Finance Bill 2014: Tax avoidance round-up

Accountancy firms and part-time workers employed through agencies face greater scrutiny from HMRC after the government revealed its draft Finance Bill 2014 legislation dominated by new measures to counter tax avoidance.

Promoters of tax avoidance schemes deemed abusive by HMRC will be named and their intermediaries will be subject to new information powers and penalties. Customers of “designated promoters” will have to tell HMRC they have used such a promoter.

Taxpayers in dispute with HMRC will have to pay tax up front if a tribunal decision goes in HMRC’s favour, the government plans. This could prove controversial but a decision to delay this draft legislation until January has been welcomed by the Chartered Institute of Taxation (CIOT).

The CIOT said...

Continued...

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Comments

Incorporated Agency Workers

adbanks | | Permalink

Maybe I'm reading too much into this, but do the changes to s44/ITEPA, especially the move to "personally involved in the provision" not extend these provisions to incorporated agency workers? (ie supercede IR35)

As the Notes explain: "for example the worker does not have income tax deducted because they are an employee of another company"

If this is not the outright intention of the proposed change, I'm willing to bet HMRC will try it on...

cfield's picture

IR35 is not meant to be affected    1 thanks

cfield | | Permalink

I read the consulation doc last week and it specifically states that the new rules are only meant to affect the agency legislation, not IR35. PSCs are supposed to be unaffected.

PSC's are currently affected

davechaplin | | Permalink

Whilst the guidance indicates that contractors using PSC's should not be affected the legislation says something very different, and contractors are well and truely caught in the net. We wrote about this recently on ContractorCalculator:

If the draft legislation becomes law then it shifts the burden of paying the tax onto the agency - currently IR35 legislation means the contractors' limited company has to pay the tax if found inside IR35. If the burden shifts to the agency then there are a few possible outcomes:

1. Agencies will refuse to engage with PSC's, because of the risk. Similar in nature to the impact of the MSC legislation. So, no more need for accountants if everyone moves to PAYE.

2. Agencies and firms will work directly with the contractor to prove that the worker is not controlled, i.e. outside IR35 - in which case the chances of HMRC winning an IR35 case are much smaller.

3. Firms will bypass agencies and only hire PSC based contractors directly.

These are two seperate peices of legislation. So in theory the agency could be caught by the "false-self employment" part, with extra tax due, whilst the contractor remains outside IR35 - and vice-versa! And still neither routes give employment rights to the worker if they are caught by IR35 or the new peice of legislation. They would still need to go to an ET for that.

HMRC are well and truely in sticking-plaster-upon-sticking-plaster mode with this one, and it needs a rethink.

Dave Chaplin

CEO, ContractorCalculator

 

Consultation?!

adbanks | | Permalink

cfield wrote:

I read the consulation doc last week and it specifically states that the new rules are only meant to affect the agency legislation, not IR35. PSCs are supposed to be unaffected.

That may be... but we know what the consultation re: IR35 Mk I said - it was all about Friday/Monday.

 

Equally, the growth in the use of limited companies came after s134 ICTA (as was, now s44 ITEPA) was introduced in 1978 - and which covered the use of unincorporated bodies. The use of a limited company was a loop-hole that should have been closed straight away.

Focussing on the "direction and control" test is a red herring as that has been in place since 1978 - it is the extension of the personal service provision that is the concern, so that "personally involved in the provision" looks through the chain of contracts.

 

Consultation Clear

adbanks | | Permalink

Now that I've found the consultation document, the verdict is clear cut.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/264649/Onshore_employment_intermediaries_-_false_self_employment.pdf

Diagram between Para 2.9 and Para 2.10 shows the typical Client<-->Agency<-->PSC<-->Worker scenerio

then

Para 4.7: "Intermediaries are any structure interposed between the engager and the worker including Employment Businesses and personal service companies (PSC)."

Let me emphasise: INCLUDING PSCs

 

 

 

You can be caught and not caught at the same time

davechaplin | | Permalink

adbanks is right that PSC's are indeed also caught. So one can't simply bypass the agency and go direct, thinking it will solve the problem - because under the draft legislation your own PSC is considered the agency/intermediary. It affects all B2B relationships.

An IR35 test typically examines three main elements: right of substitution, control and Mutuality of Obligation (MOO). The false self-employment test is proposing just the control part.

So, in theory you could take a contract where there is heavy control (what project to work on and how, when, etc), but also allow substitution - which let's say you actually do. In that instance the False Self-Employment legislation says your PSC has to stump up the extra taxes, but the IR35 legislation says that you don't.

One the one hand HMRC will be trying to grab extra taxes from you, and with the other agreeing that you don't need to give it to them!

My current view (see my blog today) is that the legislation probably won't get through in it's current form.

 

Simplify

adbanks | | Permalink

Ever since s134 (now s44-46) was first brought in in 1978, it has been "policy" that [rightly or wrongly] agency workers (operating under the SD&C of the client) are not self-employed.

For some reason s134 covered the use of partnerships, but not limited companies - leading to the "loophole" that has seen the growth of PSCs.

IR35 did not address the anomaly, but sought to paper over some of the resultant cracks.  The MSC regulations sought to fix some of the problems resulting from IR35 (etc, etc)

The obvious simplification (which I believe was intended to be added in 1979!!!) is to extend s46 to explicitly include PSCs... then IR35 and the MSC rules can be repealed.

This way, clients (and agencies) will have to decide whether they want temporary employees or proper subcontract suppliers.  At the moment, they get all the benefits and none of the consequences.

I'm sure that the PCG and the industry that has sprung up to support IR35 would object...

In their current form, these proposals only go part of the way to solving the problem - and arguably will see MORE agency workers pushed into PSCs - just as the MSC regs saw more agency workers pushed into MSCs.