New IR35 Guidance hot off the presses

[private123]

It is my opinion that this is what HMRC want, to con you into thinking you are inside IR35 and acting accordingly.

That is my point, it's hard for a new contractor to think they are outside IR35 using these tests, and it's a scary thought for a newbie that a few years down the line, even though you may have had your contract professionally reviewed, that HMRC could come knocking for some cash. Makes me think they are more likely to target new LTDs.

[Precept]

Deemed Payments

There has been various references to deemed employment. The HMRC document that I am looking at: "Intermediaries Legislation (IR35) - Working through an intermediary, such as a Personal Service Company" refers to -

The aim of the legislation is to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships, in circumstances where an individual worker would otherwise -

For tax purposes, be regarded as an employee of the client; and
For NICs purposes, be regarded as employed in employed earner’s employment by the client.

The deeming aspect appears to relate specifically to the payment.

Since the payment is made against an invoice which must be "chased" if it is overdue for payment and will be included with all other trade creditors in insolvency proceedings it does not have the same status as an overdue payment of wages (which can be pursued through a tribunal and will be regarded as a preferential creditor).

So what exactly are the circumstances that allow HMRC to regard the Contractor as an employee.

[BlasterBates]

It's not easy as this case demonstrates:

<snip>

This contractor started off as outside IR35 but slowly drifted inside. He had to pay some of his NI contributions.

The IR35 line can be hazy.

[GeekyGrandad]

Employee deeming

There has been various references to deemed employment. The HMRC document that I am looking at: "Intermediaries Legislation (IR35) - Working through an intermediary, such as a Personal Service Company" refers to -

The aim of the legislation is to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships, in circumstances where an individual worker would otherwise -

For tax purposes, be regarded as an employee of the client; and
For NICs purposes, be regarded as employed in employed earner’s employment by the client.

The deeming aspect appears to relate specifically to the payment.

Since the payment is made against an invoice which must be "chased" if it is overdue for payment and will be included with all other trade creditors in insolvency proceedings it does not have the same status as an overdue payment of wages (which can be pursued through a tribunal and will be regarded as a preferential creditor).

So what exactly are the circumstances that allow HMRC to regard the Contractor as an employee.

HMRC will by default regard (deem) a contractor as an employee in an attempt to extract what they see as avoided tax (and more, let's face it) by virtue of IR35. Now, as with all HMRC challenges, it is up to you to prove you are innocent by not working like an employee when compared to "employee" case law which includes in particular Mutuality of Obligation, subsitutiuon and also Direction and Control.

IR35 is a result of the politics of greed and envy that exists in HMRC because they see someone who sits on a client's seat, doing the same work as one of the client's employees but potentially taking home more "pay" as a tax avoider.

[private123]

But even if you "pass" the traditional tests of MoO, RoS and Direction and Control, you only get 2 points.

[JamJarST]

But even if you "pass" the traditional tests of MoO, RoS and Direction and Control, you only get 2 points.

And you are outside IR35 so as others have said here, ignore these rubbish tests.

[BlasterBates]

But even if you "pass" the traditional tests of MoO, RoS and Direction and Control, you only get 2 points.

It's case law. The above probably wouldn't be sufficient to get you through. The commissioner will also be looking for elements of client risk, and tying earnings to efficiency. In other words, whilst not necessarily passing the tests as written, you should be partially satisfying some of the criteria.

It's commonsense really, are you behaving as if you were a one man version of Accenture, "screwing the client", or are you a bum on a seat told what to do, i.e. "being screwed by the client".

[cojak]

Just seen this bit (page 9) - HMR&C specialists can review a contract for you....if you are found to be outside IR35 they will give you a certificate valid for 3 years

Not much point in that, my contracts never last longer than 2 years, at 3 years you could see yourself as a possible disguised employee!

Unless my subsequent contracts could be included in that 3-year waiver but I can't see it since IR35 is considered on a contract by contract basis.

HMRC really aren't very good at this tax lark, are they?

[LisaContractorUmbrella]

Not much point in that, my contracts never last longer than 2 years, at 3 years you could see yourself as a possible disguised employee!

Unless my subsequent contracts could be included in that 3-year waiver but I can't see it since IR35 is considered on a contract by contract basis.

HMRC really aren't very good at this tax lark, are they?

you're not kidding Cojak

[LisaContractorUmbrella]

Not a matter of luck Lisa. The obstacle is the complexities and inequities in the tax system. It is a matter of putting concise, fully researched and costed proposals in front of HMG that makes true tax simplification reality for the benefit of not only contractors, not only SME's but the public in general. True tax simplification would level the playingfield such that the inequities are dealt with and thus make it impossible for HMRC to need to DEEM employee status on freelances because of a perceived tax avoidance. Combine that with a right to be self-employed (or in business) and the whole thing is better for UK Plc and the taxpayer.

As as said eariler, if a mutually agreed and reciprocal contract of employment exists, you are then and only then an employee. Anything else is an "in business" (SE, LtdCo, LLP) status. If you sign a contract of employment then your employer is responsible for meeting the tax and employment laws. If there is a contract for services in place e.g. "in business status" then there are rules and regulations in place currently that make tax and other obligations mandatory.

It is totally wrong to have allowed HMRC to go after the client if a non-employee fails to meet tax obligations. That was the easy option for HMRC and by providing them with that legislation, they by default have managed to create case law the gives them the deeming capability. In the process of simplification, make the non-employee fully responsible (as we should be - we're in business after all!) and thus neuter HMRC's capability to deem.

Lastly, as an umbrella company, you have a vested interest in the status quo and possibly even enhanced IR35 action as your business model only really exists because of IR35.

Most people would agree with everything you say but, the fact is, that is just the way that you want things to be - there is not an iota of realism. It has been proven that greater net revenue would be generated from a single rate of tax but it will never happen because too many civil servants will be out of a job