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Taxed but not benefiting

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    Taxed but not benefiting

    On a different thread we have been discussing the link (or not) between paying tax at the same rate as an employee and having the same benefits as an employee.

    To summarise and provide a platform here:

    There is a suggestion that an end client designating a role as being inside IR35 may leave them more open to a claim from the contractor that they are an employee, entitled to employee benefits.

    Further, said contractor may be in a position to use the Employment Tribunals as a means of enforcing such rights and in so doing bring closer a common definition between employment and tax law.

    A counter view has been advanced that even if the tax rules require that those deemed to be "inside" IR35 actually pay tax at the same rate(s) as an employee, in the same manner (deduction at source) this does not mean that they are employee taxes. If that is true then the link between employment law and tax law may not be as strong as they are thought.

    Further, IPSE is seemingly supporting a case in which this boundary and connection is being tested in order - partly - to explore whether arguments based on fairness and transparency can be used to bring some synergy to the situation.

    It was suggested that a thread to discuss and develop this area would be sensible.

    Here it is.

    Whilst we all here appreciate that some lessons can be learned from the past, the new rules will create a new world and therefore this is a forward looking thread and therefore no war stories from the past please.
    Best Forum Adviser & Forum Personality of the Year 2018.

    (No, me neither).

    #2
    Originally posted by webberg View Post
    On a different thread we have been discussing the link (or not) between paying tax at the same rate as an employee and having the same benefits as an employee.

    To summarise and provide a platform here:

    There is a suggestion that an end client designating a role as being inside IR35 may leave them more open to a claim from the contractor that they are an employee, entitled to employee benefits.

    Further, said contractor may be in a position to use the Employment Tribunals as a means of enforcing such rights and in so doing bring closer a common definition between employment and tax law.

    A counter view has been advanced that even if the tax rules require that those deemed to be "inside" IR35 actually pay tax at the same rate(s) as an employee, in the same manner (deduction at source) this does not mean that they are employee taxes. If that is true then the link between employment law and tax law may not be as strong as they are thought.

    Further, IPSE is seemingly supporting a case in which this boundary and connection is being tested in order - partly - to explore whether arguments based on fairness and transparency can be used to bring some synergy to the situation.

    It was suggested that a thread to discuss and develop this area would be sensible.

    Here it is.

    Whilst we all here appreciate that some lessons can be learned from the past, the new rules will create a new world and therefore this is a forward looking thread and therefore no war stories from the past please.
    In order to support the claim that individuals can be employed for tax purposes and not for employment benefits, I have asked what issues the FTT might consider in a case, which the ET might not and vice versa. So far no one has identified these. So leaving out any possible future ramifications, I think it would be useful if a legal eagle could advise us on this, as those who might want to test the issue in the ET might fall foul of one or other of the issues.

    Comment


      #3
      Originally posted by JohntheBike View Post
      In order to support the claim that individuals can be employed for tax purposes and not for employment benefits,
      I need to correct the above.

      There is no such thing as "employed for tax purposes".

      Tax law says that if you are an employee you are in receipt of employment income and that is taxed in a particular manner, courtesy of section 62 ITEPA et seq.

      Tax law says that if you work via an intermediary but the terms of that work would, without the intermediary, be within what the Courts and Tribunals have decided is an employment, then you pay tax EQUIVALENT to that of an employee, courtesy of the rules in Chapters 7 thru 10 of ITEPA.

      Tax law is seeking to identify whether individual roles are within section 62/Chapter 7 - 10 because that dictates how much, when and how tax is paid.

      If you are in these definitions, then the actual or deemed employer is an unpaid tax collector for the Government.

      That unpaid tax collector has to abide by either the PAYE Regulations or Chapters 7 - 10 as required. That is all.

      The relationship between actual/deemed employer and actual/deemed employee - for tax purposes - is one of each party meeting its obligations to tax law - NOT to each other.

      In other words no MOO.

      It's easy to slip into "employed for tax purposes" and variations thereof, but that is to misunderstand the relationship.
      Best Forum Adviser & Forum Personality of the Year 2018.

      (No, me neither).

      Comment


        #4
        Originally posted by webberg View Post

        The relationship between actual/deemed employer and actual/deemed employee - for tax purposes - is one of each party meeting its obligations to tax law - NOT to each other.

        In other words no MOO.
        So you're saying a contract can be inside IR35 and there still be no MOO. Supporting HMRC's view that MOO doesn't need testing

        Comment


          #5
          Originally posted by PTP View Post
          So you're saying a contract can be inside IR35 and there still be no MOO. Supporting HMRC's view that MOO doesn't need testing
          Yes, potentially, and that is what is being tested. However it does not mean that "Inside IR35" means "No MOO", so imho it cannot simply be ignored. The RMC tests still stand.
          Blog? What blog...?

