The Official Budget 2016 thread

[mudskipper]

That's what I thought. But then Grace's company would run at a loss. Which may be dereliction of fiduciary duty as a director?

Not with you - the net result should be the same as operating inside IR35.

[barrydidit]

Not with you - the net result should be the same as operating inside IR35.

I was meaning the company would need to pay for other stuff too: accounting, insurance etc but there would be no funds to pay for it?

I haven't read the example fully, just the snippets on here.

[mudskipper]

I was meaning the company would need to pay for other stuff too: accounting, insurance etc but there would be no funds to pay for it?

I haven't read the example fully, just the snippets on here.

Yep - but that's the same as inside IR35 at the moment. The 5% allowance is up for discussion. Valid expenses would still be allowed (although this wouldn't include accounting - not sure about insurances)

[eek]

Yep - but that's the same as inside IR35 at the moment. The 5% allowance is up for discussion. Valid expenses would still be allowed (although this wouldn't include accounting - not sure about insurances)

But those people don't have insurance and accountants. They are merely using a tax dodgy to avoid paying some tax and supposedly the departments are encouraging it to save money themselves

[barrydidit]

Yep - but that's the same as inside IR35 at the moment. The 5% allowance is up for discussion. Valid expenses would still be allowed (although this wouldn't include accounting - not sure about insurances)

Questions abound then..

[m0n1k3r]

She's expected to take the money paid as salary, for which she will get the credit. So it won't be profit, and therefore not liable to corp tax.

Which brings me back to my original point - there is no point in channeling the money through a company.

[jamesbrown]

Which brings me back to my original point - there is no point in channeling the money through a company.

As explained above, there will be no CT as there will be no retained profit, but the details surrounding the 5% allowance for administrative expenses and expenses more generally will need to be elaborated upon. This is all down in the weeds and it doesn't really matter at this stage, because the intention is clear and it is mechanically achievable, i.e. tax as though inside IR35 while retaining the corporate veil to avoid employment rights.

Where I agree with you is w/r to the motivation for a contractor to operate in this way. The motivation for the gov't is clear, but very few (good) contractors will agree to operate in this way. This implies one of two things: either the rules will be designed to maintain something fairly close to BAU while targeting some (limited) scenarios or a lot of gov't projects are fecked from April 2017 onward (actually, even before as people aren't going to wait until then).

[m0n1k3r]

Where I agree with you is w/r to the motivation for a contractor to operate in this way. The motivation for the gov't is clear, but very few (good) contractors will agree to operate in this way. This implies one of two things: either the rules will be designed to maintain something fairly close to BAU while targeting some (limited) scenarios or a lot of gov't projects are fecked from April 2017 onward (actually, even before as people aren't going to wait until then).

While the public sector does use a fair number of IT and other highly qualified contractors with 'their own' limited companies, it also uses a large number of interim office staff, interim managers and others, e.g. basically temporary staff doing BAU work. I believe this is mainly targeted towards and that others, working on defined projects and possibly with defined outcomes, are just collateral damage due to the trouble with defining the difference precisely in legal terms.

The Capita CLOne framework contract is intended for this interim BAU staff of contractors. There are other frameworks that are more suitable for qualified people working on defined things. The trouble is that (a) buying services through CLOne is very easy while the other venues usually involves tendering, and (b) those other frameworks require the framework supplier (e.g. the recruitment agency) to take on responsibility on the delivery of those outcomes and deliverables, and recruiters are quite known for being even more risk-adverse than the public sector itself, so that is never going to happen.

[swamp]

At the moment in the public sector you have to have an IR35 contract review (to operate outside). Agencies are compelled to write compliant contracts else contractors get shown the door. So a perverse side-effect of the current Treasury rules mean that contractors usually have a stronger IR35 position within the public sector than they would outside.

Roll on April 2017 and it gets even better -- the agency takes the whole hit. Find yourself a cushy PS role and stay there for years!

Only flies in ointments that I can see:

* HMRC new online status test is so strict nobody passes. Result: lots of projects in jeopardy, including HMRC's own digital stuff (yes they use plenty of PSC contractors themselves....)

* Agency promises 'outside IR35' contract and reneges later when paying the invoice. Result: some contractors walk, some stay.

* Agency pass down their tax liabilities via the contract. Result: contractors largely ignore it, much like current situation.

Overall I believe private sector contractors will look on enviously at their public sector peers who will exist in a post-IR35 world from April 2017.

[jamesbrown]

While the public sector does use a fair number of IT and other highly qualified contractors with 'their own' limited companies, it also uses a large number of interim office staff, interim managers and others, e.g. basically temporary staff doing BAU work. I believe this is mainly targeted towards and that others, working on defined projects and possibly with defined outcomes, are just collateral damage due to the trouble with defining the difference precisely in legal terms.

Yes, so it's going to depend on how they design the ESI to be used by the public bodies in determining whether the rules apply. It's too early to be either massively concerned or relieved, beyond the PITA of the ongoing uncertainty if you contract regularly in the public sector. The advantage for HMG (at least in the interim) is that they don't need to legislate any changes to IR35 and find out several years later that it doesn't work. They essentially have a sandpit where they can define and redefine their ESI tool until they have something that achieves the balance they're trying to strike (I don't think they even know what this is yet; the figure of 90% non-compliance doesn't stack-up, even remotely) while ensuring compliance through the contractual chain. At least it's internally consistent with the stuff they've been saying in various places (IR35 Discussion, IR35 Forum etc.), and it's clear now that they felt the public sector would be the best sandpit to test this. Obviously, no one believes this is going to stay in the public sector.