Ministers discuss £400m IR35 crackdown

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Up to 100,000 professionals could face a hefty tax rise after it was revealed that ministers are discussing tightening rules around personal service companies before the Chancellor’s Autumn Statement on 25 November.

According to several media outlets, including The Guardian and the Daily Mail, ministers are discussing a change to regulations around personal service companies (PSC), with the move potentially forcing 90% of those employed ‘off the books’ to go back on the payroll and generating up to £400m a year for the exchequer.

Under current rules individuals using PSCs can make savings on income tax and national insurance and write off basic expenses against tax, while employers benefit from smaller NI and pension bills.

Following a public backlash against the schemes after it was revealed that BBC employees, among others, had reduced their tax bills by arranging to be paid through PSCs, the government has been examining ways of strengthening the rules surrounding them. It is not the first time such rules have come under scrutiny: In 1999 Gordon Brown also clamped down on “disguised employees” through the IR35 scheme.

The proposals

Reports suggest that anyone using a PSC who works for an organisation for more than one month will be considered an employee and would be obliged to move on to the payroll.

The responsibility for policing the rules would fall on businesses rather than the individual, while agencies would be responsible if they provide consultants to businesses.

HMRC is also allegedly drawing up an online checklist that will allow employers to gauge if a contractor should be reclassified as an employee, although they did not wish to make any comment when asked by AccountingWEB.

Anyone not paid through a PSC would therefore be paid by PAYE and would also make employee NICs, while the company would pay employer NICs. The new rules would apply to both private firms and the public sector.

Ministers have apparently yet to make a final decision on whether to introduce the change. They will want to see how businesses respond to the proposal at the annual CBI conference.

A ‘government source’ told The Guardian: “This is about fairness in the tax system. It is just not fair to have people in the same company doing the same jobs paying different levels of tax.”

Operating a freelance business ‘almost impossible’

Several freelance contracting organisations have accused the government of ‘kite-flying’ – briefing the media to test the reaction to a proposal – causing freelancers and other affected parties unnecessary stress.

Commenting on the proposals Chris Bryce, chief executive of the Independent Professionals and Self-Employed (IPSE), said: “IPSE is seeking urgent clarification on whether reports of a 'one month' limit, after which individuals will be 'obliged to move onto the payroll' are under serious consideration.

“This would make operating a freelance business almost impossible in many instances, and would cause untold damage to the flexible economy. If the government are giving this idea any consideration, they should think again.”

“This measure was not contained within the government’s original consultation documents and has not been raised by the government with stakeholders in its regular IR35 Forum meetings.

“Our members see themselves as small businesses and the government must recognise that if freelance contractors are taxed as employees, then many will expect employment rights in return.”

Reaction to the proposals

Reacting to the news on an Any Answers thread, AccountingWEB members gave the proposals a mixed reaction. Tim Vane welcomed the changes, stating: “Good. Clarity at last, get rid of the doubt”.

“Seems unlikely to be 1 month”, user Ireallyshouldknowthisbut said, “12 months is my best guess. Clear rules are needed, the hard bit in this area is actually getting the wording right so it doesn't sweep in the 'wrong' type of business.

Speaking to AccountingWEB Emily Coltman, chief accountant at FreeAgent said she would be “concerned” to see such proposals enacted, as they would penalise thousands of genuine contractors. “The period of one month before an engagement becomes employment is far too short”, said Coltman. “It is my belief that a year would be much more realistic and fair.”

“I also do not agree with the government's stance that there should be a ‘level playing field’ between contractors and employees, since contractors bear a much higher business risk; they must find contracts, keep their own books, chase late payments, find suppliers, manage their own taxes and much more.

“If the government believes in small business and in the flexibility of the workforce, it should encourage, not penalise, contracting.”

About Tom Herbert

Tom is editor at AccountingWEB, responsible for all editorial content on the site. If you have a story that might interest us or wish to comment on the site's coverage get in touch via the site's private message function or Twitter DM (@AWebTom)

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11th Nov 2015 10:02

I wonder if

Rebecca Benneyworth can shed any light on this as she is highly involved with HMRC in terms of IR35 I believe?

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11th Nov 2015 10:37

.

Seems like a classic "drop some really bad news, so the actual news seems like good news" approach. 

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By stratty
11th Nov 2015 10:56

Crystal Ball

I foresee a 12 month contracting period and reduction of the 24 month Travel and Subsistence for temporary workplaces to 12 month's also.

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By IANTO
11th Nov 2015 11:22

Contracting proposals

stratty wrote:

I foresee a 12 month contracting period and reduction of the 24 month Travel and Subsistence for temporary workplaces to 12 month's also.