          Comment


            #6
            Originally posted by PTP View Post
            So you're saying a contract can be inside IR35 and there still be no MOO. Supporting HMRC's view that MOO doesn't need testing
            Doesn't need testing you are right but bearing in mind clients often need contractors for short term pieces of work and nothing more there is likely going to be an absence of any Mutality just though the nature of what we do.
            'CUK forum personality of 2011 - Winner - Yes really!!!!

            Comment


              #7
              Originally posted by PTP View Post
              So you're saying a contract can be inside IR35 and there still be no MOO. Supporting HMRC's view that MOO doesn't need testing
              I would agree with the first sentence. Not the second.

              MOO remains an important element of the equation but as with all other elements in this scenario its relative weight changes according to the situation.

              The point I was trying to make was not in fact, about the influence each element in a role/contract carries, but rather the fact that once the status for tax purposes was decided - employment income or payment via intermediary - then deduction is just a mechanical exercise undertaken by the payer.

              I'm trying to break the connections that many people make - in my view erroneously - that paying tax at the same rate as an employee, means that you are "employed for tax purposes".

              My view is rather that every earner in the UK is (or should be) taxed at the same rate and whether you have an employment contract or a services contract within IR35 makes no difference if the end result is that the payer has to follow an administrative process.
              Best Forum Adviser & Forum Personality of the Year 2018.

              (No, me neither).

              Comment


                #8
                While I agree with the above points entirely, I think it is equally about the intention of the client. You can argue that the client, by hiring a worker that they declare to be inside IR35 and therefore a worker who can be allocated to any task the client requires and therefore is not a supplier of specialist services, is in effect saying they want a permanent employee without the overhead of employing one. It's a matter of intent and, on the other side of the coin, the client is taking an action that in effect minimises their costs and liabilities at the expense of the "freelance" worker.

                The solution to that dilemma is straightforward - either take on your temporary resources under an FTC which costs the same but puts the question of employee rights out of doubt, or hire a service provider outside IR35.

                Let's not ignore the Winchester case, which partially aligned the method of engagement with workers' rights and may have set a wider precedent. Basically it is all a damaging and unnecessary mess and needs some serious decisions to be made.
                Blog? What blog...?

                Comment


                  #9
                  Originally posted by webberg View Post
                  I need to correct the above.

                  There is no such thing as "employed for tax purposes".

                  Tax law says that if you are an employee you are in receipt of employment income and that is taxed in a particular manner, courtesy of section 62 ITEPA et seq.

                  Tax law says that if you work via an intermediary but the terms of that work would, without the intermediary, be within what the Courts and Tribunals have decided is an employment, then you pay tax EQUIVALENT to that of an employee, courtesy of the rules in Chapters 7 thru 10 of ITEPA.

                  Tax law is seeking to identify whether individual roles are within section 62/Chapter 7 - 10 because that dictates how much, when and how tax is paid.

                  If you are in these definitions, then the actual or deemed employer is an unpaid tax collector for the Government.

                  That unpaid tax collector has to abide by either the PAYE Regulations or Chapters 7 - 10 as required. That is all.

                  The relationship between actual/deemed employer and actual/deemed employee - for tax purposes - is one of each party meeting its obligations to tax law - NOT to each other.

                  In other words no MOO.

                  It's easy to slip into "employed for tax purposes" and variations thereof, but that is to misunderstand the relationship.
                  OK, let's put aside specific descriptions and ask the question, what elements of an engagement that the FTT will consider for an IR35 case that the ET would not consider, and vice versa? Apart from a client's determination that a role is inside, I'm a little concerned that the ET would take into account, if this determination did not exist, that there would be no contractual nexus between the client and find against a contractor. i.e. the FTT would be obliged to ignore the actual contract, whereas the ET could not. This is what I believe HMG were attempting to do right from the beginning when it required the FTT to construct an imaginary contract. What is the possibility of this happening? I guess the latest crop of cases in the ET will prove to be very important in answering these questions.

                  I'm sure there have also been cases in the FTT where HMRC has tried to prove the opposite of what an individual contended, even outside of IR35. i.e. HMRC has tried to prove an employee relationship and vice versa.
                  Last edited by JohntheBike; 20 August 2019, 07:58.

                  Comment


                    #10
                    Originally posted by malvolio View Post

                    Let's not ignore the Winchester case, which partially aligned the method of engagement with workers' rights and may have set a wider precedent. Basically it is all a damaging and unnecessary mess and needs some serious decisions to be made.
                    There was no Winchester case.

                    My understanding is that the lady at the centre of it, was prepared to go to an employment tribunal in order to enforce holiday pay entitlement. However the public service end client and/or the intermediary concerned decided to settle out of court. We have no idea why.

                    Ms Winchester took that settlement and therefore there is was no case; no arguments rehearsed in court; no precedent set.

                    As a consequence, in the event that case goes to Tribunal, there is no help from that source.
                    Best Forum Adviser & Forum Personality of the Year 2018.

                    (No, me neither).

                    Comment

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