HMRC opens consultation to crack down on off-payroll working in private sector The UK government has opened its long-awaited (and dreaded) consultation (PDF) on proposals to extend IR35 off-payroll working in the private sector, which could affect 2 million contractors. In the Autumn Budget 2017, the government revealed it would consult on how to tackle non-compliance with the off-payroll working rules …
Honestly after working with and being a contractor for a time I can see why HMRC want to crackdown especially given all of the loopholes contractors use to get extra cash,
For example, HMRC allows for a tax deductible christmas party. I knew one guy who would give himself the money, buy a few receipts for sausage rolls and booze.
Another who always seemed to win employee of the month.
And another who was working out in Belgium and paying himself per diem based on HMRCs rates, which for Belgium was 170 pounds a day.
As for myself, my business earned over 80'000 in a single tax year and so HMRC decided I Then had to pay 16.5% of total earnings in a 3 month period every quarter in addition to corp tax and other things. Thanks.
Most contractors wont agree but I think a bigger upheaval is needed to make it fair for both parties.
I'm more concerned about getting caught in the cross-fire. My work is about as far outside IR35 as it's possible to be - mutiple customers every month, flexible working arrangements, most of my customers haven't even met me, no direction or control etc etc.
However, given the odd letters I received from my public sector customers when the new laws were introduced, I'm concerned about how some companies may clamp down completely on external consultants like me 'just to be on the safe side'.
I agree that 'something' needs to be done, it's just that everything HMRC see to do is too heavy-handed.
"Most contractors wont agree but I think a bigger upheaval is needed to make it fair for both parties."
OK, here's a proposal to make it fair. Do away with the limited companies. One set of tax rules for everyone including, of course, tax for benefits in kind. Security of employment, e.g. as a permanent employee of HMRC, is seen as a highly valued taxable benefit. The extra tax gained by taxing such benefits in kind can then be used to reduce the income tax rates in general including those for freelancers.
Tired of corporations getting a free pass on tax issues versus plebs (see below). Sure there's always the bad apple tech contractor. But most are just trying to get through their day.
UK tax makes me want to return to low-tax Dubai / Singapore / Hong-Kong Expat work. But 3 kids dogs/cats? Not happening...
https://www.theregister.co.uk/2018/05/18/aria_technology_open_justice_victory/
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Your definition of "loophole" is rather odd, I feel.
For instance, the christmas party guy, if he's submitting false receipts for his accounts and pocketing the cash, is not exploiting a "loophole", but is instead committing fraud and embezzling funds.
The per diem is entirely valid. Someone working abroad will encounter higher costs than if they were working at home. The fact that he's a contractor doesn't change this.
And as for the last, I reckon you should get a better accountant.
Agreed, they were a bag of shit.
Yes, most of these "loopholes" are not fine when stood up to scrutiny, but when does HMRC ever have a chance to come around and audit the little guy? They don't they take it on face value and people are, in my opinion, taking the piss.
As for the per diem, theres claiming an acceptable amount per day to scale and then theres taking the entire job lot.
It did not cost him anywhere NEAR 170 pounds to stay in Belgium per day.
How do you know that?
How long was his contract? I've worked in Brussels before (IT Contractor at Nike) Only 2 months so I was unable to rent anywhere therefore had to stay in Hotel's. Some night's I've paid 140.00 per night (not often) but still. Add to that expenses for travel to and from the office, food and drink etc and you will not be far off 170.00. So 170.00 per diem is not unreasonable.
Historically, slave owners were responsible for their slaves. Serfs' masters, on the other hand, are not responsible for their serfs.
Are you sure about that?
I think it depends on what you mean by "responsible." And also, what you mean by "slave." Under feudalism (which is the system which had serfs), serfs and slaves were different classes of vassal whereas under slavery (no feudalism and no serfs) things were somewhat different.
If you mean "responsible for the serf/slave's well-being." then under feudalism the lord was responsible. It was a reciprocal obligation: The lord provided the serf or slave with somewhere to live, protection from robbers or other lords, and charity in times of famine; the serf or slave had to provide a certain amount of service to the lord. Under slavery, as legislated in the Old Testament, you could mistreat your slaves but couldn't kill them (unless it took them a couple of days to die, in which case you were OK). Under slavery, as practised in the American colonies, you could do whatever you wanted to your slaves, including rape and/or kill them.
