HMRC lose ir35 case

[ASB]

Screw Brown and HRMC, they dont even realise that they get more £ from me as a contractor in tax, VAT etc than they will be getting from as permy,
so ******* pointless.

It's probably closer than you think though.

Lets assume you are a contractor produce income of 100k pay CT of 20k and manage to distribute it all with no further tax to pay.

Now let's assume you are a permy on say 50k. This generates about 21k in tax an NI. But it also (in theory) generates an additional 10k or 15k in CT due to the additional 50k profit the client (or employer) has made because their expenses have reduced by 50k.

If you are efficient in your <strikeout>tax avoidance</strikeout> tax mitigation exercises then they will see more as a permy on half the salary.

[Denny]

Out of interest, if you do get caught as “inside” when you did everything possible to ensure you were “outside”, if you have substantial savings, can you opt to pay them into a pension so that you avoid being responsible for a staggering amount of back PAYE tax & NI?

No, of course not. The money was never yours to begin with so it's not yours to distribute.

[Denny]

tow the line.

toe the line.

[Ardesco]

It's probably closer than you think though.

Lets assume you are a contractor produce income of 100k pay CT of 20k and manage to distribute it all with no further tax to pay.

Now let's assume you are a permy on say 50k. This generates about 21k in tax an NI. But it also (in theory) generates an additional 10k or 15k in CT due to the additional 50k profit the client (or employer) has made because their expenses have reduced by 50k.

If you are efficient in your <strikeout>tax avoidance</strikeout> tax mitigation exercises then they will see more as a permy on half the salary.

But that wouldn't happen, you would drop into the higher rate tax band if you tried to take out 80k as a divi which would add another £11500~ tax into the equation, also you will want to make sure you make your minimum NI payments to ensure you qualify for a state pension when you hit retirement age.

So you are now looking at the contractor paying £31500~ in tax.

On the permie side if the company brings in £100,000 and the permie is paid £50,000 the company has only made £50,000 profit (assuming there are no operating costs which is totally unrealistic, but lets go with this figure anyway) That means the permie company pays £10,000 in CT, then add the £21,000~ tax burden the permie pays and you have £31,000~ going to the taxman.

The tax man actually gets slightly more tax from the contractor!! Wave these figures in front of the next permie that calls you tax dodging scum....

[ASB]

But that wouldn't happen, you would drop into the higher rate tax band if you tried to take out 80k as a divi which would add another £11500~ tax into the equation, also you will want to make sure you make your minimum NI payments to ensure you qualify for a state pension when you hit retirement age.

So you are now looking at the contractor paying £31500~ in tax.

On the permie side if the company brings in £100,000 and the permie is paid £50,000 the company has only made £50,000 profit (assuming there are no operating costs which is totally unrealistic, but lets go with this figure anyway) That means the permie company pays £10,000 in CT, then add the £21,000~ tax burden the permie pays and you have £31,000~ going to the taxman.

The tax man actually gets slightly more tax from the contractor!! Wave these figures in front of the next permie that calls you tax dodging scum....

I can't wave that in front of the next permie since that'd be me now

In any event I think that establishes my point. Which was simply that the argument which says I must pay more overall as a contractor because I earn twice as much is not necessarily true. The "savings" in cost between contractor and permie will simply become somebody else taxable profit. [Of course a lot of international business may be structure in such a way as this make no difference to their UK tax bill].

[Ardesco]

I can't wave that in front of the next permie since that'd be me now

In any event I think that establishes my point. Which was simply that the argument which says I must pay more overall as a contractor because I earn twice as much is not necessarily true. The "savings" in cost between contractor and permie will simply become somebody else taxable profit. [Of course a lot of international business may be structure in such a way as this make no difference to their UK tax bill].

Well you originally implied they would get more tax from a permie than from a contractor which isn't necessarily true. Bear in mind that a permie company thats brings in 100k and pays the permie £50,000 will not make £50,000 in profit either. i would suspect that it would be closer to £25,000 due to all the outgoings that they have which will be much greater than the average contractors outgoings.

Trying to work out an exact figure in either case would take a huge amount of time and would depend on a whole load of circumstances, but generally speaking we can show that your average contractor is probably paying just as much tax as your average permie if not more.

[ratewhore]

Lets assume you are a contractor produce income of 100k pay CT of 20k and manage to distribute it all with no further tax to pay.

eh? What about salary and the associated PAYE/NI for starters?

[Chugnut]

It sounds like you can't simply cannot declare yourself outside of IR35 with any confidence unless: -

a) the agency supplies you the upper level contract (very unlikely since it is technically nothing to do with you) and the outside-IR35 indicators are present in both.

b) the agency supplies you confirmation in writing that nothing in the upper level contract will invalidate any terms in your lower level contract with regard to your IR35 position.

c) go direct - very difficult in many cases.

If you can achieve any of the above then I think you're there. Certainly defensible by PCG, QDOS, etc. Otherwise, it now seems that your own contract is worthless and all the working practices questionnaires in the world won't overrule the upper level contract.

I also think there is small print in the insurers docs which will void any payment in the event of other issues coming to light which would have prevented cover being offered in the first place. I would say this includes contradictory terms in the upper level contract.

Using Ardesco's analogy, I would never consider a builder to be my employee whether he worked in a team, on his own, subbed or didn't sub, but I would expect to check his work (called a snagging list FFS!) and provide updates on progress. Who wouldn't? Still not my employee though.

[ASB]

Well you originally implied they would get more tax from a permie than from a contractor which isn't necessarily true.

It wasn't my intention to imply that (though the top of my head example obviously gave that impression inadvertantly). It was only my intention to suggest that the difference may - in a lot of cases - be less marked.

It obviously depends on the individual circumstances, how tax efficient the contractor can potentially be.

[ASB]

eh? What about salary and the associated PAYE/NI for starters?

Depends on circumstance. Personally my non working spouse held a major shareholding. In the 100k example:-

Salary 2 x 5k. NI/TAX nill.
Gross profit = 90k. CT = 18k. Net = 72k
Dividends = 64k.

Higher rate tax nil. Retained earnings 8k - later extraction via ESC16 with no CGT.

Could have extract the 8k bringing 2k higher rate tax. Total tax paid in this scenarios would be 18k CT + 2k higher rate.

Extreme, possibly. But it was achievable. And won't be from March of course.