The future of IR35

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It's been an uncomfortable relationship and now tax professionals are ready to divorce IR35, but what will become of the children of this controversial legislation? Chris Leslie reports.

Ten years ago, the Inland Revenue released a press release which said:

"IR35 is not a difficult problem to solve; it is only difficult when you don't understand what IR35 actually says and more importantly what the law itself says."

It's a statement that still haunts HMRC today and the guidance and practice around matters concerning employment status remain out of date. To put it rather simplistically, the competing views about IR35 perhaps boil down to one side advocating carefully prepared clauses captured in the written form of a contract; whilst the other side went...

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About Chris Leslie

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06th Sep 2010 13:28

Let's have a clear definition of employment

I think what irks freelancers and micro business owners the most is that they can be stung for huge amounts of 'employment tax' without any of the corresponding 'employment benefits'. Big employers take advantage of this by insisting that freelancers are incorporated and then treating them like employees. This leaves the freelancer with all the risks if HMRC decides a contract really is employment, whilst the employer avoids NICs, holiday, sick pay, etc.

A good starting point would be to have a clear definition of 'employment' which applies universally. So, if someone is deemed to be employed then the employee and the employer would each be liable for their own NICs, and the employee would be entitled to normal employment benefits. I am sure that many people currently working through personal service companies would then unincorporate.

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06th Sep 2010 16:15

A good starting point would be ...

... for the government to have the courage to stand up to the big players in industry who until now have pressurised them into introducing rules that place all the burdens and uncertainties onto the "little guy".  Most of IR35 controversy would have quietly dissipated if the PAYE obligations had been placed on the end client instead of the intermediary, as it was originally planned.

(CIS regulations have been subjected to similar cave-ins to powerful lobby groups)

With kind regards

Clint Westwood

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By bfacey
08th Sep 2010 11:39

Employed? Its ridiculous.

I would challenge any Inspector of Taxes, giving one of my contractors a hard time, to have the same working conditions as them.  No pension, no paid holidays, no paid sick days, no right to a grievance procedure or redundancy, not even a guarantee they will have a job after the end of a contract.  Impose all that on an Inspector and he would go mental.  So remind me - in what way exactly are contractors employees?

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By radio
08th Sep 2010 12:53

Key Points

The worst point of unfairness in IR35 is the concept of "deemed employment" for the purposes of tax only. If a worker is an employee for tax then they should, surely, be an employee when it comes to employment rights. Whatever replaces IR35 must ensure that if workers are taxed as employees they obtain the benefits of being an employee as well.

A second point, but also important, is that whatever is put in place instead of IR35 to determine employment status must be simple and unambiguous. In a self-assessment tax world it cannot be acceptable, for example,  that a worker's employment, and therefore tax, status can be influenced by factors of which they have no knowledge. (For example contracts between agencies and clients that the worker has no right to see.)

 

Chris Woollacott

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08th Sep 2010 16:55

Certainty is Key

They just need a formula. There will be lots of going up to the wire on it and work arounds, but at least there will be certainty.

Eg same contract more than 12 months (or 6 or 9, I dont care which just pick a number) = test

Test concludes employment if more than 50/60/75/90% (again I dont care how its done) of Ltd company income is dervied from the single contract in a rolling 12 months (or 6 or 9) period, subject to a deminus cash value (say double the personal allowance) to remove small part time contracts, then its employment.

And as above onus is the the employer not the employee to pay if found to be true.

Lots of arbirtrary winners and losers, but lots of certainty and I imagine an awful lot more tax as many contractors take a punt on the uncertainty side of things when they wouldnt if it was black and white.

 

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18th Sep 2010 21:37

Always with the rules...

If I'm "in business on my own account", then I'm IBOMOA- and a contract that lasts 367 days is not magically different from one that lasts 365.  If I'm lucky enough to have a significant piece of work available to me, why should I be penalised by some arbitrary cut-off?  There was enough feisty talk about standing up to the big boys; a one-year (or six month, or nine-month or WHY) rule would just play right into their hands.  

Why it is OK for EDS to provide a long-term consultant (from which the senior partners make a healthy living off the poor sod's back), but if someone like me has the temerity to do this on a smaller scale, they're suddenly a money-grabbing tax-dodger?  

The two-year rule on expenses is bad enough; if an assignment is not a compelling reason for me to sell my comfortable house in Cheshire and move to a one-bed flat in some part of London that's twinned with Beiruit,  pull my daughter out of school and uproot my partner's career, why is being there two years make it any more so?  In fact, this rule is inherently sexist- it assumes that I can just arbitrarily uproot my family every two years and move them to another part of the country for the sake of my career.

There are a number of reasons why I wouldn't want to move contracts every year; in a complex job, I have built up expertise not only in the platform but in the specific application, for instance.  But on the other hand, I don't want to start a new pension scheme every few years by moving jobs.  And I don't want to care about office politics, promotions, performance reviews and all the corporate culture nonsense.

There surely is a way to have a status where I (and my business partner) can run our own little business, keep our several clients happy, develop our own projects and products and not be taxed like Swedish pop-stars?

As things stand, if I ever get to the stage where I can do 90% or more of my work offsite, I'm moving to Luxembourg and the chancellor can whistle for any more money from me.

And if I'm ever found to be "caught", I'll pack it in immediately and stack shelves in Tesco.  I spend four nights a week away from my home and family, I have no sick pay, holiday pay, tenure etc- I'm sure as hell not going to do that for what's left under IR35- the expenses don't go away just because they're disallowed.

 

 

 

 

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By ameli1
12th Oct 2010 07:09

Expenses et al

Some interesting points are made by "chickpea". I assume nothing, but would hazzard a guess that he is outside IR35. He needs to take advice about expenses also so he may wish to contact Chris Leslie via the Linkedin network.

So EDS consultants were engaged by HMRC! HMRC's "pan calling kettle black bottom"? Incidentally, I worked on a meta data project (now old money) with EDS as I gained a 1st class hons in Computing (all in my own time) towards the end of my 23 year term at the Revenue. Sadly, HMRC ring fenced me (as the tax investigations team leader) and in my opinion stopped my career development in an area which would have benefited the Revenue from compliance systems "search". I am now poacher turned game keeper for those in dispute with HMRC, so, am I now pan calling...?

 

 

 

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