Editorial team AccountingWEB.co.uk
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Manifesto: The time has come to tackle IR35

23rd Apr 2015
Editorial team AccountingWEB.co.uk
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Political parties are laying their cards on the tax and small business policy table. As such, AccountingWEB and FreeAgent have teamed up to launch a policy statement on the issue that has provoked some of the most heated debates on the site for the past 15 years: IR35.

Our long-running campaign, going back to an online survey in the autumn, established that for 85% of AccountingWEB members, the personal services company tax regime has created uncertainty around contractors’ tax status.

More than three-quarters of our members report that proving proving employment status created extra costs for clients and 56% said IR35 fears have held clients back from new business.

While most accountants would agree with the sentiments expressed in the survey that “tax avoidance has to be tackled”, the prevailing view is that IR35 is a sledgehammer being used to crack the “disguised employment” nut.

In the words of FreeAgent founder Ed Molyneux: “We’re working around issues that are trying to solve a symptom rather than the root cause. There’s an opportunity now to set a policy that reflects how the workforce is shifting - something radical that might improve how things operate in this country.”

Based on feedback from AccountingWEB’s we compiled this manifesto to stimulate debate about IR35 among policy makers, politicians, professional tax and accountancy bodies and contractor organisations.

A narrow majority (52%) of IR35 survey respondents favoured abolishing IR35 to “free entrepreneurs to work the way they want”. This makes it difficult for us to claim a mandate for outright abolition in the IR35 manifesto - and the signals from tax experts and policy makers indicate that this would be a non-starter, whatever the hue of the government that gets into power next month.

As a result, the manifesto calls on the political parties to publicly commit to IR35 reform during the campaign and advances the three most popular options among AccountingWEB members:

  • Option 1: Merge income tax and NICs, as recommended by the Lords PSC committee in its report last March.
  • Option 2: Clarify employment status through legislation. Redrafted laws that set out clear criteria for employment could shift the administrative burden and tax liability risk back on to the employer, according to  12% of our survey respondents.
  • Option 3: Impose NICs on close company dividends According to AccountingWEB member Eyrie, “The simplest solution would be to treat dividends from a close company as a deemed salary subject to income tax and NIC, rather than the lower tax rate applicable to dividends, and have this deemed salary deductible for CT.”

Our objective is to propose improvements and solutions that balance the need of contractors and their advisers for stable, fair and predictable tax treatments with policy makers’ concerns about tax avoidance.

What are your views on the options presented? Since the wider community is somewhat divided on the issue, our manifesto does not demand a specific change, but seeks to build a coalition around the idea of constructive reform. What points would you want the policy makers to address? Have a look at the IR35 manifesto and let us know what you think by commenting below. You can also download the ultimate IR35 guide produced in response to our autumn survey.

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Replies (38)

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By jon_griffey
24th Apr 2015 11:21

Be careful what you wish for...

IR35 will not simply be abolished.  Something will have to replace it.

My guess is NIC on all close company dividends.  This is already working its way up the political agenda with the Lib Dems promising reform of 'Dividend Tax Relief' in their manifesto.

Better the devil you know...

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Replying to carnmores:
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By IANTO
24th Apr 2015 12:52

IR35

In my opinion, the only way to neutralise IR35 is for all employment status issues to be decided solely in the Employment Tribunal, or whatever the equivalent is now. Tax issues can be decided by the tax Commissioners, or whatever the equivalent is now, after the employment status has been decided.

 

All other ideas and proposals would then be redundant. Some of you will remember my case in the EAT where I proved that I could not be an employee, real or disguised, of my client and consequently HMRC didn't continue with their proposed investigation of me under IR35. 

 

HMRC should not have the power to decide employment status.

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By ireallyshouldknowthisbut
24th Apr 2015 11:58

.

Indeed Jon, imposing NI on close company dividends would raise a lot of tax, be politically hard to oppose and end tax motivated incorporations (or most of them) pushing a lot of people back into self employment rather than a small ltd co. 

So on the face of is sensible, so long as you are not a practising accountant with lots of small ltd co. clients who would no doubt see their fee income tumble and their own personal tax bill rocket.  The old flag of self interest is going to fly high on this one. 

