Spring Budget 2017

[MrMarkyMark]

At this rate, I may be right behind you. I WFH, so the only thing that ties me here is family and friends. I contracted overseas for 10+ years before 5 years ago, so it was wearing thin for them and me, but that was 5 years ago...

Obviously the more fortunate of us can work anywhere .

I personally want the employment rights battle fought.

It aligns with my feeling, completely apart from the taxation, that certain individuals that are contracting in the PS really should be employees.

There are others that maybe shouldn't be full employees, but should at least to be able to claim expenses.

As usual the low granularity of the PS off payroll project leaves a feck of a lot to be desired

[eek]

Obviously the more fortunate of us can work anywhere .

I personally want the employment rights battle fought.

It aligns with my feeling, completely apart from the taxation, that most individuals that are contracting in the PS really should be employees.

There are others that maybe shouldn't be full employees, but should at least to be able to claim expenses.

As usual the low granularity of the PS off payroll project leaves a feck of a lot to be desired

ftfy and yep in 3 or so years time when the eek jrs head to uni we will probably head abroad...

[jamesbrown]

Obviously the more fortunate of us can work anywhere .

I personally want the employment rights battle fought.

Agreed, I'd like to see it fought too, largely because the principle of having and eating cake shouldn't be allowed to stand, but I'm struggling to care that much.

[WordIsBond]

Absolutely employment rights needs to be fought. It's really the only way contractors have to fight back.

First, it is simple justice. If people are going to be taxed as employees, they should have employee rights.

Second, it undercuts the stupid over-simplistic HMRC argument that "people who work the same should be taxed the same". When there are other things that AREN'T the same, like employment rights / benefits, then that's a gross over-simplification.

Third, it will get industry actively on the side of contractors. Right now, they are benefiting from having contractors and letting contractors take the heat for "tax avoiding." They need to get aggressively on board in telling government and the press that they need contractors, they need a flexible workforce of people who are running their own business and so aren't insisting on employment rights, and those people SHOULD be treated differently. Those people are taking risks, they have down time, they have to plan for that down time, they don't get paid holidays, etc, etc. Those people should NOT be taxed as employees even if they do the same job because they don't have the same benefits and protections. They are taking risks that benefit industry, and they should not be seen as the bad guys or tax dodgers because they do that.

We're not really going to have allies in the PR wars and in Parliament until employment rights are linked to employment taxation. So yes, this needs to be fought. Especially now that engagers are declaring people inside IR35 without conferring employment rights on them. That's a gross injustice -- "We've decided you have to pay taxes like our employees do, but don't think we're going to give you paid holidays."

[WordIsBond]

Re: mandatory look-through, there are major problems with it. It mostly would work pretty well for the one man band model, other than the problem of heavy taxation one year and losses the next when you are on the bench. That would make the tax system penalise those who take risks to provide a flexible workforce. But other than that problem, it's not unreasonable.

The much bigger problems are with other business structures. If a business retains profits for the purpose of making a significant investment in a future year (say, purchasing plant or property, or hiring a new employee), should that profit really pass through to personal taxation on the shareholders? No one is intending those funds to go to the shareholders, the money is intended to be invested in the hopes of building the business. A mandatory look-through would actually discourage investment and hiring. If I'm running a business and there is mandatory look-through, I'm not going to retain funds in the company for future investment, I'm going to disburse them, so that the participators actually have the funds on which they are being taxed.

It's also problematic when you have multiple share classes. For the typical one-man band, multiple share classes are a little dubious, typically just a tax dodge, if we're honest about it. But for other types of businesses they can be a valuable tool. Yet, those different share classes may not be of equal value, carry the same dividend rights, etc. How do you make look-through work with that? If different shares have different rights, how do you allocate the pass-through among them? That may be solvable, but in all probability you just take away business flexibility.

There are other problems, too. Look-through is a popular option in America because the regulatory burden is much lighter for a look-through corporation than for a classic one. Seems a reasonable balance to me. Making it mandatory is likely to reduce flexibility and investment and inflict some serious damage.