 

and we'll see a 1 month break between each 12 month contract.

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By chidio
11th Nov 2015 11:06

Really bad news

If the Govt succeeds, then that would really be bad news for us who work for small accounting firms. The Government and HMRC are failing to check the impact their actions would have on smaller accountancy firms that service the books of these contractors.

These contractors pay fees to us and we make profits and then pay corp tax or income taxes to the government. If they succeed in taking us small firm out of business those taxes would all be lost and a lot more be paid out by the government on unemployment benefits.

I suggest they set clear rules and not 'disguised' outright ban. Proper risk analysis should be carried out. Yet again this one of the plans of the super-rich to 'pauperise' the citizenry.

We have almost 150 contractors in our books. These guys would go and my partners and I would be out of business! 

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By NeilW
12th Nov 2015 14:09

"If they succeed in taking us

"If they succeed in taking us small firm out of business those taxes would all be lost"

 

I thought you were an accountant? Taxes don't get lost. They just move elsewhere in the economy and the spending chain induces different uses of real resources. 

For every £100 a government spends it will always get about 90% back in taxation. Because that is 1 - the gross saving rate of the economy. 

The total tax take is a different thing from the distribution of the tax take.

 

 

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By lme
13th Nov 2015 10:50

And this is supposed to be a serious comment.

chidio wrote:

If the Govt succeeds, then that would really be bad news for us who work for small accounting firms. The Government and HMRC are failing to check the impact their actions would have on smaller accountancy firms that service the books of these contractors.

These contractors pay fees to us and we make profits and then pay corp tax or income taxes to the government. If they succeed in taking us small firm out of business those taxes would all be lost and a lot more be paid out by the government on unemployment benefits.

I suggest they set clear rules and not 'disguised' outright ban. Proper risk analysis should be carried out. Yet again this one of the plans of the super-rich to 'pauperise' the citizenry.

We have almost 150 contractors in our books. These guys would go and my partners and I would be out of business! 

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11th Nov 2015 11:12

Bucket shop

Does this indicate that the good ship HMS UK is actually holed below the waterline and taking water on faster than admitted?

It seems that the Chancellor is more on a tax grab from wherever he can e.g. benefit cuts, Clause 24, than making coherent tax policy.

If that's so then we can look forward to even more Alice in Wonderland proposals

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11th Nov 2015 11:31

Original OTS discussions - why is it taking so long?

I recall a very early meeting with the Office of Tax Simplification when the 12 month maximum contracting period was recommended by the participants as it was the usual period needed to cover a maternity leave period ... or perhaps a paternity leave period.  Certainly a one month minimum break in contract with the same employer or group of employers would be appropriate.

We would still be better off if we did simplify everything - combine Income Tax with NI and then all this additional IR35 legislation would be totally unnecessary.  All the different rules for NI would go out of the window.  As the Chancellor is in for a second 5 year term now - and with a clear run - this would be the time to get it sorted once and for all.  UK plc can then concentrate on making profits.

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By birdman
11th Nov 2015 11:53

When I was a lad

You were either employed or self-employed. The responsibility to decide was that of the person paying. All PSCs, IR35 et al is/are doing is fudging the grey area inbetween and passing the buck for responsibility thereon. By making the payers responsible for status decisions again (has this ever actually changed, in reality??) we will be returning to a system that ran without any real problems for many years, which can only be a good thing.

Most contractors are in reality well-paid temps, aren't they?

 

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11th Nov 2015 12:09

I seem to remember...

I seem to remember that before IR35 came into play the intention was for the 'employers' to make the judgements and the deductions. This would have been a big change and cost for those companies and as they were so powerful in their lobbying this route was abandoned by the Government and they went for the easier targets - the contractors themselves.

Why do they think this won't happen again?

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11th Nov 2015 12:17

I wonder

Some of the Audits I do last longer than a month.....

 

I must be their employee

 

No wait I cant be an employee or I wouldnt be independent and breach auditing standards

 

Now I am confused....sigh

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11th Nov 2015 16:51

Can't maintain independence and be an employee

Tom 7000 wrote:

Some of the Audits I do last longer than a month.....

 

I must be their employee

 

No wait I cant be an employee or I wouldnt be independent and breach auditing standards

 

Now I am confused....sigh

 

Ditto independent Expert Witness work which has lasted up to 3 years for me in some cases ....... this 'proposal' would be unworkable in my opinion.  

On a local note, if it were to be introduced, it would clobber a large number of contractors in Aberdeen who are already reeling from a major O&G recession.