 

 

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By JCresswellTax
24th Apr 2015 12:18

Option 3 doesnt work

How would this be fair for genuine non-contractor businesses?

You are effectively inflicting IR35 on a genuine business!

Terrible, terrible idea accounting web.

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Replying to memyself-eye:
By jon_griffey
24th Apr 2015 12:41

Levelling the paying field

JCresswellTax wrote:

How would this be fair for genuine non-contractor businesses?

You are effectively inflicting IR35 on a genuine business!

Terrible, terrible idea accounting web.

In all fairness, is it right that limited companies OMB's can simply opt out of the whole National Insurance system?  Why should sole traders and partnerships pay Class 4 but not companies?  A lot of businesses are forced down the incorporation route for tax reasons when it really isn't an appropriate structure. 

 

 

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By exceljockey
24th Apr 2015 12:23

Easiest way to solve it

your limited company needs three customers / clients with no more than 70% of sales going to one client. Failing that all income for ltd company is treated as salary. If you are genuinely a small business fine, if not you are an employee.

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Replying to Ruth Pringle:
By JCresswellTax
24th Apr 2015 12:27

That makes more sense

exceljockey wrote:

your limited company needs three customers / clients with no more than 70% of sales going to one client. Failing that all income for ltd company is treated as salary. If you are genuinely a small business fine, if not you are an employee.

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Replying to North East Accountant:
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By qhas
25th Apr 2015 10:49

I submit not

JCresswellTax wrote:

exceljockey wrote:

your limited company needs three customers / clients with no more than 70% of sales going to one client. Failing that all income for ltd company is treated as salary. If you are genuinely a small business fine, if not you are an employee.


You could operate as a limited company one year and be an employee the next and back to a company the year after depending on the number of clients. Also if you are smart change your accounting reference date of your company to suit. What a nightmare! Got to be a non starter
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Replying to Ruth Pringle:
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By Old Greying Accountant
24th Apr 2015 12:51

Then it gets complicated ...

exceljockey wrote:

your limited company needs three customers / clients with no more than 70% of sales going to one client. Failing that all income for ltd company is treated as salary. If you are genuinely a small business fine, if not you are an employee.

... as you will need start up rules, i.e. a period in which to get 3 clients, most business start with 1. What would that be, 3 months, 6, a year, 3 years? And how would your measure customers. concurrent, or over a period? A builder may have only one customer at a time, if the projects go on for over 6 months each they would fail if it were measured over 12 minths, even though they are obviously a genuine business.

I still think the most simple and fair method is to merge tax and NI, but if the Tories keep power I see that happening, otherwise as AE takes hold and the percentage increases three significant payroll deductions could be politically unpleasant, two would be more palatable. I also think ACT should be re-introduced and be repayable, then dividends would just be treated as any other income.

 

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Replying to Ruth Pringle:
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By allanr
24th Apr 2015 15:30

vacuous manifesto

 this simple solution also benefits from being fair

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By James Reeves
24th Apr 2015 12:26

Ooh, another manifesto!

And here's me thinking that the election couldn't possibly get more tedious.

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By Old Greying Accountant
24th Apr 2015 12:29

Merge tax and NI

with increased age allowances or a lower rate band as appropriate for those of retirement age.

I don't see small company incorporations being reduced significantly as that option gives the best flexibility for both parties without them getting mired in the ludicrous swamp of employment legislation 

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By cpavett
24th Apr 2015 12:50

Very concerning...

I really don't understand this.  You say that over half want to abolish IR35, so instead you want to bring in a much harsher regime?

1. Merge tax & NIC's - result is more tax being paid by sub-contractors.

2. Shift tax risk to employers - result is that employers will no longer offer the generous rates that sub-contractors get, holding some back to mitigate the risk of employing contractors, or just insisting that all contractors become payrolled employees (losing the accountant clients and enforcing a higher tax regime on the contractor).

3. Impose NIC's on close company dividends - result is that sub-contractors pay more tax, also many other small business owners would pay more tax.

