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IR35

IR35

An acquaintance having reached 65, was retired by his large plc employer a few years ago.  Unfortunately, they swiftly discovered that his specialized engineering skills were something they could not do without, and so he formed a limited company and now toddles in fairly regularly to continue the projects he was involved in before retirement. (The work is so specialized that whilst there is a substitution clause, it is unlikely it could be used)

From an IR35 perspective, how much of a risk is he at?  He had no choice but to form a company, he had no choice but to retire.  He has paid his full 40 odd years of NI and draws a state pension + SERPS.  (It strikes me that it would be immoral and unfair for HMRC to have a go at him simply because he might fit the usual IR35 target profile.)

Anyone else dealing with the elderly IR35 potential victim?

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09th May 2012 15:37

Try the new IR35 risk tests

See: http://www.hmrc.gov.uk/ir35/guidance.pdf

Some of the 'business tests' are quite laughable.

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By Locutus
09th May 2012 15:49

Age, NI record and IR35
Being of state retirement age, having paid 40 + years of NI contributions and 'having' to form a company make no difference to IR35, as far as I am aware.

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09th May 2012 17:15

There's always risk...

... whenever you have someone providing their personal service through an intermediate vehicle.

Before you can deem an employment contract though, the irreducible minimum needs to be present.

personal service,mutuality of obligations (to provide and accept work), andcontrol (over how, when and where).

My guess is conversations will be something like them saying "we need you to come in and look at X, because we can't get the widget to wobble" and him saying "I'll be in on Friday afternoon to have a look".

In that scenario, there's probably inadequate control over the how and when. He's the expert and he turns up when it suits him.

Under the risk tests that taxwriter is referring to, your client will be high risk, along with my plumber (who also turns up when he likes).

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09th May 2012 16:59

My approach here is to:

1.  Document why I think he is outside IR35 - can more or less choose when and how he does the work, etc.

2.  Get the client to keep records of when he clearly operates outside IR35.  For example, one at risk client was asked to come in during the shutdown week when all the staff were on holiday.

3.  Review this with every set of accounts and calculate the extra tax due if a deemed income calcualtion under IR35 were successfully levied.

4.  Insist the client has full tax investigation insurance.

On the basis of your post, I'd be less worried about this guy than most!

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By dstickl
12th May 2012 14:42

Seize opportunity to act like "Victor Meldrew" in part, perhaps?

As the fact is "An acquaintance having reached 65, was retired by his large plc employer" I fail to see how OP's client could reasonably be described as a "disguised employee" when - by the ex-employer's actions - he can apparently no longer fit [as "part and parcel" or otherwise] the team of current employees.     SUGGESTION: OP's client should only enter a contract for services of duration < 365 days, perhaps 11 months only. He could then have an "uncontracted period" of say one month, say in summer, when he would do no work. After that month's break, OP's client might or might not then enter a new contract, again of say 11 months duration. There would then be no "cumulation" of contracts possible, unlike a PAYE employee! And provably no MOO (Mutuality Of Obligation).

Furthermore, as "his specialized engineering skills were something they could not do without" I fail to see how it is credible that OP's client could be properly controlled by his apparently partly ignorant ex-employer client.    SUGGESTION: It is essential that OP's client gets a letter from ex-employer stating that it is grateful for the uncontrolled contribution of OP's client, and that such a letter actually reflects the fact that it does not control the 'HOW" of the work, as it does not have the "know-how".

IF OP's client has enough income to live on ["draws a state pension + SERPS"] and could convince HMRC of same, THEN it occurs to me that he does not have to be a shareholder or even a paid employee under contract of the company he had "no choice but to form", perhaps he could just be a Director of it - so no National Minimum Wage stuff? Such a solution could avoid some IHT, maybe?

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10th May 2012 11:27

Thank you all

Many thanks everyone.

 

The angle I'm interested in is where a worker becomes a consultant as a result of compulsory retirement.  It does seem immensely unfair to then be caught up with all the IR35 stuff through no fault of their own.  The risk is only of liability to Employer's NI, but even so...

 

 

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10th May 2012 11:38

Unfair?

Are you saying he should enjoy an unfair advantage over an equally qualified but younger person?

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By dstickl
lionofludesch
13th May 2012 14:43

@andy.partridge:NO, it's a "fair advantage", justified by costs

andy.partridge wrote:

Are you saying he should enjoy an unfair advantage over an equally qualified but younger person?

Hi andy.partridge!    Very sorry, but I have to disagree with your suggestion.     Reason: IF the contractor is aged greater than State Pension Age, THEN the contractor has already paid his dues for support by the state's "national insurance" scheme, hasn't he?   [Or she, of course.]

I feel sure that - on reflection - you will agree that this is a costs' justified case of due discrimination against a hypothetical "equally qualified but younger person" who hasn't yet paid his dues for support by the state's "national insurance" scheme!

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10th May 2012 11:40

You might try

negotiating a higher rate to take account of the potential Ers NIC cost and hoping he gets to keep the "profit" elephant.

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Euan MacLennan
10th May 2012 12:27

Elephant?

Steve Kesby wrote:

negotiating a higher rate to take account of the potential Ers NIC cost and hoping he gets to keep the "profit" elephant.

What is a profit elephant when it's at home and why would he want to be able to keep it?

