IR35 when is this mess going to be sorted !

IR35 when is this mess going to be sorted !

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How is this mess of IR35 going to be sorted out. The majority of people that I know in the IT inductry consider themselves to fall out side IR35. Is the IR going to investigate each case?
Why should I have to instruct an Employment Lawyer to say that I am not an employee of my client , when the client that I work for does not have me on their payroll. If the IR considers that I am an employee of my client then surely the client should be liable for payments not me as an individual.

If the inland revenue considers me as an employee , is the client then liable for providing me with employee benefits.

I have no alternative but to provide my services through a limited company because that is the way the client does business. Otherwise I will be unemployed?

Is it fair that someone who falls into IR35 should be paying more tax than someone else who does not and gets paid holiday ?

What a mess this is, and when and who is going to sort it out!
Mike G

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By neileg
22nd Aug 2002 16:49

OK, Peter
I know what I mean. You are interpreting what I say differently. Since this is not going to change the world one jot, I think I'll leave it like that.

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By AnonymousUser
22nd Aug 2002 11:55

Wrong arguments
Pity all this argument is expended in the wrong directions. Anyone with any influence should be using it to try to change government policy and practice in two areas:

a) To ensure that legislation is properly thought out. Whatever the right and wrongs of the principle, IR35 is bad law because of the detail, including the various problems of double taxation which are expensive to sort out, and a percentage based expenses allowance when there is in fact no direct relation between expenses and income for caught contractors.

b) Move away from this whole idiotic employed/self employed idea that often sounds like something Jonathan Swift might have come up with. Starting with an even playing field, those in business for themselves should then get further breaks to take account of the additional administration, responsibility and risk they actually incurr.

Of course this will not happen, too many Revenue employees, accountants and lawyers have a vested interest in a complicated system. In my brave new world, run by rational ENGINEERS (the greatest of which are chemical engineers, true guardians of the sacred mysteries of the Cosny-Carmen equation for fluid flow in filters) it would be the Gulag for the lot of you.

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By neileg
22nd Aug 2002 12:59

Responses
Frank - Sage words. But arguing with a stone leaves you hoarse and the stone is still a stone.
Peter - Sorry, but the Revenue are not challenging the employment status, only the taxation consequences. That is not the same thing.

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By peterfox
22nd Aug 2002 15:17

Don't agree
“but the Revenue are not challenging the employment status, only the taxation consequences. That is not the same thing”

Don't agree - they are challenging employment status. They are using the same employment status tests that have always been used. They are seeking to bypass properly formed Ltd Liability Company’s and commercial contracts and replace them with some cloud-cuckoo land hypothetical arrangement which does not actually exist (although obviously now IR35 makes this legal). From that they then magic up an employer/employee relationship and tax on that basis. So they are challenging employment status, albeit only for tax reasons - they are still challenging it.

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By peterfox
22nd Aug 2002 11:46

OK Neil; but your words only paint half the picture. IR35 does not challenge the relationship between the ‘employer’ and the ‘contractor’ to the extent that the employer is accepted to be the contractors Ltd company. The revenue do however seek to create a hypothetical employer/employee relationship between the contractor and the end client that in the vast majority of cases neither wants. Who the actual client is is another issue of debate.

I don’t agree that “By introducing IR35, the threat of challenging the employment status has been removed. . In every instance they can, the revenue seek to class the contractor as “an employee for tax purposes” i.e. within the terms of the intermediaries legislation. This process is totally confusing and the revenue have purposely avoided opportunities to clarify the process

The whole of this legislation is built on rubber foundations. The revenue try changing the rules at every turn, ignore ESM procedures where it doesn’t suit them and bully those who are not prepared or not willing or able to stand up to them.

”IR35 is bad legislation, but is attempts to address a genuine inequity.” …. Maybe it does attempt to address a problem, but surely there are easier ways to address these problems.

I am more inclined to adopt the view that this is envy politics. The revenue has been itching to bring in something like IR35 for years. Now they have found a government stupid enough to do it. Couple IR35 with FTV’s and the revenues general push to get as many as possible classed as employees and you might start to see a pattern.

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By peterfox
22nd Aug 2002 08:13

Neil, what drivel ......
I've spent 3 years trying to understand this most ridiculous piece of legislation. I’ve also watched for 3 years as the revenue have lied, produced misinformation, twisted the facts and generally abused their position in an attempt to extort as much tax from small businesses as they possibly can.

I am not an employee of my clients, I never have been and I never will be, unless and until I make a conscious decision to accept a permanent offer of employment. I choose to operate my own business and I accept the additional work and risks involved in that.

IR35 has turned me from a mild revenue cynic who used to leave the vast majority of tax issues to his accountant to someone who now questions everything and I will go to my grave before I pay these ********* a single penny more than I absolutely have to.

