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WordIsBond
20th October 2015, 11:44
Ok, so obviously, after the dividend tax changes, the gap between taxation on employment and incorporated contracting has narrowed significantly. In light of that, any reasonable person would say the need for IR35 is gone. Rather than HMRC trying to divine whether or not a person is a hidden employee, they could do something narrow and specific to protect the low-paid from being pushed into self-employment, something that targets the engager rather than the victim. And they could do something narrow to address the Friday-Monday executive who "works for" the BBC, too.

But they won't. IR35 will live when every other abomination hatched by Gordon Brown has died. So what comes next?

I think it is very possible they will propose a new Business Entity Test. In principle, the idea wasn't bad. The test they devised was stupid, it didn't reflect reality, and it was abused by engagers who didn't understand what it was for.

But the general idea wasn't bad. If you can prove you are low risk, HMRC will leave you alone (that saves them time investigating someone where they can't win). If you are high risk, and you don't operate inside IR35, expect penalties if you get caught. It all seems very reasonable, and it wouldn't be all that surprising if it came back.

If you really are in business for yourself, and can prove it, you aren't an employee, even if the client does exercise SDC for a few months. They've constructed this bizarre scenario where someone who is in business can get hammered with taxes on one contract just because of a close working relationship, or something. Or someone who so successfully satisfies their client that they get asked back for another job is suddenly in trouble on their taxes. The first question should be, are you running a business, and if you are, that should end the discussion.

The real problem with the old BETs was the wrong people wrote it. It didn't reflect reality. Fine, you get a whopping lot of points for having employees who generate income, but how many people do? Fine, you get penalised heavily if you were formerly PAYE for your client. But what about other things? The old one was ok as far as it went, but it put emphasis on things that weren't reality for most people. And if you DID rent business premises, it should have been worth a lot more than ten points. Come on, that's ridiculous, if you rent business premises, you are running a business.

If you were going to construct a BET that reflected the reality of contracting, what would you put on it? What's important? I'll start.

1. PII. If you have to have it, and have to buy it yourself, you aren't an employee. This should be worth more than one or two points.
2. Accountancy Fees. If your limited company pays more than £500 / year on accountancy fees, that's an indicator of being in business for yourself.
3. Paid holidays / sick leave / etc. If you get this stuff from your engager, you aren't acting like a business, and it should be negative points. If you don't get it, you are acting like a business, it should be positive points.
4. Multiple clients at the same time. This should be a big plus, most employees won't do this.
5. More than two clients in the last two years. Again, this should be worth points.
6. Legal review of contracts. Businesses do this, employees don't.
7. Advertising. This was on the old BETs, but the threshold was way too high. This should be scaled. If you spend more than £100 on advertising (web-site, stationery, etc), it's one point, if you spend £300 two points, £500 three.

What should be added? This is not a question so much about the silly legal framework that has grown up around IR35, but rather, what do you as a contractor do that is "business-like" rather than "employee-like," whether it is recognised as such by HMRC or not? If you were suddenly the person told to write a BET that reflects the reality of contracting in the UK, what would it look like?

DaveB
20th October 2015, 11:49
Worth adding somthing about pensions in there as well, especially with Auto-Enrolement? If the engager enrolls you, you are not a business. If your Ltd. is registered and offers to enroll you, you get points. You get more points if you are actually enrolled.

Or something?

northernladuk
20th October 2015, 11:51
I can't help thinking your points are just far too low.. I can't think of anyone that would actually fail that. I mean, £500 a year on accountancy is extremely low. Your SA is £125 for a start. PI and contract checks anyone can do just to get around it. It's free from QDOS so hardly a differentiator. It appears to be a list created by a contractor to help contractors so the entire focus is wrong from HMRC's perspective so just won't fly. The point isn't to have a BET for contractors, it's to have a BET to prove anyone is in business and those thresholds are just far too low. You can buy most of the points for less than a grand.

jamesbrown
20th October 2015, 12:08
Anything that isn't applied to each contract separately has the advantage of being simpler to administer, and others provided input to HMRC at the time (e.g. IPSE) about a reasonable set of BETs. However, perhaps more importantly from HMRC's perspective, is whether it has the advantage of increasing tax take sufficiently. In other words, are the conditions sufficiently onerous that a non-business entity wouldn't or couldn't fake them? Remember, this is all about increasing tax take. In the end, I think you'd arrive at something resembling the strict deeming criteria used in other jurisdictions, such as the PSI rules in Oz. Depending on how they're designed, they can end up favouring a particular type of business model, such as "temps", which doesn't really help with their credibility. For example, any "real" business wants to retain good clients for as long as they can, but doesn't want to act like their employee (it's a weird perversion of micro-businesses that they even need to entertain this thought).