If you mean "responsible for the serf/slave's actions," then I have little knowledge of the applicable legal systems. However, I strongly suspect people would be held responsible for their serf/slave's actions otherwise they could have their serf/slave do all sorts of bad things and if the serf/slave was caught doing it then the feudal lord/slave owner would suffer no consequences.
You don't supposedly earn all of it, you supposedly earn the bit after tax has been paid.
If you don't like it, go and find somewhere uninhabited with no government, because that's about the only way you'd not have to contribute to society and infrastructure. There won't be any paid jobs there though, so no tax to be paid. What's not to like?!
And taxation is certainly not slavery. Nobody's forcing you to work.
I stopped partly, but not wholely, because of IR35.
Both now and then it looks to me like IR35 is a steaming pile of @;#*
The HMRC remarks are full of 'we estimate' and 'it is reckoned'. (Yeah, well see Mitchell & Webb for the definitive conclusion on 'reckons') - https://www.youtube.com/watch?v=OQnd5ilKx2Y
As has been said before the benefits to the economy of contractors are multiple - despite what any jealous permies may think - but they assume risks for those benefits and the additional risk they don't need is that some over-zealous civil servant who has never been outside a comfy permanent position is going to decide that they should take all the downside of being a permanent employee with none of the upside!
Seriously, I would really like to see some credible statistical (not 'reckon') estimate of the total additional tax take from IR35 over the years against the costs of court cases (lost and won) and the impact on the contracting 'community'. It's probably horribly complicated and ultimately unknowable but I have a 'reckon' on how it would tot up.
Their statement
However, HMRC said it also believes "that the available evidence shows that the public sector reform has been effective in tackling noncompliance with the off-payroll working rules".
tells you all you need to know. The extra budget cost of paying the increased rates in order to retain key staff that would otherwise have left are not considered when contemplating the "effectiveness".
THIS.
The test for employment vs. self employment should be made the same for both employment rights and tax purposes. If your client isn't paying you statutory holiday pay and pension contributions, you are self-employed and should be taxes as such. If they are, you are employed, and your client is liable for deducting your taxes at source and providing at least the minimum statutory benefits.
Anything else effectively amounts to expecting a employees to pay employer's taxes.
I rather think that HMRC are suffering from a lack of vision here. Their objective is to maximise tax revenue. I would suggest that engineering an environment where economic growth is fostered rather than hindered would work better in the long term than hounding people over what amounts to minor amounts of money.
"Their objective is to maximise tax revenue."
It's not. It's to maximise it in a way that doesn't piss off the PTB.
It's actually relatively simple to raise tax revenues. You hire more investigators, and you audit accounts. By setting a minimum threshold (turnover, VAT collection, potential theft, etc) high enough, you guarantee returns.
Spending roughly 60k on wages and benefits, and minimum threshold of 1 mil turnover, roughly gets you another 2 million in tax per year.
But HMRC is actively getting rid of these roles, since they have a nasty tendancy to brush up against the sort of people who will go through hell and high water to avoid paying tax, but consider six figure political "donations" to be the cost of doing business.
The HMRC know damn well they can't nail the big corporates, who cost the Revenoo (spit) tens of billions per annum. They're too big to touch, so they go for low-hanging fruit ..
... The little guys? Easy targets.
The worst part?
HMRC's Retroactive Application : if a contractor tried that shit on their invoices, they'd be laughed out of court.
"Does anyone know whether HMRC have ever responded to this frequently-made point about benefits?"
Not officially, but self employed (note: important distinction vs. ltd. company) people have in the past successfully sued their clients for statutory holiday pay and pension contributions after they were engaged as self-employed contractors and then found by HMRC to be caught by IR35. So there most certainly is legal precedent for it.
The real kicker here is that the client-side determination of IR35 status here is also coupled by the client's insistence that the contractor be operating through a ltd. company rather than as self-employed. This key point allows the client to dodge the employer's taxes and palm off the responsibility for them onto the ltd. contractor.
In other words, the entire setup is actively rigged for the government departments to dodge both employer's statutory liabilities/obligations _and_ employer's taxes and shift them onto the employee.
Why should less favourable compensation terms of a contract between two parties be tax deductible? The risk taken between the parties is by mutual agreement and by choice.