“…… In some ways, there is more clarity now than there ever was.” “…… But, if contractors are prepared to pay the tax, there's no mess!”

These comments are obviously a joke as no one with half an ounce of common sense who has any real-world experience of working with IR35 could possibly come out with such rubbish.

Neil; you need to do your homework and find out what’s really going on before you put your name to such a posting again.

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By neileg
22nd Aug 2002 10:06

As expected
Now you see, this was the kind of response that I expected. Because I have expressed an opinion that people find contrary to their own, it is automatically drivel.

What I said was that IR35 does not challenge the relationship between the ‘employer’ and the ‘contractor’, it simply changes the way the tax is calculated. This is different from the rules about agency workers, where the legal relationship was changed, and which is exactly why so many PSCs have been used.

By introducing IR35, the threat of challenging the employment status has been removed. The Revenue are no longer going to argue that you are an employee, so the status is preserved. All they want is the tax that you would have paid if you had been. That is why some of the confusion has been removed.

Now I have not said that I approve of the measure. I do not. I have great sympathy for genuine businesses that get caught up in IR35. I think that the impact on a number of knowledge based industries is crippling and is to the detriment of the country, not just the people involved. But equally, I don’t have sympathy with trying to shelter income in a company where the reality is that there is disguised employment. IR35 is bad legislation, but is attempts to address a genuine inequity.

I do understand what being an IT contractor is about. I have been one. And I have been involved in a status enquiry.

I don’t expect that the opinion I have set out will be endorsed by the previous posters to this thread, nor by a large number who are probably just sitting there fuming. But that doesn’t mean I am wrong.

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By neileg
21st Aug 2002 09:04

What mess?
At the risk of being controversial, there isn't a mess! The question of employment status has been around for donkey's years (I studied it for my exams and that was over 20 years ago). All that has changed is the tax treatment of contracts that fall in the grey area. In some ways, there is more clarity now than there ever was.

Now don't misunderstand me, I am not saying that the government has done the right thing, that IR35 has improved the situation or that we wouoldn't all be better off with it swept away. But, if contractors are prepared to pay the tax, there's no mess!

And to pick up on another of your points, paying the tax does not confer employee's rights, anymore than paying UK income tax makes you a UK citizen.

And finally, has it been fair in the past that interposing a PSC has enabled some people to pay less tax than others doing substantially the same job as an employee?

I will now retreat to a concrete bunker!

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By AnonymousUser
20th Aug 2002 17:10

never
the simple answer is never.

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By AnonymousUser
21st Aug 2002 15:16

'Grey' area of Employment Status
I really must take exception to the comment by Neil Eglintine that IR35 has just changed the tax treatment of contracts that fall in the grey area.

The courts have long ruled that were both parties agree a certain status for a contract, and the ingredients of such are present, they are unlikely to rule that the relationship is anything other than what the participants say it is. One can go back to Winter v Westward and Brabyn v Barnett to see this.

IT and Engineering contractors incorporate not in order to change the status of the relationship, or even to avoid tax. They do so because of a part of the Agency regulations which in effect state that should the worker not pay his NI/Income tax then it will be paid by the next limited company in the chain (Section 134 if I recall correctly). The tax benefits spring from the Limited Company rather than the Limited Company being created in order to gain the tax benefits. It also has the benefit of removing from the client the danger of a Section 134 Ruling. The Limited Company equally prevents an employment relationship since there is no contract between the worker and the client (it is between the Limited Company and the Client). This contractual nexis issue was raised in the case of Hewlett Packard v O'Murphy.

IR35 actually increase the grey area because it allows certain departments to treat a limited company (or it's principle shareholder and director) differently.

So as far as the DTI is concerned it is a business. It's directors legally responsible for there actions in that capacity, and the company should have all relevent insurances including Public and Private Liabilty

As far as Customs and Excise are concerned it is a business, since you can't charge VAT if you are an employee.

As far as the Corporation Tax division is concerned it is a business and should pay all relevent taxes.

As far as the Personal Tax division it is even more absurd in that the Personal Tax division has no idea what it is, for Employers Tax it is A business, for personal tax it is the employee!

According to recent comments by Beverly Hughes, the minister responsible for Work Permits UK, it is a business subject to all the pitfalls of that position and the vagaries of the market.

For the purposes of Employment Rights, It is a business, responsible for the provision of such rights.

So the status of the caught company rather depends on who it is talking to. This does not strike me as decreasing the grey area, rather it makes great strides in increasing it.

As for ending the charade, that really depends. Either IR35 is abolished (unlikely given current government policy), or the government will be forced to do what the courts have long asked it; Legislate a definition of what exactly consitutes an employee.

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