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

[jamesbrown]

There's also the possibility that all these 'leaks' relate to the Consultation document. We'll know more in a few days.

In re-reading the discussion document, it's interesting that you can glean exactly the leaked proposal from the wording on p.8 here. They state, in sequence, that they'd prefer to have clients determine status, that they want to use SDC and that there could be a de minimis rule for testing status.

Another option could be to look again at some of the suggestions considered by the OTS, such as requiring an engagement to last a certain minimum amount of time to be considered one of employment.

I didn't really interpret it that way upon reading the first (few ) times, but that's clearly what they're talking about. I'd interpreted it as a de maximis. So, as you say, not a discussion at all if the "leaks" are accurate.

From the OTS:

The main recommendation from this chapter is that the idea of a set de minimis level for
payments to an individual who carries out some activities for a business, which would definitely
not be an employment, should be explored. This might be in terms of time spent or payments
made and could link to the withholding tax idea discussed in Chapter 11.

More discussion on p.89 of that document.

Chapter 11 is also relevant and alludes to how this wouldn't be "on payroll" in terms of the client operating PAYE, but in terms of a withholding tax deducted at source. In fact, I think Chapter 11 of that document describes exactly how it is going to operate...

[meridian]

In re-reading the discussion document, it's interesting that you can glean exactly the leaked proposal from the wording on p.8 here. They state, in sequence, that they'd prefer to have clients determine status, that they want to use SDC and that there could be a de minimis rule for testing status.



I didn't really interpret it that way upon reading the first (few ) times, but that's clearly what they're talking about. I'd interpreted it as a de maximis. So, as you say, not a discussion at all if the "leaks" are accurate.

From the OTS:



More discussion on p.89 of that document.

Chapter 11 is also relevant and alludes to how this wouldn't be "on payroll" in terms of the client operating PAYE, but in terms of a withholding tax deducted at source. In fact, I think Chapter 11 of that document describes exactly how it is going to operate...

Chapter 11 is interesting, but that looks more like a withholding tax which would simply be a payment on account. I don't think too many of us would have a problem with that, it would just be an advance payment of CT.

The real issue that we're facing is the determination that we should be PAYE (and Employers NICS), which would require a separate solution from HMG.

(One of the proposals in Ch 11, that it would apply to companies with (say) less than 5 shareholders, is laughable, I could set up a company tomorrow to meet that requirement. Any attempt to define a PSC will simply result in deliberate structures to move it of the definition)

[sapexpert]

Oh the quality of the big software companies...

More discussion on p.89 of that document.

Here's something funny (my bold)

8.8 In conversation with Oracle, the IT company who code the ESI tool, they told us that they
were given an interpretation of the case law to be incorporated into the tool by the HMRC
technical team as the basis for the rules. At this stage, the OTS has not been able to ascertain
exactly what cases have been used or how they have been interpreted, although it is understood
that there are five main factors included and they are: control, substitution, financial risk,
business structure and integration. It is felt that further work is needed in this area, and HMRC
should review and update the case law underpinning the ESI, ideally in an open and transparent
way.

8.9 The general perception amongst commentators is that the ESI is biased in favour of
employment. The evidence from the ESM case law used appears to suggest that this is not the
case (at least in a mathematical sense), although the OTS cannot conclusively say whether the
interpretation of the case law in the ESI is as balanced.

Now, I'm a super specialized tech guy in a very niche software solution. No client I had has the resources internally to do it, nor do they need it long term.
Time spent on a project is between 3 months and 18 months, usually. Unless is some training and that may be a week or so.

I worked and lived in many countries in Europe and elsewhere (I'm not native from the UK) and chose the UK to live, raise family and pay my taxes. If the gov.uk wants to penalize people that, like me, chose to work more and more (having more than one customer costs a lot hours out of weekends and evenings), that is fine.
I must just say that he will miss the 400m mark as I will, as other like me will, probably go overseas (again) and pay my taxes elsewhere.

