Budget IR35 guidance could signal tougher stance

HMRC is planning to bring forward further guidance when and how IR35 rules will apply to office holders and directors providing their services through limited companies.

Contractors and their accountants are anticipating that Budget paperwork will include the promised clarification for changes in the Finance Bill 2013.

There is a strong possibility this call will be answered on Budget day. A departmental spokeswoman told AccountingWEB this week, “HMRC plans to publish further guidance shortly on the change to IR35 explaining exactly what it means and providing clarity about when it will apply.”

But some are already warning that the new approach could herald more restrictions on contractors and increased IR35 tax investigations.

Draft Finance Bill 2013 clauses, published on 11 December will amend the IR35 rules to clarify that the existing provisions apply to office holders as well as employees.

Gabelle director Martin Mann explained in a recent tax analysis on AccountingWEB, prior to the Finance Bill 2013 amendment an office holder such as a director would not be considered to be an employee for IR35 purposes.

“It is clear that HMRC want to make IR35 more effective in attacking personal service company arrangements, and we should expect to see increased activity in this area,” Martin wrote.

Cheapaccounting.co.uk’s Elaine Clark recently warned that she knows of two contractors in the public sector whose details have been passed to HMRC by their clients – a government department and a government agency.

“If you’re a contractor you really need to think twice before working for a government agency which may give your details to HMRC,” Clark said.

Continued...

» Register now

The full article is available to registered AccountingWEB members only. To read the rest of this article you’ll need to login or register.

Registration is FREE and allows you to view all content, ask questions, comment and much more.

Comments

I am a sole trader working from

justsotax | | Permalink

 I am screwed! oh the 'risk factor' checklist only applies to 'contractors'....phew....and for a minute there i thought the risk factor list was reflective of what pointed someone towards being self employed....

More or less?    2 thanks

trevv69 | | Permalink

The section on the IR35 checklist manages to say that amassing points makes you both more likely and less likely to be investigated. I think the first reference, above the list of factors, is clearly wrong in saying it's more likely.

johnjenkins's picture

I don't see    2 thanks

johnjenkins | | Permalink

how this will affect the normal contract for services (approved by HMRC) between contractor and subbie and then again subbie to office holder. As long as the wording of the contracts fit in with tribunal cases then really HMRC are back where they started from. The reason why IR35 doesn't and cannot work is because it is artificial or "agressive taxation".

It is time the government passed a law that it is up to the individual how they operate and not HMRC. I might put it to UKIP and see what they think.

John Stokdyk's picture

Thanks @trevv69 - article has been corrected

John Stokdyk | | Permalink

Sorry to have misconstrued the scoring table - it may have been an error I introduced at the production stage, for which I have slapped my own wrists. 

Your correction is greatly appreciated so that we don't mislead too many other members. Thanks.

who will police it?    1 thanks

The Black Knight | | Permalink

They can write as a many rules as they like:

There is no money to pay for a correct analysis of the situation.

Complete denial by those that would be caught.

Mass marketed schemes and Managed Service providers.

and no one to police it.

It's a bit like having a "Beware of the Bull sign" when you can clearly see there is no Bull in the field and everyone knows there has not been one for years.

 

 

Section 5 vs (new) section 49    2 thanks

RTravis | | Permalink

I am at a loss to see why the proposed change to s49 ITEPA is necessary - an office holder's fees are already subject to PAYE under s5 of the same Act.  How are these two sections going to work together from 6 April 2013, and why was a change in legislation needed when HMT/HMRC was simply "putting beyond doubt" that IR35 applied to office holders for tax purposes?  

Without wanting Margaret Hodge and the PAC to dictate tax policy, the grilling which the BBC suffered at their hands over the use of LtdCo contractors (and the unsaid reliance on IR35 to do the job of picking up the tax), why on earth is it considered sensible to bring office holders into IR35? 

Instead of properly enforcing existing legislation, and changing the NIC "IR35" equivalent, thus having one "employer" from which to collect PAYE/NIC, HMRC will now have to check whether multiple board members are reporting under IR35.  An already stretched team has just had its workload greatly increased, albeit that the automatic application of IR35 to office holders will make it easier than having to check business entity test results or debate hypothetical employment status. 

Does anyone else think this is crackers!?

The Business Entity Tests bear little resemblance to reality

davechaplin | | Permalink

We need to remember that the business entity tests ("BETS") are NOT case law and are not a test for employment status. They are designed as a filtering mechanism to be used by HMRC when deciding which fish to pluck from the net and examine futher.

The problem however, as our recent survey of over 10,000 contractors pointed out, is that a contractors BETS score does not correlate to their IR35 status.

HMRC are picking out far too many contractor fish and wasting time (and taxpayers money) by processing them.

As for IR35 being nuts, I couldn't agree more. The steps genuine contractors have to take to cover their IR35 backsides are often crazy, and as I pointed out in my blog today, IR35 is anti-business.

Nick Graves's picture

I wish to register a complaint!

Nick Graves | | Permalink

Oh yes sir? The Norwegian Blue?

 

Etc.

Not worth working to become

quadra | | Permalink

Not worth working to become wealthy in this country - it will be stolen by either the tax system or the legal system... time to pack up & move to a more enlightened environment - or certainly one that doesn't seek to apply retrospective tax law!