Why on earth are members of the accountancy profession trying to raise more tax revenue for the government??  We should be looking to help our clients, the government has plenty of advisers of its own without other professionals also giving them advice on how to increase the tax take.

Sub-contractors have enough to contend with already having NO right to redundancy, NO holiday pay, NO sick pay, REQUIRED to purchase liability insurance and the one perk they get, which is a slightly lower tax bill, you want to take away?

If I told my contractor clients I was pushing the government to bring in these changes they would be horrified!

When you have a sleeping tiger, you don't poke him with a stick.  The best advice is to leave well alone, advise your clients well to ensure they are IR35 compliant, and always advise them to take out tax investigation insurance and if available, tax liability cover so that in the unlikely event that they are deemed by HMRC to be 'employed', they don't have a financial burden to deal with.

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Replying to neanderthal:
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By Old Greying Accountant
24th Apr 2015 13:15

Not shouting, just making it easier to see!

cpavett wrote:

I really don't understand this.  You say that over half want to abolish IR35, so instead you want to bring in a much harsher regime?

1. Merge tax & NIC's - result is more tax being paid by sub-contractors.

IT MEANS SUB-CONTRACTORS (OR ANYONE TRADING THROUGH A COMPANY) PAYS THE SAME TAX AS EVERYONE ELSE - LEVEL PLAYING FIELD

2. Shift tax risk to employers - result is that employers will no longer offer the generous rates that sub-contractors get, holding some back to mitigate the risk of employing contractors, or just insisting that all contractors become payrolled employees (losing the accountant clients and enforcing a higher tax regime on the contractor).

DON'T LIKE THIS OPTION, BUT CANNOT SEE WHY SUB-CONTRACTORS SHOULD GET GENEROUS RATES FOR LITTLE COMMITMENT COMPARED TO EMPLOYEES WHO INVEST THEIR LIVES IN THEIR EMPLOYERS BUSINESS?

3. Impose NIC's on close company dividends - result is that sub-contractors pay more tax, also many other small business owners would pay more tax.

BIT OF A WASTE OF SPACE THIS ONE AS (1) EFFECTIVELY DOES THIS ANYWAY, ONLY ON ALL DIVIDENDS NOT JUST CLOSE COMPANY ONES.

Why on earth are members of the accountancy profession trying to raise more tax revenue for the government??  We should be looking to help our clients, the government has plenty of advisers of its own without other professionals also giving them advice on how to increase the tax take.

Sub-contractors have enough to contend with already having NO right to redundancy, NO holiday pay, NO sick pay, REQUIRED to purchase liability insurance and the one perk they get, which is a slightly lower tax bill, you want to take away

AS WITH ANYTHING THE PROBLEM IS THE ABUSE, ADMITTEDLY THE WORST ABUSES ARE BY THOSE "CONTRACTED" BY THE GOVERNMENT AND PUBLIC BODIES!

If I told my contractor clients I was pushing the government to bring in these changes they would be horrified!

When you have a sleeping tiger, you don't poke him with a stick.  The best advice is to leave well alone, advise your clients well to ensure they are IR35 compliant, and always advise them to take out tax investigation insurance and if available, tax liability cover so that in the unlikely event that they are deemed by HMRC to be 'employed', they don't have a financial burden to deal with.

WOULD GO FURTHER, LOBBY TO HAVE IR35 TORN UP (BUT STILL THINK TAX AND NI SHOULD MERGE BECAUSE A SLIGHTLY LOWER TAX BILL ISN'T THE ONLY PERK, THERE ARE MANY DEDUCTIONS AGAINST INCOME THAT LOWER THE TAX BILL THAT EMPLOYEES DON'T GET, MOST SIGNIFICANTLY TRAVEL).

