IR35 and moral panic

So the House of Lords select committee has reported on personal service companies. There is a lot more to this than IR35 because it is important to examine the reasons for the growth of the phenomenon, explains Simon Sweetman.

They say: “We were interested to discover that an entire industry has emerged as a result of the IR35 legislation and that a simple internet search returns numerous companies, publications and member bodies which exist to advise individuals of their tax position, campaign for reform and report relevant developments in the area as a whole.

Well, it may have been news to them. Bizarrely enough, all sorts of people refused to talk to them. That included representatives of the IT and banking industries, and even stranger was David Gauke’s refusal to attend or to permit Treasury officials to attend. The ways of Westminster are sometimes very strange.

HMRC’s estimate is that there are 200,000 PSCs as against 90,000 in 1999 when the IR35 legislation was introduced: So if IR35 was supposed to stop this, it hasn’t.

We have all grown hardened here, and the comments attached to articles on the website see us all trolling out the same comments and arguments as we have all been trolling out for the past 10 or 15 years. We peg back our ears and try not to listen. The OTS tried hard to take a fresh look, but its suggestion that IR35 could be suspended to see what happened was turned down by HMRC.

So are PSCs...

Continued...

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Comments
cfield's picture

And yet the solution is so blindingly obvious.....    2 thanks

cfield | | Permalink

Restrict IR35 to the real disguised employees - the Friday to Monday workers who, for whatever reason, are doing the same jobs as before for the same organisation. Have a 12 month cut-off period to decide whether someone was an employee or not.

Put the onus on the erstwhile employer to deduct tax and NI and pay employer NI.

Have a tightly controlled exemption for those who have properly retired and are just doing a bit of consultancy on a temporary basis (let's say 2 years).

Ignore everyone else.

Allow individuals caught by the above rules to bring claims for redundancy, discrimination or unfair dismissal as if they were real employees. Give them holiday pay and other statutory rights too, plus any other benefits enjoyed by the employees who work alongside them.

Such an approach would stop the floodgates opening as HMRC fear if IR35 was cancelled altogether but do away with the sheer confusion of the current rules and the need for courts/tribunals to rule on the thousands of individual contractors, each with their own unique circumstances, that have IR35 hanging over them like a Sword of Damocles now.

In short, what should have been done 15 years ago.

A bit harsh, Simon    1 thanks

vstrad | | Permalink

"In other words, employers think it reasonable that business risks should in fact be transferred from them to their employees."

That's a bit harsh on small businesses. Perhaps large businesses can cope with the hassle, but I will never take on a single employee as the complications, regulations and potential legal and financial pooh traps of being an employer are just too horrendous to contemplate. I engage contractors (for want of a better word) when I need them. This has meant that my business remains smaller (and pays less tax) than it might otherwise be but that is simply the inevitable outcome of a regulatory and taxation system designed (if I can so dignify the process) by politicians and officials with no commercial experience. If the Chancellor wants the broad and sustained recovery he says he does, he needs to listen to the OTS and others and initiate root and branch reform of employment and tax law.

johnjenkins's picture

Here we go again    1 thanks

johnjenkins | | Permalink

THERE IS NO SUCH THING AS DISGUISED EMPLOYMENT.

There is no law that says you have to be employed. There are guidelines and indicators that suggest which area you MAY be in but that is it.

The OTS, House of Lords, Government and HMRC are all aware yet nothing is done. Why, cos if IR35 gets demolished it will be an admission from Government that they have lost the battle (as they see it) against what they deem a kind of "tax avoidance". Let me enlighten those that think that. YOU'VE ALREADY LOST.

An equation for the mathematicians amongst us :- (HMRC - IR35) + (DC - UKIP) = ??????

As a contractor, HMRC gets    1 thanks

GazCol | | Permalink

As a contractor, HMRC gets far more in tax from me as a Ltd company via corporation tax and VAT than they ever would from me as an employee. This, to me at least, just demonstrates how simple minded the current legislation is.

Really?

secondhand_22 | | Permalink

GazCol wrote:

As a contractor, HMRC gets far more in tax from me as a Ltd company via corporation tax and VAT than they ever would from me as an employee. This, to me at least, just demonstrates how simple minded the current legislation is.