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By tanjo
11th Nov 2015 12:26

Good news
Hopefully this will put an end to the farce of the PSC. It's a shame this cannot be applied retrospectively so UK PLC can recoup some of the income tax dodged.

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By IANTO
11th Nov 2015 12:57

Company types

tanjo wrote:
Hopefully this will put an end to the farce of the PSC. It's a shame this cannot be applied retrospectively so UK PLC can recoup some of the income tax dodged.

 

There is no such organisation in statute as a PSC. So please let's not muddy the waters further.

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11th Nov 2015 13:45

I await with interest

Boy George's attempt to put a legal definition of a "Personal Services Company" on to the statute books.  Clearly if this was easy then in my view Dawn Primorolo and Gordon Brown would have already done it, methinks.

Without that, it is hard to see how this measure being flown can work.  Having made a shambles of the changes to tax credits, he now seems to be charging headlong into another "Omnishambles" Budget.

Logically, the only political reason for him doing this is that he has decided he does not want to be Prime Minister after all.

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11th Nov 2015 14:39

Crystal ball gazing

HMRC wrongly think that there is £400m up for grabs. Their flawed thinking is that there are thousands of contractors who are all working under PSC's and charging the same in gross fees as they would get paid if they were permanent employees for the same firm. Their logic therefore is that Employers NI is being dodged. However, the fact is that contractors charge more than permanent employees, because they are contractors. And when you compare the tax paid by Mr Bob who takes a permie role for £X per year and the same Mr Bob who takes a contract role for £Y per day, you discover that the contract role generates more in tax revenue for HMRC.

If HMRC put in punitive measures that says contractors have to go on the payroll, then firms won't still pay the same rates because they will essentially be forced to hire an employee. So less tax will be generated. And the flexible workforce will disintegrate, costing UK PLC a darn site more than £400m a year.

HMRC have already had their tax cake with the dividend tax rises, and the amount of tax a PSC contractor pays aligns with a self-employed person paying class 4 NICs.

The underlying problem that many commentators have said time and again is Employers NI. It's a sneaky payroll tax that only applies to employees. The workforce is changing and this tax collecting measure is under threat. The answer isn't to force everyone into employment who has already chosen not to be employed and do their own thing. The answer is to change the tax system.

Dave Chaplin

CEO

Contractor Calculator

 

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11th Nov 2015 14:56

Will they ever get it...

Mr. Praline: 'Ello, I wish to register a complaint.

(The owner does not respond.)

Mr. Praline: 'Ello, Miss?

Owner: What do you mean "miss"?

Mr. Praline: (pause)I'm sorry, I have a cold. I wish to make a complaint!

Owner: We're closin' for lunch.

Mr. Praline: Never mind that, my lad. I wish to complain about this legislation what I purchased not half an hour ago from this very boutique.

Owner: Oh yes, the, uh, the IR35...What's,uh...What's wrong with it?

Mr. Praline: I'll tell you what's wrong with it, my lad. 'E's dead, that's what's wrong with it!

Owner: No, no, 'e's uh,...he's resting.

Mr. Praline: Look, matey, I know a dead IR35 when I see one, and I'm looking at one right now.

Owner: No no he's not dead, he's, he's restin'! Remarkable legislation, the IR35, idn'it, ay? Beautiful language!

Mr. Praline: The language don't enter into it. It's stone dead.

Owner: Nononono, no, no! 'E's resting!

Mr. Praline: All right then, if he's restin', I'll wake him up! (shouting at the cage) 'Ello, Mister IR35! I've got a lovely fresh cuttle fish for you if you show...

(owner hits the binder)

Owner: There, he moved!

Mr. Praline: No, he didn't, that was you hitting the binder!

Owner: I never!!

Mr. Praline: Yes, you did!

Owner: I never, never did anything...

Mr. Praline: (yelling and hitting the cage repeatedly) 'ELLO IR35!!!!! Testing! Testing! Testing! Testing! This is your nine o'clock alarm call!

(Takes satute out of the binder and thumps its head on the counter. Throws it up in the air and watches it plummet to the floor.)

Mr. Praline: Now that's what I call a dead statute.

Owner: No, no.....No, 'e's stunned!

Mr. Praline: STUNNED?!?

Owner: Yeah! You stunned him, just as he was wakin' up! IR35s stun easily, major.

Mr. Praline: Um...now look...now look, mate, I've definitely 'ad enough of this. That statute is definitely deceased, and when I purchased it not 'alf an hour ago, you assured me that its total lack of movement was due to it bein' tired and shagged out following a prolonged reading.

