Small Business Exemption

[BlueSharp]

Morning,

If you contract direct with a business that meets the small business exemption. Does IR35 liability 'fall back' to the current position that it's the PSC responsibility to assess and take the IR35 liability or does the exemption mean that IR35 does not apply at all.

[webberg]

Morning,

If you contract direct with a business that meets the small business exemption. Does IR35 liability 'fall back' to the current position that it's the PSC responsibility to assess and take the IR35 liability or does the exemption mean that IR35 does not apply at all.

Where the end client is "small" then the contractor has to decide their own IR35 status and take their own risk on that decision.

Just be aware that having or not having a PSC makes very little difference to that decision.

[fidot]

Just be aware that having or not having a PSC makes very little difference to that decision.

IR35 can only apply where the contractor is working via a limited company, surely?

[jamesbrown]

Morning,

If you contract direct with a business that meets the small business exemption. Does IR35 liability 'fall back' to the current position that it's the PSC responsibility to assess and take the IR35 liability

Yes, same as now, liability as now.

That exemption won't last more than a couple of tax years, at most, I predict.

[jamesbrown]

IR35 can only apply where the contractor is working via a limited company, surely?

Sure (or partnership), but I think webberg means that the intermediary is "looked through" in a status decision. Hence the "intermediaries" legislation.

[webberg]

Sure (or partnership), but I think webberg means that the intermediary is "looked through" in a status decision. Hence the "intermediaries" legislation.

Correct, the legislation deals with intermediaries.

In the vast majority of instances this is a PSC (because these interposed a legal entity between individual and client co) and both parties preferred that/believed the myth about the protection it offered.

Partnerships are less common for a number of reasons.

You can of course be self employed and contract direct with client co. No intermediary and whilst there are still rules around whether that makes you an employee or not, IR35 is not in point.

[JohntheBike]

Correct, the legislation deals with intermediaries.

In the vast majority of instances this is a PSC (because these interposed a legal entity between individual and client co) and both parties preferred that/believed the myth about the protection it offered.

Partnerships are less common for a number of reasons.

You can of course be self employed and contract direct with client co. No intermediary and whilst there are still rules around whether that makes you an employee or not, IR35 is not in point.

We know that the contractor - their Co. - agency - client was a structure set up to protect the clients and to a certain extent also protects the contractor as the IR35 liability was on their Co. and not them selves, as far as I understand the issues.

But could we now possibly see more situations where the contractor deals directly with the clients and not through their Co? Under the new regime, would this structure present less problems to the clients? I know there is the argument about director incompetence or illegal activity, but if their company is challenged and there are no funds to pay an IR35 bill, then their company becomes insolvent and so the individual isn't required to pay. Or do I understand this incorrectly? If the contract were to be direct to the client, then the individual wouldn't be subject to the IR35 taxes, but any shortfall for any other reason would mean that the individual would be liable.

I guess it's a grey area, but do we have examples of cases around these issues?

[jamesbrown]

We know that the contractor - their Co. - agency - client was a structure set up to protect the clients and to a certain extent also protects the contractor as the IR35 liability was on their Co. and not them selves, as far as I understand the issues.

But could we now possibly see more situations where the contractor deals directly with the clients and not through their Co? Under the new regime, would this structure present less problems to the clients? I know there is the argument about director incompetence or illegal activity, but if their company is challenged and there are no funds to pay an IR35 bill, then their company becomes insolvent and so the individual isn't required to pay. Or do I understand this incorrectly? If the contract were to be direct to the client, then the individual wouldn't be subject to the IR35 taxes, but any shortfall for any other reason would mean that the individual would be liable.

I guess it's a grey area, but do we have examples of cases around these issues?

Yes, you understand incorrectly.

For small companies post April 2020:

• Liability sits with the fee payer first. Fee payer could be an agency or the client.
• If fee payer cannot pay, and there is an entity in the chain immediately below the client, liability moves there.
• Failing all else, liability moves to the client.
• Liability never moves to the intermediary (EDIT: actually, there are some provisions on providing fraudulent information, but these are in extremis).

There's a helpful diagram somewhere in the Finance Bill 2020 collection.

Bottom line, the only risk to an intermediary and its workers, post April 2020, is a contractual one between the fee payer and the intermediary (which mostly won't work, I predict). So, if you're working outside post April 2020, there is less risk, in principle.

Organisations like IPSE and other insurance-based outfits that focus on contractors will need to pivot in this new world.

HTH.

[JohntheBike]

Yes, you understand incorrectly.

For small companies post April 2020:

• Liability sits with the fee payer first. Fee payer could be an agency or the client.
• If fee payer cannot pay, and there is an entity in the chain immediately below the client, liability moves there.
• Failing all else, liability moves to the client.
• Liability never moves to the intermediary (EDIT: actually, there are some provisions on providing fraudulent information, but these are in extremis).

There's a helpful diagram somewhere in the Finance Bill 2020 collection.

Bottom line, the only risk to an intermediary and its workers, post April 2020, is a contractual one between the fee payer and the intermediary (which mostly won't work, I predict). So, if you're working outside post April 2020, there is less risk, in principle.

Organisations like IPSE and other insurance-based outfits that focus on contractors will need to pivot in this new world.

HTH.

please explain what I understand incorrectly.

Logic would tend to suggest that there is less risk to the client and the contractor if the contractor genuinely works outside of IR35 from April 2020. But logic doesn't work in the IR35 arena.

IPSE is likely to become a lost cause when these regulations begin to bite.

[jamesbrown]

please explain what I understand incorrectly.

Logic would tend to suggest that there is less risk to the client and the contractor if the contractor genuinely works outside of IR35 from April 2020. But logic doesn't work in the IR35 arena.

IPSE is likely to become a lost cause when these regulations begin to bite.

How can there be less risk for the client when the risk has moved emphatically from the contractor’s intermediary pre-April 2020 to the client as a backstop post? Some risk is more than zero risk.

IPSE has been furiously peddling away from PCG for some time. Many contractors will be furiously peddling away from IPSE in the coming years.