IR35’s totemic role in government anti-avoidance strategies came to the fore in today’s autumn statement as Chancellor George Osborne announced his intention to raise an extra £9bn over the next five years by countering “tax avoidance, tax evasion, fraud and error”
Almost without a pause for breath, the chancellor continued: “We’re going to tackle the growth of intermediaries disguising employment as false self employment, depriving workforces of basic employment rights like the minimum wage in a bid to avoid employer national insurance.”
The autumn statement revealed that the new rules - which have yet to be published - will take effect from April 2014. It estimated they would raise an additional £400m each year.
The initiative was flagged up by AccountingWEB member cfield on Tuesday, following a report on Sky News sourced from Lawspeed.
The government will also seek to extend its current power to force people using tax schemes that have been defeated at tribunal to pay the tax they were trying to save up front.
There were a number of other anti-avoidance measures announced, including a restriction on reallocating partnership profits to non-individual partners and controlled foreign company and group relief restrictions that took effect from 5 December.
The chancellor said he would halve the final period exemption for CGT private residence relief - but no further detail was available in the official documentation about when this would come into effect. From April 2015, capital gains tax will also be introduced on future gains made by non-residents who sell residential property in the UK.
“That will set the cat amongst the pigeons,” said BDO tax partner Philip Fisher in our live autumn statement blog. He and entrepreneur Kate Lester then debated whether the effect would slow the property boom in London, or add to it as foreigners rushed to sell their properties before April 2015.
The BBC’s Robert Peston reported that the tax avoidance measures sounded quite ambitious “and may well be causing jitters in the City”, but the words “intermediaries disguising employment” probably set off even more alarm bells around the country among freelancers and their tax advisers.
Suddenly the rationale for the swift-moving House of Lords inquiry into took on a new significance.
The autumn statement explained that the government supports those who choose to work for themselves and that this should be reflected within the tax system.
“But the government is acting now to level the playing field so that companies cannot use employment intermediaries to disguise employment as self-employment and thus avoid employment taxes and deny employment rights to their workforce.”
Legislation to prevent employment intermediaries from being able to use contrived contracts to disguise employment will take effect from April 2014 and raise around £400m. The legislation is yet to be issued in either consultation or draft form but will involve "strengthening existing legislation to ensure the correct amount of tax and NICs are paid where the worker is, in effect, employed". Expect to see draft Finance Bill 2014 clauses next week, to take effect from April 2014.
On Thursday Simon McVicker, director of policy and public affairs at the freelance lobby group PCG urged the government not to produce legislation that would affect genuine freelancers and their clients. "The last time Government tried to legislate in this area we were left with IR35 - a confusing and inappropriate measure that has affected many thousands of legitimate microbusinesses," he said, in a statement seeking clarification from the government.
The next day, the PCG received assurances from HMRC that the beefed up rules would target mass-marketed schemes where workers were moved en-masse into self-employment, even though they should be employed. "Often the workers are low-paid and unaware that they are being engaged on a self-employed basis until they try to claim employment rights. The measure is designed to stop this from happening," wrote to the PCG.
McVicker said he was encouraged to see HMRC engaging in clear and open dialogue with freelance bodies.
Replies (20)
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Halving of the final period for PPR relief
"The chancellor said he would halve the final period exemption for CGT private residence relief - but no further detail was available in the official documentation about when this would come into effect."
It comes in with effect from 6 April 2014. See 2.58 of the Statement.
Thanks (0)New IR35
Wondering what exactly these new rules are going to be? Worrying for contractor clients without a doubt...
Thanks (0)Don't Understand?
Perhaps they do - and in 1978 legislated that agency workers were not entitled to be SchD self-employed.
Adding a limited company to the chain was an obvious loophole that should have been closed down in 1979... rather than waiting until 1999 for the abortion that was IR35, and the MSC regs that tried to close the next loophole etc.
Most (non-standard unit alert) limited company contractors only have their limited company because their agency tells them they need it... and that is only to avoid s134/s44-46 applying
Thanks (0)I seem to remember that..
PPR was originally extended to three years on a temporary basis when the housing market was in the doldrums, donkey's years ago. It then must have just got forgotten.
Thanks (2).
PPR has always seems very generous especially when coupled with lettings relief.
IR35 is the biggy.
I dread to think what they will come up with this time.
They have tried so many times now and still cant ever come up with a workable plan, so quite how that is expected to be knocked into shape by March goodness knows. Almost no time for real consultation, or maybe that is the point.
Thanks (0)Nothing to worry about contractors
Have a look at this clarification that PCG received from HMRC :)
Thanks (2)Hmm one would have thought that situation was covered by the existing legislation. Nice of them to put the wind up everyone of course. Roll on Tuesday so I can do the "part II" mailer to the clients ie what is really going to happen as opposed to what he said for political reasons.
Thanks (0)Apparently....
Apparently it's easy to sort out all this false self-employment.
Self appointed tax 'expert' Richard Murphy says that all you need to do is demand that all businesses with turnover of less than £150,000 must list their top ten customers.