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By dstickl
13th May 2012 09:07

@Greenheys:Acid Test Q 4 Worker aged>SPA & NEW BUSINESS ENT TST

Hi Greenheys!    In AWEB's "BUDGET 2012 at a glance" thread, here's a link:-

http://www.accountingweb.co.uk/article/budget-2012-glance/525651

your sensible concerns of QUOTE The angle I'm interested in is where a worker becomes a consultant as a result of compulsory retirement.  It does seem immensely unfair to then be caught up with all the IR35 stuff through no fault of their own.  The risk is only of liability to Employer's NI, but even so..." ENDQUOTE were addressed, in part [e.g. in my post on Friday 23 March'12], by suggesting that IR35 should be changed so as to NOT apply to any worker over SPA (State Pension Age).

Basically, my rationale for this change is that the HMG's Treasury Lib Dem Rt Hon Danny Alexander seems to think that people over 65/SPA do not have to pay NICs (National Insurance Contributions) whereas - IF that worker is caught by IR35 - THEN it seems (from my "Acid Test Question) that the worker has to pay the employer's if there's insufficient money i the limited company, etc!

Consequently: It seems to me that HMRC should take the timely opportunity - in much the same way as DPP etc has introduced clarifying guidance on cases of alleged assisted suicide - to introduce an additional/new IR35 Business Entity Test question, to those already published, see "link 2" below:-

http://www.accountingweb.co.uk/article/ir35-business-entity-tests-publis...

of the form:

* "Contractor's Age test - Is the contractor aged greater than State Pension Age? (999 points if yes)".

Of course, if HMRC's proposed system can only deal with two digits, then score 99 points (if yes)! 

QUESTIONS for consideration by Greenheys (& other AWEB readers):

(1) Do you agree with such an additional Business Entity Test, for workers aged greater than State Pension Age (SPA)?

(2) Will you pro-actively support same to Kate Cottrell, who's on the IR35 Forum & could make representations on same to HMRC's IR35 Forum team, and can be contacted via thread on "link 2"?

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By Locutus
13th May 2012 16:32

Qualification for state pension

These days you only need 30 years of national insurance contributions to qualify for a state pension.  So there are probably plenty of freelancers in their 50s that are within IR35, paying over the IR35 tax / national insurance and get nothing in return.

Really national insurance is just another tax.  Politicians over the years have tried to confuse this by calling it "insurance" and linking it to some form of "entitlement".  But in reality, it is a tax that if you are unfortunate you find yourself paying in some form.

In my opinion, I don't think the solution is to exempt any proportion of the population based upon age.  The solution is to scrap IR35 altogether except for the most blatant of abuses.

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By dstickl
14th May 2012 08:28

@ 0103953: If U wish 2 scrap IR35, Y not start with abused OAPs?

Hi 0103953!   By your words of "I don't think the solution [to the most blatant 'double NICs charging' abuse imposed by IR35 on UK workers by HMG & HMRC (edit by dstickl)] is to exempt any proportion of the population based upon age" you seem to me to have unfortunately confused my thesis of exemption based on actual monies already contributed - the costs rationale on the employees ceiling once SPA (State Pension Age) is reached, as used by our democratically elected politicians / parliamentarians who are able to change the law on our behalf - with plain ageism (i.e. when the monetary costs of national insurance contributions are ignored).

IF you wish "to scrap IR35, altogether except for the most blatant of abuses", THEN why don't you wish to start to try change Treasury Ministers and HMRC's attitudes by starting with the scrapping of IR35's apparent abuses regarding OAPs (Old Age Pensioners) of apparent 'double NICs charging' and incomprehensible - at least for some pensioner-workers - varying case law and paperwork calculations, etc?

It's very clear - from the initial PGC court case etc - that direct attack on IR35 just won't work!  So we cost (etcetera) accountants etc are then left with starting the "salami slicing" approach, aren't we?

Is the explanation for your apparent - at least to me - confusion, perhaps, that you [or your clients] are not an OAP yet, and therefore that my "moderate starting proposal" does not meet your [or your clients'] immediate needs?

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15th May 2012 08:12

IR35

The tests are indeed laughable.  What should be asked are along the lines of:

What training do your clients provide?

What paid holiday do they provide? 

Do you get sick pay?

What CPD and career progression do you receive?

What employee benefits do your clients provide?  Medical, dental, social club membership?

What redundancy package would you receive if a contract ends?

What pension payments do your clients make?

Do you claim unemployment benefit when not on any contract?

The substitution idea is stupid.  If I wanted the services of a professional, I would not be happy for a substitute.

The whole IR35 thing is loaded towards providing a source or easy targets for HMRC.

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By dstickl
11th Oct 2013 13:42

@Greenheys: E-Petition dealing with an OAP IR35 potential victim

Hello Greenheys!    Your elderly acquaintance having reached 65, who was retired by his large plc employer a few years ago, has all my sympathies because it seems to me that he might become an IR35 victim - by returning to work at his ex-employer, who had swiftly discovered that his specialized engineering skills were something they could not do without. 

I have this week submitted an e-petition to try reduce this potential source of worry for the elderly, with a new / proposed ESC - Extra Statutory Concession by the HMRC -  on this link:  http://epetitions.direct.gov.uk/petitions/55679  .

Perhaps I ought to point out that it's not yet clear to me if new ESC's are in fact still allowed by HMRC, so I'm actively researching this aspect, and will advise you of my finding/s, if I obtain any clearer guidance. 

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By dstickl
20th Oct 2013 15:50

@Greenheys:U might like this link for a robust exchange of views

You might also like to see this link: 

http://www.accountingweb.co.uk/anyanswers/question/ir35-will-you-sign-e-...

for another robust exchange of views!

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