• Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
  • Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!

Taxed but not benefiting

Collapse
X
  •  
  • Filter
  • Time
  • Show
Clear All
new posts

    #21
    Originally posted by BlueSharp View Post
    There is also the question of expenses. Inside IR35 you can no longer claim travel and subsistence outside you obviously can still claim. An employee will typically have travel and subsistence covered by their employer under a fixed term contract T&S should be paid for by the client, inside ir35 who knows?

    Pension contributions made by the company are tax efficient for those employed and outside ir35 but inside ir35 no longer an option to make; worse still the pension contribution for an inside ir35 worker now as to be made after employer NI deductions!

    So the question begs why on earth would you take an inside ir35 contract especially when T&S and pension contributions are involved.
    Because sometimes those aren't an issue. I took an inside gig in Manchester, with uplift which suited me fine at the time. You can be more tax efficient by putting the entire income in to a pension for the inside gig which helps.

    On the whole they are really crap as you say but sometimes one will fit the bill nicely. There are, of course, those that aren't really contractors and are happy to stay safe in their little Inside gig regardless of all that as well of course.
    'CUK forum personality of 2011 - Winner - Yes really!!!!

    Comment


      #22
      Originally posted by northernladuk View Post
      Because sometimes those aren't an issue. I took an inside gig in Manchester, with uplift which suited me fine at the time. You can be more tax efficient by putting the entire income in to a pension for the inside gig which helps.

      On the whole they are really crap as you say but sometimes one will fit the bill nicely. There are, of course, those that aren't really contractors and are happy to stay safe in their little Inside gig regardless of all that as well of course.
      Regarding the pension contributions, inside ir35 I did not think you could make full prior to tax contributions but on reflection seem to recall a couple of umbrella's offering the ability to do just that. That would make for an interesting inside ir35 contract if taxed at source by the client.

      I agree for some those might not be an issue but for others they will be game changes.
      Last edited by BlueSharp; 20 August 2019, 09:33.
      Make Mercia Great Again!

      Comment


        #23
        Originally posted by Hobosapien View Post
        The way I see it is that the contractor is opting out of any possible employee benefits by way of a signed contract saying they are not an employee (a contract of service rather than a contract of employment) that allows them to receive a monetary value to offset such benefits. Agreed. It is for the contractor to pitch the value of those benefits and ask for compensation that - net of tax - allows these to be acquired.

        The unfairness in the current implementation of being inside IR35 is that there is no tax break given to the contractor to offset the lack of employee benefits in the remuneration. Why should there be a) a correlation between employee benefit and tax break and b) any compensation when the contractor has chosen not be an employee? I know this is a common argument but for the reasons below, I think it may be false. This may be because the remuneration also includes Employer NI so needs to be taxed to close that loophole as HMRC sees it. So to ensure the contract is fair the rate needs to be sufficiently high that the tax is taken into account allowing a net beneficial gain to the contractor over a similar employee, to offset the lack of employee benefits that the contractor could then arrange themselves if they wanted them. Absolutely.

        This is further compounded by there being no tax break on travel and accommodation where an employee in a similar geographic situation would likely receive some form of relocation expense, so again the rate needs to be high enough to compensate. Actually this is unlikely. Expenses for employees have historically been controlled much more tightly by HMRC and progressively squeezed almost to non existence. An employee has a place of work. Travel to and from that place of work is not allowable. Travel to another place of work is allowable so long as they start from the first place of work. If they use the second place regularly, it becomes a normal place of work and all expenses paid are taxable. Many large employers will have an agreement with HMRC which recognises that they pay expenses that are taxable, but they will pay the tax. (That in itself creates a tax benefit which has to be grossed up). It is a myth that employees expenses are generous or non taxable and also perhaps not a great benchmark if we are looking for a route for contractors.
        I mentioned above that there is no correlation between lack of employee benefits and higher compensation, or that such a link may be false thinking.

        Most contractors choose that way of working for reasons that have nothing or very little to do with access - or not - to employee benefits.

        Higher pay, flexibility, lifestyle, boredom thresholds, etc.

        I suggest that almost no contractors think to themselves that by choosing this route, they are denying themselves holiday pay (to use as an example). Rather they think that they will earn more and be able to fund a holiday at a time of their own choosing.

        Consequently, in a utopian world, if tax systems change and it means that contractor pays more tax and has less in the holiday fund, they increase their rate. (I know it's not as simple as that).