"This will of course reveal those with disguised remuneration, there will be one or two customers only".
So, there you have it. No need to worry yourself about case law, just count the number of customers.
Thanks (1)Reporting my words out of context
I would just like to point out that my comment "They seemed to think it was quite a big deal and not just a 'tidying-up exercise' even after 'clarification' in the last Budget," did not refer to this particular news report but to the earlier Lawspeed guidance re the new office holders rule. For the sake of clarity, this merely aligns the tax rules with the NI rules on IR35.
A classic case of rehashing words out of context I think!
Please amend your article to reflect this.
Re PPR, surprising they reduced it to 18 months as the existing legislation already allows them to reduce it to 2 years without any need for parliamentary approval.
I wonder if there will be exemptions for those people who really do need more than 18 months to sell a house.
Thanks (0)Article amended & quotation removed
@cfield - I'm sorry if you felt the quote was not correctly attributed. I took it as referring to Lawspeed, but have removed it from the text to prevent any further confusion. I just wanted to get across the sense of anticipation that had arisen earlier in the week.
Thanks (0)Contractors and IR35 - Ducks?
This attempt to close the' Contractor' loophole reminds me of a seminar I attended in Redditch at least 10 yrs ago on Employee Trust Funds as a way round many of the employment tax rules to benefit both companies and their employees as well as their pension funds. The main presenter from a top accountancy firm mentioned early on that "the holes in most tax laws were so large, they should not be called 'loop' holes - they are not only vast but almost invite 'avoidance'." and added these tax laws are made in haste and without adequate consultation. Another classic quote which I doubt he would get away with today was: "Only the ill informed pay inheritance tax' (Remember this was at a time when most people fell into the inheritance tax band if they owned their own home). Surely any attempt to introduce legislation aimed at bogus contractor arrangements will be quickly found to be unworkable. As we all know, even under current IR35 rules, some major TV companies have key people working solely as contractors in breach of IR35 and the practice is no doubt rife elsewhere. I worked for a large Private Medical Insurer (PMI) who had to shed its entire sales force because it was 'employing' them as self-employed commission based sales people but had taken them on with written contracts banning them from working for any other company, not just PMI companies! But no HMRC fines resulted. Playing around with knee jerk legislation is doomed to failure. Surely these bogus contractors are too obvious not to fail even the IR35 rules? If it looks like a duck, walks like a duck, and it quacks, it's a duck.
Thanks (0)Fine the "employers"
The only way to stop this type of abuse without hurting microbusinesses is to fine the the large companies who engage workers throught limited companies and then treat them like employees. Double the NI and treat the wage as net should do it. That should concentrate their minds...
Not going to happen, it's all about going after the little guy, as usual.
Thanks (1)Hornets and Flies (Reply to FIne The Employers)
An excellent point. If I remember correctly, the original IR35 proposals DID include a fine for the employer. After lobbying by a large number of huge companies this provision was dropped; the burden was on the "employee". As Jonathan Swift observed long ago, laws are like spider webs - the flies get caught while the hornets break free.
Thanks (0)Whatever they (HMRC)
come up with it ain't gonna work.
We are too far down the line now. What happens to the tribunal cases that new legislation could overturn?
You can never get a wrong concept right whatever you do. I bet something has already been leaked to the big boys who are working on an antidote as we post.
Thanks (0)“We’re going to tackle the
“We’re going to tackle the growth of intermediaries disguising employment as false self employment, depriving workforces of basic employment rights like the minimum wage in a bid to avoid employer national insurance."
Simple... one statutory test of Employment Status, that applies jointly for taxation purposes and employment rights purposes. None of this employee for tax but not employment protection/rights lark.
If you are an employee (disguised or otherwise) you are taxed as an employee, and protected as an employee. If you are self-employed, you are self-employed.
On the other hand, if successive Governments hadn't made it more expensive to employ people, and harder to fire them, the growth in "intermediary" employment would have been less pronounced - having said that, there always has been a strong "temp" market.
And while they are at it, put the onus for compliance back where it should be - on the employer.
s134/IR35 (and the myriad of supplemental legislation since) closed a (perceived) loop-hole... but it attacks the wrong target.
Thanks (0)You cannot
legislate on employment status, there are too many grey areas. If it was possible it would have been done years ago. So we have HMRC guidlines that continually change (based on the greed of the government of the day) and tribunals that continually give clarification (yer right).
Leave well alone is the only answer. Everyone agrees that ers nic should be abolished. The Government has made a step in the right direction by allowing under 21's no ers nic. So let's see it extended then we can all forget about IR35 and it's family.
Thanks (0)Cannot or Will Not?
Can not? Or will not?
But either way, it is wrong (plain wrong) that a Tax Tribunal can rule one way, and an Employment Tribunal the opposite - or that the law allows people to be taxed as employees (s134 as was, IR35 et al) without them gaining the associate employment rights.
A decision one way should be binding in all aspects.
