IR35 - who are the actual targets?

[TykeMerc]

Lewis, the Friday-Monday phenomenon was where the person left their permy job on a Friday only to return almost immediately to the same desk/tasks/management as a "contractor". In effect they never left the job and were just disguised permanent employees, it was a common syndrome where the tax man lost out.

It's not the lag that's relevant, but the same job/employer/desk/practices/management.

[Lewis]

Lewis, the Friday-Monday phenomenon was where the person left their permy job on a Friday only to return almost immediately to the same desk/tasks/management as a "contractor". In effect they never left the job and were just disguised permanent employees, it was a common syndrome where the tax man lost out.

It's not the lag that's relevant, but the same job/employer/desk/practices/management.

Yes, I'm well aware of the phenomenon. I'm not saying I don't understand. What I'm saying is so what .... If the person leaves, sets up a company, becomes VAT registered, PAYE registered and then rejoins his old team a few days later ... so what, he is now a business. He was an employee he is now a contractor simple (in my mind). The person has moved from one way of working to another. He has replaced one set of taxes with another.

I *KNOW* this is not how HMRC see it, but I see it differently, I think trying to bend the Ltd company rules to catch this scenario, which I suspect in reality is very rare is senseless.

I've been contracting for 12 years; I've yet to come across a Fri-Mon guy and if IR35 was really about catching these people, it could be very simply worded along the lines you used above ...

I've often heard, anecdotally, that permies and contractors cost a company roughly the same, when you factor, pensions, redundancy, training etc.. I don't know if it is true. But again in 12 years I've only ever heard of companies trying to force contractors to go permie, not the other way round.

But like I say, these arguments have been going round for years and I think 99% of contractors are in agreement that IR35 is senseless. I just hope its replacement is not worse!!

[TykeMerc]

Sorry if there was an element of teaching granny to suck eggs in my last post.

In the mid to late 90's it was a pretty common scenario. Several banks I worked at over that period had dozens of them each that I knew about.

The employees liked the extra cash and didn't see it as having any real risks or drawbacks as they assumed the arrangement would be indefinite. In effect they were still employees, but hidden behind a fake moustache and big nose glasses.
The employers lost a permanent headcount, training, holiday, sick leave, pension, employers NI, redundancy liabilities but kept their employee.

HMRC lost loads of employers NI and found loads of the permietractors weren't paying their tax and NI properly if at all so went bananas and IR35 was born in reaction. Ok I'm oversimplifying a lot, but you get the picture.

On the cost side of things in truth when you factor in all of the real costs of permies then contractors work out at a similar level, but as contractors that's all invoiced so come off different budgets, features differently on the balance sheets, annual reports etc. Plus of course they can bin contractors in a pain free manner if things get cancelled/de-scoped/act like an arse.

[Wanderer]

If the person leaves, sets up a company, becomes VAT registered, PAYE registered and then rejoins his old team a few days later ... so what, he is now a business.

Well that's where HMRC disagreed. Spending £50 forming a limited company doesn't make you a "business".

My understanding was that a lot of high flying city boys and footballers were leaving their permie jobs and switching to Limited Companies in order to structure their tax affairs more efficiently. They would literally resign one day and return to work the next working through their LTD. The problem was that they weren't actually bonafide business people, they would just work for the same place for years. The sole purpose of the arrangement was to avoid tax and it was completely legal, though it required the employer to be willing to accept the arrangement.

At least on the face of it, this is what IR35 was brought about to tackle. I guess they just couldn't resist roping in a bunch of contractors, some of whom where permietractors working for a single client for years, others were genuinely flexible workers who would take on multiple clients.

Of course the whole IR35 ruleset is so woolly that they could never quite enforce it properly but when a big case came up they would string it out for years and years for fear of losing and destroying the "fear factor" surrounding IR35. Really what they wanted to do was to use Fear, Uncertainty and Doubt to scare people into compliance. For quite a while it worked too.

These days people are smartening up to the fact that IR35 is so vague that even if you trade outside, the worst that could happen is that HMRC get you to pay up the tax you avoided and actually HMRC have a really hard time winning their cases. The only "success" of IR35 has been the FUD factor whereby people who want a quiet life went with umbrellas or PAYE.

Now that a few cases have gone though the system and IR35 is exposed as being toothless they decide it's a good time to replace it. No doubt with something more "fair" which will of course mean that outside IR35 contractors will end up paying more tax.

[d000hg]

Where does it end then? Is my window cleaner an employee of my ltd company, for the 15 minutes he spends partially wiping a damp cloth over the more accessible bits of my windows?!

That's a pretty daft analogy. Do you, or most contractors, turn up when they feel like it and do 15min work and then leave? Or do they bill their regular 40 hours a week, every week?

Unfortunately the Fri to Mon contractor out numbers the real contractors by many 10's to 1 so the real guys get caught up in the catch all approach

I don't know about that, but the Mon - Fri contractors who work 9-5, 5 days a week would definitely seem to be in the majority and to the outside observer they are "going to work" and "have a job". Even their friends and family would probably believe this.

The contractors who do as much work as they choose to each week, turn up the days they deem necessary, etc, have to be the minority... however it does depend if you include freelancers as well. Freelancers are far closer to a 'real' business IMHO.

