Very worrying - the expenses thing

[LisaContractorUmbrella]

Sure, I can see some worst case scenarios, but I don't see much point in dwelling on them, and I get the sense (possibly misplaced) from the discussion document that they're likely to go for improved administration (via clients/agents) rather than wholesale revision. I think there's a consensus that HMRC and HMG are incompetent in equal measure, but there's little point in navel gazing at this stage. Any concerns about damaging the flexible workforce were presumably overruled in Australia when the PSI rules were introduced, and this appears to have backfired. It would be better to make these representations now, although I'm as cynical as anyone else about the extent to which the discussion is open.

If the 'administration' of any new legislation is down to agencies/end clients then there will be added a potential for debt transfer - if the agency/client gets it wrong they will have to stump up for additional tax/NIC's due. How many agencies/clients, under those circumstances, will consult their legal teams or company lawyers about each contract they offer to determine whether or not a Judge could consider that there was an element of Supervision OR Direction OR Control or the right thereof? Where there is potential for large financial risk with no financial benefit then 99% of companies will err on the side of caution.

[jamesbrown]

The concern is that SDC has not, historically, been the only determination for employment status - the cases you mention also consider MOO and ROS which have always been, from what I have read, primary considerations with SDC as secondary. Supervision OR Direction OR Control OR the right of any of these has enormous scope e.g. it could be successfully argued that a High Court Judge is subject to Direction as he will receive sentencing guidelines from the Government yet most people would view their role as being completely autonomous. You could argue that a tradesman coming to your home would most definitely be self-employed but, let's say, a man comes to build and fit a new staircase - if you tell him what timber you'd want used or when you want it completed by you have given direction. HMRC have Employment Status Manuals that cover SDC and we could assume that they would use the same criteria as they have previously BUT the way that the consultation and discussion documents have been written, they COULD use much wider ranging arguments and have a good chance of success in court.

It isn't so much that I don't understand the risk you're citing - that SD&C could move from being a necessary condition to being a sufficient condition, and that the bar for sufficiency could drop - only that I don't see how that could arise in practice. I don't agree with your interpretation of the importance of SD&C in the cases I cited, as well as others, where it was of primary importance (when it mattered), not secondary. As I mentioned before, SD&C has always been looked at in the round and it requires a high bar:

Unless a contractor is “tied hand and foot” to the client, then the detrimental level of control is not present [Chaplin v Australian Mutual Provident].

In other cases, it hasn't been determinative because the capacity to control didn't exist in principle:

“Clearly superintendence and control cannot be the decisive test when one is dealing with a professional man or man of some particular skill and experience. [Morren v Swinton Borough Council]

It's also worth noting that SD&C has always been about the right and not the actuality:

"What matters is lawful authority to command so far as there is scope for it. and there must always be some room for it, if only in incidental or collateral matters." [Zuijs v. Wirth Brothers Proprietary, Ltd., cited in RMC]

So, when there is scope for control, it has always been critically important. So long as IR35 remains couched in employment status, I find it difficult to see: 1) how factors other than control can be ignored, because there is little or no scope for control in some cases. As indicated by the judge in RMC "The judge's task is to classify the contract (a task like that of distinguishing a contract of sale from one of work and labour). He may, in performing it, take into account other matters besides control."; and 2) if there is scope for control, how the bar could be anything other than high, as established in previous case law. It is not merely the presence of some elements of control that matters, but a level of control that implies employment (and I include supervision and direction here). Again, I'd say that HMRC cannot have their cake and eat it. Either they legislate a different (draconian) set of tests, for which new case law will need to be established, or the existing case law stands.

[jamesbrown]

If the 'administration' of any new legislation is down to agencies/end clients then there will be added a potential for debt transfer - if the agency/client gets it wrong they will have to stump up for additional tax/NIC's due. How many agencies/clients, under those circumstances, will consult their legal teams or company lawyers about each contract they offer to determine whether or not a Judge could consider that there was an element of Supervision OR Direction OR Control or the right thereof? Where there is potential for large financial risk with no financial benefit then 99% of companies will err on the side of caution.