Owner: Well, he's...he's, ah...probably pining for the fjords.

Mr. Praline: PININ' for the FJORDS?!?!?!? What kind of talk is that?, look, why did he fall flat on his back the moment I got 'im home?

Owner: The IR35 prefers keepin' on it's back! Remarkable paper, id'nit, squire? Lovely language!

Mr. Praline: Look, I took the liberty of examining that statute when I got it home, and I discovered the only reason that it had been sitting on its shelf in the first place was that it had been NAILED there.

(pause)

Owner: Well, o'course it was nailed there! If I hadn't nailed that statute down, it would have nuzzled up to those bars, bent 'em apart with its ribbon, and VOOM! Feeweeweewee!

Mr. Praline: "VOOM"?!? Mate, this statute wouldn't "voom" if you put four million volts through it! 'E's bleedin' demised!

Owner: No no! 'E's pining!

Mr. Praline: 'E's not pinin'! 'E's passed on! This legislation is no more! He has ceased to be! 'E's expired and gone to meet 'is maker! 'E's a stiff! Bereft of life, 'e rests in peace! If you hadn't nailed 'im to the shelf 'e'd be pushing up the daisies! 'Is metabolic processes are now 'istory! 'E's off the twig! 'E's kicked the bucket, 'e's shuffled off 'is mortal coil, run down the curtain and joined the bleedin' choir invisible!! THIS IS AN EX-STATUTE!!

(pause)

Owner: Well, I'd better replace it, then. (he takes a quick peek behind the counter) Sorry squire, I've had a look 'round the back of the shop, and uh, we're right out of anti-avoidance bills.

Mr. Praline: I see. I see, I get the picture.

Owner: (pause) I got a slug.

(pause)

Mr. Praline: Pray, does it work?

Owner: Nnnnot really.

Mr. Praline: WELL IT'S HARDLY A BLOODY REPLACEMENT, IS IT?!!???!!?

Owner: N-no, I guess not. (gets ashamed, looks at his feet)

Mr. Praline: Well.

(pause)

Owner: (quietly) D'you.... d'you want to come back to my place?

Mr. Praline: (looks around) Yeah, all right, sure.

 

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By ComanCo
11th Nov 2015 15:20

I hope any new rules will not place yet more pressure on accountants from clients wanting to know if they have a Personal Service Company.

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By Briar
11th Nov 2015 16:18

Fork 'andles please

It might have already been done elsewhere, but not on Aweb. Enjoyed it thoroughly.

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11th Nov 2015 18:23

Public sector contractors

It used to be the case that government and the NHS relied greatly on "off the books" contractors, anyone know if that's still the case? 

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11th Nov 2015 18:34

O & G

This would be an rti nightmare.  In O&G industry individuals are often contracted for between 6 weeks and 6 months and are sometimes not paid until after the end client pays. If they have to go on the payroll, they may well have received their P45 before they receive their first payment! 

 

Presumably though with their P45 they will then be free to go and sign on in between contracts - more expense for the government.

 

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11th Nov 2015 18:56

Contractors versus Consultancies

Having worked as employee, contractor and consultant, it seems to me that the contractors provide the same services as the consultant, but at a far cheaper rate (comparatively).

Thus for the top end of the city wide boys delivering Risk Management, Trading Financials or Regulatory Finance a contractor might cost £700 a day and a consultant would cost £1,600 a day ++

Since the consultant is typically an employee of the consultancy (whilst perhaps earning £100,000 per year including bonuses they are still paid PAYE)

If the contractor can no longer operate via a one-man Limited company route then the only options are to become an employee of the bank on £50-£60,000 or become a consultant and earn £100,000 per year.

Can't see the banks liking either option as the people who stick around on the middle tier salaries tend not to be the ones they want. The contractors are at least self-motivated, have no "Company" to protect as the consultant does and tend to do the same job a lot more effectively and a lot cheaper.

I can easily see the emergence of consultancies which are really just "contractor conglomerates" to get around whatever employee numbers or shareholding limitations that they put in place.

If there was no demand for contractors they wouldn't command the rates that they do, but very few people thrive on the very dynamic nature required for contractors, who are neither employees nor consultants.

Why can't we just dump the Agency Rules stuff and go back to them being self-employed, which is what Limited Company Contractors actually are. This façade of pretending to be an enterprise is helping no-one, but again the root cause of this is legislation wanting to turn everybody into PAYE paying employees, whereas some people, by their very nature, just aren't.

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22nd Nov 2015 17:51

Europe

frustratedwithhmrc wrote:

I can easily see the emergence of consultancies which are really just "contractor conglomerates" to get around whatever employee numbers or shareholding limitations that they put in place.