Oh, and about having the BigCo offshoring work... that is really healthy for the UK economy, right?
Send money away to other places, see no tax on that money, see no investment from that money, establish rent seekers that live overseas and... oh, let's not even discuss the quality of work, as we all know how that goes.
Brazil, for example, allows offshoring if the company hiring the offshore work pays at least 50% tax on those services (say, £100,00/h is now £150,00/h). Not good, is it? Thus why offshore from companies based in Brazil is very limited, and that can only be good.
The UK and the EU should do the same, for companies outside of the EU.

Go on George, try to punish success and see how that goes.

ps: Establish a minimum turnover to have a limited company operating, if the goal is to exclude the low paid that are now also using Ltd companies. But then, that is just nonsense because when someone wants to start, if one has barriers one cannot start anything, ever.
It was mentioned on the BBC Radio 4 show (a few months ago), that there were hairdressers pretending they are 'freelancers' when they attend the same place of work, every day, 6 days a week, and the owner of the saloon said, bluntly, 'Is better because we pay less tax and no NI'.

Is those ones you need to punish, not the ones like me that are in a business of their own, seek no employment rights, and work around the country and the world, bringing money that otherwise we'd never bring. More money, more tax. And I pay my own company expenses for trainings, events, traveling to meet potential customers and partner companies, etc. We do have several lines of business, with selling our knowledge and expertise being the most significant, but not the only one.

You push me into a permie and I catch a flight to Singapore, where are least I'd have more money on my pocket and I can still establish my own company. Or for that matter, pretty much any other country in the EU (from which I am a citizen).

Funny enough, not a word about Amazon, Starbucks, Google, Apple, Ikea, etc.

[jamesbrown]

Chapter 11 is interesting, but that looks more like a withholding tax which would simply be a payment on account. I don't think too many of us would have a problem with that, it would just be an advance payment of CT.

The real issue that we're facing is the determination that we should be PAYE (and Employers NICS), which would require a separate solution from HMG.

(One of the proposals in Ch 11, that it would apply to companies with (say) less than 5 shareholders, is laughable, I could set up a company tomorrow to meet that requirement. Any attempt to define a PSC will simply result in deliberate structures to move it of the definition)

Yes, I think that's what they'll do - a withholding tax, not PAYE - although it would presumably be at a higher level than CT. It removes the Exchequer risk to a large degree and avoids contractors going formally on payroll/PAYE. However, in that situation, the taxes ultimately due would still involve both sets of NICs. Also, I don't see how they'll get around the employment law issues if they propose a test that implies employment, but that's a separate topic. I don't think there would be much incentive to circumvent a withholding tax. It doesn't change the liability and anyone trying that would be part of a much smaller pool, much easier to police. However, I agree that the shareholder suggestion is a little silly and won't be used.

[Zero Liability]

I think we all know that any government / HMRC consultation is merely a proceedure.....you can be damn sure they already know exactly what they plan to do regardless of any consultation....it's just a tick in a box for them.

I don't disagree, but my point is that what these articles so badly reported on could potentially be alluding to the consultation doc, something Lisa suggested a couple of days ago, and it makes sense, IMO. I think they were always going to be formalities regardless of any embarrassments suffered in respect of tax credits.

[meridian]

Yes, I think that's what they'll do - a withholding tax, not PAYE - although it would presumably be at a higher level than CT. It removes the Exchequer risk to a large degree and avoids contractors going formally on payroll/PAYE. However, in that situation, the taxes ultimately due would still involve both sets of NICs. Also, I don't see how they'll get around the employment law issues if they propose a test that implies employment, but that's a separate topic. I don't think there would be much incentive to circumvent a withholding tax. It doesn't change the liability and anyone trying that would be part of a much smaller pool, much easier to police. However, I agree that the shareholder suggestion is a little silly and won't be used.

Setting a withholding tax above the CT rate doesn't make any sense - it's an advance payment on account, not a final determination of liability, so once the tax return is in there would be a credit for overpayment of WHT.

