Worst case scenario

[LondonManc]

In case you haven't seen it How HMRC is revoking tax relief on contractor expenses :: Contractor UK. We found out yesterday that HMRC will be applying the same criteria to establishing SDC as they do in the agency legislation contained within section 44(2) of ITEPA i.e. if you work through an agency there will be an automatic presumption of SDC.

Rate will be a bigger consideration now than it should be. Or at least the minimum for living away goes up £50/day.

[javadude]

The death of recruitment agencies?

Time to chase direct leads more? Perhaps clients will be more receptive to direct contracts faced with the prospect of higher rates to compensate for IR35. The death of recruitment agencies for contracting perhaps?

[Lewis]

I'm wondering how this will effect current contracts, for example my current role runs until July 2016. So I'm guessing from April 2016 I'll be screwed if everything goes through as it presently stands if HMRC are using the SDC criteria from section 44(2) ITEPA, is there a possibility it will be applied to the whole duration of the contract?

OMG if they did that - there will be a heap of people terminating their contract in March, and then perhaps attempting to return direct! It would cause chaos - who would stay on if a (potentially multi-year) contract is at risk of being retrospectively caught by IR35!

[Contreras]

I understand what you're saying, but I suspect that isn't enough because HMRC is not party to the contract. A joint and several liability can be pursued anywhere in the contract chain, regardless of whether one part of the chain becomes insolvent. Thus, I think a contract matters only in the sense that it can be enforced, in principle, by the contracted parties (in other words, once a debt is paid, the client could pursue the contractor's company). Of course, that isn't the commercial risk, and I think the client would want to satisfy themselves that the commercial risk is covered (i.e. I can't see how the client wouldn't be part of the enforcement). However, I'm just a contractor, not a lawyer, so I could be wrong.

We are second guessing. It could be as you suggest, I just think it doesn't need to be so complicated to achieve the same aim.

Once the benefit of doubt has been removed over whether SDC exists, you would need to be a fraudster to ignore it. Accountants would to some extent become the 'enforcers' just as they are already for other aspects.

Another possibility is that ClientCo must report to HMRC the list of contractors (NI numbers, say) whom they have under SDC. That makes Hector's job 1000x easier, they have the targets for compliance checks and an implicit acceptance from the client about their status. I imagine that this could be easily implemented on top of RTI for example.

There is another sledgehammer approach which hasn't been discussed.

If a ClientCo decides a contractor should be IR35-able, they could simply refuse to engage you as a LtdCo at all - and only offer you the contract on a PAYE umbrella basis.

I'd say that's also a very real possibility too, if compliance is too onerous or prevents ClientCo from keeping staff off payroll.

[jamesbrown]

We are second guessing.

Yep, you're right. Anyway, I guess it's pretty trivial in light of the above.

[Guesstimator]

Question

I'm a little confused (normal state of affairs) by this presumption that everyone is under SDC if they work via an agency. Surely that is removed by the submission of the intermediary reporting by the agency:

"Where a worker is engaged by or through an agency, there will be a presumption that there is (or there is the right of) supervision, direction, or control over the worker. This means it is the responsibility of the agency that contracts with the client to whom the worker provides their services to operate PAYE (see ESM2039) and act as the secondary contributor for NICs (see ESM2040). When the agency does not consider a worker is subject to (or to a right of) supervision, direction, or control by any person, then they will need to keep evidence of this (see ESM2042)."

Or is the above not the intermediary reporting? And if it's not, should the agencies be running PAYE? ...and if so, has my agency cocked up by doing neither?

Don't get me wrong, I realise that doesn't alter the realism (or otherwise) of the SDC test examples but it's still pushing the SDC back up to the end client (which is where it realistically lies, if anywhere) is it not?

[fool]

I don't see a problem with the term true contractor, proper contractor, real contractor or whatever. There is a big difference between those that run their affairs properly and those that don't have a clue. It's because we don't differentiate we are going tonight a sledgehammer that's going to affect us all. If HMRC did a decent job in the last we might not be here. Discuss

I see it more like the PSC argument. It's a thing that neither does nor should exist that we're accepting does and should exists, thus giving creedence to the suggestion that the regulations we're suffering from should exist. I think it weakens our position as a class and I'll attempt to further that point with my response to ShandyDrinker.

I agree that we should all be standing together on abolishing the scourge of IR35.

My use of the term true contractor was probably wrong but for want of a better phrase I couldn't find an alternative and am still struggling to do so.

