You can now almost Smell the end of IR35 - New announcement!

[d000hg]

Really? Did you carry out a survey?

Many contractors I know use a Ltd company to take control of their own affairs, cut costs and own the fruits of their own labour.

I thought contractors used Ltds because it was the only viable alternative to going through an Umbrella who take some sort of cut? I bet if the laws made it feasible to simply bill under your own name without huge tax penalties, many would do so.

[monkeyrhythm]

Well it's a viewpoint. Thankfully my sources are rather better informed than yours seem to be...

Separation between IR35 caught and IR35-not-caught is simple. You're caught if your current client and your immediately previous employer are the same company, for a period of one year. Under any other situation, you are pursuing a legitimate business.

I just wanted to flag the above as I've never seen it put as cut and dry before; so, do the IR35 cases that have been lost to date fall under "their current client and their immediately previous employer being the same company" or have they, in your opinion, been badly defended?
Not trying to catch anyone out or anything, it would be great if that's what the reality is.

[thunderlizard]

The survey

is here on page 3.

For a bonus point, spot the cheeky logical shortcut in the second-from-bottom bullet point on that page.

[malvolio]

I just wanted to flag the above as I've never seen it put as cut and dry before; so, do the IR35 cases that have been lost to date fall under "their current client and their immediately previous employer being the same company" or have they, in your opinion, been badly defended?
Not trying to catch anyone out or anything, it would be great if that's what the reality is.

Nope, HMRC apply the rules as they are stated, which take no notice of employment history. This is really silly in a way, since one of the key reasons for bringing in IR35 was to stop the employees being turned into contractors with no obvious change in working practices.

There haven't been many IR35 losses that we know of. Of those, most if not all represented themselves, so I guess "badly represented" comes into it.

[Wanderer]

Separation between IR35 caught and IR35-not-caught is simple. You're caught if your current client and your immediately previous employer are the same company, for a period of one year. Under any other situation, you are pursuing a legitimate business.

A bit like this scenario?

That's a great idea. It won't work though because as it stands, IR35 caught loads of other legitimate contractors in the net and I don't hear HMRC complaining about that because they netted a fortune. The trouble is that they aren't going to want to give up the extra income they have generated through IR35...

[malvolio]

A bit like this scenario?

That's a great idea. It won't work though because as it stands, IR35 caught loads of other legitimate contractors in the net and I don't hear HMRC complaining about that because they netted a fortune. The trouble is that they aren't going to want to give up the extra income they have generated through IR35...

AIUI part of the review of small business taxation will be to look at why IR35 was thought necessary in the first place. That's why we may yet end up with some kind of limits on how you move to freelance working and perhaps a better separation between freelance and employee, which would solve a lot of problems. Or they may conclude (against all the evidence!) that IR35 in its present form is valid and necessary. I think that unlikely myself.

Also IR35 hasn't been a financial success by any sensible estimate. If it had there is no way on God's earth HMG would be looking at options for scrapping it. Apart from collection costs, the income is a paltry £1.2m a year directly and whatever the difference in taxable pay is between you as a freelance and you as an umbrella worker, which isn't actually that much.

[Wanderer]

Also IR35 hasn't been a financial success by any sensible estimate. If it had there is no way on God's earth HMG would be looking at options for scrapping it. Apart from collection costs, the income is a paltry £1.2m a year directly and whatever the difference in taxable pay is between you as a freelance and you as an umbrella worker, which isn't actually that much.

"the income is a paltry £1.2m a year directly". That's a great piece of PCG spin, but I don't think it's true. There are a lot of people who could go LTD outside IR35 and avoid tax but they don't because they just want a quiet life. In that way, IR35 has been a roaring success.

Look at all the contractors going through umbrellas these days, most likely because they think they are IR35 caught or they don't want the admin of running their own company. According to <snip>, Parasol alone contributed "in excess of £100m in income tax and NICs over 12 months". Those umbrellas wouldn't be anywhere to be seen if if were not for IR35 because we would all be avoiding tax by working through LTDs or MSCs.

[malvolio]

"the income is a paltry £1.2m a year directly". That's a great piece of PCG spin, but I don't think it's true. There are a lot of people who could go LTD outside IR35 and avoid tax but they don't because they just want a quiet life. In that way, IR35 has been a roaring success.

Look at all the contractors going through umbrellas these days, most likely because they think they are IR35 caught or they don't want the admin of running their own company. According to <snip>, Parasol alone contributed "in excess of £100m in income tax and NICs over 12 months". Those umbrellas wouldn't be anywhere to be seen if if were not for IR35 because we would all be avoiding tax by working through LTDs or MSCs.

It's precisely correct, not spin, That number was picked up (by me...) from a HoC written answer about a year ago as the total income from IR35 declared by people who put themselves inside and paid the tax accordingly. On that basis, IR35 is a financial joke.

We don't have an accurate figure for how much unnecessary tax is being paid by people living in fear (or ignorance) of IR35 and hiding behind umbrellas, but a fag packet calculation puts it at no more than £400m a year - that's a big number, especially for taxes that almost certainly aren't actually owed, but in the greater scheme of things it's actually trivial. And from that amount you have to deduct investigation and policing costs, of course. I stand by my assertion that if IR35 was cost effective it wouldn't be under threat; you can be sure that Osborne's team have the actual numbers to hand - despite Dim Prawn's assertion they don't exist - and have done the sums properly.

And as I have said before, if you want to take notice of commentaries on the effectiveness of IR35, you first need to take notice of who wrote it. PCG are the only body who do not have a financial interest, and personally I trust their numbers above anyone else's.

[Sausage Surprise]

"the income is a paltry £1.2m a year directly". That's a great piece of PCG spin, but I don't think it's true. There are a lot of people who could go LTD outside IR35 and avoid tax but they don't because they just want a quiet life. In that way, IR35 has been a roaring success.

Look at all the contractors going through umbrellas these days, most likely because they think they are IR35 caught or they don't want the admin of running their own company. According to <snip>, Parasol alone contributed "in excess of £100m in income tax and NICs over 12 months". Those umbrellas wouldn't be anywhere to be seen if if were not for IR35 because we would all be avoiding tax by working through LTDs or MSCs.

Totally agree. The number of contractors I've worked with who pay full PAYE plus employers NI is staggering. All because they are terrified of IR35 and any potential consequences - the fear factor worked perfectly in this sense.

[Bagpuss]

Fantastic news. This is the end of IR35! Everything will be fixed by the Conservatives!

They may bin the cycle to work free breakfast scheme while they're at it, but it would be small price to pay.