        It does not mean that if the benchmark tax level is that of an employee, then the additional tax payable is related to any specific benefit.
        Best Forum Adviser & Forum Personality of the Year 2018.

        (No, me neither).

        Comment


          #24
          Originally posted by webberg View Post
          There have certainly been cases exploring the boundary between employed and self employed and some of these go back to the late 1800's.

          All of those I have read seek to show that the individual was an employee.

          I am not aware of any case in which somebody being subjected to tax via what would have been pre IR35, Schedule E, was claimed by HMRC to be self employed (Schedule D).

          If you can point to such a case, I'll gladly read it.
          no actual details but this looks like an example -

          How to prove to HMRC you was not self employed? | AccountingWEB

          I'll look for other better examples

          Comment


            #25
            Originally posted by webberg View Post
            I mentioned above that there is no correlation between lack of employee benefits and higher compensation, or that such a link may be false thinking.

            Most contractors choose that way of working for reasons that have nothing or very little to do with access - or not - to employee benefits.

            Higher pay, flexibility, lifestyle, boredom thresholds, etc.

            I suggest that almost no contractors think to themselves that by choosing this route, they are denying themselves holiday pay (to use as an example). Rather they think that they will earn more and be able to fund a holiday at a time of their own choosing.

            Consequently, in a utopian world, if tax systems change and it means that contractor pays more tax and has less in the holiday fund, they increase their rate. (I know it's not as simple as that).

            It does not mean that if the benchmark tax level is that of an employee, then the additional tax payable is related to any specific benefit.
            Agency Worker Regulations have a specific exemption for professionals not under D&C, if a client claims they are subject to D&C and therefore inside ir35 how can the client or agency claim the agency worker exception? If an Umbrella is involved I think the they do adhere to the AWR already.

            Things get even more complicated now the client has said that MOO does exist as the contractor is inside IR35, for me that will be the real test in the ET when a client admits to MOO being present but refuses to accept their is a contract of employment. HMRC claim that CEST does not include a MOO test as they believe it is present in every contract, existing case law (in tax and employment tribunals) already proves them wrong on this point, yet a client is admitting to it being present but denying employment rights if they determine an inside position.
            Last edited by BlueSharp; 20 August 2019, 11:01.
            Make Mercia Great Again!

            Comment


              #26
              While I think arguments that tax and employment status should be aligned are morally and philosophically interesting and I suspect a Labour government might start to bring them together no one has ever presented a compelling legal argument that it is currently something that has much legs.

              Comment


                #27
                Originally posted by BlueSharp View Post
                Agency Worker Regulations have a specific exemption for professionals not under D&C, if a client claims they are subject to D&C and therefore inside ir35 how can the client or agency claim the agency worker exception? If an Umbrella is involved I think the they do adhere to the AWR already.

                Things get even more complicated now the client has said that MOO does exist as the contractor is inside IR35, for me that will be the real test in the ET when a client admits to MOO being present but refuses to accept their is a contract of employment. HMRC claim that CEST does not include a MOO test as they believe it is present in every contract, existing case law (in tax and employment tribunals) already proves them wrong on this point, yet a client is admitting to it being present but denying employment rights if they determine an inside position.
                agreed, and this is why the current crop of ET cases will prove to be very important.

                Comment


                  #28
                  Originally posted by webberg View Post
                  I mentioned above that there is no correlation between lack of employee benefits and higher compensation, or that such a link may be false thinking.

                  Most contractors choose that way of working for reasons that have nothing or very little to do with access - or not - to employee benefits.

                  Higher pay, flexibility, lifestyle, boredom thresholds, etc.

                  I suggest that almost no contractors think to themselves that by choosing this route, they are denying themselves holiday pay (to use as an example). Rather they think that they will earn more and be able to fund a holiday at a time of their own choosing.

                  Consequently, in a utopian world, if tax systems change and it means that contractor pays more tax and has less in the holiday fund, they increase their rate. (I know it's not as simple as that).

                  It does not mean that if the benchmark tax level is that of an employee, then the additional tax payable is related to any specific benefit.
                  The correlation between employee benefits and contractor rate is multidimensional and all dimensions need to be evaluated to come to a balanced outcome that all three parties (client, contractor, HMRC) will accept and be happy with to ensure business is done.