WordIsBond
20th October 2015, 12:20
I can't help thinking your points are just far too low.. I can't think of anyone that would actually fail that. I mean, £500 a year on accountancy is extremely low. Your SA is £125 for a start. PI and contract checks anyone can do just to get around it. It's free from QDOS so hardly a differentiator. It appears to be a list created by a contractor to help contractors so the entire focus is wrong from HMRC's perspective so just won't fly. The point isn't to have a BET for contractors, it's to have a BET to prove anyone is in business and those thresholds are just far too low. You can buy most of the points for less than a grand.
Yes, PI and contract checks anyone can do. That's not really the point, the point is employees don't do them.

If all you have is PI, contract checks, and stationery, you are still going to be high risk.

In constructing a BET, the first thing is to make a good list of the types of things that businesses do and employees don't. The second is to assign relative values. The third, once you have relative values, is to determine how many points is low or high risk.

I'm assuming if you include more things that you'd have to have more than ten points to escape the low risk band.

WordIsBond
20th October 2015, 12:22
Worth adding somthing about pensions in there as well, especially with Auto-Enrolement? If the engager enrolls you, you are not a business. If your Ltd. is registered and offers to enroll you, you get points. You get more points if you are actually enrolled.

Or something?
Yes, this is the kind of thing I was looking for. As noted by others, anyone could do this, but even so, it is the kind of thing a business does and an employee doesn't do, and so should be worth points.

LondonManc
20th October 2015, 12:32
Simpler to look at Employee Rights and establish what contractors are not entitled to. The following are permie rights according to the Citizens Advice Bureau (I've taken out some spurious ones and ones that kick in after two years of service to keep it within a couple of mins reading!):


The right to a written statement of terms of employment within two months of starting work, (see under heading Written statement of the main terms and conditions of employment)
The right to an itemised pay slip. This applies from the day the employee starts work.
The right to paid holiday. Full-time employees are entitled to at least 28 days a year. Part-time employees are entitled to a pro rata amount
The right to time off for trade union duties and activities. This applies from the day the employee starts work. The time off does not necessarily have to be paid.
Employees also have the right to be accompanied by a trade union representative to a disciplinary or grievance hearing.
The right to paid time off for ante natal care.
The right to paid maternity leave.
The right to paid paternity leave
The right to paid adoption leave
The right under Health and Safety law to weekly and daily rest breaks. This applies from the day the employee starts work.
The right to notice of dismissal, provided you have worked for your employer for at least one calendar month


If you combine these with a ticklist of MOO, PLI, PI and other normal differentiators rather than looking at the SDC then there can be a threshold of, say, meeting at least 80% (or more) of the requirements to prove you're not a disguised permie.

It could be that simple for IR35 instead of all the complexities that they're trying to introduce. That's for the IT industry - does the same make sense to those of you that aren't in IT?

DaveB
20th October 2015, 12:34
Simpler to look at Employee Rights and establish what contractors are not entitled to. The following are permie rights according to the Citizens Advice Bureau (I've taken out some spurious ones and ones that kick in after two years of service to keep it within a couple of mins reading!):


The right to a written statement of terms of employment within two months of starting work, (see under heading Written statement of the main terms and conditions of employment)
The right to an itemised pay slip. This applies from the day the employee starts work.
The right to paid holiday. Full-time employees are entitled to at least 28 days a year. Part-time employees are entitled to a pro rata amount
The right to time off for trade union duties and activities. This applies from the day the employee starts work. The time off does not necessarily have to be paid.
Employees also have the right to be accompanied by a trade union representative to a disciplinary or grievance hearing.
The right to paid time off for ante natal care.
The right to paid maternity leave.
The right to paid paternity leave
The right to paid adoption leave
The right under Health and Safety law to weekly and daily rest breaks. This applies from the day the employee starts work.
The right to notice of dismissal, provided you have worked for your employer for at least one calendar month


If you combine these with a ticklist of MOO, PLI, PI and other normal differentiators rather than looking at the SDC then there can be a threshold of, say, meeting at least 80% (or more) of the requirements to prove you're not a disguised permie.

It could be that simple for IR35 instead of all the complexities that they're trying to introduce. That's for the IT industry - does the same make sense to those of you that aren't in IT?

