New PCG IR35 Questionnaire

[Lewis]

If the two sides of the company are totally separable I think HMRC would concentrate solely on 'your' side, ignoring the Plan B. If it was you alone running both sides it may be different.

If that was true, and I'm not saying they wouldn't try that, then they would been selectively applying the tests to aspects of your business not it as a whole - which is rediculous.

Perhaps I should have added that I spend most evenings and weekends doing the coding for Plan B whilst the wife spends the day doing sales, marketing, advertising, invoicing, admin etc.. Plus the money that funds Plan B comes directly from the money earnt from the contract.

If they were to take out the contract from the business and treat it separately what is the point of the business tests?!

[TaxedToDeath]

I doubt that

My understanding is that they will ask these Business Entity Questions as part of an initial investigation (
<snip>)

It won't go on the P35. There will be a tulip-load of investigations instead.

HMRC tend to do risk assessment as a scan/query, using the data they receive from various sources. I doubt that anyone really believes that this will only be used as an initial assessment for those businesses that they choose to investigate to some greater or lesser degree - it will end up being data that they collect in a broad-brush fashion. I believe it will end up as a supplementary set of questions to be answered by those who tick Yes in the "Are you a service company?" box.

But I also think there will also be a lot of investigations, to "test the system".

[Sockpuppet]

From their point of view this industry is a target for scrutiny under avoidance rules because there are so many people who are prepared to bend or even break the rules. The new tests haven't even been published yet and people are trying to find ways around them rather than genuinely thinking about how they could change their current way of working to behave more like a business and therefore comply with what's required. With the best will in the world, how many people outside of this industry would view a contractor doing a job alongside a permie, at the same site for a couple of years, with no employees, no special tools required etc etc as a 'business' - I think most people would say that they are behaving like an employee so, if they had to pick one or the other, that's what they'd be.

Agreed.

We've become a target because most people take the piss. Today on site I found out a person on the project team is a Contractor - I thought he was a permie FFS! I think its time that HMRC solved the contractor problem. This may be counter intuitive as I could be prime target for an investigation however in the grand scheme of things I think I'm one of the most business like contractors there are.

But the problem is that most genuine businesses will be hit by these those who bury heads and chance it won't care about the new tests and will carry on regardless.

[TaxedToDeath]

It's called &quot;self-employment&quot;

The problem, right from the start, has been that contractors fall somewhere in the middle between an employee and a business and HMR&C don't like it.

Yes, it's called self-employment. It's what freelancers always were until HMRC tried to close some loopholes that meant that agencies might be liable for ER NI if people were under Sch D through them, so the Ltd Co route was forced on the contracting world. Under Sch D people paid about 8-9% NI - fair enough.

What IR35 did was to lumber people who were determined to be employees with both ER NI and EE NI, which was certainly NOT fair enough, since employees only pay EE NI. Dim Prawn's assertion (re ER NI) that "somebody has to pay it" was total tosh - under Sch D no ER NI is payable to the government by anyone.

The true anomaly with IR35 is that, in determining whether or not someone is self-employed, the only outcome that is not allowed is that... you're self-employed! (and should therefore pay the self-employed level of taxes under Sch D). Bizarre. Supposedly you have to be a "business" and can remunerate yourself without paying any NI if you wish, or an "employee", but a very strange variant that pays both forms of NI. Neither outcome is what you would expect to happen for working peoples' income.

In the pre-IR35 days, people certainly took the mickey by paying a salary below the NI threshold and the rest as dividends. Campaigning for repeal of IR35 is effectively campaigning for a return to those days - as Osborne noted in the Budget speech, they realise that repeal would lead to mass incorporation for tax avoidance purposes. Therefore repeal is a dead duck.

And so it should be. EE NI / Sch D NI is effectively income tax these days - it was intended to be levied on working people's income, therefore when working people use dividends to avoid it, that is unreasonable in a social sense. My opinion has been, for some years now, that campaigning to have the outcome of an IR35 assessment include self-employment and therefore the associated Sch D taxes (while operating through a Ltd Co and being able to retain profits etc) is the way to get to where freelancers need to be.

Unfortunately, we don't have a representative body that understands this.

[BoredBloke]

I think maybe the key to all this is to go back to why the legislation was introduced in the first place. HMR&C were of the opinion that some people who were running a single person limited company were operating more as an employee than a legitimate business. The problem, right from the start, has been that contractors fall somewhere in the middle between an employee and a business and HMR&C don't like it. Contractors have gradually become embroiled in the centre of the legal mess that has brought tax law and employment law together; you can be an employee for tax purposes but not for employment protection purposes and vice versa and it has caused confusion on many levels within the industry - look at the AWR regs. Unfortunately, unless HMR&C can accept that there are employees, corporations and contractors this situation will only get worse.

From their point of view this industry is a target for scrutiny under avoidance rules because there are so many people who are prepared to bend or even break the rules. The new tests haven't even been published yet and people are trying to find ways around them rather than genuinely thinking about how they could change their current way of working to behave more like a business and therefore comply with what's required. With the best will in the world, how many people outside of this industry would view a contractor doing a job alongside a permie, at the same site for a couple of years, with no employees, no special tools required etc etc as a 'business' - I think most people would say that they are behaving like an employee so, if they had to pick one or the other, that's what they'd be.

