a point that they could actually worse off than permies financially and still be deprived of any employment rights. At this point there is then a financial risk to the client or even the agency that they could be forced to take on employer responsibilities. Take all this to its logical conclusion and may be more people could end up outside IR35 than in - just a thought

GB9
22nd October 2015, 14:21
Can't help thinking that the danger in taking this approach is that, at some point, tax law and employment law will be merged by some forward thinking Judge or other - if HMG believes that a large percentage of contractors are, in fact, disguised employees and disadvantage them through the tax system, how long will it be before someone challenges it from the employment law side and demands employee rights? The combination of changes to the dividend tax, proposed T&S changes and proposed IR35 changes would, effectively, disadvantage contractors to such a point that they could actually worse off than permies financially and still be deprived of any employment rights. At this point there is then a financial risk to the client or even the agency that they could be forced to take on employer responsibilities. Take all this to its logical conclusion and may be more people could end up outside IR35 than in - just a thought

No doubt people are bored of me saying this but i'm going to do it again anyway!

I think that if asked, a large number of clients would not want contractors to be seen as employees and hence would state there is no SDC. How HMRC could prove otherwise I have no idea as one of their common habits is to ask the client what their perspective is!

To reiterate, one client I worked with had a contractor on board for 15 years. When the contract was ended the contractor sued for employee rights and won. As a result the client brought in a strict policy on when contractors could be brought in and for how long. They went to an extreme length to ensure that future contractors could not be seen as employees.

Of course they could just as easily change their policy the other way, however, I don't see why they would as they didn't want employees but DID want the flexibility of contract resource.

LisaContractorUmbrella
22nd October 2015, 14:33
No doubt people are bored of me saying this but i'm going to do it again anyway!

I think that if asked, a large number of clients would not want contractors to be seen as employees and hence would state there is no SDC. How HMRC could prove otherwise I have no idea as one of their common habits is to ask the client what their perspective is!

To reiterate, one client I worked with had a contractor on board for 15 years. When the contract was ended the contractor sued for employee rights and won. As a result the client brought in a strict policy on when contractors could be brought in and for how long. They went to an extreme length to ensure that future contractors could not be seen as employees.

Of course they could just as easily change their policy the other way, however, I don't see why they would as they didn't want employees but DID want the flexibility of contract resource.

fair point - could go either way really as there is risk on both sides for the client. Oh well we'll just have to wait and see what happens - could all end up being a storm in a teacup :smile

GB9
22nd October 2015, 14:50
Oh well we'll just have to wait and see what happens - could all end up being a storm in a teacup :smile

If only!

Maybe HMRC'S objective is to slowly grind us into dust

northernladuk
22nd October 2015, 15:06
If only!

Maybe HMRC'S objective is to slowly grind us into dust

Well if it cuts the newbie money chasing chaff out of the equation and we can start to pick and chose and negotiate what's left it won't be that bad... Dunno what's going to happen though.

webberg
22nd October 2015, 16:19
The point raised above about a long term contractor suing for employment rights is probably exactly why the HMRC papers make the distinction about not becoming an employee.

I wonder what would happen if most contractors said "OK, forget it, either I work as an employee or not at all!" would make the Red Book arithmetic interesting?

webberg
22nd October 2015, 16:25
No need to apologise or feel bad about this. You also made some good points IMHO, and there are very few responses where I've agreed with everything raised. The fundamental problem arises at the point a particular model/approach is accepted as a starting point. If you accept case law as a starting point, that has both serious problems and advantages. If you accept a statutory test (deeming criteria) as a starting point, that has both serious problems and advantages. If you accept that employment status should be removed from the equation altogether and that the differences between self-employed and employed taxation should be much narrower, that also has serious problems (in the sense that HMG/HMRC aren't willing to go this far) as well as advantages. Much of this stems from the starting point, and HMG/HMRC have dispensed with some options upfront.

Agreed, if HMRC put into law a definition of "employee", "employer" etc whilst that would produce some certainly for many, it would be a starting gun for those clever minds who can use it to create a "non-employee" or "non-employer".

A combination of statute and case law and frankly common sense is best in determining status.

Unfortunately HMRC has managed to allow public confidence and trust in its ability to operate a fair system to evaporate or be sacrificed on the altar of political expediency (non doms?) and they are 50 years away from regaining that precious commodity.

northernladuk
22nd October 2015, 16:34
The point raised above about a long term contractor suing for employment rights is probably exactly why the HMRC papers make the distinction about not becoming an employee.

