The S58 vs IR35 debate

[LisaContractorUmbrella]

I'm sure you do a decent and straightforward job, Lisa, but it is a problematic business model for the employee. If I do work and the client won't pay, I need the option of legal recourse.

You do have that with an umbrella company it's just that the action is in their control as they have the business to business contract with the agency/client. In my experience it's pretty rare for legal action to be necessary - in 11 years we've only instigated it a couple of times. Occasionally an agency/client will go down the tubes but there's very little that can be done about that whether umbrella or PSC. For the most part disputes over money are resolved amicably.

I do understand though that a contractor may feel more in control of things if he works through a PSC - you do need to be able to trust your umbrella company if you're going to work with one

[TheFaQQer]

I do understand though that a contractor may feel more in control of things if he works through a PSC - you do need to be able to trust your umbrella company if you're going to work with one

If I was into that kind of thing, I'd definitely give Lisa my business.

[LisaContractorUmbrella]

If I was into that kind of thing, I'd definitely give Lisa my business.

Thanks

[fullyautomatix]

I think the IR35 discussion is perfectly valid for this thread because that's why so many of us are in this mess!

I still haven't met one person that can categorically explain to me what IR35 is and what I should do about it. Hasn't it been around since 2001?

I also don't feel that people need to defend themselves with regards to whether they are operating as a limited company or not.

So here's the process:
Agency offers me a contract on the basis I operate limited
I go setup a limited company
I employ an accountant to manage my company and tell me how to operate my business and pay myself
I tell them I want to operate above board and transparent and do everything by the book
They say "take this much salary, expenses and take the rest in dividends" - I do
Agency tells me to take out public liability and professional indemnity insurances - so I do (i'm now insured)
when I'm sick I don't get paid so that has to be covered by the profits in the company
when I'm on holiday I don't get paid so that has to be covered by the profits in the company
I don't have a pension so I should take one out through my company
I have 1 weeks notice that my current contract may end

In the meantime I do what I do best - work in IT, code/script/design etc. Bouncing around different projects.

I pay my VAT bills, corporation tax, accountancy fees, self assessment fees, etc on time.
I submit all my paperwork to Companies House and HMRC on time

I seek other work for my business through various contacts and I'm currently setting up a website to promote my services locally.

I'm clearly not operating a business and must pay myself a huge salary so I can pay more tax eh ?

So basically IR35 asked me to prove I'm a business so that I can get the same tax breaks that big corporate can get.

The only sure fire way of escaping IR35 is if you own a software business , pitch and win a project, execute the project on your own business office and deliver it to client.

If you are sitting in client office, mixing with permies and writing code together, you are in IR35 and one day will be caught.

[BrilloPad]

If I was into that kind of thing, I'd definitely give Lisa my business.

I saw your reply before I saw the original post. Gave me a shock......

[IR35 Avoider]

When the Government last looked at agencies using tricks to reduce costs (back in 1978) the consequence was a change in the law that stopped agencies employing people on a "self-employed" basis. To get around that agencies started requiring contractors to use a separate entity through which to supply their services and the PSC company came into existence.

You and I have had this argument before.

You choose a convenient starting point on which to base your point of view, allowing you to support a misleading conclusion. The fuller historical sequence is

1. Pre-1978 a contractor could work direct for a company without being taxed as an employee, if he/she passes self-employment status test. (This remains true thereafter as well.)
2. Companies were not willing to cope with the risk of status uncertainty, therefore required contractors to go via agencies, where a loophole means they can be taxed as self-employed even if they fail status tests - call this loophole 1.
3. The 1978 agency legislation closes loophole 1.
4. Agencies now the ones with employment status risk, so now they won't deal with "self-employed." Contractors move on to loophole 2, using limited companies. Once again employment status doesn't matter, everyone can avoid be taxed as an employee.
5. IR35 is introduced to close loophole 2.

So, in theory, a person with correct working practises does not and never has required any sort of intermediary in order to be taxed as self-employed. The self-employed to agency and later PSC to agency routes are (in theory) only needed as loopholes to allow disguised employees to lower their taxes.