 

This is precisely how contracting in most of the rest of Europe works. On the one hand contractors can and do easily work as self-employed, but if they want the protection of limited liability and the separation of business vs personal income, they tend to set up a limited company. That is not nearly as easy as in the UK. For one thing, there tend to be a minimum share capital that has to be paid in (and not taken out). In Germany that is 25,000 euro for a Gmbh while it is CHF 100,000 in Switzerland, for example. There tend to also be a requirement for two or more directors, and sometimes also two or more shareholders.

Contractors gang together and set up small Gmbh's or SA's and trade as a small consultancy, sometimes taking on delivery of projects but mostly just providing resources.

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By deepin
11th Nov 2015 19:27

Contractors
Normally you keep a skeleton maintenance staff, and hire contractors when a big job comes along because that is the most efficient way.
These sort of companies won't want to hire staff on normal contracts. They will canvass against saying lower efficiency less corporation tax.
Another heated pastie tax for Gideon?

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By DJKL
11th Nov 2015 19:55

I suspect more dangerous to UKplc is the next generation plying their trade elsewhere, plenty of other countries that will be more than happy to oblige.

I think the UK has to wake up to the fact that what they do today may have a major bearing on what talent they get to keep here, people my son's age (24) are already looking for exits from the UK re computing work (graduate software developer). Whilst currently an employee of a large US plc he was doing some limited contracting work whilst still at university and contracting was probably the next step in another 4-6 years time; start introducing impediments and the generation with an education and no housing ties will just depart for pastures new.

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11th Nov 2015 19:55

What universe does the government reside in?

For years I ran a small technology business developing both bespoke mobile apps and on-line learning for large corporate clients. About half of our revenue was to overseas clients and was, therefore, classed as export service revenue. Typically, a project would run for about 3 to 6 months and involve putting together a specialist team of subject matter expert, storyboard writer/app designer, graphic artists, animators and developers (programmers). These are all different skills and skill sets varied from project to project. It was not feasible, nor practical, that our company could employ people with all these skills on a full-time basis, hence we used contractors who were freelancers.

By government definition, because we sometimes supplied trainers to train our clients on products, the company was a personal service company even though we didn't supply personnel to our clients. The freelancers we sub-contracted to were also personal service companies even if they only supplied the services of a single contractor.

The enormous administrative burden imposed by IR35 fell on us and on the sub-contractors. We had to prove, on a contract by contract basis, that we were not 'employing' contractors, that we had checked our sub-contractors were registered for PAYE and NIC and that we were not their only client. Our contracts had to be carefully constructed to ensure we were buying a piece of work and not paying for a single contractor for a specified number of hours, that our contractors supplied their own tools, managed their own time and met all the other unintelligible criteria laid down in the regulations governing employment under IR35. It was just too much and I closed down a perfectly successful high-tech export business because of the red-tape involved.

Our competitors in this market were based in India, the USA, Australia, Singapore, Malaysia and, probably now China could be added to that list. If this madness of a simple I month time limit after which a contractor is treated as an employee were introduced, large multinationals operating in the UK will simply not purchase services from the UK.

Every time I hear the Prime Minister or other Ministers saying how they are supporting entrepreneurs, that they want the UK to be the easiest country in the world to be able to start-up a new business, that the are cutting red tape, and how small businesses should seek to compete in global markets, I just wonder what parallel universe they reside in. 

 

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11th Nov 2015 21:48

Some good points made

Some good points being made here.

Re: Employees vs Contractors vs Consultants I thought I'd add my experience.

An ex-colleague of mine requested I assist him last month transform an ageing industry by bringing in some new technology practices. It looked like an 18-month project. As I live in a backwater part of the country (thanks to my wife and kids) I couldn't go permanent as it isn't a viable solution. Furthermore my value is to set them up and move on and polinate another company. I don't want to live there for the rest of my life and I can't afford the 2k T&S expenses out of PAYE. So I've declined and they're now having to pay 1k per day or more for a consultant who will won't be as fully engaged or motivated.

Meanwhile with all this uncertainty I've decided to hang up my boots for a while. UK PLC will suffer a loss of VAT, hotels and the train companies will lose approx 25kPA, the UK government will receive less tax, flexible resourcing will suffer and I'll have to bring the sad news to my accountant that they're one client down.

But good news for India! Cognizant or Sapient will probably pick up the consultancy work. And bring in a worker for a year or so, depress UK wages a bit more and export a little bit more of our GDP abroad. And the expertise will slowly migrate eastward, so in the longer term we won't manufacture, nor will we have intellectual property.