It is fair to ask for more pay when signing up to a contract with less favourable terms (as you mention no holiday, no benefits, short to no notice period and so on) but that is between the contractor and the client and does not require HMRC to subsidise/encourage this via tax policies.
Specific HMRC tax deductions (for business risk for eg ) should result in an increase in tax revenue in the long run which is of benefit to the country (and not one individual).
A contractor wanting more pay in lieu of benefits does not need to be specially tax deductible.
Similarly employers wanting to avoid paye/employer liabilities is not something HMRC should make specially tax deductable to encourage. It is usually one customer, for long durations, distinguishable from a paye only in these liability benefits.
This is very different to the risks taken to start a genuine business, where there is a genuine attempt to gain multiple customers. It is clearly distinct from paye employee beyond just compensation terms.
It is of no economic benefit for HMRC to justify a special tax consideration as there will be almost no distinct growth potential in revenue/employment creation as there is no intent in these cases for the contractor to do so.
Such a deduction will not increase HMRC revenue take over time (by increasing economic activity).
Whether IR35 is appropriate or suitable is a different point.
So no I don't think *any* risk is an automatic entitlement to reduced tax outlay. I haven't seen any of these single customer contractors taking anywhere close to the types of risk a typical business takes.
The IR35 situation is stupid. It's a lottery as to whether you get screwed or not and if you do, you get screwed harder than a permie. If they just created a PSC tax - obviously lower than the IR25 burden, say an extra 5% of money taken as dividends - then everyone would know where they stand.
If you make it low enough (so that most people will just pay it rather than fighting it) then no more court battles, HMRC get some extra dosh, contractors can sleep easier and everyone's happy. They could just get rid of flat-rate VAT, but that would cause a fecktonne of paperwork for everyone.
If they press ahead with this, most contractors would go permie as the idea of paying a lot more tax for no extra benefit (sick pay, holdiay, pension etc) is not desirable. Permie pay is a lot less than contract rates. End result will be that the HMRC net tax take goes down and the workplace becomes less flexible just when really need it to be as the loonys seems hell bent on pushing ahead with Brexit.
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@AC: I think you'll find it is definitely a lot less. I was earning 3 times what the permies were during my last contract. I also got to attend the Christmas party. If you took into account the training costs (tax deductible) sick leaver, annual leave etc you'd find they'd need a hell of a lot of leave to come anywhere close.
The reason that I did it and they didn't was, principally, that I was more comfortable with the risk of future unemployment/downtime than they were. Plenty like the feel of a secure permanent job, it's just that (other than the redundancy payment) few realise that a permanent job isn't that much more secure than a defined contract. Given contractors often have more specialised skill sets required by the business I have been in the situation where permies are let go and the contractors stayed.
What? Really? In what universe?
This universe. Ask your project manager about the comparative book cost to his project of permies vs contractors. In the oil & gas project I'm on now permies are the more expensive by far. Contractor rates have taken several hits in the last few years, everyone get's an email one day that basically says take a 15% cut or there's the door.... Contractors at Fluor are going through a 10-25% cut right now. What are the chances of a permie getting hit with that? Nil.
It was closer on the project I was on 6 years ago but the permies doing the same job as me were still the higher book cost.
I may be unique in this, but I have found that the IR35 changes in the Public Sector have actually helped a little bit. Not when they were first introduced, as they were applied with a heavy hand due to poor communication from HMRC, but once the clarifications came out regarding no blanket classifications etc it meant (again, for me) a much more clearly defined contract scope which meant I wasn't getting whatever they felt like thrown at me.
Every contractor knows other contractors who take the piss (E.g. the Xmas party scam mentioned above, I know a few who claim subsistence to the max every single day regardless of location and so on) but the majority do it (again in my experience) because they like the freedom, the flexibility and the diversity of projects. However another consultation will only actually help anything if HMRC do what they didn't last time, which is actually listen to what people are saying.
"However another consultation will only actually help anything if HMRC do what they didn't last time, which is actually listen to what people are saying."
Public consultations aren't held so HMG can listen to what's said. They're just held because they're held. It's a step that has to take place before HMG just goes ahead and does what it always intended to do.
"However another consultation will only actually help anything if HMRC do what they didn't last time, which is actually listen to what people are saying."
