Worst case scenario

[mudskipper]

It is rather confusing, but I think we're talking about separate vehicles here. There are three main sets of regulations: 1) The agency legislation; 2) MSC legislation; and 3) IR35. They are operated in that order of priority. There are several conditions that must be met for the agency legislation to apply (all conditions must be met) and one of these concerns the nature of the income. Since the PSC distributes any profit as employment income (salary) to which PAYE is already applied, or dividends, which do not arise from the provision of the worker's services, none of this income is within scope of the agency legislation. Of course, the PSC is potentially also an "agency" for the purposes of the agency legislation, and the rules might apply if they subcontract to a self-employed person (for example). Separately, the agency also has a reporting requirement and must report on payments made to PSCs.

I think what we're talking about now is beyond the scope of the agency legislation, although elements of that will be used as a template. We're talking about changes to the rules surrounding expenses and changes to the rules surrounding IR35, both of which are likely to revolve around SDC. I don't have a copy of the updated Section 44 (2) of ITEPA to hand, but I think Lisa is saying that a worker operating via an agency is presumed subject to SDC. Perhaps someone can post the relevant section. The point being that, if this is adopted for the purposes of IR35, it would apply in that context (not in the context of the agency legislation). Separately, if the client is responsible for determining status and is made financially liable for that determination (in terms of the tax or a penalty), they would be unlikely to state that the worker was not subject to SDC (i.e. to counter the presumption). In other words, something that isn't currently an issue for PSCs w/r to the agency legislation (because PAYE salary and dividends are not within scope) would immediately become an issue w/r to IR35. That's my take, but I could be off base...

Thanks jb - I see what you're saying.

[GB9]

The whole of that section reads:

"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)."

So this must be in relation to who this applies to - guess the reporting stuff comes into it - i.e. if you're an agent not doing PAYE, you have to report the payments.

But without fully understanding how all this stuff fits together, it's difficult to see how that sentence would apply to me, given that I'm not PAYE through the agency.

So if they simply replicate it, then how are we included?

A better question for the revenue may have been 'Would the proposed legislation regard all limited companies contracted though an intermediary as being under SDC?'. With the follow up of 'What evidence is required to demonstrate that they are not?'.

Lisa has a tendency (not intentional I'm sure) of trying to demonstrate how Ltd companies are to be treated in the same way as umbrellas. This may turn out to be the case but we could do with better clarification.

[Jog On]

but I think Lisa is saying that a worker operating via an agency is presumed subject to SDC

Can they just do this, I don't understand how an agency has any SDC at all given that in real life we deal with agency's when securing the gig and around extension time.

I can see why they are doing it and what they are looking to achieve but can they really just "assume" this and then use the fear factor on end clients and agencies to declare that every contractor is inside SDC just to absolve them of any liability?

So lets say they introduce this and extend it to IR35 - this means we all close our LTDs and go umbrella (if we decide to stay contracting and it is worthwhile without any expenses) or perm .

This will kill off a lot of accounting businesses and probably reduce the flexible workforce significantly. I'm not going perm for a big consultancy, I don't do perm and never intend to.

I'll be interested to see how this 'presumption' is worked out

[eek]

A better question for the revenue may have been 'Would the proposed legislation regard all limited companies contracted though an intermediary as being under SDC?'. With the follow up of 'What evidence is required to demonstrate that they are not?'.

Lisa has a tendency (not intentional I'm sure) of trying to demonstrate how Ltd companies are to be treated in the same way as umbrellas. This may turn out to be the case but we could do with better clarification.

Lisa also has no reason to be highlighting this to us. It would be in her company's interest for limited companies to be subject to the same rules as umbrellas. The fact that she is not and is immediately highlighting issues to us is something we should be thankful for and definitely not complaining about.

Yes, we probably need to ask HMRC some questions based on her information. But if she hadn't highlighted this no one would be aware of the potential issue and by the time we became aware it would have been too late..