Perhaps a rather pessimistic view you might think, but you have to join the pieces together to look at the bigger picture.

 

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12th Nov 2015 09:24

Some support re Travel & Subsistence for Contractors

At last contractors have some support from the House of Lords (on the 10th November from Lord Palmer): http://www.umbrella.co.uk/industry-news/2015/11/lord-palmer-speaks-umbrella-companies

I find it incredible that the Government are gunning so much more for contractors. We are based in Wilmslow and have written to George Osborne, our local MP, on a number of occasions.

They seem to have it in their head that employees can't claim travel expenses so why should contractors but are missing the point that employees can.

We used the example of 2 accountants living in Manchester. One a contractor and one works for a firm of accountants. A temporary accountancy assignment comes up for 3 months in Leeds. If the contractor wins it he/she will have to pay for their daily drive to Leeds out of their net pay while the one working for the firm of accountants will get reimbursed tax free. A contractor just can't compete for that job any more.

The proposed legislation re Travel & subsistence is anti-contractor. There are rules already saying what a temporary assignment and for an employee they can work there for 2 years so why can't a contractor?

Contractors fulfil an important role in the UK economy. Are willing to take short assignments, win their own work and have little job security. This needs to be recognised and not punished

Ironically the whole subject of contractors started from firstly the BBC newsreaders which aren't your standard contractors and from UCATT who claimed contractors were being exploited but will now be even worse off.

Miles Grady

Director at Umbrella.co.uk

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12th Nov 2015 09:38

What strikes

me is that the Tory party used to have intelligent people in the cabinet. Where are they?  This obsession with getting rid of the "deficit" will be business ruination. Marlowe52 is spot on.

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By DJKL
12th Nov 2015 10:40

@johnjenkins

johnjenkins wrote:

me is that the Tory party used to have intelligent people in the cabinet. Where are they?  This obsession with getting rid of the "deficit" will be business ruination. Marlowe52 is spot on.

John

I expect the issue is fewer and fewer have actually worked in the private sector; frankly anyone who has spent their entire working life within politics appears to become somewhat semi-detached from the real world. I suspect they just cannot tell the difference between special pleading and real, genuine grievance, which leads to poor decision making.

We now appear to get "clever" ideas dreamt up by graduate policy advisers and "sold" to ministers , the disconnect between business and politicians, this is half the problem.

The other issue is they do not like doing the boring bits. A policy announcement of X or Y gets the news, tough on X, etc etc, but the real issue is they ought to stop playing with the toys/ demanding new toys and instead fix some of the broken ones they already have. I am not convinced any of them can run anything.

At least in the 1960s and 1970s a fair few had exercised some sort of leadership during WWII, or had made a career for themselves before politics. Maybe they can run operations but just choose not to, because sitting in minding the shop does not get one into the news; it is not what you do that matters it is what you are perceived to do that matters.

Of course it does not stop with politicians. I have a daughter who appears to aspire to some form of policy formulation department/ role at Westminster, the heavy hints re wanting to do an appropriate Msc after she graduates next year (and the cost of said Msc) have already  started Now she is not stupid, but frankly everything she has learned has been via school and university, yet in two years time, age 23, she could be assisting formulating policies regarding say sustainable business practices; a scary thought re someone whose work experience to date mainly revolves around working during holidays in a supermarket and a fast food outlet.

 

 

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12th Nov 2015 09:40

CBI?

"They will want to see how businesses respond to the proposal at the annual CBI conference."

 

Yes, the CBI will have their finger on the pulse of small businesses, who make up the PSCs.  Might as well ask Benedict Cumberbatch.

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12th Nov 2015 10:22

Hidden depths

I've been doing the accounts for a couple of contractor clients today and that's got me thinking about some of the expenses in their books:

1.  PII circa £800.

2.  Annual parking permits circa £600.

3.  Training courses over £1,000.

So Boy George is saying these guys are employees now, is he?  In which case, the customers need to find space on the company car park or pay for the permits (very full company office so it will be the latter) and pay for these other costs too.

Do HMRC have a clue about the realities of being a contractor?  Does the Chancellor?  Does he want to be Prime Minister, because if he does then he has a funny way of showing it!

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12th Nov 2015 13:14

Clients dont want employees

Clients simply do not want the hassle and expense that comes from hiring a employee,hence, why they use Contractors, it makes it clear to both parties that they do not want an employer / employee relationship with the Contractor. 

Well whilst they want to run it by the CBI, they need to address all UK Employers...........look at he O&G Industry, whereby Operators like to have contractors, so when times are hard they can just off-load, which is the major risk element of being a contractor! 

