New IR35 Guidance hot off the presses

[LisaContractorUmbrella]

Except that if the tax payer was going on case law they would be outside and therefore not deliberate avoidance. HMRC don't make the rules, they just try to enforce them. Until the Courts decide that the new tests are worth referring to they don't mean anything legally.

If HMRC really wanted to solve IR35 they'd do something like the following.

Pay us £50 we'll review the contract and give you a pointer going forward. Either inside or outside IR35. If inside no charge. If you don't follow our guidance it will be tax avoidance.

Allow a 3rd party (e.g. accountant) to submit the review for you with no personal details so it can't be traced to a business and people might go for this.

Fair point Sockpuppet - the tax payer should be able to rely on legal precedent but IR35 status determination is linked in to employment as well as tax law which means that there are new legal precedents every day and they won't all be IR35 cases.

I think you should put your idea to HMR&C but I should warn you that it is both reasonable and fair so is therefore unlikely to be taken up

[scooby]

Only problem with that is that it's now up to the individual to provide 'evidence' that they are outside IR35 - it won't be a matter of negotiation until HMR&C have decided that you're not.

Would be interesting to know the extent of evidence they require, i.e. more that the test questions.

For most of us (Home working contractors, no office) we will be medium to high risk as the standards tests score a max of 11.

So, the evidence required is a copy of the relevant test bits and the contract. would we have to provide a copy of the working practice signed by the customer? This still wouldn't clear you as I suspect this would turn in to a Q&A with HMRC and if QDOS / PCG wont get involved at this stage, you could easily hang yourself... be nice to understand how QDOS & PCG et al will handle this now.

Not sure i want to go spending £150+ pm on an office just to get low risk, especially as my home has a dedicated office and I've no need to use additional premises when i can go to my customers as needed.

[malvolio]

PCG wont get involved at this stage,

why ever not?

you could easily hang yourself... be nice to understand how QDOS & PCG et al will handle this now.

Dunno about QDOS, but any correspondence about the test is a de facto correspondence about IR35 and PCG cover is in place from that point on for all membership levels. I guess the membership would be mightily upset if it wasn't.

[BlasterBates]

This will become clear in about 6 months once the IR35 team gets cracking. PCG needs to report on this. It may just end up as a damp squib. However it does remind me of what they did in Germany. A routine enquiry as to why you are not paying Sozialversicherung followed up by a questionnaire and a request for a copy of your contract when you inform them you're self-employed. Then if you satisfy a few criteria they send you a bill and it becomes your responsibility to prove your innocence.

[Precept]

Looking beyond IR35

Whoever coined the phrase Umbrella Company aptly reflected the frequent squally conditions imposed on contractors and freelancers by HMRC. By virtue of its IR35 Guidance Notes and suggested points scoring system it has succeeded in provoking the latest cloudburst of accusations of discriminatory victimisation. Yet for all their diligence the Guidance Notes are unlikely to provide the ultimate solution for this burgeoning independent sector of the British economy.

HMRC are approaching the task from a desire to make PAYE/NIC contributions compulsory in those instances where the main objective is to evade tax and national insurance. That’s fair enough, there’s enough controversy about dodging tax a lot further up the wealth scale without hard working contractors being tarred with this inglorious brush. But PAYE conformity is not the biggest issue here.

What will be more important in formulating a long term taxing policy will be determined by the approach of Clients. It is they that drive the direction of economic activity in the country and this potency is already visible in statistics referred to in a recent Randstad report. It commented that "the UK already has the greatest penetration of temporary and contract workers in the EU... and our expectation is that over time, the economy will see a gradual development of interest in the benefits of temping and contracting by both job seekers and organisations." (see SJD Accountancy site)

In tandem with this, if it becomes increasingly common for long-standing Limited Company Contractors to move their tradesmen out of full time employment to their own separate individual entities HMRC can expect to have a lot more entities paying corporation tax rather than PAYE. HMRC will find it less relevant to argue about disguised employment in terms of Substitution, Control and Mutual Obligation and the Govt will have the entrepreneurial upsurge it is praying for. In those circumstances IR35 may become less of a weather hazard and may even blow itself out.

[JohnDoe]

Slightly off topic but if a contractor loses a case to HMRC and is found to be inside IR35 does HMRC tax turnover of said company during specific IR35 contract for PAYE/NI or is it taxed on dividends taken by contractor during duration of IR35 contract? Do you get a reduction/refund in your corporation tax since you would have less profits if you had been paying PAYE/NI?

[Sockpuppet]

Slightly off topic but if a contractor loses a case to HMRC and is found to be inside IR35 does HMRC tax turnover of said company during specific IR35 contract for PAYE/NI or is it taxed on dividends taken by contractor during duration of IR35 contract? Do you get a reduction/refund in your corporation tax since you would have less profits if you had been paying PAYE/NI?

Its PAYE/NIC on 95% of income during the contract period. Yes you get a CT discount.

[malvolio]

Slightly off topic but if a contractor loses a case to HMRC and is found to be inside IR35 does HMRC tax turnover of said company during specific IR35 contract for PAYE/NI or is it taxed on dividends taken by contractor during duration of IR35 contract? Do you get a reduction/refund in your corporation tax since you would have less profits if you had been paying PAYE/NI?

Nobody knows. Tax affairs are strictly confidential, about the only rule the HMRC keeps to. The working assumption is that the whole tax bill is recalculated and the balance paid over. However, where do you go with things like multiple shareholders, pension payemnts and the like...

[jamesbrown]

Short article in the Telegraph:

HMRC's tax tests for freelancers are "flawed" - Telegraph

[DaveB]

I may be wrong here but the final paragraph :

IR35 rules were established to prevent ‘disguised employment’, where an employee sets up a limited company and invoices their employer for their services via the company to minimise their tax.

Is wrong isn't it? IR35 was set up to prevent employers taking advantage of employees by firing them on Friday and hiring them again as contractors on Monday, thus avoiding NI and payroll costs?

Or am I missing something?