The problem with that is it doesnt differentiate between legitimate contractors and those forced into it by unscrupulous "employers". Think low paid cleaners, care staff etc. who are forced down this route because the employers want to avoid having to give them all these rights.

jamesbrown
20th October 2015, 12:46
I'm increasingly of the opinion that we should do away with all tests and distinctions. For taxation purposes, let's stop distinguishing between real employees, disguised employees and non-employees and between real businesses and fake businesses. Even in the absence of more aggressive reforms on NI, there are mechanisms to reduce the disparity between the taxation of employees and the self-employed, including the new dividend tax. These mechanisms should be used to a degree that can be supported by the electorate. Let's deal with unscrupulous employers through legislation, as this is a distinct category.

When the differences in taxation between employment and self-employment properly reflect the additional costs (and to some degree the risks) associated with self employment, any questions about real and fake employees and real and fake businesses naturally disappear. No one wants to start a fake business unless there's a major incentive to do so, whether from the perspective of the employee or the employer. I have no problem in paying a dividend tax. I would think it's in the interests of the gov't to support a flexible workforce through T&S, but some aspects are clearly silly, so let's do away with relief on lunch and apply the T&S rules consistently to larger consultancies. All of these distinctions between real and fake employees and businesses are on a road to nowhere.

LisaContractorUmbrella
20th October 2015, 12:53
Could you simplify it completely by using a percentage of costs from turnover as a determinant? E.g. if your business costs are more than 10% of turnover 'IR35' [placeholder for replacement] won't apply?

DaveB
20th October 2015, 13:00
Could you simplify it completely by using a percentage of costs from turnover as a determinant? E.g. if your business costs are more than 10% of turnover 'IR35' [placeholder for replacement] won't apply?

I wouldnt be happy with that personally. My costs are around 7.5% of turnover, but I have multiple clients, including direct B2B and my turnover is such that I'm likely to be kicked off the FRS this year. The bulk of the expenses come from working for one client so the %tge of turnover is relativley low.

Anyone working remotely, having a local client(s) etc could potentially lose out as well as T&S are generally our biggest on going costs.

jamesbrown
20th October 2015, 13:04
Could you simplify it completely by using a percentage of costs from turnover as a determinant? E.g. if your business costs are more than 10% of turnover 'IR35' [placeholder for replacement] won't apply?

You can do what you want with deeming criteria, but they'll always end up favouring certain sectors or business models in a more or less arbitrary way. For example, picture a small business that operates from their own premises (limited T&S) and has meaningful expenses on equipment, but nothing like 10% of turnover, especially for a business with a relatively high turnover.

LisaContractorUmbrella
20th October 2015, 13:10
I wouldnt be happy with that personally. My costs are around 7.5% of turnover, but I have multiple clients, including direct B2B and my turnover is such that I'm likely to be kicked off the FRS this year. The bulk of the expenses come from working for one client so the %tge of turnover is relativley low.

Anyone working remotely, having a local client(s) etc could potentially lose out as well as T&S are generally our biggest on going costs.

Fair enough, just a thought :happy

Danglekt
20th October 2015, 13:10
Could you simplify it completely by using a percentage of costs from turnover as a determinant? E.g. if your business costs are more than 10% of turnover 'IR35' [placeholder for replacement] won't apply?

That just favours people with low turnover.

LisaContractorUmbrella
20th October 2015, 13:11
That just favours people with low turnover.

Please see above :wink

TheFaQQer
20th October 2015, 13:27
Could you simplify it completely by using a percentage of costs from turnover as a determinant? E.g. if your business costs are more than 10% of turnover 'IR35' [placeholder for replacement] won't apply?

Encourages people to what a load into a pension plan instead.

WordIsBond
20th October 2015, 13:40
Encourages people to what a load into a pension plan instead.
I thought government was all about encouraging pension savings. ;)

It would certainly incentivise someone near the threshold to A) cheat or B) suddenly need a new laptop or printer or some other legitimate but unneeded expense.

WordIsBond
20th October 2015, 13:43
However, perhaps more importantly from HMRC's perspective, is whether it has the advantage of increasing tax take sufficiently.
If it helps them filter out the cases where they are almost sure to lose, then it will probably increase tax take because they can target investigations at the high risk people.

Really, this is all about putting mascara on pig eyebrows. IR35 should just die.

LondonManc
20th October 2015, 13:48
Two sides to it. We prove we're not disguised permies is one of them, as per the checklist of permie rights that we don't get.
The other is clientcos avoiding NICs - this is the side that should be implemented in some other way. Contractors should be proved to be engaged for clearly defined pieces of worked that are non-repeatable, i.e. cleaners must become FTEs.

northernladuk
20th October 2015, 13:54
Two sides to it. We prove we're not disguised permies is one of them, as per the checklist of permie rights that we don't get.
The other is clientcos avoiding NICs - this is the side that should be implemented in some other way. Contractors should be proved to be engaged for clearly defined pieces of worked that are non-repeatable, i.e. cleaners must become FTEs.