It looks like this Government is doing all it possibly can to make the UK bankrupt!

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By NeilW
12th Nov 2015 14:04

The mistake here is once again to leave the agents in the middle. 

If you solve the 'employment avoidance' problem, the 'tax avoidance' problem naturally follows. 

All contractors hired via agents should become employees of the hirer - whether temporary or permanent. With all the costs and risks that entails. 

That then is no different to what would happen if the hirer did the hiring themselves. The agents are then just agents as they should be. 

Perhaps then hirers will start looking at task based contracting. 

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12th Nov 2015 14:26

Good luck....

Good luck government getting the £400m.

What was the expectation of IR35?

The original HMRC impact assessment made in 1999 anticipated £300m a year in tax and NI.

How did they do?

A FOI request showed that between 2002-3 and 2007-8 IR35 raised £9.2m.  About £1.5m a year.  Ever so slightly less than £300m a year.

In 2010-11 a further FOI request showed that IR35 had raised a figure of tax/NI of £219,180 in that year.

 

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12th Nov 2015 21:14

I may not be an accountant, but...

...I think taxes do get lost...

If a UK based multi-national wants to develop a new software product, they need a team of project managers, designers and software programmers. Let's say the project takes 6 months. The aren't going to employ all those people because, after the project, they have no use for them. Today, they would simply contract them in from an agency or just contract them direct. But if the agency or the contractors are UK based, they would have a problem if those contractors had to be treated as employees.

So, if it was me - I would use an offshore agency or overseas contractors who probably don't pay UK tax... I agree that taxes do move elsewhere in the economy - it's just that it may not be our economy...

 

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16th Nov 2015 12:55

No smoke without fire...

Whether this tale is true or not perhaps someone could let me know but when IR35 came in it was banded about that the reason for it being so was that one day all the employees of IBM (big building RHS of M3) were sacked. They packed their things in a box and walked out with their P45’s.

Monday morning the same employees walked back in sitting at their same desks doing the same work but ....behind the veil of incorporation which is a PSC (sorry IANTO – I’m going to use these letters as we all know what we are talking about here).

The concern for such PSC contractors is that they dont have appear to yet have large formal bodies to fight their corner. The landlords had us and our professional institutes and bodies such as the National Landlords Association and the Association of Lettings Agents when HMRC tried to do away with the claim for carpets etc - hence their backing down and introducing the new replacement furniture relief. So it is good to see that some are fighting the contractors corner (Miles Grady and those mentioned in the article).

Accweb responded to the consultation paper “Employment intermediaries and tax relief for travel and subsistence” following publication of an article. If you read the text of this consultation carefully you will see how much HMRC dont like contractors, believing them to be really employees and as such are getting away with not paying their fair dues. HMRC always use the words ‘level playing field’ when inviting comments to their consultation documents – as Emily quotes.

Invariably it is not the workers choice as to whether to work via PAYE or PSC. I have a number of clients in this position and have noticed a change in some end users attitude following the consultation. Some have already made the PSC’s become PAYE. Their fear of course is the proposal that the end user will be liable if the travel etc costs are not dealt with correctly in the PSC’s accounts. Proof can also be seen in the change in work practices of the BBC. Tom’s article links to an article dated January 2014 which states that the BBC were  using PSC’s and that produced a “back lash”. This is now not the case - they make all ‘freelance’ go PAYE but the workers have no guarantee of work and no benefits apart from deductions for pension under Auto Enrolment. My husband works under such a contract as a ‘freelance’ radio producer and broadcaster for the BBC.

Jonickson states that ‘I seem to remember that before IR35 came into play the intention was for the 'employers' to make the judgements and the deductions.’ This is exactly HMRC’s intention and unless there is a concerted uniform stance taken then I can see PSC’s working for more than 1 month will automatically be made PAYE. The newspapers would have investigated before writing their articles. My personal opinion is that there is ‘no smoke without fire’.

Accweb will be on the look out for publication of any consultation document on IR35 and members comments will be made known to HMRC in a formal response.

Jennifer Adams

Associate Editor Accweb

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By DMGbus
16th Nov 2015 13:24

IR35 origins and previous concepts

I believe that IR35 came in to being in 1999 or 2000.

Prior to IR35 there had been some quite sensible alternative proposals along the lines that the "disguised employers" [the main beneficiaries of PSCs - avoiding employment responsibilities and costs] would have new responsibilities under tax law (eg. reporting requirements and maybe NIC liabilities), however I recall that some representative body for these "disguised employers" (Was it something like the '200 group'?) successfully lobbied the Government of the day and the result was IR35 shifting the burden to the contractors rather than their powerful "disguised employers".  Such is the powerfulness of large employers vs hundreds or thousands of contractors and their representatives.