Oh, come on. Have you actually been part of any HMG consultative process? I have. Consultations take place so that the "we've had a consultation" box can be checked. The civil servants listen only insofar as what they hear enables them to carry out their masters' wishes within the law. None I have met were actually interested in what I had to say for its own sake. Certainly, none of them was prepared to countenance any kind of challenge to the prevailing groupthink orthodoxy.
Been there, done it. Downvoters: don't you dare unless you have equivalent direct experience.
Contractors aren't hit hard enough, let's add a dividend tax. Contractors aren't hit hard enough, lets hit them harder with dividend tax. Contractors aren't hit hard enough, let's largely eliminate their ability to use a National Insurance rebate. Contractors aren't hit hard enough, let's largely eliminate the ability to use Flat-Rate VAT. Contractors aren't hit hard enough, let's try to push more of them inside IR35 and leave them without the protections of employment but with at least as high taxation (if not higher as they'll have ended up paying the employer's NI as well).
At some point you'd hope the government will realise that it's been bashing the same group year in year out and it might actually be fairer to target a different group for a change. Or that it costs businesses who end up paying higher contract rates. Or it blurs the lines between permanent and temporary staff until companies will hire people as 'permanent employees' instead but just the role after 6-18 months and leave employees with less job security than ever before.
Instead, it looks like contractors are the pantomime villains in the government's eyes and any increase in tax on them will be painted as a Robin Hood-style redistribution from the rich to the poor while simultaneously reducing wealth (rather than income) taxes.
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Maybe it comes from working with numbers so long, or maybe it comes from not being as fucking brain dead as the combination of our elected and unelected overlords clearly are.
But surely, just from an efficiency point of view, it makes more sense to focus your resources on the minimum number of variables that returns the maximum reward ?
So rather than pissing around with plans to try and extract a bit more from 2 million people, it would be a better idea to see if you could raise the same from fewer ... starting with Google, Facebook, Vodafone, Apple, Amazon, Starbucks and the like ?
I've long stopped seeing incompetence as a conspiracy. That said, sometimes I still find myself marvelling at the unerring ability of governments to come up with almost the worst possible solution.
Come the revolution, I suggest we rewrite the rules to specifically prevent government departments from suggesting their own solutions. How many more employees are HMRC hoping this wheeze will buy them ? In fact, I will go out on a limb, and suggest that when HRMC were tasked with providing a "solution", they simply ordered the spreadsheet by budget descending, and then set that column width to zero when presenting their "findings". (And if they didn't then they are even more incompetent than I was giving them credit for.)
Government tax policy has always aimed to maximise complexity and minimise simplicity. A good example here would be alcoholic drinks. Taxing booze is surely a fairly simple thing to do; you'd not think that a government could complicate that.
A simple booze tax would be a set amount per ml of ethanol in anything intended for human consumption. Simple, easy and effective in raising money.
Not like the fifteen different rates of tax for different and finely-shaded sorts of alcoholic drink which exist at present, then?
Tobacco is another silly one. Cut tobacco for smoking attracts a tax, whole uncut leaf tobacco doesn't, and HMRC are seemingly uninterested in collecting the tax even if directly asked if they'd like to be sent the money.
This gargantuan complexity persists throughout the tax code. Simplifying the tax code drastically would be a very good thing, especially as once simplified HMRC might understand it.
Has anyone set themselves up as an LLP ( Limited Liability Partnership ) rather than a Limited company ?
As LLPs were created for the benefit of lawyers and accountancy/management consultants I'm wondering if they provide advantages to other groups - certainly HMRC seem to prefer to leave them alone.
Which is odd since there are now tens of thousands of LLPs in the UK, with the vast majority having very obscure ownership and money flows.
I do. I used to operate through a limited company but would it up and moved to an LLP model with a business partner. Probably the reason HMRC leave them alone is that they get a reasonable tax take. Each partner takes their share of profits as defined in the partnership agreement then pays income tax and NI through the self assessment, as if you are a self employed sole trader. I do pay a bit more tax overall now but it's a hell of a lot simpler to manage. You are still subject to company law, so we still have to submit accounts to Companies House but it's the best of both worlds in my view.
HMRC opens consultation to crack down on off-payroll working in private sector
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A client offered me a permanent role. I decided to take it. Taken the cut and additional tax on the chin. Actually loving it and I'm back to enjoying doing my job without the stress. My only worry was the management BS that I would have been exposed to. Resolved that issue by being a lowly engineer with no responsibilities but with a consultant engineer pay rate. Win win. Even got a 2.5% pay rise after my 1st 6 months. I do miss the unlimited holidays though; but do enjoy being paid when I am on holiday.