While we are all undoubtedly taking risks as contractors, some do more so than others. I am no expert on IR35 but the point you make about a person being with the same client for 10 years is actually a good one. Sure, he has no employee benefits and if he doesn't perform tomorrow he's gone; however, while he may be doing a good job, he is also at risk of being seen as part and parcel of the organisation and both him and the company involved are using a tax efficient vehicle to avoid NICs, paid holidays, redundancy benefits and so on. Personally I have no issues with people being at the same client for 10 years, hell, that's probably longer than most permies last in a single company these days.

As a contractor that's never been anywhere more than a year, I still take less risks than the others of my kind because:-

a) I'm polyglot developer who does operations. If devops dries up, I go backend. If backend dries up, I'll do some JavaScript. My job security is my versatility.
b) I have a nice face.
c) I'm charismatic.
d) I'm super talented.
e) My fields are super popular.

Lets assume for a moment I'm not just full of myself and these things are actually true, should I be taxed more because I'm in the enviable position of being desirable thus assume much less risk than you ugly bad people? Statistically it's suggested that tall men do better in the careers, should they pay a tall tax?

I know it's a silly point, but I'm using it to draw parallels to the contractor who actually delivers well enough for their client to actually want to keep them for 10 years. He shouldn't be punished for his success, neither should I, nor should the guys who are taller than me and nor should you. Any argument to the contrary is falling for the governments rhetoric.

As with the introduction of IR35 in the first place and the attack on expenses, this has more to do with the politics of envy than anything else. Why should X as a contractor be able to get more of a benefit than the average man/woman on the street, it's not fair and we can earn more tax from them as they have the broadest shoulders. You only have to see the vitriol written in the Daily Wail about services provided through a limited company to see what we're up against.

The reason we should be able to use it is because it exists. If your accountant, solicitor, big company owner or anyone else can incoperate and offset tax liability then I should be able to too. That's fairness. Without IR35 your everyman in the street can also incoperate to the mutual advantage of their employers when they also became desirable enough assets for this to become amenable. That's fairness. What's not fair is seperating our companies into a class for the plebs, but by accepting the argument against those so-called contractors, you're accepting that there should be an upper and lower class for companies, which is where we lost because as people who work for a living, we're never going to be on the right side of that line no matter how much more of a contractor you think you are than the others.

[mudskipper]

In case you haven't seen it How HMRC is revoking tax relief on contractor expenses :: Contractor UK. We found out yesterday that HMRC will be applying the same criteria to establishing SDC as they do in the agency legislation contained within section 44(2) of ITEPA i.e. if you work through an agency there will be an automatic presumption of SDC.

http://www.legislation.gov.uk/uksi/2...0150171_en.pdf

2) In regulation 2— (a) for the definition of “agency worker” substitute— ““agency worker” means a worker who is treated by section 44 of ITEPA(f) as holding an employment with the agency for income tax purposes;”;

So that doesn't sound like all contractors who work through an agency? Have I missed something? Did HMRC clarify that anyone working through an agency would be caught?

[LisaContractorUmbrella]

This was the question asked:

"Can you please clarify something for me – in the T&S proposal document it is stated that the SDC test will be applied ‘in a similar way to that currently used for agency workers in section 44(2) of ITEPA. That section makes a presumption of SDC if the worker is engaged through an employment agency – will that be the case now??"

The answer was: "Yes, we will be replicating the revised section 44."

[mudskipper]

This was the question asked:

"Can you please clarify something for me – in the T&S proposal document it is stated that the SDC test will be applied ‘in a similar way to that currently used for agency workers in section 44(2) of ITEPA. That section makes a presumption of SDC if the worker is engaged through an employment agency – will that be the case now??"

The answer was: "Yes, we will be replicating the revised section 44."

Thanks Lisa - Section 44 is below - sounds like only those inside IR35 (as we currently have it) - where is the bit that makes the SDC assumption (am I looking at the right thing?)

Income Tax (Earnings and Pensions) Act 2003

Section 44:

44Treatment of workers supplied by agencies
(1)This section applies if—

(a)an individual (“the worker”) personally provides, or is under an obligation personally to provide, services (which are not excluded services) to another person (“the client”),

(b)the services are supplied by or through a third person (“the agency”) under the terms of an agency contract,

(c)the worker is subject to (or to the right of) supervision, direction or control as to the manner in which the services are provided, and

(d)remuneration receivable under or in consequence of the agency contract does not constitute employment income of the worker apart from this Chapter.

(2)If this section applies—

(a)the services which the worker provides, or is obliged to provide, to the client under the agency contract are to be treated for income tax purposes as duties of an employment held by the worker with the agency, and

(b)all remuneration receivable under or in consequence of the agency contract (including remuneration which the client pays or provides in relation to the services) is to be treated for income tax purposes as earnings from that employment.