Worst case scenario

[BoredBloke]

Very true ^^^^

For me, most of my work ends up being in London or elsewhere. Over the past 15 years I think I've managed 3 where the roles have been a daily commute. I work away because there tends to be more roles that match my skill set and the rates tend to be better. However they are only better because I can offset my costs against tax. If I were to work in London and had to pay the bills from my post tax income the contract would simply not be viable. Obviously this means I'll not be able to be as flexible as before and will probably have longer periods of bench time coupled with working on local roles that pay rubbish rates. I'm not sure how exactly that is supposed to increase the tax take.

The big problem we have is a lack of representation. IPSE like to say how they look out for the self employed but I'm yet to see how.

[mudskipper]

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

The term they've coined is TMI - Tax motivated incorporation.

https://www.gov.uk/government/upload...Accessible.pdf (p45)

“These changes will also start to reduce the incentive to incorporate and remunerate through dividends rather than through wages to reduce tax liabilities. This will reduce the cost to the Exchequer of future tax motivated incorporation (TMI) by £500m a year from 2019.”

[Guesstimator]

I'm intrigued on the aspect of lost revenue and the stated objective of "protecting the Treasury" but please tell me if I'm barking up the wrong tree.

Most, if not all, people I know (limited statistical pool to draw conclusions from, I realise) who contract produce a significant net upside to the Treasury based on the tax contribution of their contracting rate vs PAYE in an equivalent perm position (which IME is always on significantly lower pay, hence less PAYE).

The cases outlined in the discussion document do not reflect the working practices I witness. I'm not saying it doesn't happen but I've never seen a situation where a direct employee and a "PSC" are both paid the same gross amount for the same role. Why would a contractor take that on without all the other employment benefits that come with direct employment? The only point at which I can think people would do that is due to lack of permanent roles...at which point it's hard to argue that it's for "tax avoidance" purposes.

Additionally, if you factor in that the gross amount in the case examples for a direct employee significantly understates the financial overhead reality of holiday, sick, maternity/paternity cover, additional employer pension contribution, HR etc so the tax calculations of the two cases are not comparing apples with apples.

Moving people inside IR35 on their current contracting rate will simply move people back to the perm work (pending availability of course!) because it's not worth the added risk for little/no reward or benefit - ergo, less tax is raised.

Is any of the above relevant? :

[eek]

The term they've coined is TMI - Tax motivated incorporation.

https://www.gov.uk/government/upload...Accessible.pdf (p45)

“These changes will also start to reduce the incentive to incorporate and remunerate through dividends rather than through wages to reduce tax liabilities. This will reduce the cost to the Exchequer of future tax motivated incorporation (TMI) by £500m a year from 2019.”

Looks like I will need to add a few paragraphs of history and rational to my response then:-

1) The reason why contractors were forced to move to limited companies in the 1970s
2) the advantages of being a limited company (I'll probably ignore the fact when I was a permie we supplied software running on the Deepwater Horizon that recorded day to day issues). I really wouldn't want to be self employed in that situation...

[Jog On]

Looks like I will need to add a few paragraphs of history and rational to my response then:-

1) The reason why contractors were forced to move to limited companies in the 1970s
2) the advantages of being a limited company (I'll probably ignore the fact when I was a permie we supplied software running on the Deepwater Horizon that recorded day to day issues). I really wouldn't want to be self employed in that situation...

Yes this "Tax motivated incorporation" is a myth - if they don't like us forming LTDs because we have to - go after the actual cause of the problem which is agents who force us to do it (or go brolly which is more expensive).

It's actually "get work incentivised incorporation" that we have no choice over (other than brolly)

Facts Gideon - please use them in your investigations!

[LisaContractorUmbrella]

The term they've coined is TMI - Tax motivated incorporation.

https://www.gov.uk/government/upload...Accessible.pdf (p45)

“These changes will also start to reduce the incentive to incorporate and remunerate through dividends rather than through wages to reduce tax liabilities. This will reduce the cost to the Exchequer of future tax motivated incorporation (TMI) by £500m a year from 2019.”

I know - makes you feel doesn't it

[jamesbrown]

I really wouldn't want to be self employed in that situation...

Exactly! When you're working on multi-billion dollar infrastructure projects (or even small infrastructure projects for that matter), the idea that you'd choose to work self-employed is ludicrous. You cannot fully insure against those risks and Ltd liability is the only approach. I have literally no prospect of working self-employed. However, some care is needed with that argument, because they are not trying to prevent this mode of operating, only to penalize it for the majority (aka the "level playing field") . That said, they'll need to be very careful about how they formulate these various pieces of legislation to avoid successful JRs (assuming they don't remove JRs altogether ).

[Zero Liability]

Meanwhile, the 'skills shortages' show no sign of abating.

http://www.contractoruk.com/news/001...an_afford.html

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.

What timelines do you foresee for their implementation? 2016 for T&S and 2017 for IR35 changes, if any?

[ShandyDrinker]

Meanwhile, the 'skills shortages' show no sign of abating.

IT contractor pay 'exceeding what hirers can afford' :: Contractor UK

I love the terminology used in the article...
As to demand on a regional basis, London is seeing the biggest “demand spikes” for software engineering, in contrast to tech support and web development, which declined in the capital.

Oh but wait... isn't web development a subset/specialisation of software engineering

While I'm splitting hairs isn't this just another skills shortage scare story...

[GB9]

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..

I'm not knocking Lisa (hello Lisa) but her question referred to a piece of legislation aimed at umbrellas, not Ltd. I thank her for raising the point and the answer given by HMRC may well be exactly the same as for my question. However, Mudskipper stated the clause in question and rightly asked how that can be applicable to us. My question would have clarified that.

I also agree with Boredbloke that we need a good representative trade group similar to the BRC that would really come out and shout on our behalf. I raised this when we had the Lords committed but was told by several people that the PC would cover our position. Needless to say they were ignored and I'm glad I made my own contribution instead.