Crackdown on personal service companies could raise £400m in tax

[Zero Liability]

Depends on the actual content of the proposed changes and the impact, but I'm putting a very serious plan in place to quit contracting and IT if its a worst-case scenario.

Well what I mean is, if you stayed on past whichever April these changes came in and client confirmed SDC, I could see that being a risk, if they applied it to all the years prior. Which won't necessarily be in the cards, as they might have to review any prior years with the rules in force at the time.

Pending the actual details of what's to come, that is.

[Unix]

The test should be, as a contractor how many clients have you worked for in the last 5 years?

< 2 Fail you are an employee
2 or more, congrats keep on truckin.

[jamesbrown]

Here you go:
Leaked IR35 plan to hit PSC contractors 'confirmed' :: Contractor UK

Can't believe this thread dropped off the front page Some more details about we might see next week. Very interesting stuff.

Thanks, admin. Can you give a sense of the credibility of your source? The broad-brush is similar to what I'd thought might happen after piecing together info. from other sources, particularly the comments from Samantha Hurley of APSCo, who is on the IR35 forum. In other words:

- One month as an upper bound to avoid a test
- Multiple clients as a mechanism to avoid a test
- Ability to avoid the test must be (easily) demonstrated
- Test focusing on SDC
- Joint and several liability for wrong determination when test applies (HMRC pursue anyone in the chain)
- Most likely forthcoming in April 2017, but T&S before that (they'll use this as a canary)

In that sense, there doesn't seem to be much new information. There are a few details, but these could be extrapolated fairly easily, so I wonder if this is a new source (not trying to shoot the messenger here!). With the recent changes, they have the systems in place to implement and track this. I found this interesting:

The body thinks it will be the client – in line with the IR35 ‘discussion document’ - but it also told its members, who place contractors across the UK, that it “could be the intermediary.”

Any moving of an IR35-caught PSC’s tax liability from a client (as the discussion document suggested) to others will please the CBI, which lobbied in 1999 to keep end-users out of scope of the legislation.

This seems to be alluding to joint and several liability, so I'm not sure why CBI would be pleased about that. Also, by intermediary, this means the PSC for a direct contract and an agency otherwise. If either the agency or the client are liable, there's a good chance the default position will "caught", but it would give the client and the agency an option in cases where FTC isn't workable and the situation is clearly not subject to SDC. Many agencies and clients will simply adopt contract clauses the indicate SDC does apply.

Although it may, at first sight, appear to be a softening in tone (i.e. one month as an upper bound before a status test applies), that wouldn't be my interpretation. It was always (and remains) unlikely that the one month would be a lower bound above which everyone was caught by default. It may eventually get there, depending on how this pans out, but it seems unlikely. Essentially, they will be throwing out case law and implementing a statutory test that the client will need to confirm and (along with any agency and the PSC) shoulder a potential liability. The upshot would be that most cases would be SDC by default and put onto a FTC, some would go to employment, and a narrow group would manage to secure contracts that were not SDC or, over time, had most contracts that were SDC and some that weren't (i.e. remain as contractors).

There's perhaps a sliver of light in terms of having concurrent clients, but I would expect some ground rules there w/r to seriousness of the contracts. They won't (probably ) leave a straightforward loophole.

Based on the above, it's really the response to this by agents/clients that matters, and they will be risk intolerant. The response will depend largely on how the liability is determined. If clients/agents shoulder a liability, they will likely opt for FTC or (subject to what the employment law implications might be) allow for "contractors", but write clauses into contracts that state SDC applies and that concurrent clients are not allowed. However, I think the former is more likely, given the employment law implications.

[DimPrawn]

I can see where the liability bit will go. Legislation will say client, agent or contractor might have to cough up, but contracts will have new clauses added saying we (our company or us personally) will idemnify all claims in the event HMR&C pursue the client or agent. In other words, screwed.

[jamesbrown]

I can see where the liability bit will go. Legislation will say client, agent or contractor might have to cough up, but contracts will have new clauses added saying we (our company or us personally) will idemnify all claims in the event HMR&C pursue the client or agent. In other words, screwed.

I don't think that would be enough for a client/agent. Many PSCs would not be able to pay (subject to penalties etc.). Even if the liability could be personalised, it would be too big a risk (and massive legal overhead) when you have tens, hundreds or even thousands of contractors.

[BlueSharp]

That appears to have happened in one case, as far as we know. How many thousands of contractors are there working via umbrellas that aren't getting employment rights? If what you're saying is correct then that is what could well be the nail in the coffin for contracting, not these tax changes. Surely the last thing everyone here would want is employment rights because it would go along with a cut in income to permie levels.

The rule change will mean the client is admitting to them being an employee if they are within SDC and the leaked plan states:

But contrary to what the newspaper reported, PSC contractors will not “be obliged to move on to the [client’s] payroll if they work…for more than a month,” as long as they pass a test.

This is the key statement that needs confirming as to who's pay roll if it's the clients then it FTC's all around if you're inside SDC and does it apply to brolly users as well that your transferred to the clients payroll.

But the question has to be asked If you have no T&S claim; why would you use a brolly instead of a FTC? It's another link in the chain between you and the client that offers no benefit if T&S claims are dead.

[MarkT]

Slightly confused how this applies if I just switch to an Umbrella. Surely I'm then saying I am not hit by IR35, but those not hit by IR35 can still claim expenses, as can any employee. You get your 5% and you get T&S on top.
Isn't the answer stop being a "PSC" whatever that is, and go through an Umbrella? They even have a T&S dispensation!

[BlueSharp]

Slightly confused how this applies if I just switch to an Umbrella. Surely I'm then saying I am not hit by IR35, but those not hit by IR35 can still claim expenses, as can any employee. You get your 5% and you get T&S on top.
Isn't the answer stop being a "PSC" whatever that is, and go through an Umbrella? They even have a T&S dispensation!

T&S are planned to be removed as well based on the DSC rules.

[TestMangler]

Slightly confused how this applies if I just switch to an Umbrella. Surely I'm then saying I am not hit by IR35, but those not hit by IR35 can still claim expenses, as can any employee. You get your 5% and you get T&S on top.
Isn't the answer stop being a "PSC" whatever that is, and go through an Umbrella? They even have a T&S dispensation!

You've not been keeping up...

[meridian]

They even have a T&S dispensation!

I don't think these words mean what you think they mean.