Thing is a number of us ARE disguised permies and I would like to see something separating them out from the rest of us. Just having a business and paying divis' does not mean everyone by default is a contractor in the proper sense.

DaveB
20th October 2015, 13:56
Thing is a number of us ARE disguised permies and I would like to see something separating them out from the rest of us. Just having a business and paying divis' does not mean everyone by default is a contractor in the proper sense.

Sadly I think CUK is not representative of the contracting community at large, and would go as far as saying MOST are disguised permie, or at best are ignorant of the distinction.

jamesbrown
20th October 2015, 14:04
Thing is a number of us ARE disguised permies and I would like to see something separating them out from the rest of us. Just having a business and paying divis' does not mean everyone by default is a contractor in the proper sense.

You're right, but this distinction is going to become increasingly irrelevant if you believe that any reduction in CT will be tied to an increase in the taxation of dividends (which will probably increase over time as well). Those in HMRC managing IR35 (I'm thinking of the examples in the discussion document) are laughably disconnected from this broader picture. Perhaps the gov't will tweak the allowance for pensioners or those without a controlling interest, but the dividend taxation provides them with a mechanism to tackle "TIM" without worrying too much about the classification of businesses or workers and they are bound to use this. In other words, subject to legislation for unscrupulous employers, I see this issue as becoming increasingly irrelevant over time.

TykeMerc
20th October 2015, 14:45
I wouldnt be happy with that personally. My costs are around 7.5% of turnover, but I have multiple clients, including direct B2B and my turnover is such that I'm likely to be kicked off the FRS this year. The bulk of the expenses come from working for one client so the %tge of turnover is relativley low.

Anyone working remotely, having a local client(s) etc could potentially lose out as well as T&S are generally our biggest on going costs.

Yours is a prime example of how any simplistic rules will be impractical.
You're very clearly in business, but you don't have a staff. The same way that a small practice accountant, or specialist mechanic (I know someone that tunes/tweaks engines for small racing companies and enthusiasts) or architect or any of the very many other examples you can pull out of the air.

The real failing of the last BET's other than the obvious monumental bias towards an HMRC view of the world is that small businesses are by their very nature different from each other, trying to use simplistic tests to cover all the scenarios, it's just not possible. The bias question is of course gigantic too, it's either impossible to be a small business or for 50p and a packet of Polo's everyone's a small business.


Sadly I think CUK is not representative of the contracting community at large, and would go as far as saying MOST are disguised permie, or at best are ignorant of the distinction.

I think that you're damn close to the money on that, we would have to be rather narrow minded to disagree. Many of the contractors I've worked with really are just permies with a cardboard cutout facemask.

Zero Liability
20th October 2015, 16:28
I'm increasingly of the opinion that we should do away with all tests and distinctions. For taxation purposes, let's stop distinguishing between real employees, disguised employees and non-employees and between real businesses and fake businesses. Even in the absence of more aggressive reforms on NI, there are mechanisms to reduce the disparity between the taxation of employees and the self-employed, including the new dividend tax. These mechanisms should be used to a degree that can be supported by the electorate. Let's deal with unscrupulous employers through legislation, as this is a distinct category.

When the differences in taxation between employment and self-employment properly reflect the additional costs (and to some degree the risks) associated with self employment, any questions about real and fake employees and real and fake businesses naturally disappear. No one wants to start a fake business unless there's a major incentive to do so, whether from the perspective of the employee or the employer. I have no problem in paying a dividend tax. I would think it's in the interests of the gov't to support a flexible workforce through T&S, but some aspects are clearly silly, so let's do away with relief on lunch and apply the T&S rules consistently to larger consultancies. All of these distinctions between real and fake employees and businesses are on a road to nowhere.

I wouldn't go so far as to say I'd have no problem with it, but if it helps them get rid of this entirely artificial, arbitrary mess they've created, I'd be at least satisfied with that in the interim, until they can undertake a wider review of the tax system.

LondonManc
20th October 2015, 16:40
I'm increasingly of the opinion that we should do away with all tests and distinctions. For taxation purposes, let's stop distinguishing between real employees, disguised employees and non-employees and between real businesses and fake businesses. Even in the absence of more aggressive reforms on NI, there are mechanisms to reduce the disparity between the taxation of employees and the self-employed, including the new dividend tax. These mechanisms should be used to a degree that can be supported by the electorate. Let's deal with unscrupulous employers through legislation, as this is a distinct category.