Jeezo am I glad I'm retired now and no longer have to be concerned about IR35. My commiserations to those who still need to worry. It's time the entire contractor workforce adopted what we used to call on the PCG boards (RIP) the "Nuclear Option". I get caught, you get hit for holiday pay etc etc. HMRC are just wilfully blind when it comes to the fact that a Contractor and a Staffie sittign next to each other migh tbe doing the same "tasks" but they sure as hell aren't doing the same "job". One can be let go at a moment's notice, has no holiday or sick pay (especially sick pay, as I know to my loss - 14 months out of work), the other has to have his/her employer go through hoops of Employment Law before they can consider sacking them. Shurely it's time that Employment and Tax Law were unified. Shurely it's against one "Human Rights" to be taxed as one but not employed as the other or v/v
I am a contractor, as such as undertake project work....when completed I hand over to a business as usual team and leave (Thanking my luck stars I am out of there). My contract is to implement, there is no permanent role for what I do, I therefore fall outside IR35. (I know there are many other boxes o tick, but I am trying to keep it simple). When the client, as they often do, try and tell me how to do what I do, I ask them what experience they have and why do they need, if they know how to do it better than me.....on a couple of times I have walked on that basis. To be fair most of the time they understand I offer something at a cost that they do not require long term...I do the complex stuff and hand over a system that an employee can then look after.
I know A LOT of people that claimed they were contractors but were "Filling" permanent roles. i.e. If they were not there a full time employee would be.....now that is inside IR35....if they need to pay more to get a temp person in with the skills they need then the employer should pay the premium and treat the person in the permanent role like an employee when they are there!
Simples in my book.....I have no problem working in the public sector on that basis....I have even worked on contracts they wanted inside IR35 until I asked, some very direct and simple questions, at which point they moved it to outside IR35.
I'm not really sure if I should be concerned or not...
I'm a freelance contractor for one single company, and until recently I was working just a few hours a week, not troubling the taxman very much at all. However, I'm apparently a bit good, because a few months back I suddenly got 37.5 hours a week, which is what I would generally call 'a full time job'. All of this from the comfort of my own home I hasten to add. Just no holidays, no employee protection, no acknowledgement from management I'm not still a freelance minion...
As I'm registered as a sole trader, my only concern is basic tax and NI payments, which would not normally be a huge concern. But as I am NOT a limited company, I am unclear on exactly what COULD happen, if things were looked into in more detail.
Anon because well...
Who is conducting the consultation on behalf of HMRC (because as a one off task, it’s the sort of thing departments get a large Management Consultancy to undertake)?
Who has the most to benefit from a reduction in the small limited company worker market by placing their own people in the flexible worker space?
No conflict of interest there then... #sarcasm
Velv,
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If taxes were lower, people wouldn't avoid them. The laffer curve in action. Since we're at the peak already, either the government learn to live within their means and existing income, or the only option is to reduce taxes (and so spending) to try to stimulate the economy to grow. Taking more tax at this position on the curve is counter productive.
I already avoid income taxes, not by being a contractor, but by taking a pay cut and reducing my hours. I dropped between 10 - 20 hours a week, but only lost 1/8th of the money in my pocket. I'm just not willing to work more for the government to take half of everything I earn - why should I? If I'm going to put in 100% of the effort, why would I want just 50% of the gains? (Its less when you consider the impact of TFE withdrawal making the effective tax rate as high as 65%).
If I'm going to start working any further hours then it'll have to be as a contractor to reduce my tax payments. No matter which party gets elected, I'm not paying any more than I already am. Sorry.
It’s an interesting one.
I’m a contractor and so far I’ve been careful to ensure that my engagements are outside of IR35 with the usual substitution clauses, place of work being my home address etc etc etc.. as well as making sure that the work I am doing is ‘Value Add’ and not just ‘BAU’.
But.. whilst I am not an employee of the client, I am an employee of my Limited Company - so I can understand why HMRC may get the hump as that ‘Protection’ that us contractors say we don’t have is something that we *should* be getting from our Limited Companies, we just choose not to as it benefits us financially…
So if they want to change the rules, sadly, there isn't much we should be able to complain about.
AC as I'm awaiting the down votes!
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