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Replying to jcace:
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By cpavett
27th May 2015 10:44

Level playing field

I think that there already is a level playing field. If you want to be taxed as a contractor through your own limited company you have to give up the security of employment and the other associated benefits. I'm just surprised when accountants want to fix the tax system instead of simply providing the best advice and service to their clients, some of whom are limited company contractors. There are risks involved with contracting, there may be periods of time without work, there is no redundancy, there is no sick pay, and yes, genuine contractors pay less in tax, however this is not necessarily a bad thing. Contractors bring a lot of flexibility to the workforce, but unlike zero hours contracts it is through their own choice. I just think that by focusing solely on the amount of tax paid, we are missing the big picture which includes a big contribution to the economy by contractors. IR35 may have its drawbacks but we've lived with it long enough now so should be able to cope with it just fine if we have our clients best interests at heart. 

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Replying to neanderthal:
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By qhas
25th Apr 2015 10:58

Tax liability cover

cpavett wrote:

I really don't understand this.  You say that over half want to abolish IR35, so instead you want to bring in a much harsher regime?

1. Merge tax & NIC's - result is more tax being paid by sub-contractors.

2. Shift tax risk to employers - result is that employers will no longer offer the generous rates that sub-contractors get, holding some back to mitigate the risk of employing contractors, or just insisting that all contractors become payrolled employees (losing the accountant clients and enforcing a higher tax regime on the contractor).

3. Impose NIC's on close company dividends - result is that sub-contractors pay more tax, also many other small business owners would pay more tax.

Why on earth are members of the accountancy profession trying to raise more tax revenue for the government??  We should be looking to help our clients, the government has plenty of advisers of its own without other professionals also giving them advice on how to increase the tax take.

Sub-contractors have enough to contend with already having NO right to redundancy, NO holiday pay, NO sick pay, REQUIRED to purchase liability insurance and the one perk they get, which is a slightly lower tax bill, you want to take away?

If I told my contractor clients I was pushing the government to bring in these changes they would be horrified!

When you have a sleeping tiger, you don't poke him with a stick.  The best advice is to leave well alone, advise your clients well to ensure they are IR35 compliant, and always advise them to take out tax investigation insurance and if available, tax liability cover so that in the unlikely event that they are deemed by HMRC to be 'employed', they don't have a financial burden to deal with.


Anyone know where one can get Tax Liability Cover following a successful attack by HMRC?
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Replying to sally1964:
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By cpavett
26th Apr 2015 15:11

Tax Liability Cover
Yes, there is one company that provides such cover, I'm not promoting them but qdos provide this cover, I think you need to have an IR35 review to qualify. I tell my sub-contractor clients to shop around for the cover that suits them in all cases.

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By Carl Barwick
24th Apr 2015 12:52

IR35

Option 1 is only viable if you can protect the interests of people currently not liable for NICs e.g. people over pensionable age.  If you can, this would represent a huge advance forward in tax simplification.

Option 2 is a bit hopeful in my opinion.  The IR35 rules are a complete dog's breakfast, so pinning your hopes on clear and unambiguous legislation in its place is somewhat optimistic.

Option 3 is plainly grossly unfair.  How can you state that IR35 is a "sledgehammer being used to crack the “disguised employment” nut" and then suggest replacing it with a different sledgehammer?  Madness...

The problem with IR35 is that it is unclear, draconian and not fit for purpose, to use the politicians' vernacular.  That being so, it should be repealed on principle.  Don't fudge the issue; get rid of the useless thing!  Replace it, if you must, but any need to do so does not mean it is not time to get rid of this millstone around the small business sector's neck ASAP.

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By ChrisScullard
24th Apr 2015 13:00

Politically I can't see income tax and NI merging any time soon.  Of course it might well make sense to us, but then again we understand tax and payroll deductions.

The general public will, generally, have an understanding of income tax.  It's 20, 40% or 45% if you're 'filthy rich'.  NI is never rarely about and not generally understood.  The fact that it is imposed below the personal allowance is also rarely understood.

Cameron and Clegg are making a big play of taking people who earn under £10,600 'out of tax'.  This is clearly nonsense as you can earn less than this and pay NI.  It doesn't sound nearly as good to admit it's actually people who earn less than £8,060, and then not in all cases because it depends on your wages profile across the year.

Also can you imagine a political party who announces the basic rate of income tax will rise to 32%?  Not only that but higher rate income tax will be 42%.

