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

[RetSet]

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Interesting to see the suggestion that we might be talking about a withholding tax...

Again...

IR35 Mk1 revisited, FFS

[jamesbrown]

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...........

The EU won't have much to say on this. Generally speaking, tax matters are devolved and they won't interfere. Also, I'd suggest that an umbrella PAYE arrangement with a typical contractor day rate would be far in excess of an equivalent permie salary. On withholding, to quote from the OTS report (p. 118):

We have discussed the concept with a range of businesses and have received widespread
support for it. Many have been clear that the additional burden would be minimal and that
overall they see it as a gain – a price well worth paying, in other words

[jamesbrown]

so where I may not be following is with the thought that any WHT is a final liability

But it wouldn't be; why would it need to be? As you say, it's simply a payment on account, which can be any amount that is deemed expedient (smaller or larger than the actual liability). The point is that, because the ultimate liability will be large (PAYE and both sets of NICs), it wouldn't be set at the CT rate.

[meridian]

But it wouldn't be; why would it need to be? As you say, it's simply a payment on account, which can be any amount that is deemed expedient (smaller or larger than the actual liability). The point is that, because the ultimate liability will be large (PAYE and both sets of NICs), it wouldn't be set at the CT rate.

Ah, I see where we're walking past each other.

I've been assuming that the WHT tax would be on behalf of the company _with respect to company taxation_ whereas I think you're looking at it as a payment on behalf of the company but as a downpayment on a deemed employment payment that the company is liable for on behalf of the worker.

[jamesbrown]

Ah, I see where we're walking past each other.

I've been assuming that the WHT tax would be on behalf of the company _with respect to company taxation_ whereas I think you're looking at it as a payment on behalf of the company but as a downpayment on a deemed employment payment that the company is liable for on behalf of the worker.

Yes, exactly that.

[BrilloPad]

Ah, I see where we're walking past each other.

I've been assuming that the WHT tax would be on behalf of the company _with respect to company taxation_ whereas I think you're looking at it as a payment on behalf of the company but as a downpayment on a deemed employment payment that the company is liable for on behalf of the worker.

WHT = APN mark 2.

Raiding bank accounts is next.

[MrO666]

The EU won't have much to say on this. Generally speaking, tax matters are devolved and they won't interfere. Also, I'd suggest that an umbrella PAYE arrangement with a typical contractor day rate would be far in excess of an equivalent permie salary. On withholding, to quote from the OTS report (p. 118):

I agree that tax is not an issue for the EU, however HMRC making clients pay employers NIC, but then refusing to acknowledge the person as an employee possibly is.

The straight legal argument would be, if i'm not an employee, then no employer NIC is due....if I am, the I must be afforded the same legal employment rights as every other EU staff member.....I think the EU would take a dim view of that.

With regards to the PAYE rate, once the day rate has had employees and employers NIC deducted (don't kid yourself that the employer is going to foot the NIC bill) along with income tax......i'd be very surprised if there was much left between permie and a contractor with apparent zero employment benefits.

Based on the below, which would you choose......permie with 6 weeks holiday, sick, pension etc, or contract with zero benefits.

Based on 15/16 Tax Rules

Contractor @ £500pd x 47 weeks - £117,500
Employees NIC - £5,600
Employers NIC - £15,095
Tax - £39,900
Take Home - £56,900

Employee On £85,000
Employees NIC - £4,971
Employers NIC - £0
Tax - £23,403
Take Home - £56,600

I really hope I've missed something here, but I don't think I have.

Only a fool would even begin to think that the end client will foot any employers NIC, it won't happen.

All my contracts for the past 4 years are outside IR35, however if this stupidity comes in it will be very hard to get a client to put their neck on the line......as others have said they will by nature be risk adverse....and why wouldn't they be. If you or I were the employer I think we would be too......why take the risk.

[teapot418]

I agree that tax is not an issue for the EU, however HMRC making clients pay employers NIC, but then refusing to acknowledge the person as an employee possibly is.

The straight legal argument would be, if i'm not an employee, then no employer NIC is due....if I am, the I must be afforded the same legal employment rights as every other EU staff member.....I think the EU would take a dim view of that.

With regards to the PAYE rate, once the day rate has had employees and employers NIC deducted (don't kid yourself that the employer is going to foot the NIC bill) along with income tax......i'd be very surprised if there was much left between permie and a contractor with apparent zero employment benefits.

Based on the below, which would you choose......permie with 6 weeks holiday, sick, pension etc, or contract with zero benefits.

Based on 15/16 Tax Rules

Contractor @ £500pd x 47 weeks - £117,500
Employees NIC - £5,600
Employers NIC - £15,095
Tax - £39,900
Take Home - £56,900

Employee On £85,000
Employees NIC - £4,971
Employers NIC - £0
Tax - £23,403
Take Home - £56,600

I really hope I've missed something here, but I don't think I have.

Only a fool would even begin to think that the end client will foot any employers NIC, it won't happen.

All my contracts for the past 4 years are outside IR35, however if this stupidity comes in it will be very hard to get a client to put their neck on the line......as others have said they will by nature be risk adverse....and why wouldn't they be. If you or I were the employer I think we would be too......why take the risk.

Not sure about £500 a day being £85,000 - probably 50-60K permie role.

[MrO666]

Not sure about £500 a day being £85,000 - probably 50-60K permie role.

In the past in the places I've worked (all in the City), a permie would be anywhere between 75-95 for the same role as a 5-550 contractor.

You can see what I'm pointing out though......if it works this way then it makes contracting (if caught by IR35) totally pointless. Why would anyone do it, zero rights, zero benefits, risk of breaks between contracts for only marginally more money....you'd have to be mad.

[jamesbrown]

I agree that tax is not an issue for the EU, however HMRC making clients pay employers NIC, but then refusing to acknowledge the person as an employee possibly is

Yep, I think I mentioned it above or perhaps in another thread, but I do foresee some issues if they implement SDC as an attempt to create more employees for tax purposes without intending to create more employees. There is, indeed, case law supporting this point that an agreement between parties on SDC is tantamount to employment. The question is whether it matters, in practice, if the trade-off is between employment for tax purposes on much higher rates vs. employment rights within permie pay bands. Employment law vs. tax law is definitely a live issue though, EU aside.