BN66 - the road to Judicial Review

[ASB]

there's the old £200m quote again...deja vu and a load of guess work rubbish from HMRC to justify legislation...

what I dont think is balanced or taken into account in the article is the amount of Corporation tax lost due to the move away from dividend payment low salary structures used by a large number of LTD's that shut up shop following IR35. Or for that matter people who went perm once IR35 was imposed, on a lower salary actually yielding lower tax contribution from the individual than they were paying as an LTD thru personal taxation on divs, and CT on company profits...

It's hard to factor in. But consider one contractor who was billing 100k and took a permie job at 50k.

In the former if they were super efficient then they would be making contributions to the exchequer of around 25k total.

In the latter the exchequer get about 20k (inc ER's NI), but the company would alsmake about a 20k extra profit (after allowing for the associated costs of employment like pensions etc). This would yield another 6k in CT so on the face of it the exchequer is about 6k better off.

However most people billing 100k would be unlikely to be able to get down to 25k total so the difference in overall take by the exchequer is minimal.

Just my view of course.

[smalldog]

ASB thats the sort of balance I think is missing. Its also never considered when justifying things like IR35. ITs too black and white which is actually where HMRC miss a trick..they are very binary in their thought processes, or at least appear to be.

[Emigre]

Lets be honest, the PCG discovery of HMRC receipts under IR35 is largely meaningless and should at best be viewed as a step towards getting more useful information. The reality is that the contractor community split itself between going permie, not being IR35 anyway, staying with PSC, using umbrellas, or looking at sometimes more aggressive schemes like those like the IOM DTA scheme or EBT loans etc.

Who knows what the real impact on Govt revenue has been. The one real certainty is that IR35 created complete uncertainty in the tax system for contractors (and in the minds of HMRC). Section 58 FA 2008 legislation extended that uncertainty.

Since this Govt came to power 10 years or so ago the amount of tax legislation has more than doubled. The UK tax code has grown from 5,000 pages to over 11,000 pages and that includes fitting more on each page. You'd be forgiven for thinking that more code would equal more certainty. Oh no, there has been a consistent lack of drafting quality coupled with inadequate consultation.

Clueless and incompetent. Smalldog, since savings from new legislation are always £200m i'm more inclined to the idea they have ternary thought processes

[smalldog]

their processes maybe, but the implementation and trying to understand and unravel what the hell it all means is more akin to debugging hexidecimal..!

[Emigre]

their processes maybe, but the implementation and trying to understand and unravel what the hell it all means is more akin to debugging hexidecimal..!

[silver_lining]

It's hard to factor in. But consider one contractor who was billing 100k and took a permie job at 50k.

In the former if they were super efficient then they would be making contributions to the exchequer of around 25k total.

In the latter the exchequer get about 20k (inc ER's NI), but the company would alsmake about a 20k extra profit (after allowing for the associated costs of employment like pensions etc). This would yield another 6k in CT so on the face of it the exchequer is about 6k better off.

However most people billing 100k would be unlikely to be able to get down to 25k total so the difference in overall take by the exchequer is minimal.

Just my view of course.

what you are failing to factor in is the huge enforcement costs... legal etc. its costing the taxpayer millions

My bets are HMRC/ HMT are in the red by £200M yr on yr..... dare anyone counter the £200M science.

[ASB]

what you are failing to factor in is the huge enforcement costs... legal etc. its costing the taxpayer millions

My bets are HMRC/ HMT are in the red by £200M yr on yr..... dare anyone counter the £200M science.

No I wasn't forgetting to factor it in. (BTW I recall the original RIA for IR35 said 50k PA for TOTAL compliance matters ). What I was trying to suggest was simply that the movement from contractor to permie (again a stated aim of the RIA for the "majority" of 66,000 business affected) is largely illusory in terms of exchequer revenue. What actually happens is that the "extra income" the contractor potentially enjoyed is simply moved from the contractor pocket to the company pocket but largely dispersed in employment costs (both of benefit to the ex-contractor and to fund HR process).

I just wonder if the current government have removed the bit about "placing the means of production in the hands of the workers" from their constitution, it is certainly something they do not like - especially when the producer is an individual.

What is extremely difficult with IR35 is to try and figure the real overall positions, lots of people simply move to brolly or offshore, Quite a lot presumably just pay up. I know the stats say X investigationd and HMRC nearly always lose but that doesn't paint anything like a true picture (in my view).

My suspicion is that overall the "tax by terrorism" obtained invisibly probably exceeds compliance costs (it's just a gut feeling though). Some of the larger brollys are amongst the largest PAYE payers in the country. In some ways this reduces compliance costs, because there is effectively one account instead of say, 3000.

[DonkeyRhubarb]

With the dire state of the public finances, even the Tories won't repeal IR35 unless it can be shown to be tax neutral or better still tax raising. (Same goes for the 50% band.)

If every contractor switched to an offshore scheme, that might do the trick.

Returning to BN66, even though the Tories opposed it, I can't see them reversing it for the same reasons. They are going to need every single £ in tax that they can lay their hands on over the next few years.

I wouldn't even be surprised if they grant HMRC greater powers and yet more dodgy legislation.

[smalldog]

With the dire state of the public finances, even the Tories won't repeal IR35 unless it can be shown to be tax neutral or better still tax raising. (Same goes for the 50% band.)

If every contractor switched to an offshore scheme, that might do the trick.

Returning to BN66, even though the Tories opposed it, I can't see them reversing it for the same reasons. They are going to need every single £ in tax that they can lay their hands on over the next few years.

I wouldn't even be surprised if they grant HMRC greater powers and yet more dodgy legislation.

but surely there needs to be some science applied before the government and HMRC make anymore snap decisions to actually prove its cost efficient to retain or implement legislation.

As you say they need every penny, so need to be extra sure they are going to yield the revenues they claim. It cant be on whimsy or for spiteful
purposes.

[DonkeyRhubarb]

but surely there needs to be some science applied before the government and HMRC make anymore snap decisions to actually prove its cost efficient to retain or implement legislation.

As you say they need every penny, so need to be extra sure they are going to yield the revenues they claim. It cant be on whimsy or for spiteful
purposes.

These people don't live in the real world. They only seem to consider what the legislation is supposed to do, not what the side-effects or unintended consequences might be. And then they wonder why it never seems to quite work out the way they planned.

It would be interesting to know how many new pieces of legislation IR35 has spawned in the last 8 years. I can think of 3 off the top of my head (EBT, MSC, BN66) but I suspect there are more.

I bet HMRC never anticipated that the tax avoidance industry would step in to fill the gap, or that companies would start offering contract review services and investigation insurance making it virtually impossible to enforce.

I also bet they never expected what's happened as a result of BN66.