Two issues here.  First the headline rate of tax has gone up.  A lot.  Second the differential between basic and higher rate comes down.  The first is a big issue for the right wing parties, the second a big issue for the left wing parties.

Clearly to those 'in the know' nothing really changes by this in most cases, but the political implications could be disastrous. 

Both major parties (I think) have announced they won't increase the rate of basic rate or higher rate income tax.  Combining IT and NI and making the income tax rates 32% and 42% would simply lead to another round of broken promises narrative.

It's a bold leap of faith, but I can't imagine any policy advisor allowing this happen.

I fear that NI might be imposed on close company dividends though.  Who in a 'hard working family' (incidentally how many highly paid executives don't work hard or have a family?) could possibly object to this?  After all, all company owners are fat cats who make a fortune aren't they?  It's a very easy sell to the general public that declaring dividends and not paying NI is dispicable tax avoidance (interpreted as evasion) of the worst kind.

 

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Replying to [email protected]:
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By farrcorfe
24th Apr 2015 13:31

Politics as ever

The iniquitous class 4 'national insurance' was,and is, a tax on self-employment just as employers NIC is a payroll tax. So, go the incorporated route and mitigate your tax liabilities by paying dividends. But to tax dividend by way of 'national insurance' charges does not take into consideration that shareholders may be other companies as well as directors/owners. And, yes, why should we help the government of the day increase their tax take? Oh, the bigger companies will be able to pay lawyers/accountants to slide round a charge on dividends anyway. Employment through the PAYE system is preferred by the State as it is an effective way to control people as well as to maximise the tax take. So the whole IR35 issue is to disincentivise the small businesses which make up the backbone of this country. Why cannot the State encourage small businesses for a change?

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By Mallock
24th Apr 2015 13:18

Option 1 for Me

I have long been of the opinion that tax and NI should be amalgamated but it is the employer's NI that gives a bigger headache in how that is reassessed as tax and how an increased headline rate of Corporation Tax would fit for the International companies who just seek out the lowest CT rates.

However what it would do is focus the "tax" charge on those who make profit and not those who employ lots of people - I have always thought that this was a fairer system.

As for pensioners who currently don't pay NI, there are options such as re-introduce higher personal allowances for pensioners to compensate them for the higher rates of tax but also take recognition of the fact that someone getting a significant pension of say £50K plus is also likely to be in a position where they can afford to pay a bit more.

I would also like to see more of Option 2 because far too much time is wasted on subjective reviews of contracts and conditions when a plain set of rules could remove most of the uncertainty.

We would also get back to people incorporating for the right reasons, unless we get another Chancellor who introduces a £10k zero tax band and starts the stampede again.

Option 3 is an abomination to me. This would adversely impact on proper trading companies who are not and never have been part of the problem.

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By ianthetaxman
24th Apr 2015 13:15

IR35

Taking away the ability to control (to a degree) the extraction of income from a close company as it currently stands and increasing the scope for HMRC to fill the coffers does seem a backwards step.  Perhaps there should be other criteria for becoming a company/director in addition to those that exist now, which might open up new areas of tax planning/advisory work for our profession, rather than carte blanche swiping at all small companies?

I'm told that if you win the lottery, and decide you want to buy the most expensive Ferrari available, you can't.  They don't sell them to just anyone - you need to have owned other Ferrari cars and show a history of owning them.  In other words, the dealership will undertake due diligence on the customer before selling them the car.  Perhaps a similar approach is needed for limited companies by HMRC? 

 

   

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By NeilW
24th Apr 2015 13:29

The best solution is to equalise the tax regime of employed and business entities.

Which business structure or relationship to choose should never be determined by tax rates. 

The idea of a 'master/servant' relationship in modern employment structures is ludicrous. There just isn't that concept any more (the existence of zero hour contracts shows that).

 

Make it all the same, take a flat rate off payments via the banking system and let entities run their books through accountants to *claim back* expenses. 

 

Get that right and everybody that needs to file a tax return will, since there is a refund in it. And if they don't then they automatically pay a higher rate of tax.