The way it was originally spun was to protect employment rights. The Friday to Monday phrase came about by people being laid off from permiedom only to reappear as a limited company worker doing the same job for the same client. They would be told that they could earn more moeny this way due to their ltd company status but the end client would maintain a high degree of control. IR35 was meant to make that part less attaractive and I agree that this should be the case. But the scope was widened to us and that's where the problems started. I only ever wanted to work for myself. I have never had a permie job. I picked contracting because the returns are better, but mainly because it rewards hard work, it gives variety and is flexible. I didn't do it for any tax reasons. I work by whatever laws are in place but I don't see why my little business should be vicimised by the HMRC simply because they see it as being less of a business than another 1 man band in another industry sector.

[swamp]

Yes, it's called self-employment. It's what freelancers always were until HMRC tried to close some loopholes that meant that agencies might be liable for ER NI if people were under Sch D through them, so the Ltd Co route was forced on the contracting world. Under Sch D people paid about 8-9% NI - fair enough.

What IR35 did was to lumber people who were determined to be employees with both ER NI and EE NI, which was certainly NOT fair enough, since employees only pay EE NI. Dim Prawn's assertion (re ER NI) that "somebody has to pay it" was total tosh - under Sch D no ER NI is payable to the government by anyone.

The true anomaly with IR35 is that, in determining whether or not someone is self-employed, the only outcome that is not allowed is that... you're self-employed! (and should therefore pay the self-employed level of taxes under Sch D). Bizarre. Supposedly you have to be a "business" and can remunerate yourself without paying any NI if you wish, or an "employee", but a very strange variant that pays both forms of NI. Neither outcome is what you would expect to happen for working peoples' income.

In the pre-IR35 days, people certainly took the mickey by paying a salary below the NI threshold and the rest as dividends. Campaigning for repeal of IR35 is effectively campaigning for a return to those days - as Osborne noted in the Budget speech, they realise that repeal would lead to mass incorporation for tax avoidance purposes. Therefore repeal is a dead duck.

And so it should be. EE NI / Sch D NI is effectively income tax these days - it was intended to be levied on working people's income, therefore when working people use dividends to avoid it, that is unreasonable in a social sense. My opinion has been, for some years now, that campaigning to have the outcome of an IR35 assessment include self-employment and therefore the associated Sch D taxes (while operating through a Ltd Co and being able to retain profits etc) is the way to get to where freelancers need to be.

Unfortunately, we don't have a representative body that understands this.

WTTDS

[malvolio]

WTTDS

Oh dear God, there's two of 'em.

Someone explain in words of one syllable how Schedule D personal taxation aligns to corporate Limited Company ownership, how any company would get started without being able to reserve and re-invest income and how you distinguish between MyCo and Tesco when deciding which taxation regime to apply. And after working that miracle, how do you get around S44-47 ITEPA 2003 - and if you don't know why that's relevant it would explain a lot.

Until then, stop talking <mod snip> now, now...

[TaxedToDeath]

Oh really? lol

S'funny. Don't recall your contribution. I do recall someone getting banned for forum abuse though. Still the S99 article was quite amusing; always good to have a chuckle first thing in the morning.

I see your memory is operating at its normal capacity.

If someone was banned from your forums then they've gone up a notch in my estimation, but it wasn't me.

I assume that you're referring to this Shout99 article?

[cojak]

However on this forum it will be me, and I'll ban all parties to the childish 'ya boo sucks' comments.

HTH.

[TaxedToDeath]

Groan. More of the same.

Oh dear God, there's two of 'em.

Someone explain in words of one syllable how Schedule D personal taxation aligns to corporate Limited Company ownership, how any company would get started without being able to reserve and re-invest income and how you distinguish between MyCo and Tesco when deciding which taxation regime to apply. And after working that miracle, how do you get around S44-47 ITEPA 2003 - and if you don't know why that's relevant it would explain a lot.

Until then, stop talking bollocks.

The usual stamping and shouting without thinking, I see.

We are discussing what the law could say. Is your imagination so limited that you cannot see that this is a possible change? And that it has a lot more merit than repealing IR35 in the eyes of the public. The only choices are not to repeal a law that other peoples' imagination came up with, or to live with it - you're allowed to think for yourself as to what how ou think the law might be shaped and then campaign for it.

S44 applies to workers i.e. those not using Ltd Cos. IR35 is, in a sense, the equivalent for the incorporated. Therefore by the very fact of working through a Ltd Co and using an agency for introductions, S44 does not apply.

The differentiation between Tesco and SmallCo is already being made - what is at issue is which tax regime should be levied in the different outcomes.

The truly odd thing is that the PCG have also stated that they would like to see S44 repealed as an alternative to repealing IR35. That means that they would be happy to see freelance people pay Sch D taxes - but are unable to extrapolate that to see that S44 exists for other reasons (to do with other forms of agency abuse) and needs to be left in place for those reasons, therefore allowing Ltd Cos to have Sch D taxes levied against them is the sensible alternative.

Is it beyond the wit of Man to allow a status enquiry to say: "we think you're self-employed and should pay NI under SchD"? No, of course not. So why is it that you find it so difficult a concept to grasp?

And the possibility that small companies could opt for that status (still as subject to challenge as ever, of course), is also a perfectly reasonable approach - why force people to chose from one of two ridiculous extremes and then wait until the tax man cometh before a sensible outcome can be achieved?

I really do not understand... why you cannot understand this. It's really very simple.

There is already work being done by the Treasury to develop new corporate structures suitable for people like freelancers.