Why does IR35 apply only to Personal Service Companies, not to sole traders?

[proudfeet]

The purpose of IR35, unless I am very much confused, is to determine whether or not an individual is effectively an employee of the client, and that they should be taxed appropriately. Employees pay more tax (when adding employer NICs) than sole traders. So shouldn't IR35 apply equally to sole traders? And if a sole trader is 'inside' IR35 then they should be taxed as if they are an employee?

[NotAllThere]

Because liability for taxes and NI already lies with the client or agency. That's why agencies won't touch sole traders.

[northernladuk]

Oh dear oh dear...

6 weeks to go and we are getting questions like this

[cojak]

The OP is already working as a sole trader for a client who has accepted those risks.

Not everything is black and white NLUK...

[Lance]

The OP is already working as a sole trader for a client who has accepted those risks.

Not everything is black and white NLUK...

Sole traders have no issues with ir35, and can claim expenses.
I predict that this will become an option for it contractors in the next year.

[northernladuk]

Sole traders have no issues with ir35, and can claim expenses.
I predict that this will become an option for it contractors in the next year.

It won't because it brings an element of risk to the fee payer as it always has so very much doubt, bearing in mind we are here due to clients being risk averse, that they will accept any risk.

[northernladuk]

The OP is already working as a sole trader for a client who has accepted those risks.

Not everything is black and white NLUK...

It kind of is. The first few paragraphs of what IR35 is kind of explains it really. He might be at his client as a sole trader but that doesn't mean he doesn't need to understand the basics while the contracting world out there implodes.

[jamesbrown]

Sole traders have no issues with ir35, and can claim expenses.
I predict that this will become an option for it contractors in the next year.

While tax liabilities may operate as a disincentive, there are strong incentives for a client to work with a contractor's company, rather than an individual (due to other liabilities). The tax risk may be similar, post-April, when the client is not the Fee Payer and the relationship looks like one of employment, but other risks will not. So I predict that it won't become an option for contractors in the next year. There is no hint of this now (for good reasons) and there won't be.

[JohntheBike]

The OP is already working as a sole trader for a client who has accepted those risks.

Not everything is black and white NLUK...

yes, but let's investigate the underlying issues. The whole debate around IR35 has been about individuals who were in reality working as employees, whatever commercial framework that they were employing, but particularly a Ltd. company. So what would it be about a sole trader that would over ride the reality of any engagement, which was employee like? I still believe that the prime target for IR35 was IT contractors. Are there no sole traders working for clients in an employee manner?

[TestMangler]

yes, but let's investigate the underlying issues. The whole debate around IR35 has been about individuals who were in reality working as employees, whatever commercial framework that they were employing, but particularly a Ltd. company. So what would it be about a sole trader that would over ride the reality of any engagement, which was employee like? I still believe that the prime target for IR35 was IT contractors. Are there no sole traders working for clients in an employee manner?

A sole trader can't split salary and dividends for a start, so there is a lot less avoidance around the sole trader model.
(In IT at least, where the trader is not paid in cash). A sole trader will have to pay the requisite tax on their turnover minus expenses with no other option for moving things around to avoid the old 'fair share'. A sole trader will have to pay the taxes due (Income Tax and NIC) for their income minus expenses.