In practice status uncertainty means an intermediary is required, a PSC is usually a contractors best solution to this problem, however it is not the simplest or most straight-forward. An umbrella is. So it is wrong to say a PSC is inflicted on us be legislation. We choose PSCs over umbrellas because of the advantages, the biggest of which is lower tax.

(I don't buy the idea that replacing a PSC with Parasol increases your risk so much as to justify the PSC choice. Most agencies we go through add significantly more risk to the chain than do the umbrellas we get to choose.)

[malvolio]

You and I have had this argument before.

You choose a convenient starting point on which to base your point of view, allowing you to support a misleading conclusion. The fuller historical sequence is

1. Pre-1978 a contractor could work direct for a company without being taxed as an employee, if he/she passes self-employment status test. (This remains true thereafter as well.)
2. Companies were not willing to cope with the risk of status uncertainty, therefore required contractors to go via agencies, where a loophole means they can be taxed as self-employed even if they fail status tests - call this loophole 1.
3. The 1978 agency legislation closes loophole 1.
4. Agencies now the ones with employment status risk, so now they won't deal with "self-employed." Contractors move on to loophole 2, using limited companies. Once again employment status doesn't matter, everyone can avoid be taxed as an employee.
5. IR35 is introduced to close loophole 2.

So, in theory, a person with correct working practises does not and never has required any sort of intermediary in order to be taxed as self-employed. The self-employed to agency and later PSC to agency routes are (in theory) only needed as loopholes to allow disguised employees to lower their taxes.

In practice status uncertainty means an intermediary is required, a PSC is usually a contractors best solution to this problem, however it is not the simplest or most straight-forward. An umbrella is. So it is wrong to say a PSC is inflicted on us be legislation. We choose PSCs over umbrellas because of the advantages, the biggest of which is lower tax.

(I don't buy the idea that replacing a PSC with Parasol increases your risk so much as to justify the PSC choice. Most agencies we go through add significantly more risk to the chain than do the umbrellas we get to choose.)

Mostly wrong (for anyone but a bog standard do-what-you're-told contract resource, but they should be inside IR35 anyway), there are valid commercial and business reasons to use your own Limited Company that are nothing to do with taxation (or, more precisely, NICs).

[tractor]

You and I have had this argument before.

You choose a convenient starting point on which to base your point of view, allowing you to support a misleading conclusion. The fuller historical sequence is

1. Pre-1978 a contractor could work direct for a company without being taxed as an employee, if he/she passes self-employment status test. (This remains true thereafter as well.)
2. Companies were not willing to cope with the risk of status uncertainty, therefore required contractors to go via agencies, where a loophole means they can be taxed as self-employed even if they fail status tests - call this loophole 1.
3. The 1978 agency legislation closes loophole 1.
4. Agencies now the ones with employment status risk, so now they won't deal with "self-employed." Contractors move on to loophole 2, using limited companies. Once again employment status doesn't matter, everyone can avoid be taxed as an employee.
5. IR35 is introduced to close loophole 2.

So, in theory, a person with correct working practises does not and never has required any sort of intermediary in order to be taxed as self-employed. The self-employed to agency and later PSC to agency routes are (in theory) only needed as loopholes to allow disguised employees to lower their taxes.

In practice status uncertainty means an intermediary is required, a PSC is usually a contractors best solution to this problem, however it is not the simplest or most straight-forward. An umbrella is. So it is wrong to say a PSC is inflicted on us be legislation. We choose PSCs over umbrellas because of the advantages, the biggest of which is lower tax.

(I don't buy the idea that replacing a PSC with Parasol increases your risk so much as to justify the PSC choice. Most agencies we go through add significantly more risk to the chain than do the umbrellas we get to choose.)

That may (arguably) have been true for those that set up post IR35 (2000) but it wasn't so for those of us that have been in business pre 1978. Then, umbrellas were things that banks lent you when the sun shone and asked for them back as soon as it rained!

[lucozade]

The only sure fire way of escaping IR35 is if you own a software business , pitch and win a project, execute the project on your own business office and deliver it to client.

If you are sitting in client office, mixing with permies and writing code together, you are in IR35 and one day will be caught.

Bollox