[Maslins]

Third, it will get industry actively on the side of contractors. Right now, they are benefiting from having contractors and letting contractors take the heat for "tax avoiding." They need to get aggressively on board in telling government and the press that they need contractors, they need a flexible workforce of people who are running their own business and so aren't insisting on employment rights, and those people SHOULD be treated differently. Those people are taking risks, they have down time, they have to plan for that down time, they don't get paid holidays, etc, etc. Those people should NOT be taxed as employees even if they do the same job because they don't have the same benefits and protections. They are taking risks that benefit industry, and they should not be seen as the bad guys or tax dodgers because they do that.

I agree with much of what you say, but a devil's advocate approach to the above - I accept that based on the above risks/lower rights contractors should perhaps be entitled to higher "pay" from the end client than an employee...but lower taxes?

If it is basically just a deal between worker and business needing work, then potentially there could be a two tier system, "employees" with more rights but lower pay, and "contractors" with fewer rights but higher pay...but why does it follow that the contractors should also suffer lower taxes?

Re the look through, my concerns are more around the boundary. As with many of these ideas, it can make sense for the small guys who its aimed at, and makes sense to not be in it for the big boys...but then somewhere along the line you'll have an awkward bunch of people straddling the rules. Do they simply get to choose? If so, HMRC may not be happy as of course they're going to choose the option that works best for themselves. Also choice means complications. To make the decision properly, you need to approximate what your end result would be in either example, and then make your choice.

The other option is just to have a blanket rule (whether it be based on turnover, gross assets, number of staff/shareholders or whatever)...but that's problematic too, as then a bit like the VAT registration threshold, you'll end up with lots of businesses making artificial choices just to try to stick whichever side of the rules they want to be.

If they're going to go sort of down that route, then I'd suggest a better way of doing it is looking at reasons why your typical one man band doesn't go sole trader, and see if you can address them. It is a bit daft that so many one person businesses have Ltd Cos, registered as employers just so they can pay the owner alone, then awkwardly fudging around with auto enrolment etc.

I'm very aware there are reasons why contractors virtually never choose sole trader at the moment, so IMHO the government should look at those and see if they can address them. Then they've got a ready made model with "look through" for tax, and just continuing with an existing distinction between small and bigger businesses. They can also then tweak the tax rules for one type of business without having the awkward tool that is IR35 which attempts to tax one type as another (well...technically as an employee rather than a sole trader, but you get the idea). That's what I'd do if I was in charge anyway

[jamesbrown]

Re: mandatory look-through, there are major problems with it. It mostly would work pretty well for the one man band model, other than the problem of heavy taxation one year and losses the next when you are on the bench. That would make the tax system penalise those who take risks to provide a flexible workforce. But other than that problem, it's not unreasonable.

The much bigger problems are with other business structures. If a business retains profits for the purpose of making a significant investment in a future year (say, purchasing plant or property, or hiring a new employee), should that profit really pass through to personal taxation on the shareholders? No one is intending those funds to go to the shareholders, the money is intended to be invested in the hopes of building the business. A mandatory look-through would actually discourage investment and hiring. If I'm running a business and there is mandatory look-through, I'm not going to retain funds in the company for future investment, I'm going to disburse them, so that the participators actually have the funds on which they are being taxed.

It's also problematic when you have multiple share classes. For the typical one-man band, multiple share classes are a little dubious, typically just a tax dodge, if we're honest about it. But for other types of businesses they can be a valuable tool. Yet, those different share classes may not be of equal value, carry the same dividend rights, etc. How do you make look-through work with that? If different shares have different rights, how do you allocate the pass-through among them? That may be solvable, but in all probability you just take away business flexibility.

There are other problems, too. Look-through is a popular option in America because the regulatory burden is much lighter for a look-through corporation than for a classic one. Seems a reasonable balance to me. Making it mandatory is likely to reduce flexibility and investment and inflict some serious damage.