                  The client by using a contractor inside IR35 will avoid providing employee benefits and any associated cost, and also avoid Employers NI.

                  HMRC will want to tax the contractor to cover the Employers NI as well as Employee NI and Income Tax.

                  The contractor will want a rate that means after tax and lack of expenses they are still happy to take the contract rather than seek an outside IR35 contract elsewhere. The contractor may want to arrange their own equivalent to pension contributions, health care insurance, company car ... that would otherwise be included in an employee benefit package. This comes out of the contract rate attained. True, the contractor wouldn't likely be thinking of it so directly in comparison but the overall cost still remains.

                  The client will have to be willing to pay that rate to attract decent contractors, thus in effect paying Employer NI and employee benefits to some degree, so the attraction of using contractors isn't financial other than the alternative accounting, budgeting, and resource management cost options it allows them.

                  HMRC should be willing to take all the above into account in their desire to maximise tax take, which is their only real objective with IR35, to ensure they're not strangling one part of the symbiotic relationship that must exist for business to be able to be done this way where clients want flexible resource in the form of contractors.

                  As it is clients will have to be willing to increase rates and contractors will have to get clued up on the true cost of an inside IR35 contract to ensure the relationship is supportable long term once HMRC comes for the tax.
                  Maybe tomorrow, I'll want to settle down. Until tomorrow, I'll just keep moving on.

                  Comment


                    #29
                    Originally posted by Hobosapien View Post
                    The correlation between employee benefits and contractor rate is multidimensional and all dimensions need to be evaluated to come to a balanced outcome that all three parties (client, contractor, HMRC) will accept and be happy with to ensure business is done.

                    The client by using a contractor inside IR35 will avoid providing employee benefits and any associated cost, and also avoid Employers NI.

                    HMRC will want to tax the contractor to cover the Employers NI as well as Employee NI and Income Tax.

                    The contractor will want a rate that means after tax and lack of expenses they are still happy to take the contract rather than seek an outside IR35 contract elsewhere. The contractor may want to arrange their own equivalent to pension contributions, health care insurance, company car ... that would otherwise be included in an employee benefit package. This comes out of the contract rate attained. True, the contractor wouldn't likely be thinking of it so directly in comparison but the overall cost still remains.

                    The client will have to be willing to pay that rate to attract decent contractors, thus in effect paying Employer NI and employee benefits to some degree, so the attraction of using contractors isn't financial other than the alternative accounting, budgeting, and resource management cost options it allows them.

                    HMRC should be willing to take all the above into account in their desire to maximise tax take, which is their only real objective with IR35, to ensure they're not strangling one part of the symbiotic relationship that must exist for business to be able to be done this way where clients want flexible resource in the form of contractors.

                    As it is clients will have to be willing to increase rates and contractors will have to get clued up on the true cost of an inside IR35 contract to ensure the relationship is supportable long term once HMRC comes for the tax.
                    Ermmm

                    Under the proposed new rules the client is liable for the ErNICs, they merely add them to the rate to the agency who do the actual paying or worker and HMRC.

                    Secondly, the worker is now funding all the various things out of taxed income. All their rate is taxed, you don't get the 5% relief for working expenses. They can claim tax relief on the pension at year end of course via their SAR, but that money almost certainly won't go back into the pension pot.

                    Thirdly with the uncertain future we're all facing, paying more for the same worker is simply not going to happen; if anything rates will go down to recover the ErNICs, Apprentice Levy and additional management overheads; call it 15% minimum.

                    Finally HMRC - or to be more precise HMT - have shown no inclination to be logical, fair or even understanding our market.
                    Blog? What blog...?

                    Comment


                      #30
                      Originally posted by JohntheBike View Post
                      What's questionable is that those supporting the case claimed there was an important principle to establish, yet the appellant settled for what in reality was an insignificant amount. So much for establishing an important principle.
                      Originally posted by webberg View Post
                      A FTT hearing requires HMRC and the taxpayer to have opposing views. That is a function of how our legal system works and save a few rare instances, Courts will not hear a case in which the parties broadly agree and are just seeking clarification.
                      The Winchester claim was settled at the 11th hour - her demands were fully met. So there was no case to take to the court. As webberg said, "The parties agreed". The FTT would not have looked kindly on having their time wasted.

                      I look forward to seeing the outcome of current case(s) in the pipeline.

                      Comment

                      Working...
                      X