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

[MarkT]

New Online IR35 Test Blow for Contractors from April | IT Contractor & IT Contracting News & Advice

Interesting points made here, more positive

[BoredBloke]

Ok forgive me for being thick here!!

We don't want to be caught by IR35, so it's in our interests to pass the test. The clients don't want the implication of having a contractor fail the test and have all the payroll malarkey that could come with it, so it's in their interest to have us pass the test also. IR35 relates to the working practices between the contractor and the client. Surely there is enough common ground that the contractor and the client could ensure that the working relationship is such that the contractor passes the test.

[pjt]

Ok forgive me for being thick here!!

We don't want to be caught by IR35, so it's in our interests to pass the test. The clients don't want the implication of having a contractor fail the test and have all the payroll malarkey that could come with it, so it's in their interest to have us pass the test also. IR35 relates to the working practices between the contractor and the client. Surely there is enough common ground that the contractor and the client could ensure that the working relationship is such that the contractor passes the test.

That's my hope also. Problem with that will be getting the client to accept the risk if they are held liable for unpaid taxes etc. That's where this falls down

[LondonManc]

A HMRC spokesman declined to comment. However, the Revenue is known to be “developing an online digital service to help IR35 customers work our whether the rules apply to them.

"Hello, I'm an IR35 customer"

"Self-declared eh? Excellent."

[MrO666]

OK, forgive my ignorance here please, but if for instance this all becomes law etc etc, and you accept a contract which falls within IR35 (or whatever they want to call it), then exactly how is the tax supposed to work ?

A) Will the client / intermediary be responsible for deducting it before settling invoices ? Can't see how this would work as they would have no visibility of an individuals tax position (other income or investments etc).

B) The invoice will be settled in full, but then you (as the LTD director) will be responsible for then drawing that full invoice value as PAYE and paying tax accordingly. If so, then I assume HMRC will also insist on the LTD paying employers NIC on that "salary"......which makes it 100% pointless to operate, you would actually be worse off than being permie I'd have thought.

Example - Lets give a day rate of £500 @47 weeks a year....annually £117,500 (below are rough figures):

Permie -

Gross Pay - £117,500
NIC - £5,600
Income Tax - £39,900
Employers NIC - £0
Take Home - £72,000

If a contractor caught by IR35 were invoice the same £117,500, then in order to settle all liabilities it would look like this:

Gross Pay - £104,000 (can't take the full balance due to employers NIC of £13,200)
NIC - £5,350
Income Tax - £31,500
Take Home - £67,150


I know that contract vs permie rates are not the same, but i'm purely trying to point out an example.

I just can't see how HMRC would have a hope in hell of policing any of this. They're inept and clueless at the best of times, but surely if they take this approach then it's a huge workload being hoisted on them to check what people are doing ?

In addition, I assume that any PSC operating under IR35 would have an annual Corp Tax of £0, as law would dictate that everything must be drawn as PAYE.

It could be that I've totally misunderstood something here, so happy to be shown as wrong

[GB9]

The danger is the website says you are inside but doesn't say why.

And it can only be applicable from when the rules change although a website might claim you are. They can't say someone in a contract must always have been inside ir35 just because a new set of rules say they are now.

[MrO666]

That's my hope also. Problem with that will be getting the client to accept the risk if they are held liable for unpaid taxes etc. That's where this falls down

Agreed, however what's the chances of HMRC going to battle against multi-nationals such HSBC etc over this. HMRC would need to take them to court to prove that that have "incorrectly" assessed the contractors employment position.

We know full well that HMRC have zero appetite for going into battle against corporations.

[jamesbrown]

Ok forgive me for being thick here!!

We don't want to be caught by IR35, so it's in our interests to pass the test. The clients don't want the implication of having a contractor fail the test and have all the payroll malarkey that could come with it, so it's in their interest to have us pass the test also. IR35 relates to the working practices between the contractor and the client. Surely there is enough common ground that the contractor and the client could ensure that the working relationship is such that the contractor passes the test.

You're forgiven

This isn't IR35, it's a new requirement and test. If the test is taken, passed, and the reality found different, the liability will likely be on everyone in the chain. Clients won't want that liability. The potential for challenge is itself a liability, regardless of outcome. I doubt the consequences will be quite as dire as the very worst case scenario, but this is quite different from IR35v1. There isn't likely to be any collusion on "passing tests", but there will probably be a bifurcation in the market between FTCs (the vast majority) and contracts that are very clearly not SDC. Who knows though. These things have a tendency to deviate from the cunning plan.

[pjt]

Agreed, however what's the chances of HMRC going to battle against multi-nationals such HSBC etc over this. HMRC would need to take them to court to prove that that have "incorrectly" assessed the contractors employment position.

We know full well that HMRC have zero appetite for going into battle against corporations.

They wont need to go to battle with the multi nationals as the multi nationals will mitigate risk and deem us SDC. Someone on the IPSE forums already been hit with a contract that deems this. Seems the balls already rolling on this.

[GB9]

You're forgiven

This isn't IR35, it's a new requirement and test. If the test is taken, passed, and the reality found different, the liability will likely be on everyone in the chain. Clients won't want that liability. The potential for challenge is itself a liability, regardless of outcome. I doubt the consequences will be quite as dire as the very worst case scenario, but this is quite different from IR35v1. There isn't likely to be any collusion on "passing tests", but there will probably be a bifurcation in the market between FTCs (the vast majority) and contracts that are very clearly not SDC. Who knows though. These things have a tendency to deviate from the cunning plan.

I very much doubt the majority of contracts will be ftc. Current client would have to offer 150 of them for 3 months at a time and they won't.

Additionally they just won't get the people they require.

They will lose 3 of the project team if T&S goes.