Thanks (0)G8 Dementia Summit & David Cameron's epetition 55679 opportunity
I agree with your implied suggestion, adbanks, that there should be a "legislative reciprocal development" to bring about a [fuller] consistency of Tax Tribunal and Employment Tribunal rulings.
For example, IANTO wrote on AWEB [link: https://www.accountingweb.co.uk/article/lords-open-enquiry-clumsy-ir35/550374 ] QUOTE that in my Employment Appeal case (John Williams v's Hewlett Packard Dec 2002) ... Mr. Justice Elias ... ultimate judgement effectively determined that the provisions of the contract were paramount and that the inclusion of a substitution clause determined that I could not be an employee of the client. Exactly the judgement I wanted. ... the only way to destroy IR35 is for a contractor who is "caught" by IR35 to take their case to the Employment Tribunal. I cannot see that the legal system could disagree with itself and come to an opposite conclusion in the ET. If the contractor is deemed an employee under IR35, when HMRC have used case law from the Employment Tribunal to support their case, then I believe the ET would have great difficulty in countering that, more for political reasons than for legal reasons. However, despite learned opinion, which incidentally I proved wrong in my case, no one has actually done this yet. I did it in reverse, i.e. I used the ET to determine that I was not an employee of the client so that HMRC would have difficulty in countering that judgement. ENDQUOTE
Consequently, in order to answer the House of Lords Committee's question [Should the current intermediaries legislation be reformed and if so, what would be the alternatives?] a sensible approach would be to pass a law that - IF the alleged "end client" gave evidence to a Tax Tribunal & that Tax Tribunal decided the worker was caught by IR35 - THEN that Tax Tribunal has to issue a Certificate that the worker is an employee to an Employment Tribunal, which would be sufficient proof to that Employment Tribunal that the worker was an employee, and also entitled to enjoy the full benefits/rights of an employ of that end client, for a minimum period of 1 month.
Because I believe that IR35 is an essential "social security" protection of employees against alleged macho and/or bumptious employers who may unduly attempt to pressurise their employees in the originally envisaged "Friday-to-Monday" (F2M) scenario, I also believe that the evident past "mission creep from F2M" of IR35 now has to be contained, by salami slicing out the more scandalous aspects of IR35.
For this reason, I have also drafted out my e-petition 55679, because I basically believe that if an employee has to leave leave employment due to retirement, there's no credible way that s/he could be a disguised employee if s/he returns to work because her/his intellectual capital etc is required, which s/he obviously controls.
Despite my implied request earlier to practicing accountants on AWEB for any evidence that my estimate for Exchequer Impact (£m) of "e-petition 55679" was, or was not, NIL, no evidence, in my opinion - either quantitative or anecdotal, has so far been forthcoming from a sample of practicing accountants - has arisen to disprove my estimate that the direct loss of IR35 revenue to HM Treasury is NIL (£m).
So - in view of the "use it or lose it" apparent motto of Mother Nature - I've set out the following for the consideration of our Prime Minister:
URGENT for G8 Dementia Summit 11 Dec 2013:
Dear Prime Minister, I read with interest your article on page 11 of the Sunday Express of 8 December 2013, and your call for action to help bring an end to the horror of dementia.
Whilst I support your 3 fronts of (A) working to improve the way we deal with dementia in the NHS, particularly on diagnosis rates (B) getting the whole of society involved (C) medical research, I must tell you that’s not enough:
In my opinion, your government can take “action this day” [Churchill’s words] because some OAPs descend into dementia by stopping to use their mental faculties due to being scared off consultancy work by IR35. So I set out a self-explanatory e-petition 55679 [link: http://epetitions.direct.gov.uk/petitions/55679 ] ; could you sign it please?
The National Insurance Contributions Bill had its Third reading today: could it be modified to include my suggestion Stop IR35 for OAPs, if no ESC is possible. Thank you, D Stickland.
We'll see ...
Thanks (0)@adbanks&dstickl
I don't think that the employemnt tribunal would take notice of a tax tribunal. Purely for the reason that employment is controlled by the EU laws. A classic example is that self-employed workers (that is the key word - workers) are entitled to holiday pay.
What really gets up my nose is the ignorance of Government regarding IR35 and the reasons why it doesn't and won't work in any guise. Once the pwowers that be realise that employment status is NOT a matter of tax avoidance then we might get somewhere.
Thanks (0)HMG could take immediate IR35 action @ NIL cost: e-petiton 55679
I fully agree with your comment about the general "ignorance of Government regarding IR35", and particularly Labour MPs; e.g. when I mentioned some of the problem/s of IR35 to trained solicitor Kate Green MP, her first question was: "IR35 - what's that?", to which I answered: "It's a policy of your Labour party!" .
Consequently, I now take the view that, IF IR35 might be too hard for Members of Parliament to understand, THEN it's certainly too hard for compliance by OAPs with an insufficient pension/s who have to take up work as a consultant, etc, that might be a target for IR35.
SUM-UP: HMG could take immediate IR35 action at NIL cost (£m) to HM Treasury, to help prevent or stave off dementia for some pensioners, by adopting my polite e-petition 55679.
Thanks (0)