You talk about the principle as though it's untested. In recent history, we've had close company apportionment rules for longer than we haven't. They were abolished by Thatcher in 1989, but they applied for decades before that. The issues you flag are practical issues for which solutions exist. The problem with apportionment or compulsory look-through is not whether it can be done, but whether it should be done. It clearly shouldn't be done, because it's anti-business, in general, and it would specifically hobble certain classes of what HMG would consider "legitimate businesses". However, it serves the purpose of taxing income that HMG perceive to originate from employment as employment income. If you don't believe they're considering this, take a look at some recent consultations (e.g. changes to TiS) where they explicitly moot it. The OTS review also discusses the positives/negatives and recommends that any implementation should be optional, but this wouldn't achieve the stated aim. Ultimately, I don't think they'll go with it, because the Tory backbenches probably wouldn't support it (at least, without a statutory definition of a PSC, which raises other problems), but it's the nuclear option that would achieve their stated goal.

[Fred Bloggs]

yep I can't personally see anything to gain by playing the employment rights game but it is just about the only game in play...

Darn right, you are probably as amused as I am by the thought. "I don't want to be an employee. But I will see you in court for my holiday and sick pay". Yeah right. Very convincing.

[Fred Bloggs]

At this rate, I may be right behind you. I WFH, so the only thing that ties me here is family and friends. I contracted overseas for 10+ years before 5 years ago, so it was wearing thin for them and me, but that was 5 years ago...

Heck, if you WFH, just move to the Isle of Man! I have met a large number of guys I know from the UK who are now overseas.

[WordIsBond]

I agree with much of what you say, but a devil's advocate approach to the above - I accept that based on the above risks/lower rights contractors should perhaps be entitled to higher "pay" from the end client than an employee...but lower taxes?

If it is basically just a deal between worker and business needing work, then potentially there could be a two tier system, "employees" with more rights but lower pay, and "contractors" with fewer rights but higher pay...but why does it follow that the contractors should also suffer lower taxes?

This is a good and fair argument that needs to be answered, but since you needed to ask it I'm not going to let you be in charge, I'm still going to be Chancellor.

The biggest reason is because we have (admittedly often ugly) history of using tax policy (or other forms of subsidies) to encourage behaviour that is beneficial, either socially or economically. Having a significant flexible work force benefits the economy as a whole. Even those who never use them benefit marginally by having the option to do so if needed -- it opens up other possibilities to them which they might use in future. Thus, those who engage flexible workers are providing an economic benefit to the entire economy by sustaining this work force.

If there is no tax benefit, then the entire cost of the beneficial risk-taking is absorbed by either the risk-takers themselves or those who engage them. It is only fair and right that engagers should pay more, since the largest part of the benefit is theirs, but others benefit, too, and since it benefits the entire economy, and thus the entire society, it is only just that society (through tax policy) shares in the cost of encouraging this behaviour.

Do I get your vote yet?

Re the look through, my concerns are more around the boundary. As with many of these ideas, it can make sense for the small guys who its aimed at, and makes sense to not be in it for the big boys...but then somewhere along the line you'll have an awkward bunch of people straddling the rules. Do they simply get to choose? If so, HMRC may not be happy as of course they're going to choose the option that works best for themselves.

The Americans do it by making the regulatory burden much heavier for C corporations than for S (the look-through entities). It seems workable. You decide, based on the nature of your business, whether the protection from look-through is worth the regulations.

The key is to structure it so the overall tax burden is comparable. Then, you are making your company structure decisions based on what makes the most sense for your particular business, rather than due to tax imbalances.

If they're going to go sort of down that route, then I'd suggest a better way of doing it is looking at reasons why your typical one man band doesn't go sole trader, and see if you can address them. It is a bit daft that so many one person businesses have Ltd Cos, registered as employers just so they can pay the owner alone, then awkwardly fudging around with auto enrolment etc.

Ok, I still want to be in charge, but you can be my deputy.