IR35 - Back to first principles....

[jamesbrown]

It becomes a different matter when you are asked to indemnify the other parties in the chain...

I get the sense that I'm missing something subtle in what you're saying...

In the event of joint and several liability, I would expect that the client would adopt a default position of inside, so the risk wouldn't be present. When the client agrees to an outside position, and subsequent evaluation finds differently, and HMRC decides to pursue the client, the implications of joint and several liability then kick in, i.e. the client must then pursue some or all of the amounts due from elsewhere in the chain. For example, there may be a clause to indemnify the client against certain costs, i.e. to chase the contractor. Is that what you're saying? That's where insurance would come in. In reality, the client would need to insure themselves too because the contractor could easily go tits up and leave a liability.

[jamesbrown]

Average tenure for permanent employees was around 9 years in 2011, according to

http://www.cipd.co.uk/binaries/megat...lowed-down.pdf

And is one of the lowest in Europe.

It is unlikely to have shifted dramatically since then. 2 years as a cut off for employment status seems reasonable based on that.

Reasonable for what? Self-evidently it isn't reasonable for increasing tax take, as only a small fraction of contractors remain on the client site for more than 2 years. This would be even fewer with a new 2-year rule (i.e. the current rules reflect the current expenses regime). Furthermore, it isn't reasonable in distinguishing employment from self-employment. Thus, pretty unreasonable all around, I'd say.

[eek]

Current summary

We know its going to be SDorC - half this problem changes if they move back to the easier test of Not SDorC and
End clients will be responsible for deciding so the tests needed have to be end client focussed.

Part and Parcel seems to work but could not have sensible tests..
Project based work also seems to work but would need certain criteria
Time and multiple client solutions don't seem to work as they can be abused (and won't bring tax in if that's important).
If things can be abused they will be.

Anything I've missed or people want to argue with..

For entertainment value I want to add job title....

[teapot418]

Current summary

We know its going to be SDorC - half this problem changes if they move back to the easier test of Not SDorC and
End clients will be responsible for deciding so the tests needed have to be end client focussed.

Part and Parcel seems to work but could not have sensible tests..
Project based work also seems to work but would need certain criteria
Time and multiple client solutions don't seem to work as they can be abused (and won't bring tax in if that's important).
If things can be abused they will be.

Anything I've missed or people want to argue with..

For entertainment value I want to add job title....

We don't know anything yet - it's still a discussion document.

I ran a google search and filtered on results before 2002 - it does appear (as some have claimed) as if it has always been SD or C, and not always with the not! - but I couldn't find a result which was actually a date stamped document, so ICBW.

Anyone know what was actually proposed for the BETs before HMRC got their mitts on them - there might be some useful ideas in there?

[teapot418]

Reasonable for what? Self-evidently it isn't reasonable for increasing tax take, as only a small fraction of contractors remain on the client site for more than 2 years. This would be even fewer with a new 2-year rule (i.e. the current rules reflect the current expenses regime). Furthermore, it isn't reasonable in distinguishing employment from self-employment. Thus, pretty unreasonable all around, I'd say.

I agree, it wouldn't increase tax take, it would be far too easy to circumvent. "Clarity" isn't the primary objective here.

[jamesbrown]

Current summary

We know its going to be SDorC - half this problem changes if they move back to the easier test of Not SDorC and
End clients will be responsible for deciding so the tests needed have to be end client focussed.

Part and Parcel seems to work but could not have sensible tests..
Project based work also seems to work but would need certain criteria
Time and multiple client solutions don't seem to work as they can be abused (and won't bring tax in if that's important).
If things can be abused they will be.

Anything I've missed or people want to argue with..

For entertainment value I want to add job title....

Sadly, I think that's pretty much a true reflection of where we are. However, we'll keep trying. I wouldn't necessarily agree on the P&P tests, providing they meet the conditions I mentioned before (objective, powerful, readily evidenced), but P&P as currently defined (i.e. finger in the wind) would definitely not work.

We should perhaps think further about the SDC part too and whether there is anything we can do to soften it. I'm not sold on the discussion about SDC being different than the current idea of control, which encapsulates all of SDC (e.g. I'm not sold on the "or" being important, for example). Obviously, the loss of MoO and RoS is important. However, I don't mean to go through all that again, and a suitable fraction of CUK and status professionals/accountants do seem to be concerned about the details of SDC. Perhaps we can address this w/r to how it is explained in HMRC guidance and examples. I guess this guidance is important, even if HMRC guidance is not case law reality. In terms of a client getting nervous, however, my sense is that they won't really care about the details of SDC and its legal interpretation (i.e. default: run for the hills).

[WordIsBond]

Seems to me this thread has demonstrated one thing. The deeming criteria of what constitutes "employed" vs. "self-employed" / "in business for yourself" is extremely complicated, there is no good answer, and that is something HMG / HMRC are absolutely committed to change.