 

 

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Replying to Matrix:
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By Mallock
24th Apr 2015 13:43

A small cash problem

NeilW wrote:

 

Make it all the same, take a flat rate off payments via the banking system and let entities run their books through accountants to *claim back* expenses. 

 

I like the idea but I think you would need to ban cash before this kind of system could work.

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By johnjenkins
24th Apr 2015 14:09

NeilW

is right. I'll go even further. Get rid of ers nic and stop HMRC interfering with employment status.

You can't (and shouldn't) have a law that defines self-employment.

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By johnjenkins
24th Apr 2015 14:13

@AccountingWEB

Stop farting around and go for the jugular. Challenge HMRC in the high court over employment status. It should be a commercial decision not one based on tax yield.

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By pauljohnston
24th Apr 2015 15:30

HMRC reckon

it would cost £550m in tax and NIC if IR35 were abolished.  Not that anyone with anysense would believe this, not even sensible people at HMRC.

I would suggest that if there is a reason for IR35 - not sure what that is - An additional rate of Corp Tax on profits would apply.  NIce and easy to implements and collect. 

The major loss HMRC percieves is the NIC.  The major loss would be by employment overseas of some of these guys who would then use the internet to do the work in the UK.

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Replying to Wilson Philips:
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By a_q
24th Apr 2015 20:45

The Lady in Red?

pauljohnston wrote:

I would suggest that if there is a reason for IR35 - not sure what that is -...

If there was a reason for IR35 surely it disappears with "Red" Dawn Primarolo's promotion to the House of Lords!

As one of those contractors who green carded my MP on that fateful (and futile) day in Nov 1999, I would say that you are all barking up the wrong tree.

The way to incorporate now is surely via a chain of LLP's... and then pay what you like.

This income tax malarkey was introduced to pay for the Napoleonic Wars, I am somewhat incredulous we are still cow-towing to HMRC 215 years later, but I suppose it keeps accountants and tax advisers in a job.

 

 

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By ireallyshouldknowthisbut
24th Apr 2015 15:37

.

The only way to deal with IR35 is at source - make the tax the same for working as an employee, self employed and Ltd company. 

This means no Er's Nic's, and a new tax on income combining income tax and NI payable on all types of earnings, with a tax credit for CT paid. 

A big fat flat tax with no tinkering and special cases, the rate of which would probably need to be quite high to get the same revenue, 40%+

Anything else will fall short.

It would however mean a huge adjustment to real net incomes for millions of people, up and down, and probably favour companies unfairly as they would benefit from the reduction in Nics. Or this wont happen as its known.

 

 

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By Tom 7000
24th Apr 2015 17:23

Why?

Why are your proposals to simply increase the tax rate...by adding NIC or increasing rates how about.

 

Why not just abolish it and say

 

a) If you want to run your own Ltd co- fine you get no HR rights with the end client or a company car or a pension or redundancy notice periods maternity pay or all the other things employees get.

 

If you want all the employee things you pay the higher taxes. by going on their payrolls,

 

Or is that too simple

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Replying to why always me:
By jon_griffey
24th Apr 2015 17:36

Too simple!

Tom 7000 wrote:

Why are your proposals to simply increase the tax rate...by adding NIC or increasing rates how about.

 

Why not just abolish it and say

 

a) If you want to run your own Ltd co- fine you get no HR rights with the end client or a company car or a pension or redundancy notice periods maternity pay or all the other things employees get.

 

If you want all the employee things you pay the higher taxes. by going on their payrolls,

 

Or is that too simple

That's way too simple.  It will work well for some such as the highly skilled and mobile IT consultant but over time the whole workforce including the low paid/lower skilled will end up moving to limited companies, whether by choice or at employers insistence.  I remember a time pre IR35 when factory workers on a production line were operating via companies.

The only way to resolve it is to address the vast differential in tax rates between employed v self-employed v ltd companies.

 

 

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By ronlfoot
24th Apr 2015 21:00

Kitchen Sink Companies

Why not have a significant financial hurdle to incorporaton - say £10,000 verifiably paid-up share capital.  It is ludicrous that the Companies House register is cluttered with hundreds of thousands of trivial companies often in arrears with their filing responsibilities and doomed to be dissolved within a couple of years after incorporation usually owing PAYE and VAT.