I wonder what would happen if most contractors said "OK, forget it, either I work as an employee or not at all!" would make the Red Book arithmetic interesting?

I don't fully understand this but its still think you are missing the very fundamental point . This has nothing to do how an employer sees a contractor. HMRC couldn't care less about the employment status. They are just about correcting the tax which ever status the person has.
In the case that you mention HMRC should have been hovering like vultures as the guy proved he was in deemed employment so effectively shaft himself IR35. That said HMRC would have still cocked up and lost the case :suicide

But as I say... I still don't think you've grasped exactly what IR35 is trying to do which is pretty fundamental to the whole thing.

jamesbrown
22nd October 2015, 16:41
how long will it be before someone challenges it from the employment law side and demands employee rights?

Yes, exactly. Almost no time at all IMHO and, as I've said elsewhere, I would fully support IPSE in taking that route, in practice, even if I'm against being identified as an employee in principle. There is existing case law precedent for this when SDC has been agreed upfront. So you're absolutely correct and, if anything is going to dissuade the gov't from taking this route, it's probably that argument; in other words, if they don't place an upfront liability on the employee for employment rights when subject to SDC, it will probably happen via the backdoor pretty soon thereafter. This suggests to me that either they will drop the suggestion to have engagers determine status (as they did in 1999) or there are going to be some seriously unhappy engagers :laugh

malvolio
22nd October 2015, 16:53
Yes, exactly. Almost no time at all IMHO and, as I've said elsewhere, I would fully support IPSE in taking that route, in practice, even if I'm against being identified as an employee in principle. There is existing case law precedent for this when SDC has been agreed upfront. So you're absolutely correct and, if anything is going to dissuade the gov't from taking this route, it's probably that argument; in other words, if they don't place an upfront liability on the employee for employment rights when subject to SDC, it will probably happen via the backdoor pretty soon thereafter. This suggests to me that either they will drop the suggestion to have engagers determine status (as they did in 1999) or there are going to be some seriously unhappy engagers :laugh
I'd guess the latter...

They will devolve it on to the agencies; after all, most hiring managers have bought the agency line that we work for them already, and most BigCos have convinced themselves that RPOs are a good idea despite all the evidence. While HMRC have zero understanding of contracting they are fairly good at imposing their own outcomes; until, of course, it gets to court...

teapot418
22nd October 2015, 17:24
Duration should not count, it doesn't in actual B2B contracts, for an example my current client has had this engineering support contract with BP for 15 years, it gets renewed every 2-3 years based on good performance.

If both my client & their client can have this long term B2B relationship, why can't small businesses or one man bands?

The two year thing isn't something I personally support (and I would be 'caught'), and I agree with your point about being treated differently to big businesses, but I can see its attraction. It could never be retrospective, but could apply in a similar way to T&S - i.e. at the point that you know you will be engaged for > 24 months, and would also need to have an equivalent to the 40% rule. In fact, it could work on the same basis as T&S - only they're changing that, aren't they. :rolleyes:

The difficulty comes when there's clearly different projects - but I guess if it was to be kept 'simple' it would simply be a time based rule regardless of the nature of the work.

I don't like it, but it's not as bad as some of the alternatives.

SussexSeagull
22nd October 2015, 18:33
I have long suspected they will go down the length of contract route to determine employment status, not because it if fair but because it is straightforward.

As for contractors going to court for employment rights, if a company comes out and say they have SDC over someone then surely it is irrelevant if it was the HMRC asking? They either control your daily work or they don't and if they do you are an employee?

Not sure myself but someone will almost certainly try and prove it in court.

Zero Liability
22nd October 2015, 18:53
Yes, exactly. Almost no time at all IMHO and, as I've said elsewhere, I would fully support IPSE in taking that route, in practice, even if I'm against being identified as an employee in principle. There is existing case law precedent for this when SDC has been agreed upfront. So you're absolutely correct and, if anything is going to dissuade the gov't from taking this route, it's probably that argument; in other words, if they don't place an upfront liability on the employee for employment rights when subject to SDC, it will probably happen via the backdoor pretty soon thereafter. This suggests to me that either they will drop the suggestion to have engagers determine status (as they did in 1999) or there are going to be some seriously unhappy engagers :laugh

At the very least, it'll present an obstacle to blanket presumption of SDC.