[Fred Bloggs]

Back in 80's and 90's when large industrial companies like ICI, Shell, CEGB etc... were losing staff to early retiremement as fast as they could, the Fri/Mon thing was extremely common. In fact for a while it bacame almost an expectation that when you were 50 you would be given a golden handshake, a pension and the next Monday started as a contractor. It really did need stopping but alas, in true "Sir Humphry" style, IR35 failed to meet its objectives.

[Lewis]

Well that's where HMRC disagreed. Spending £50 forming a limited company doesn't make you a "business".

My understanding was that a lot of high flying city boys and footballers were leaving their permie jobs and switching to Limited Companies in order to structure their tax affairs more efficiently. They would literally resign one day and return to work the next working through their LTD. The problem was that they weren't actually bonafide business people, they would just work for the same place for years. The sole purpose of the arrangement was to avoid tax and it was completely legal, though it required the employer to be willing to accept the arrangement.

At least on the face of it, this is what IR35 was brought about to tackle. I guess they just couldn't resist roping in a bunch of contractors, some of whom where permietractors working for a single client for years, others were genuinely flexible workers who would take on multiple clients.

Of course the whole IR35 ruleset is so woolly that they could never quite enforce it properly but when a big case came up they would string it out for years and years for fear of losing and destroying the "fear factor" surrounding IR35. Really what they wanted to do was to use Fear, Uncertainty and Doubt to scare people into compliance. For quite a while it worked too.

These days people are smartening up to the fact that IR35 is so vague that even if you trade outside, the worst that could happen is that HMRC get you to pay up the tax you avoided and actually HMRC have a really hard time winning their cases. The only "success" of IR35 has been the FUD factor whereby people who want a quiet life went with umbrellas or PAYE.

Now that a few cases have gone though the system and IR35 is exposed as being toothless they decide it's a good time to replace it. No doubt with something more "fair" which will of course mean that outside IR35 contractors will end up paying more tax.

I've heard this all before [sorry, I don't mean to be argumentative, like I said earlier I've been contracting 12 years, I've read a great deal about IR35 and I was there when it was introduced and the chaos it caused, and I've had to deal with it for a decade].

I'm just saying that my opinion about all this city-boy/footballer/mon-fri stuff is so what? Why should it matter? I think that the tax system would be simpler and better if where there exists a legal way in which to work, i.e. via a Ltd company, then it doesn't matter who your working for, when, how, whether you've worked for them before etc..

If HMRC aren't happy for a footballer or city-boy to work through a Ltd company, then they shouldn't have Ltd companies as a means of working. Why can't the whole population become a Ltd company if they want to? Why is supplying football services not a legitimate business?!

The answer is that HMRC won't get enough tax [or as much as they want], it has nothing to do with what defines a business. So then just tax all Ltds more and forget about all the IR35 type rubbish.

Why should a window cleaner, sweetshop or BP shareholder be taxed less than a footballer anyway? I just hate all this "you are now officially a Ltd company, company law applies to you ... except ... actually you are not because of X, Y, Z".

I'm against IR35 full stop for anybody, including Mon-Fri guys.

Maybe I'm just a bit naive ....

[Of course, all that said, I would be devastated if they did add NI to dividends or introduce an Oz style IR35 that depends upon percentage revenue generated from clients ) ]

[meanttobeworking]

That's a pretty daft analogy.

It's a little something we like to call hyperbole... Hyperbole | Define Hyperbole at Dictionary.com

[LisaContractorUmbrella]

I've heard this all before [sorry, I don't mean to be argumentative, like I said earlier I've been contracting 12 years, I've read a great deal about IR35 and I was there when it was introduced and the chaos it caused, and I've had to deal with it for a decade].

I'm just saying that my opinion about all this city-boy/footballer/mon-fri stuff is so what? Why should it matter? I think that the tax system would be simpler and better if where there exists a legal way in which to work, i.e. via a Ltd company, then it doesn't matter who your working for, when, how, whether you've worked for them before etc..

If HMRC aren't happy for a footballer or city-boy to work through a Ltd company, then they shouldn't have Ltd companies as a means of working. Why can't the whole population become a Ltd company if they want to? Why is supplying football services not a legitimate business?!

The answer is that HMRC won't get enough tax [or as much as they want], it has nothing to do with what defines a business. So then just tax all Ltds more and forget about all the IR35 type rubbish.

Why should a window cleaner, sweetshop or BP shareholder be taxed less than a footballer anyway? I just hate all this "you are now officially a Ltd company, company law applies to you ... except ... actually you are not because of X, Y, Z".

I'm against IR35 full stop for anybody, including Mon-Fri guys.

Maybe I'm just a bit naive ....

[Of course, all that said, I would be devastated if they did add NI to dividends or introduce an Oz style IR35 that depends upon percentage revenue generated from clients ) ]

HMR&C are of the opinion that, if you act like an employee you should be treated like one for tax purposes. The problem is that, as we all know, it is not that straight foward - IR35 itself is, at best, woolly and it did not have the desired effect as most contractors decided they were outside IR35 and HMR&C tax revenues did not shoot up overnight. Over the years, in order to 'clarify' the situation and try and increase tax revenues HMR&C have begun to rely on employment law to back up their ideas of what is or what is not a deemed employee. The trouble is that every time a contractor claims unfair dismissal or unfair treatment it adds grist to their mill as it widens the scope of what is considered an employee in law.

[d000hg]

It's a little something we like to call hyperbole... Hyperbole | Define Hyperbole at Dictionary.com

So you made a stupid comparison to prove you're right on a serious subject? That just strengthens the argument we're a bunch of chancers playing the system.