IR35 Crackdown proposed by Chancellor

[MarkT]

Tough talking chancellor taking it to those tax evaders. He's going to tighten up IR35 and save millions

BUDGET 2012: Crackdown on IR35 'one-man companies' that slash tax rate from 50% to 20% | Daily Mail Online

See that date? How many times has this been tried now.....?

[LisaContractorUmbrella]

Lots

[WordIsBond]

It's almost impossible to make the thing ironclad, and if there's a way around it, clever people will find it, and other clever people will follow their examples.

If I were Chancellor of the Exchequer, I'd do this:
A) Increase corporation tax to 25% for one-man band companies. Simple, clean, easy, and combined with the dividend tax pretty much wipes out the difference between employment tax and corp/dividend tax.
B) Abolish IR35. It's never going to be workable unless it is so draconian that it damages the economy.

Define "one-man band" as more than 80% of revenues comes from the personal services of a single fee-earner.

Done, simple, easy to enforce, easy to collect.

People may try to find a way around the 80% threshold, but anyone who can get anywhere near 20% of revenue from other than their personal services is not really acting like an employee anyway.

[chopper]

It's almost impossible to make the thing ironclad, and if there's a way around it, clever people will find it, and other clever people will follow their examples.

If I were Chancellor of the Exchequer, I'd do this:
A) Increase corporation tax to 25% for one-man band companies. Simple, clean, easy, and combined with the dividend tax pretty much wipes out the difference between employment tax and corp/dividend tax.
B) Abolish IR35. It's never going to be workable unless it is so draconian that it damages the economy.

Define "one-man band" as more than 80% of revenues comes from the personal services of a single fee-earner.

Done, simple, easy to enforce, easy to collect.

People may try to find a way around the 80% threshold, but anyone who can get anywhere near 20% of revenue from other than their personal services is not really acting like an employee anyway.

Actually, not a bad mechanism there, I'd live with that provided we could continue to use legitimate costs to offset our taxable profits, e.g. accountants fees, childcare vouchers, equipment, insurance, maybe even T&S. However, I could make up the 20% difference selling tat on ebay :-)

One issue with an 80% threshold is a husband and wife contractor company, 50% each, both being fee earners. They'd be exempt from the 25% rate under your proposal. In fact, it wouldn't need to be a husband and wife, just two contractors. How would you legislate against that workaround?

[Zero Liability]

It's almost impossible to make the thing ironclad, and if there's a way around it, clever people will find it, and other clever people will follow their examples.

If I were Chancellor of the Exchequer, I'd do this:
A) Increase corporation tax to 25% for one-man band companies. Simple, clean, easy, and combined with the dividend tax pretty much wipes out the difference between employment tax and corp/dividend tax.
B) Abolish IR35. It's never going to be workable unless it is so draconian that it damages the economy.

Define "one-man band" as more than 80% of revenues comes from the personal services of a single fee-earner.

Done, simple, easy to enforce, easy to collect.

People may try to find a way around the 80% threshold, but anyone who can get anywhere near 20% of revenue from other than their personal services is not really acting like an employee anyway.

Or just merge PAYE/NI and lower tax all around. But then those pigs Dave is so fond of might acquire wings.

Yours is a much better idea, though, than what the govt has in mind. If they're worried about the "low paid" incorporating they can just take some arbitrary multiplier relative to the equally arbitrary 'living wage', and prevent usage of a PSC in those instances, and that problem also goes. There are no doubt nits to pick with either proposal but they would be infinitely better than anything to come in the Consultation doc, which is what I suspect we'll see come 25 Nov. Then Osborne can go back to obsessing from other angles over a problem he is nowhere near solving, and everyone will be happy.

[BrilloPad]

Why don't they pick on Starbucks? They would get much more money.

[DotasScandal]

Why don't they pick on Starbucks? They would get much more money.

Because it's NOT about getting much more money (into the public purse). It's all about pushing small players out of the game, and clear the field for a few behemoths (who will happily "donate" to their Tory benefactors, no doubt) and impose an oligopoly.

It's Cronyism defined.

And frankly, what else do you expect from a guy with a background like Osborne??

[MarkT]

Why don't they pick on Starbucks? They would get much more money.

Exactly, probably because Starbucks are bigger than we are.

If have disabled kids has taught me one thing, it's that bullies always pick on the weakest

[WordIsBond]

Actually, not a bad mechanism there, I'd live with that provided we could continue to use legitimate costs to offset our taxable profits, e.g. accountants fees, childcare vouchers, equipment, insurance, maybe even T&S. However, I could make up the 20% difference selling tat on ebay :-)

If you spend enough time on ebay to make 20% of your contracting revenues, either you aren't charging much as a contractor or you are working really hard on ebay, which means you are much more than just a PSC. Set the limit to 75% or even 70% if it helps.

One issue with an 80% threshold is a husband and wife contractor company, 50% each, both being fee earners. They'd be exempt from the 25% rate under your proposal. In fact, it wouldn't need to be a husband and wife, just two contractors. How would you legislate against that workaround?

Look, I've done the heavy lifting with the general proposal that solves the whole problem, I think HMRC should do a little work and figure out that part of it. Not everyone over there is an idiot.

Well, maybe they are. Anyway, I'd legislate against two different classes of shares for a two man band with two fee earners, and probably leave it at that. Maybe there's other things you could do, but I'm not thinking of them right now.

If two contractors want to pool together and hold equal shares, and they are willing to run the risk of having to share equal dividends when they don't earn equal fees, and the risk of something going pear-shaped between them, I'd say they have a business going and aren't disguised employees.

If someone is going to try to circumvent the PSC rules, they aren't going to gain a lot. It's 25% vs 20% CT, and loss of the £5K dividend allowance. That's not a game changer. For the risks involved of things going wrong in a two-man setup, you aren't saving a massive chunk of tax.

And if it is husband-wife so they aren't risking money fallout over varying fee levels, well, the government claims they are pro-marriage, so go with it.

[jpdw]

And if it is husband-wife so they aren't risking money fallout over varying fee levels, well, the government claims they are pro-marriage, so go with it.

The individuals are taking a decent level of risk by both being dependant on the same small venture. Compared to 2 unrelated people there's still the risk of one being out of contract disproportionately from the other yet expecting continued payment.

I'm sure some H&W combos would absolutely fall out over varying fee levels - just as some non related co-contributors fall out.

Yes, H&W are more legally free to transfer shares between each but that should attract HMRCs attention for all the right reasons.