================================================================

The oldest document regarding IR35 that I have an electronic copy of in my possession is one of November 1999, here's an extract showing the recipients of this document:

Ann Redston          -    Chartered Institute of Taxation
Mike Cullen          -    Independent Computer Contractors Specialist Group
Brian Keegan    -    IR35 Consultation Group
Ian Sutherland    -     The Institution of Analysts and Programmers
Paul Daniels    -     Forum 2000
Tim Warr    -     IR35 Consultation Group
Kevin Miller    -     Professional Contractors Group
Barry  Roback    -     Forum 35
Peter Flaherty    -     Association of Technology Staffing Companies
Christine Little    -     The Federation of Recruitment & Employment Services
Robert Maas        -     The Institute of Chartered Accountants in England & Wales
Ron Downhill    -     The Law Society
John Whiting        -  The Association of Temporary & Interim Executive Services
Richard Baron    -    Institute of Directors
Chris Baker    -     Computer Services and Software Association
Peter Kirk    -     CBI
Simon Sweetman    -     Federation of Small Businesses
========================================================= 

So there were quite a number of respected names of the profession and organisations involved 16 years ago - all defeated by the lobbying on behalf of large employers.  ("Who does Government take notice of?" comes to mind here!). 

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17th Nov 2015 15:32

A different version of history

@DMGbus, I suspect you are reading a partial history of the genesis of IR35.  The reason the idea of making engagers responsible was dropped was because it would not work, and I suspect most or all of the people on your list of tax profession notables were behind the dropping of the plan, along with business lobbyists.  Nothing has changed.  The plan now floated via the press would be equally impracticable, despite the widespread use of RTI now. 

The use of PSCs had grown because of the imposition of burdens on employers, ie, employment rights law, not tax.  Look back at the employment tribunals and you'll find cases such as O'Murphy v Hewlett Packard, which the judge depicted as "a sophisticated version of an often encountered situation where workers on the books of an Employment Agency hired to third party employers seek to establish that they were in fact employed by those third party employers".  Mr O made a claim on termination that HP had been his employer (and should pay compensation), when he had for six years had his own company and worked for HP through not only that company but also via an agency.

Businesses did not want all the costs of employing people, of which employer NICs were just one small part.  They paid higher rates to contractors than to employees because of the extra costs and responsibilities such PSCs took on.  PSCs did not start life as a tax or NIC avoidance device.

Gordon Brown stoked the fires with his ill-advised 0% CT rate, and we still have the problem that dividends from such PSCs are not treated as earnings for tax or NIC, but IR35 was an attempt to deal with the tax consequences of what was happening in the market.  HMRC's crusade against self-employed contractors was also partially to blame for the switch to PSC employment, because businesses did not want to run the risk of a status investigation and a big bill for arrears of PAYE and NIC, against which PSCs were an obvious defence.

The dividend tax next year will probably reduce the benefits of working through a PSC, but it won't persuade businesses who need temporary skills or who have headcount caps imposed from HQ to start employing people directly, because there are lots of non-tax reasons for what they do.  And the 'new' IR35 plan, which is back to the future (or waking the dead, if you prefer), still won't work, for the same reasons the Inland Revemue-DSS policy team in 1999 recognised.

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By IANTO
23rd Nov 2015 08:28

IR35 - incorporation

@JAADAMS

"Invariably it is not the workers choice as to whether to work via PAYE or PSC." and this is exactly the issue that many of us have been pointing out. I didn't incorporate for tax reasons, I had to incorporate as the agencies wouldn't engage with me otherwise, and still won't.

IR35 was announced in the budget in 1999 and enacted in 2000. It's very interesting to note that within two months of it being in force, when most of us were still trying to pick out the detail, HMRC gained case law against an ex policeman, who decided to represent himself in court. He put it, that as he had been used to court appearances, he could adequately present his case. He lost of course and being very cynical, I wonder sometime if he was "in" on the process!

I had maintained right from the beginning that if the courts found you to be a "disguised" employee, then that judgement would strongly support a claim for employment benefits in the ET/EAT. As it happens, no one has tested this approach in court, although as many of you know, I tested it the other way around and sued Hewlett Packard for employment benefits in the ET/EAT. I expected to lose, but didn't expect the shady activities of the legal profession. However, I achieved what I set out to do and HMRC have left me alone ever since.

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