[LisaContractorUmbrella]

Just to try and add a note of calm to proceedings - nothing is yet set in stone. The T&S is at the consultation stage which means that something will definitely be put in place but it won't necessarily be exactly as has been put forward in the consultation document. It may happen that HMRC come to the conclusion that basing a tax decision on the tax payer trying to prove a negative is not a great idea - it's the sort of thing that could tie up a court room for months, if not years.

The IR35 reforms are at the discussion stage which means that nothing may happen at all.

The way I see it is that it's better to be forewarned than forearmed so, although this may all be worst case scenario and reality will greatly improve upon it, at least we can understand the worst that can happen and prepare for it.

[Jog On]

Just to try and add a note of calm to proceedings - nothing is yet set in stone. The T&S is at the consultation stage which means that something will definitely be put in place but it won't necessarily be exactly as has been put forward in the consultation document. It may happen that HMRC come to the conclusion that basing a tax decision on the tax payer trying to prove a negative is not a great idea - it's the sort of thing that could tie up a court room for months, if not years.

The IR35 reforms are at the discussion stage which means that nothing may happen at all.

The way I see it is that it's better to be forewarned than forearmed so, although this may all be worst case scenario and reality will greatly improve upon it, at least we can understand the worst that can happen and prepare for it.

The civil service (including HMRC) cannot function without contractors, let alone the private sector.

I do hope they think this through - being the party for business and all that...

They need to shift their thinking away from “tax avoidance incentivised incorporation” and look at why we have to incorporate in order to be offered a contract through an agency. IE – the agency refuses to pay the employer’s NIC which is why we are forced to go LTD or umbrella.

Fix that and let us go self-employed - and apply expenses rules to 24 month/SDC people if you have to. How hard is that? Whatever label they try and put on us we are self-employed because we like the flexibility and control over our working situations.

I contract mainly because I like the diversity and freedom to take sabbaticals between gigs and not spend my life on a treadmill full time. We are freelancers who take on risks and we are entitled to the reward that comes with that.

[LisaContractorUmbrella]

Agree with everything you say JogOn but this is the sort of thing that's influencing Government thinking Osborne’s stealth attack on limited companies - FTAdviser.com. There is a perception that single person Ltd Co's are tax avoidance vehicles

[Jog On]

Agree with everything you say JogOn but this is the sort of thing that's influencing Government thinking Osborne’s stealth attack on limited companies - FTAdviser.com. There is a perception that single person Ltd Co's are tax avoidance vehicles

Mr Osborne has questioned why there appears a shift for small business owners to move from self-employment to using a limited company

Please give me the option to 'shift' from LTD to self employed George - please!!

[ndoody]

I do think these stupid nit pickings are really short sighted. Obviously they only see the hard numbers in lost tax revenues.

What they don't account for is working as a contractor through the limited company is what props up the service sector in many areas, a key industry to our "economic recovery". I am a conservative, but I think somewhere they've lost their way in this latest election.

Contractors operating the way we are, will often fill many short falls that you simply couldn't find any other sucker to take a permanent job for. Operating as a business gives us the flexibility required to venture on ridiculously long round trips, to some arse end of the country/world to fill some skill shortage or whatever. Contracting often works in favor of the client as much as the contractor, projects that are costed with fixed terms and need the additional resource...something that can't be offered a "permanent job".

Sucking up the tulip that nobody else wants to do is often part of the territory, and having the limited company vehicle we have now allows us to be suitably compensated for that. I think it's also lost that single director companies are paying corporation tax on all profit they make + earning additional VAT for them on everything we earn gross. These are incomes that "permies" do not generate/contribute to the pot, and are valid arguments when looking at "everyone paying their fair share".

We do get a right rough end of the deal, easy pickings and the way it's going we could be contributing more to the total pot than the equivalent permie. Is that really fair? I guess they don't actually care about being fair...

[mudskipper]

Please give me the option to 'shift' from LTD to self employed George - please!!

Would an FLC (whatever form that might take) maybe work for you then?