Dave, as per my comment further down this thread - surely it would be fairly easy for insurance companies to sell me a policy so I could indemnify my clients against any future tax risk, thus removing all their risk? I know you deal with the Insurance industry through your business - lots of money to be made I'm sure for someone entrepreneurial like yourself?
But from April 2020, my guess is that a lot of contractors will continue as before and the end client will be relaxed about the employment status, knowing that if HMRC do come in and say the PSC is an employee, they can simply pay the bill and seek recompense from their subbies...
Surely if the Insurance industry got its act together it could offer a product to Contractors through which they could indemnify the Client against future tax liabilities thus allowing the Client to offer IR35 compliant contracts with zero risk? IR35 Insurance is already available to Contractor companies to remove their risk so presumably the policies just need some redrafting?
Arrangements are rarely legally challenged actually and HMRC victories are few and far between.
Thanks, great answer.
No, not happy at all with it. It's all a bit nanny state and control freakery and would be a pain in the backside and extra admin and expense to me. What surprises me is the opposition from the profession who would benefit enormously from people like me.
I'm CIMA qualified by the way so not totally ignorant about what's involved.
At the risk of bringing the wrath of all you guys in practice, why are you so upset about MTD? Surely it's another opportunity to charge small businesses like mine even more in fees? I appreciate that the implementation has been botched by HMRC but that's normal I've realised.
Don't forget the self-employed and limited company contractors. They will abandon the Tories en masse after the recent crusade against them - dividend tax (and reduction in the allowance); scrapping (effectively) the flat rate scheme; OmNICshambles; the botched changes to IR35 in the public sector and threat to roll out to the private sector with most PS contractors paying employment taxes although most are genuinely self-employed and get no employee benefits.
I think a lot of those affected will vote Lib Dem, Labour not being a credible alternative and the likelihood that Labour would be worse than Tories tax-wise.
All parties need to wake up and realise there are 5m votes out there up for grabs.
...Why is this "not exclusively for the purposes of the business" by the way if I only use the pencils in my business?...
...Why is it tax avoidance? Maybe morally it doesn't smell good but what's the statute being broken? ...
If you pay more than the market price for goods and would not have done so were it not for the desire to avoid being a LCT, then I think HMRC would argue that the payment was not exclusively for the purpose of the business, because one of the purposes was avoiding being a LCT.
To me, this would be tax avoidance because it is an attempt to bend the rules to gain a tax advantage that was clearly not intended and because it is contrived and artificial. (https://www.gov.uk/guidance/tax-avoidance-an-introduction) Whether it could, legally, be challenged purely on the grounds of being tax avoidance I couldn't say, but I think it would certainly embolden HMRC in taking a very tough line on the "exclusively" test.
In my view, buying in bulk is fine, as long as the quantities are not beyond the amount that any rational business would want to purchase in advance.
So it sounds like HMRC need to know your state of mind at the time of purchase i.e. Did you buy the goods knowing that you had not bought enough relevant goods already and that this purchase would take you over the 2% required and there was no other motivation for this purchase.
There are many reasons why you might pay over the market price for things. Quality or speed of service is a common one. Brand loyalty and knowing that quality will be assured. The last minute purchase of a train or plane ticket that would have been a lot cheaper in advance. Or sometimes just ignorance of the market where you don't have time to do the research.
OK my comment was a bit tongue in cheek but I think you get the gist. Using the same two entities for both transactions would be pretty stupid but that's easy to solve.
Also it doesn't need to be £250, it could be more realistic. As far as I'm aware HMRC does not have the right to decide what I think is the best commercial deal for my business.
Why is this "not exclusively for the purposes of the business" by the way if I only use the pencils in my business?
Also it appears that businesses may not buy in bulk any more to achieve higher discounts, as this would be "stockpiling". Ridiculous.
Why is it tax avoidance? Maybe morally it doesn't smell good but what's the statute being broken? I see examples all the time on here of accountants' immediate responses to something slightly maverick as being illegal or not possible, without quoting any legislation or case law to back it up, just because to them it "doesn't feel right". Anyone with a bit of nouse could come to this decision without the years of training and practical experience of an accountant.
I disagree. The private sector won't take this #### like the public sector. They will make the effort to assess all contracts properly and if any are inside they will change the contract and working arrangements to make them outside. They will coach managers to know what to say if HMRC start asking questions. The private sector is smart and resourceful unlike the public sector. They could also insist on an indemnity clause to ensure contractors pay any tax and penalties, perhaps insisting contractors have insurance. This will effectively put us back to where we started. All that investment from HMRC wasted, while the NHS etc continue to pay more for contractors than before.
Trebles all round numpties.