 

How do you figure that?  Or is the key in the words "from me"?

I'm sure the government is losing out on the Employers' NIC that would otherwise be paid (ok, not by you but by your employer) and whilst your ltd company pays VAT - does the other company reclaim it?

No, there's no play on words.

GazCol | | Permalink

No, there's no play on words. It's a consequence of being able to offer my services to multiple companies, rather than one as employee and subsequently earn more - which, although it may be taxed at a lower percentage, still raises more revenue than a permanent employee pays in a similar role/industry.

Brilliant observations in the article oldersimon    1 thanks

leonardjames | | Permalink

All very depressing really. And the little person forced down this route but failing to implement IR35 100% properly gets a life changing readjustment to their tax position. Great for accountants but for more and more individual directors and their families a complete disaster.

cfield's picture

Why great for accountants?    1 thanks

cfield | | Permalink

leonardjames wrote:
Great for accountants but for more and more individual directors and their families a complete disaster.

Accountants don't get anything out of it if you fall foul of IR35 and are landed with a life-changing tax bill.

Yes, IR35 has spawned a big industry for tax advisors (who may also be accountants in some cases) to advise contractors on a) whether their contracts are likely to be within IR35, b) what they can do about it, and c) to fight your corner if you're ever investigated, but what's the alternative? No information at all, no help from anyone, no insurance, just face the tender mercies of the taxman on your own.

Reading between the lines, you sound as though you've been caught by IR35. Is that correct? If so, perhaps you'd like to share your experience with us.

johnjenkins's picture

So right, GazCol    2 thanks

johnjenkins | | Permalink

Unfortunately Government don't want people like you, because you're taking business away from the "big boys" who do the employing. So they should have your business and employ you.

IR35

shau | | Permalink

Mnimise the tax differences between employee's and contractor type tax vehicles and others.

-Add NI to all company distributions.

or

-Merge NI with PAYE

or

-Require Large Companies to operate equiv NI & with-holding tax on any IR35 vehicles.

 

 

@ cfield & @ Swiss Tony, please ...

dstickl | | Permalink

"And yet the solution is so blindingly obvious.....  Restrict IR35 to the real disguised employees - the Friday to Monday workers who, for whatever reason, are doing the same jobs as before for the same organisation. Have a 12 month cut-off period to decide whether someone was an employee or not.

Put the onus on the erstwhile employer to deduct tax and NI and pay employer NI.

Have a tightly controlled exemption for those who have properly retired and are just doing a bit of consultancy on a temporary basis (let's say 2 years).

Ignore everyone else.

Allow individuals caught by the above rules to bring claims for redundancy, discrimination or unfair dismissal as if they were real employees. Give them holiday pay and other statutory rights too, plus any other benefits enjoyed by the employees who work alongside them.

Such an approach would stop the floodgates opening as HMRC fear if IR35 was cancelled altogether but do away with the sheer confusion of the current rules and the need for courts/tribunals to rule on the thousands of individual contractors, each with their own unique circumstances, that have IR35 hanging over them like a Sword of Damocles now.

In short, what should have been done 15 years ago." 

I agree with cfield, particularly the tightly controlled exemption in his 3rd para above.

 

The more I think about IR35 legislation and OAPs, the more it sounds to me like a joke on the alleged "Swiss Tony" lines of: "IR35 is ... like making love to a beautiful woman … first you …”

So here’s my first shot, to perhaps be improved on by other Aweb-ers, please:

"IR35 legislation is ... like making love to a beautiful woman …

 … first you – [Tony Blair, formerly an employment barrister] as Prime Minister and your NEW Labour government promise a proposal that it’s only a “Friday-to-Monday away-from-the-job” scenario …

 … then (having got a taste for it!) your NEW Labour government sneakily extends the scope of the proposal  "legislation" to include aspiring pensioner workers, [because they’ve allegedly had their employment pensions raided by the actions of GoBro so need some money], who’re  wanted back by their ex whom they left some time previously - for their wisdom, etc …

  ... who – as part of the Labour Party’s IR35 cock up - are then let down by both the Conservative and Liberal-Democrat Political Parties, whose previous Election Manifestos allegedly promised to do something sensible to reverse the damage/s of IR35 ! "    

Anybody out there with an improved version of the above, please?