The only way they can change it to make it at all straightforward is to either make it too loose, letting people out of the net who should be caught, or too tight, catching people it shouldn't. Guess which they will choose?

So I keep going back to my earlier conclusion -- focusing on the deeming criteria is a loser's game for us, we need to come up with proposals that actually kill IR35 completely and replace it with something that is easy to administer (IR35 is a nightmare to administer, unless the deeming criteria are extremely draconian) and protect the Exchequer. And it needs to be something that doesn't destroy the flexible workforce.

HMG should be doing that themselves, of course. If they weren't incompetent, they should be able to see that IR35 as constructed is a nightmare, but throwing everyone into it is extremely short-sighted.

If you tweak the deeming criteria, a year later we'll hear that IR35 isn't working because someone is on the wrong side of the line, and then someone else, and someone else. And if you make engagers the enforcers, then everyone legit will be inside IR35 and everyone with the dodgy employers, the ones who will close down every three years, will be outside. So THAT isn't going to work, either.

HMRC should be collecting taxes, not playing at employment tribunal. Someone should go back to square one, and decide, if Gordon Brown hadn't given birth to a monster, what a reasonable government would come up with in its place. And IR35 should perish, and be replaced by that reasonable alternative.

[jamesbrown]

Seems to me this thread has demonstrated one thing. The deeming criteria of what constitutes "employed" vs. "self-employed" / "in business for yourself" is extremely complicated, there is no good answer, and that is something HMG / HMRC are absolutely committed to change.

The only way they can change it to make it at all straightforward is to either make it too loose, letting people out of the net who should be caught, or too tight, catching people it shouldn't. Guess which they will choose?

So I keep going back to my earlier conclusion -- focusing on the deeming criteria is a loser's game for us, we need to come up with proposals that actually kill IR35 completely and replace it with something that is easy to administer (IR35 is a nightmare to administer, unless the deeming criteria are extremely draconian) and protect the Exchequer. And it needs to be something that doesn't destroy the flexible workforce.

HMG should be doing that themselves, of course. If they weren't incompetent, they should be able to see that IR35 as constructed is a nightmare, but throwing everyone into it is extremely short-sighted.

If you tweak the deeming criteria, a year later we'll hear that IR35 isn't working because someone is on the wrong side of the line, and then someone else, and someone else. And if you make engagers the enforcers, then everyone legit will be inside IR35 and everyone with the dodgy employers, the ones who will close down every three years, will be outside. So THAT isn't going to work, either.

HMRC should be collecting taxes, not playing at employment tribunal. Someone should go back to square one, and decide, if Gordon Brown hadn't given birth to a monster, what a reasonable government would come up with in its place. And IR35 should perish, and be replaced by that reasonable alternative.

We've known this for decades though. What's the alternative? To put it differently, is there any jurisdiction anywhere in the world that hasn't addressed this problem through some version of IR35 that aims to differentiate between employees and the self-employed, using criteria that are draconian or subjective to varying degrees (generally, they are more draconian, as in Canada, NZ and Oz)? It's a game of classification or it's a game of massive tax simplification and, for the medium-term, it's most definitely the former.

[Zero Liability]

Sadly, I think that's pretty much a true reflection of where we are. However, we'll keep trying. I wouldn't necessarily agree on the P&P tests, providing they meet the conditions I mentioned before (objective, powerful, readily evidenced), but P&P as currently defined (i.e. finger in the wind) would definitely not work.

Is it even needed? I think SDC and a project-driven test would suffice, and they would cover much overlapping territory anyway.

We've known this for decades though. What's the alternative? To put it differently, is there any jurisdiction anywhere in the world that hasn't addressed this problem through some version of IR35 that aims to differentiate between employees and the self-employed, using criteria that are draconian or subjective to varying degrees (generally, they are more draconian, as in Canada, NZ and Oz)? It's a game of classification or it's a game of massive tax simplification and, for the medium-term, it's most definitely the former.

Well, the party that is the "friend" of small business and allegedly pro-free markets (we know their actual track record in these areas, but nevermind that) could always opt to make it one of the most business-friendly countries in the Anglo-saxon world for freelancers...

[eek]

Is it even needed? I think SDC and a project-driven test would suffice, and they would cover much overlapping territory anyway.



Well, the party that is the "friend" of small business and allegedly pro-free markets (we know their actual track record in these areas, but nevermind that) could always opt to make it one of the most business-friendly countries in the Anglo-saxon world for freelancers...

SDC, a project driven-test and some sanity when it comes to low paid workers would I'm sure suffice. The worst offenders are end clients who use low paid interchangeable staff as that allows them to claim they staff use MOO and substitution clauses and are self employed...

That isn't the law firm and the NHS trust in the case studies. That's the care company trying to delivery care as cheaply as possible by cutting every penny it can because their competitors have already done so.