As a mechanism to gather tax from the dodgy ones that don't file returns and Phoenix themselves it might be okay, but that is just an indictment of the inability of HMRC to target their investigations quickly and effectively - they already have enough info on the intermediaries returns and in VAT returns to target those.

[MrO666]

George - zero corporation tax - Osborne:

So then Georgie boy.........it seems you and your family aren't quite so interested in the "spirit of the law" as you insist the rest of the country should be. As long as the law says it's ok, then that's fine for you........just not anybody else.

As I said before, f'ing hypocrite.

I'd love to see this article plastered on billboards around the country.

[jamesbrown]

Setting a withholding tax above the CT rate doesn't make any sense - it's an advance payment on account, not a final determination of liability, so once the tax return is in there would be a credit for overpayment of WHT.

As a mechanism to gather tax from the dodgy ones that don't file returns and Phoenix themselves it might be okay, but that is just an indictment of the inability of HMRC to target their investigations quickly and effectively - they already have enough info on the intermediaries returns and in VAT returns to target those.

No, I don't think you're following. This isn't payment of CT upfront, this is withholding to reflect a total PAYE liability, including both sets of NICs, only not implemented via payroll/PAYE. There will be no CT for "caught" contracts, because there will be no profit. It will be akin to the IR35 deemed payment, but implemented as a withholding tax at source.

[MrO666]

No, I don't think you're following. This isn't payment of CT upfront, this is withholding to reflect a total PAYE liability, including both sets of NICs, only not implemented via payroll/PAYE. There will be no CT for "caught" contracts, because there will be no profit. It will be akin to the IR35 deemed payment, but implemented as a withholding tax at source.

And I think it's safe to say that clients will deduct BOTH the employer and employee NIC from the day rate, which will make a contract deemed inside IR35 totally impossible......you'd earn more as a permie. Businesses are not going to accept that they have to pay the employer NIC on top of the contractors day rate (and agency margin).

Again, if this is the case then I can't see how EU law would allow for that to happen and still let businesses avoid any form of employee benefits at all.

I can just see the whole thing collapsing into a total farce and being completely unenforceable in any real way.

I'm not suggesting this, but it would be much simpler if they took an approach of something like all PSC's can take a maximum dividend of £X per annum, anything over and above that is PAYE. It would make the whole thing far far simpler.

I just can't see any business being willing to just say yep, no problem we'll manage the payroll for a contractor, deduct money at source, make sure it's all paid 100% correctly and on time to HMRC for every contractor which we may have do work for us. I can see business lobbying for any responsibility to end with the intermediary (which would be easier to work with from a contractor point of view).

QDOS would soon have policies in place...........

[meridian]

No, I don't think you're following. This isn't payment of CT upfront, this is withholding to reflect a total PAYE liability, including both sets of NICs, only not implemented via payroll/PAYE. There will be no CT for "caught" contracts, because there will be no profit. It will be akin to the IR35 deemed payment, but implemented as a withholding tax at source.

I'm think I'm following, I just don't know how far back I am :-)

Withholding tax, like PAYE, is only a payment on account. The actual tax liability can only be established once a tax return is filed. For employees who have one employer it's easy to reconcile between the tax required to be deducted and returned, and their tax assessment, so a return is not required. For employees with more than one employer it's a bit more difficult, but the secondary rates of PAYE take care of it, although the employee may need to file a tax return (usually they would only do so if a refund is due).

These are straightforward due to the employment contract being between an employer and a defined individual.

If the "contract of work" is with a ltd company, the same principal should apply that the tax liability is only crystallised once the tax return is filed, so where I may not be following is with the thought that any WHT is a final liability, given that a ltd co can have a vast array of different share holdings, share classes, payments to directors, legitimate business expenses, etc.

The only way I can see that working is by effectively removing the corporate veil and taxing each contract as IR35 directly on the contractor, which would have implications on limited liability of the contracts - this would shake up the entire agency model in terms of intermediaries and potential liability? (And not just liability of taxes, but liability of underperformance and issues?)