Does it make sense that you can buy incorpoartion for £12.99 without any test of competence/responsibility?

And when they file accounts (if they ever do) , who checks that the accounts have any relationship with reality or the legislation/accounting conventions.  Does anyone in Cardiff consider whether the stuff they receive has any relationship to the underlying reality?  Or even GAAP.  I suspect not.

I sometimes think you could submit your shopping list and so long as it was properly topped and tailed the Registrar would accept it for filing.  Does HMRC compare the filed accounts with the attachments to the CT600?  I suspect not - they haven't got the resources or the incentive so to do

One-man band companies are often just putting a spurious limited liability entiity between the proprietor and the customer with no intermediary substance in the transaction.  The customer thinks he is dealing with John Smith and probably doesn't even know he's dealing with John Smith Ltd until he gets (if he ever does) a final bill for the goods/services provided.

But then that's just one part of the Fred Karno's circus we call accounting in the UK these days.  And as for IR35, as the minstrel said "it's only people's games that you got to dodge".

Ron, the unchartered accountant

 

 

 

 

 

 

 

 

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By Arcadia
25th Apr 2015 15:35

Reform NI

Many people agree that combining income tax and NI would be a good idea, and every political party has looked at it. However none of them will ever implement it, for the reasons mentioned - the headline rate of tax would have to go up.  What about reforming NI so that it applied at exactly the same levels and thresholds as income tax, and to all forms of income to which income tax applies (including dividends and pensions)? The rate would similarly escalate on the same scale. So the rate up to £10k would be 0, the rate for £10k to £32k might be 10%, etc. and so on up. Employers NI would be left the same. The total tax take should also be left the same. At the moment NI falls disproportionately on employees earning between the £156 pw (why do they insist on quoting this weekly, when no-one is paid weekly any more) and £815 pw. Although I act for a number of sub-contractors I don't really see why they get away with not paying this element of tax, and pensioners too. If the NI burden was spread the rate would be lower. I accept you would have to implement it gradually, as there would be winners and losers. Politically whoever did this would be able to say they were reducing the basic rate of NI. Naturally I haven't fully costed this, but then I wouldn't be alone there would I?

 

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Replying to Duggimon:
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By susanwft
26th Apr 2015 19:48

Reform NI

The problem with a IR35 deemed salary is that it forces a double hit of NI onto a single working director. Most contractors would surely not object to paying what would be the equivalent of the class 1 or class 4 contribution, but where is the fairness in forcing a single working contractor to pay 22.8% NI ?

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By johnjenkins
26th Apr 2015 14:50

@arcadia

A lot of people are paid weekly. Not everyone is as rich as you and ca afford to go 4 weeks without pay.

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By hcmarshall.aol.com
26th Apr 2015 19:02

taxation of dividends

Aren't we forgetting aunt Ada who has loaned young John some of her savings to start a buisness. She waits several precious year at very high risk and then start getting a dividend. And you all think that it is fair and just for aunt Ada to pay NI and for the company to pay employer 13.8% a well. I am not sure that aunt Ada will be very excited by John's next project. Dividend is a high risk return, salary is a monthly right.

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By AndrewV12
27th Apr 2015 09:03

Impose NICs on close company dividends

No, No No......No No

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By Gone Sailing
12th May 2015 12:02

Ltd Cos - Benefit to the Government

Is HMG factoring in the other benefits to HMG of self employed people trading through Ltd Co?

1.  The businesses are properly registered and on the radar

2.  A stack more laws apply

3.  They (usually) have their own bank accounts

4.  Accountants pay more close attention (contentious I know) because of all of the above and the legacy of the audit mentality

5.  Accountants go to the Balance Sheet stage

So, HMG control is greater, the revenues are (probably) higher anyway, & the self employed people take the risks.  Sorted, scrap IR35.

I regret that some employer's would exploit it, that needs to be tackled as a dubious decision by an employer, not a freedom of choice decision by a contractor.

 

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