IR35: There's no such thing as a political Harry Potter

Assuming IR35 isn't simply going to be scrapped because the Government isn't going to tolerate a free-for-all where employees on a Friday become "freelancers" on a Monday without changing the way they interact with the engager, what's the solution? What's the "radical simplification"? Are you advocating an increase in the taxation of dividends or the SCR so the treatment of different legal forms is tax neutral?

It doesn't take a magic wand or pots of money or dozens of experts expert view to realise that anything artificially created to deal with a real situation will not work however much you tart it up.

Tax avoidance is legal so anything created to stop that will not work. Surely that's not rocket science.

There is no legal entitlement to have your tax affairs set out so that you pay the maximum tax possible.

The simplest way to get rid of IR35 is just to ignore it. Then when the Conservatives' promised tax reforms come (ha ha excuse my mirth) they can incorporate its demise together with scrapping CIS.

I've just seen Harry Potter flying past my window.

The Government have been told numerous times scrap employers nic and the problem virtually disappears overnight.

No Government wants to be judged on what they have/not achieved by the way Income Tax (you would have to replace nic with an increase in income tax and CT) and CT goes up because that way the electorate can easily see which Government gives value for money.

This is why IR35 has not been reformed... no-one can come up with a sensible solution. It doesn't matter how you want to define the underlying issue, it is clearly the case that no Government is going to accept a situation where some people are incorporating purely to reduce their tax bill while carrying on an employer-employee relationship. It would be grossly unfair on those who can't, for whatever reason, incorporate and would no doubt lead to massive mass-marketing of snake-oil schemes. Result? Whole tax system is comprimised and the Exchequer loses billions of pounds. Is it harsh on genuine freelancers? Maybe. Would it be harsh on the pensioners who might lose out on a free eye test because the Government could no longer fund it? I guess that's the kind of choice that doesn't concern people who only live in their own bubble. There are consequences to all of this... winners and losers... and someof us care about the losers.

And scrapping employer NICs would cost tens of billions so, with respect, get real and try to be sensible.  

Anonymous if you had read what I said you would cleary have seen that Ers nic is replaced by increased Income tax and CT. By only reading bits that you didn't like you totally missed the point I was making.

Let me also advise you that when someone goes from PAYE to self-employed there is no longer an employer/ee relationship. That is why IR35 could not ever work.

Lets be even more clear how I feel. If HMRC left the self-employed alone and let tax payers decide on whether they should be self-employed or not they would save themselves a lot of money, hassle and they would be pleasantly surprised how few would "go it alone".

I agree, whatever "solution" the powers that be come up with, it needs to be one that doesn't end up hammering the already stretched tax payer with even more tax to foot the bill, or a reduction in government services.  Whilst there are clearly many genuine freelancers who fall foul of IR35 who would benefit from it being scrapped, the big picture must be considered if we are not to shoot ourselves in the foot.  Frankly, I can't see an obvious solution.

Sadly GB has, over the past 13 years, totally replaced common sense and flexibility with compliance and rigidity. Then wonders why things go wrong.

There is a solution, though, just ignore it ad forget about it. Lets make out we are French and the EU have issued a directive that we don't like!!!!!!!!

To get clarity, all that is necessary is to create a simple law for all companies that dividends cannot exceed x% of salaries.  We then let the politicians argue over the percentage.

Why does there have to be an alternative??????????

You're assuming something is wrong and needs fixing.

There is nothing wrong. What is so new about a few tax payers getting away with a few bob?(No I don't agree with it but it has always gone on and always will)

Legislation that penalises the most just to catch a few will never work.

And this is how (in increasing generality to the tax/employment regime) :

1. Contractors allowed to operate as sole traders Client is not liable for contractor tax.
Contractors do not need to operate as ltd companies, so their NIC liabilities are different (lower ?? ) , and they do not have dividends as a tax mitigation mechanism.

2. Disguised employment becomes statute law

The concept becomes recognised for what it truly is.The current tests for business self-determination remain (risk, multiple concurrent clients etc) . If disguised employment is deemed to exist, then there is a disguised employee and a *DISGUISED EMPLOYER* . The employer (the client) is deemed to be operating a scheme where they have all the control over the supplier as they would an employee, but *NONE OF THE EMPLOYMENT/ TAX LIABILITIES* .

The client becomes liable thereafter (imcome tax, employee/employer NIC, vacation/sick/ parental pay etc) .

3. Dividend ratios

Increasing sliding scale of ratio of dividends payable against profit made.

#1 removes the 1970s legislation that forced contractors to use Ltd companies in order to circumvent the IR35 of its time.
And removes all the nuisance admin (Companies House etc) .

#2 calls a spade a spade. Specifically, big companies indulging in corporate tax avoidance.

If a client wants to perpetually use contractors as bums on seats, with no well-defined work, denying the right to enterprise (multiple clients, personnel substitution etc) , then suffer the consequences.

My initial thought was to set a time limit on such arrangements. Say 18 months.
If an assignment is deemed to be disguised employment, then beyond that point the contractor cannot claim tax exemption for logistics (accommodation, travel) and the client then meets its employer obligations.

If the assignment is considered thus, the clock can be reset with a severence period of 6 months.
If before then the client releases and then re-engages with the contractor, the client is deemed to be committing tax *EVASION* .

#3 is just plain fair
No way is it right that a one man band should pay a ratio of dividends akin/better than what the mega companies do for their operating ratios (turnover, profit etc) .

None of the above affects the ability for a contractor to form a Ltd company if so desired.
Doing so for tax mitigation reasons is negated by the dividend ratio.

Clients can engage with contractors in true "business to business" terms (with or without agency involvement) .

Fixed price work, payment upon specified deliverables met, contractors with multiple clients +/- using personnel as/when necessary etc. All completely acceptable.

But bums on seats employee work, sets the clock ticking for both contractor and client. When the clock hits zero, finish the engagement, renegotiate proper business to business terms, or incur the true costs of disguised employment.

No, the simple answer is to allow those that want to be self-employed to do so without harrassment. HMRC have enough resourses to deal with those that claim for things they shouldn't.

Unfortunately 13 years of GB has produced a train of thought that it is actually wrong not to pay (legally) the most amount of tax. Most coming from BIG business who don't like competition.

The reason that IR35 exists is not because of whether someone
is self-employed or not, but *HOW* that person is *ALLOWED TO WORK*
for *THAT* or *OTHER* clients.

The great majority of clients want contractors as bums on seats, a
resource to be used as a client sees fit. They want the contractor full-time,
certainly not doing work concurrently for other possible clients.

And for all this control, and the loss of employee rights that the contractor
incurs, the client pays quite a bit more than if the contractor was a salaried
employee.

So getting back to it :

disguised employment = disguised employee + disguised *EMPLOYER*

Any govt that is man enough to accept this, and punish the *CLIENT* as
well as the contractor for the act of disguised employment, has won the war.

What True Labour did, was in contrast to their usual "socialist" dogma and
going for the "landlord classes" (the client) , bowed to the demands of big
business and punished only the contractor. Which is why IR35 is an insult.

Prior to IR35 there was no problem.

Whatever way you look at it, when a PAYE tax payer goes self-employed there is no longer an employee/er relationship. What GB tried to do was create one.

Since the days of GB there has never been such an unprecidated attack on the self-employed, purely to raise money via NIC.

Now, my view is, if GB was right and there were loads of "fake self-employed" (whatever that is) all his methods would have worked. The reason they did not work is because he was wrong.

I stick by the fact that it is up to the individual whether to be self-employed not HMRC. The sooner this government get to grips with that, the sooner this country will get back on its feet.