Yes, I think this is where the real risk lies, not something changing with SD&C, but with how it is policed in the first instance. That's what we should be concerned about. In that sense, everything I've written above is neither here nor there () if most clients/agents adopt a knee-jerk reaction.

[Contreras]

Yes, I think this is where the real risk lies, not something changing with SD&C, but with how it is policed in the first instance. That's what we should be concerned about. In that sense, everything I've written above is neither here nor there () if most clients/agents adopt a knee-jerk reaction.

That's what I've been saying, or trying to.

[jamesbrown]

That's what I've been saying, or trying to.

Well then I wholeheartedly agree. Fiddling while Rome burns etc. etc.

The question, then, is why should clients not want to police this and, assuming they must, why should they not adopt a knee-jerk reaction? I think the consensus is that they will adopt a knee-jerk reaction, and I tend to agree based on past experience (perhaps with some variation across sectors and types of consultancy). In other words, if we cannot convince clients (and ultimately HMRC) that having joint and several liability is a bad idea, we're in trouble via the back door, rather than the front door, which is what we suspected could happen all along (see the FLC discussions).

[bingobob777]

I commute from Glasgow to wherever my contract is, last three have been Bristol, Swindon and Maidenhead. I'm keeping costs to a minimum but still coming in at approx. 20k in expenses a year.

Am I right in thinking this 20k is still considered a company expense and is deducted for profit/corp tax purposes?

Am I also right in thinking the reimbursement is counted as salary and you would pay tax/NI accordingly?

[psychocandy]

I commute from Glasgow to wherever my contract is, last three have been Bristol, Swindon and Maidenhead. I'm keeping costs to a minimum but still coming in at approx. 20k in expenses a year.

Am I right in thinking this 20k is still considered a company expense and is deducted for profit/corp tax purposes?

Am I also right in thinking the reimbursement is counted as salary and you would pay tax/NI accordingly?

Bingo. You're confusing me now.

So at the moment Im guessing you pay yourself a salary, and YOUR company pays you expenses for your costs (be it train, hotel, mileage allowance). And also you pay yourself dividends out of remaining profit? Am I right?

AT THE MOMENT, you can do this. But the point is, the government is trying to stop this happening from next April. Whether they will succeed remains to be seen.

So potentially next year, your company won't be able to bung you £20K for these expenses. Yes you're company will then make £20K more profit of course but you'll have to pay CT on this then. And of course, you'll probably want to pay yourself more dividends to pay your costs. (This also brings into play the new dividend tax too).

Potentially from next April, this £20K whereas now tax free is going to cost you 27% (or a lot more if you exceed 40% bracket). So minimum is it might be almost £5K in extra tax next year. Not cool.

[eek]

I commute from Glasgow to wherever my contract is, last three have been Bristol, Swindon and Maidenhead. I'm keeping costs to a minimum but still coming in at approx. 20k in expenses a year.

Am I right in thinking this 20k is still considered a company expense and is deducted for profit/corp tax purposes?

Am I also right in thinking the reimbursement is counted as salary and you would pay tax/NI accordingly?

We don't know but I guess that 20k will have to come out of your taxed income so it will cost your company £40k or so...

If you are not aware can you fill my survey in at http://goo.gl/forms/O2O4WhscV4

[Contreras]

I commute from Glasgow to wherever my contract is, last three have been Bristol, Swindon and Maidenhead. I'm keeping costs to a minimum but still coming in at approx. 20k in expenses a year.

Am I right in thinking this 20k is still considered a company expense and is deducted for profit/corp tax purposes?

Am I also right in thinking the reimbursement is counted as salary and you would pay tax/NI accordingly?

Yes pretty much. Depending how the new rules play out though you may be better paying the expenses out-of-pocket and increasing dividends to compensate.

Bingo. You're confusing me now.

Easily done.

So potentially next year, your company won't be able to bung you £20K for these expenses.

The company can still pay the expenses. Just it would potentially be taxed as above.

[Danglekt]

We don't know but I guess that 20k will have to come out of your taxed income so it will cost your company £40k or so...

If you are not aware can you fill my survey in at http://goo.gl/forms/O2O4WhscV4

Can this be made into a separate thread and made sticky?