More IR35 nonsense    2 thanks

gj3133 | | Permalink

 

If the Government Agency in the copy letter posted on Elaine Clark's recent blog posting http://www.cheapaccounting.co.uk/blog/index.php/all-government-contractors-within-ir35/ is able to sever the contract just because the contractor is unable to demonstrate that they are paying their tax and NI or unable to provide sufficient evidence that the Revenue accept they are outside IR35, they do not sound like disguised employees.  Not the normal grounds for being able to sever an employee/employer relationship - does that, in itself, mean they are outside IR35?!!

jasonholden's picture

.    1 thanks

jasonholden | | Permalink

Not worth working to becomequadra PM | Wed, 13/03/2013 - 16:32 | Permalink

Not worth working to become wealthy in this country - it will be stolen by either the tax system or the legal system... time to pack up & move to a more enlightened environment - or certainly one that doesn't seek to apply retrospective tax law!

 

Anywhere in mind? :-)

elainec100's picture

More IR35 nonsense thank you

elainec100 | | Permalink

gj3133 wrote:

 

If the Government Agency in the copy letter posted on Elaine Clark's recent blog posting http://www.cheapaccounting.co.uk/blog/index.php/all-government-contractors-within-ir35/ is able to sever the contract just because the contractor is unable to demonstrate that they are paying their tax and NI or unable to provide sufficient evidence that the Revenue accept they are outside IR35, they do not sound like disguised employees.  Not the normal grounds for being able to sever an employee/employer relationship - does that, in itself, mean they are outside IR35?!!

 

Very good point :-) Thank you

Trying to keep things general to avoid breach of confidentiality in the case in question; the contractor has taken appropriate step to assess his IR35 position etc; such steps are as any good accountant would normally advise a contractor to take :-)

The risk for any contractor in this position is having this “blanket decision” imposed on them but, having taken advice, deciding to “fight” against it. IMO this potentially increases their risk of an IR35 investigation being started e.g. “we think you are all caught by IR35; if you don’t agree we’ll tell HMRC and you’ll be top of their IR35 investigation hit list”.

Let’s face it; HMRC have limited resources to look at every IR35 case – where do you think they will go to pick their “targets”?

Oh the risk of taking a Government contract!

Of course IR35 cases should be fought where appropriate, but the contractors need to understand that whilst they may win the “fight” is stressful, time consuming, lengthy and costly. Would you really advised any contractor to operate without tax investigation insurance in this day and age :-)

 

Wouldn't it be simpler if we    2 thanks

The Limey | | Permalink

Wouldn't it be simpler if we just had transparency of taxation for single-owner (or effectively single-owner) companies? And of course merge NI and tax to avoid that loophole...

elainec100's picture

Wouldn't it be simpler if we - oh yes but .....

elainec100 | | Permalink

The Limey wrote:

Wouldn't it be simpler if we just had transparency of taxation for single-owner (or effectively single-owner) companies? And of course merge NI and tax to avoid that loophole...

 

 

Yes I can just see it now, the government of the day, voted in as a result of a popularity contest, upping the basic rate of tax to a combined NI & income tax rate of circa thirty odd percent.

The combined rate would of course solve the problem – do we think it will happen though?

Merging tax & NI

chEEK | | Permalink

Sorry to burst the bubble, but this is a fallacy that I hear all too often re merging tax/NI.

When people say that they are thinking of income tax and employees NI, but the real injustice of IR35 is employers NI - asking one income to pay both types of NI is simply wrong.

The fact is that employers NI simply cannot be merged into personal taxes on income because it is a business tax and it is a tax n employment, not on income.

Imagine they merged income tax and employees NI, and then you decide to run a PAYE system - you may be somewhat surprised to find that you're just as badly off than you would have been under IR35 (a bit worse, actually). You'd be paying 31% "merged tax" and your company would be paying 14% employers NI -  the net effect is that the money you received from your client is taking all of those hits before anything gets into your pocket.

So please, please spread the word - merging PERSONAL tax and NI is not any kind of solution to IR35.

The solution is to get rid of higher rate tax - people with incentives do more.Alternatively, having a flat rate of 30% on dividends, as in Australia, might work but governments are so concerned about investors and so unconcerned about those who work... don't hold your breath.

johnjenkins's picture

It is only when

johnjenkins | | Permalink

immense pressure is put on the government that they will even think about doing what is right. That is very evident from the press scandal. So come on you big Accountancy and Taxation bodies, put pressure on Lib Dems and Labour to allow people to decide their own way of working without getting caught up in political money chasing.

There should be clear rules as to what constitutes working under PAYE for both sides so that tax payers and employers can make proper decisions as to how they wish to work. Oh yes and it is time employers nic went and quickly. If Government need more money do what they used to do and raise basis rate. 

Economically employer's NI

NeilW | | Permalink

Economically employer's NI always falls on the employee. 

Since employer's NI is a tax on jobs, it really needs to go as well. An engager should pay an amount of money and the engagee should pay an amount of income tax on that money after legitimate expenses. Those expenses, the calculation and everything else should be the same whether you are an employee, sole trader, partner, limited parter or limited company. 

The mode of business engagement should never affect the taxation. Then business can make the engagement decision solely based upon business requirements. 

 

 

Single Tax

alan159 | | Permalink

This is a good start on the road to a single tax a and the abolition of employee NIC, at least to start with.

http://www.2020tax.org/ 

 

 

 

johnjenkins's picture

The only people that

johnjenkins | | Permalink

don't know what to do and the way forward are those that have the control. Maybe that's the way "they" want it. 

Nick Graves's picture

Ulterior motive

Nick Graves | | Permalink

johnjenkins wrote:

don't know what to do and the way forward are those that have the control. Maybe that's the way "they" want it. 

Exactly.

There are usually a lot of vested interests who would lose out from apparently sensible rationalisations:

It is the drug barons and SOCA who are most opposed to legalisation, after all!