When the differences in taxation between employment and self-employment properly reflect the additional costs (and to some degree the risks) associated with self employment, any questions about real and fake employees and real and fake businesses naturally disappear. No one wants to start a fake business unless there's a major incentive to do so, whether from the perspective of the employee or the employer. I have no problem in paying a dividend tax. I would think it's in the interests of the gov't to support a flexible workforce through T&S, but some aspects are clearly silly, so let's do away with relief on lunch and apply the T&S rules consistently to larger consultancies. All of these distinctions between real and fake employees and businesses are on a road to nowhere.
+1

Totally agree. Smacks of HMG/HMRC trying to tackle two "problems" with one solution. Certainly in the office world, there's a need for a skilled contingent workforce.

Legislation to bring larger consultancies in line and level the playing field would be a good start with the real problem.

mudskipper
20th October 2015, 17:31
The original tests were proposed with sensible criteria - although I haven't been able to track down exactly what was proposed - I think it was something like you could 'pass' on one biggie (e.g. (and I'm guessing here) multiple concurrent clients), or several smaller indicators - insurances and the like.

The real problem came when HMRC took them, changed them beyond recognition, then claimed they were delivering what had been asked for.

I'm sure someone, somewhere has the original proposal, but would the outcome be any different if it were tried again?

mudskipper
20th October 2015, 17:38
Found this old thread on the IPSE forum, but I have no idea if this accurately reflects the proposal

It looks like the idea was to pass 50% of the tests.

https://community.ipse.co.uk/threads/discuss-business-tests-here-was-is-this-yours.99239/

LondonManc
20th October 2015, 18:25
Thing is a number of us ARE disguised permies and I would like to see something separating them out from the rest of us. Just having a business and paying divis' does not mean everyone by default is a contractor in the proper sense.

Are we? In what way? In terms of the work that we're engaged in?
Or do you mean disguised by the employer?
Only I'd say there's a reasonable argument that development staff can legitimately largely be classed as contractors because of project-based funding whereas support staff you'd want to be primarily perm. I'd say an 80-20 rule on both sides of the fence would be a reasonable split.

SueEllen
20th October 2015, 20:23
Just a point about putting H&S requirements in any tests - no one regardless of how they work can ignore H&S at work legislation.

Hugo Boss, where the poor little kid was killed by a mirror, were prosecuted under it for his death.

Murder1
21st October 2015, 07:27
Sadly I think CUK is not representative of the contracting community at large, and would go as far as saying MOST are disguised permie, or at best are ignorant of the distinction.

I'd completely agree with that. As an example, out of the last 15-20 contractors I've worked alongside at various places only around 20% of those actually bothered with a contract review before starting an engagement.

I got back such comments as "I don't need a review, I can perform my own contract review" or "I've been here years so the contract must be alright".

Like NLUK said I think I'd like to see some of these "contractors" separated out from the rest of us.

Danglekt
21st October 2015, 09:17
Please see above :wink

Sorry lisa, we posted at the same time :happy

malvolio
21st October 2015, 12:24
Found this old thread on the IPSE forum, but I have no idea if this accurately reflects the proposal

It looks like the idea was to pass 50% of the tests.

https://community.ipse.co.uk/threads/discuss-business-tests-here-was-is-this-yours.99239/
Not sure they were ever published to the outside world, but they did follow the same basic logic as the HMRC abortion mix, but with rather more relevant criteria and a far better scoring system. Worth also noting they were written in conjunction with other relevant professional bodies who are also on the IR35 Forum. There were a couple of clear binaries, then others to cover the more marginal cases.

What there weren't were demands to waste money on advertising and to carry bad debts... :tongue

PurpleGorilla
21st October 2015, 14:31
If you have employers liability insurance you should get points.

MPwannadecentincome
23rd October 2015, 11:54
Are we? In what way? In terms of the work that we're engaged in?
Or do you mean disguised by the employer?
Only I'd say there's a reasonable argument that development staff can legitimately largely be classed as contractors because of project-based funding whereas support staff you'd want to be primarily perm. I'd say an 80-20 rule on both sides of the fence would be a reasonable split.

the number of places I have been where "contractors" have been there for 10 years as contractors.... c'mon if that isn't disguised employment...?

SueEllen
23rd October 2015, 12:59
the number of places I have been where "contractors" have been there for 10 years as contractors.... c'mon if that isn't disguised employment...?

Some of them admit they are within IR35 and pay taxes accordingly.

In short until you see others tax affairs you cannot comment.