Editor in Chief (interim) AccountingWEB
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PSC proposals coming on Wednesday

23rd Nov 2015
Editor in Chief (interim) AccountingWEB
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Reports from contractor groups ahead of Wednesday’s pre-Autumn Statement policy suggest that George Osborne is serious about introducing a new regime to police the use of personal service companies.

Following up reports in The Guardian and Daily Mail last week, Contractoruk.com got confirmation from two sources in the IR35 community that the leaks were more than government kite flying. The Chancellor is going to announce concrete proposals on Wednesday that will come into force from April 2016, the site predicted.

If Contractoruk.com’s sources are right, personal services companies will be able to avoid being put through company PAYE schemes if they satisfy the criteria in an online test based around the supervision, direction and control (SDC) criteria put forward as part of the controversial restrictions on claiming travel and subsistence expenses.

Along with most of the contracting community AccountingWEB members were generally dismayed at the suggestions circulated to the national papers, which tended to focus on the alleged abuses of high profile BBC presenters and quoted estimates that the new proposals would recoup up to £400m for the Exchequer.

The mechanics of and responsibility for the employment status test were not put into the public domain, but the government also faces a long and protracted battle of attrition in the courts unless it is going to legislate a new definition of employment status based on the simplified SDC criteria rather than the seven factors that tribunals currently use when considering whether someone is an employee or not.

When confronted by the complexity of sorting out that legal tangle, perhaps the Chancellor will go back to the drawing board and consider a much simpler approach to levelling the playing field. As AccountingWEB member dmmarler put it, “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.” 

Replies (9)

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By ireallyshouldknowthisbut
23rd Nov 2015 09:15

.

Hmm, so we are going to back to the good old "in between the impossible to put in practice tests" position.

Or business as usual for contracting.

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By hiu612
23rd Nov 2015 11:22

Good quality posturing

This smacks of the approach of leaking details of something draconian so that when you announce something only half as draconian it seems like a concession to the backlash to the leaked details. A political tactics cornerstone.

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By kjevans
23rd Nov 2015 13:23

Most micro businesses in the service sector are PSCs ...

... considering that there is no definition, as far as I know, in Company Law of a PSC. HMRC seem to define a PSC as any Ltd Co in the service sector where the majority of income results from work done by persons holding (I think) more than 5% of the shares. It covers far more than just "contractors". The whole thing is ridiculous: It seems as though GO wants to attack all service sector micro Ltds in order to catch a few big wigs in the public sector. 

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By NeilW
23rd Nov 2015 15:34

Solve the employment avoidance and the tax will follow

By far the most sensible approach is to require employment agents to engage people on behalf of the hirer. 

That solves the problem at a stroke. Employment agents can only hire people for the hirer on contracts of service. 

Which puts the worker on the same footing as they would have been had the agent not been involved. Which is what should be the case in any structure involving an agent. 

The hirer can't avoid the employment contract and the worker can't avoid the employment taxes. 

Since nobody gets to avoid employment rights, nobody gets to avoid taxes. 

Simple and straightforward. And therefore has zero chance of getting implemented. 

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By wamwebster
23rd Nov 2015 21:17

Are you serious?

NeilW wrote:

By far the most sensible approach is to require employment agents to engage people on behalf of the hirer. 

That solves the problem at a stroke. Employment agents can only hire people for the hirer on contracts of service. 

Which puts the worker on the same footing as they would have been had the agent not been involved. Which is what should be the case in any structure involving an agent. 

The hirer can't avoid the employment contract and the worker can't avoid the employment taxes. 

Since nobody gets to avoid employment rights, nobody gets to avoid taxes. 

Simple and straightforward. And therefore has zero chance of getting implemented. 

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By kjevans
23rd Nov 2015 19:08

Contract of Service

Not so. If an agency wasn't involved, there could well be a proper B2B supplier contract (for services) or just a PO. After all, if you pay a company to deliver a one-day time management course, you don't expect to have to put the trainer on the payroll, regardless of the size of the training company. 

HMRC's definition of a PSC has nothing to do with agencies.

The point is that there is really no such thing as a "PSC" or rather, the definition is far too wide and woolly.

You want to get piano lessons for your kids (and get the piano tuned) - put the piano teacher and the tuner on your payroll. Don't have a PAYE scheme? Better start one or do without the lessons. You wanted to get your office cleaned by that nice new local start-up company round the corner? Forget it, they only have three staff and they are all shareholders, so you'll have to put them on PAYE. (How would a client even know that?) If you want to get your new novel proofread, better outsource to India or you'll have to put the proofreader on PAYE.

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By NeilW
24th Nov 2015 16:57

" After all, if you pay a

" After all, if you pay a company to deliver a one-day time management course, you don't expect to have to put the trainer on the payroll, regardless of the size of the training company. "

All the rest of the stuff you quote is just nit picking. 

If employment agents could only act as agents to engage employees then the vast majority of the issues would be solved at a stroke.

The problem is employment avoidance. The tax avoidance is simply a consequence of that. 

 

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By kjevans
24th Nov 2015 17:29

So you think ...

... that all micro businesses in the service sector are actually employees of their customers and are tax dodgers? I'm glad you aren't my accountant. The point is that the HMRC's definition of a PSC catches too many small businesses. Yes, there are plenty of people who should be employees. But this isn't going to stop that abuse by large companies. They'll outsource or get in cheap ICTs who don't pay UK tax at all. The only people to be "caught" will be the small training companies and similar. The defitniiotn of a PSC needs to be changed to include something like "works in the client's office for the majority of the time (so as to avoid including those who attend only for marketing meetings and the like) and does the same job as an employee".

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By drakeltd
24th Nov 2015 20:14

new

Wouldn't it be simpler for HMRC to ask the director(s):

Do you wish to be considered as an employee of your clients and so have to pay employment taxes

OR do you wish to be considered as in business on your own account and so do not receive state benefits?

This allows the individual to make it clear that they have made a choice and that they suffer the consequences.

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