LisaContractorUmbrella
23rd October 2015, 07:04
Yes, exactly. Almost no time at all IMHO and, as I've said elsewhere, I would fully support IPSE in taking that route, in practice, even if I'm against being identified as an employee in principle. There is existing case law precedent for this when SDC has been agreed upfront. So you're absolutely correct and, if anything is going to dissuade the gov't from taking this route, it's probably that argument; in other words, if they don't place an upfront liability on the employee for employment rights when subject to SDC, it will probably happen via the backdoor pretty soon thereafter. This suggests to me that either they will drop the suggestion to have engagers determine status (as they did in 1999) or there are going to be some seriously unhappy engagers :laugh

I am hoping that this is a case of 'can open, worms everywhere' and that HMG will have a rethink on the whole proposal - I am fairly sure that something will still come out in the Autumn Statement but I am hoping that it will be moderated - if not I think they'll end up being an awful lot of extremely happy lawyers in the next few months

webberg
27th October 2015, 11:58
As is amply demonstrated above, there is no simple answer here and it is to be hoped that the difficulties of devising and applying a (series of) tests to determine status will reflect that.

My fear is that HMRC will use the fact of complexity of status x complexity of personal circumstance to argue that the "ONLY" way to achieve their aim (of collecting more tax) is to have a universal and simple test.

That implies gong to the lowest common denominator (time, contract value) that can be measured objectively.

I'm aware that there have been surveys and similar based on this website membership to analyse and hopefully supply data in response to the latest proposals. I've not seen them but my hope is that they amply show the difficulties that such a low denominator will bring.

Unfortunately I'm also cynical enough to think that the responses to the discussion document have already been written and that after paying lip service to the process, new law is already in draft and waiting to go on 25th November or perhaps next March.

webberg
27th October 2015, 12:18
I don't fully understand this but its still think you are missing the very fundamental point . This has nothing to do how an employer sees a contractor. HMRC couldn't care less about the employment status. They are just about correcting the tax which ever status the person has.
In the case that you mention HMRC should have been hovering like vultures as the guy proved he was in deemed employment so effectively shaft himself IR35. That said HMRC would have still cocked up and lost the case :suicide

But as I say... I still don't think you've grasped exactly what IR35 is trying to do which is pretty fundamental to the whole thing.

You may be correct in your assessment of my view of IR35.

Most of my experience in IR35 stems from the original introduction. At that time I was working in the tax department of a large bank. The new rules arrived at the same time as the bank was introducing a new accounting system. We were therefore trying to measure the effect of the rules and design a module for the accounting system that would cope.

We decided at that time that there was a real danger that the bank would be seen as the employer of most of the thousands of contractors working in the bank. As such we devised a series of tests that each budget holder would be required to set against the contractor arrangements. If those said that the contractor might be seen as an employee, then the budget holder could decide that either they would hold funds for the potential PAYE liability, bring the contractor on to the books, change the circumstances of engagement or let the contractor go.

Perhaps 60% of the contractors left the bank within a year either because they did not want to be employees or because the budget holder did not have enough funds for a contingency.

It has to be said that the organisation of the bank allowed for a wide variety of practices and consistency was one of the first victims of this exercise. Nonetheless the bank considered the result satisfactory as it no longer had to carry financial provision for HMRC claiming employee status for many contractors.

This experience is what drives my view of HMRC policy. They want contractors to pay more tax and for that tax to be collected and paid to HMG with as little expense as possible (for HMG). That is why I think we will get a simple and blunt test that leaves little subjectivity such a SD&C test.

This is a Gordian knot of a problem and unfortunately HMRC has a clear purpose and objective and the contractors and their collective bodies are diversified and incoherent in terms of proposing a reasonable alternative, backed with empirical data.

Whilst I would like to see engagers become responsible for applying whatever test is used and be responsible for the tax/NIC if they get it wrong, I think that the defeaning silence from that quarter in this debate means that we will get more tests of tax liability being applied by non tax experts who will be preyed upon by those with a "solution".:tumble:

northernladuk
27th October 2015, 12:53
You may be correct in your assessment of my view of IR35.



And for that reason I didn't read any further sorry.

webberg
27th October 2015, 15:07
And for that reason I didn't read any further sorry.

As you wish.