2019 tax charge - consultation preparation

[DonkeyRhubarb]

Parliament intended contractors to pay themselves a small salary and take the rest as dividends?



The whole reason they introduced the anti-avoidance legislation IR35 was to try and put a stop to this.

[AtW]

Parliament intended contractors to pay themselves a small salary and take the rest as dividends?

No, Parliament intended to have different tax rates for dividends (to reflect corp tax paid) and PAYE.

There are contractors who work for a few month in one place and then move on, I had plumber in office recently to fix water tap, he did 1 hour job, do you think he is covered by IR35? He invoiced via Ltd.

It's really amusing argument - somebody (wild analogy here) who got caught doing bank robbery states that on the way driven to court he saw somebody exceeding speed limit and on that basis he should be released because "other people break the law too".

[QCApproved]

The IR35 insurers and the scheme providers are cut from the same cloth. I know several underwriters who have appreciated the very low risk and strong cashflow of the IR35 premium.
However, I think a lot people discontinued insurance once it became clear it was unenforceable and there was more chance of being struck by lightning than actually being the subject of an IR35 probe. Given the death of the "scheme industry" the odds will have improved considerably still in everyone's favour. Hopefully some of HMRC's IR35 finest have been transferred over to Scheme duties and will be tied up in knots about loans for a good few years more

DR - I can confirm I have used a limited company for the avoidance of tax that i might otherwise incur and may do so again but exclusively for the further purpose of offsetting it against my 2011 APN.

[AtW]

The IR35 insurers and the scheme providers are cut from the same cloth. I know several underwriters who have appreciated the very low risk and strong cashflow of the IR35 premium. However, I think a lot people discontinued insurance once it became clear it was unenforceable and there was more chance of being struck by lightning than actually being the subject of an IR35 probe. Given the death of the "scheme industry" the odds will have improved considerably still in everyone's favour. Hopefully some of HMRC's IR35 finest have been transferred over to Scheme duties and will be tied up in knots about loans for a good few years more

So, all good then - it's not like those people who run Ltds pay 0 amount of tax - especially now with dividend tax being increased, effectively they are in a very low risk situation with a lot of tax paid anyway, the fact that there were underwriters willing to insure at low price point is very telling. Just being in a VERY large crowd is safer, it's a lot harder politically to deal with it, so Govt just increased dividend tax to reflect perceived "loss" of NICs.

[QCApproved]

Ah, the journeyman contractor wandering from employer to employer across the land tinkering with a system here resolving a crisis there with just his laptop never knowing where he will lay his head for the day leveraging a unique skill-set and generally as far as can be from an employee as one can imagine, bearing the risks of the small scale entrepreneur for the modest tax breaks afforded to him. A rare breed - your bringing tears to my eyes, no doubt you are such a stand up member atw.

meanwhile in the real world.

85% of contractors I have met are de facto employees working for a year or six in the same role doing appraisals managing staff and generally falling squarely within the IR35 rules.

In the early noughties it was very common for me to hear from a recruiter that x or y was keen on the role and was happy with £500 a day but longevity of the contract was an issue as X or Y was used to 2 years minimum and it was inconvenient to move from short term contract to contract.
In one case I was asked if X could be given a blackberry as although he was a contractor he was used to being treated as one of the permies, although not for HRMC purposes.

[AtW]

85% of contractors I have met are de facto employees working for a year or six in the same role doing appraisals managing staff and generally falling squarely within the IR35 rules.

Let's say you are correct, but those people would be paying probably 75-80% of tax due anyway (from April 2016), in fact if you factor in higher earnings of contractors vs permanent stuff, I'd be prepared to argue that overall Govt it taking probably more tax from them than if the same people became permies in companies. So this situation is not too bad for HMRC.

Now the loan and other schemers paid like what, near 0% tax? 10% cut to scheme provider is irrelevant.

It's obvious to see why HMRC is NOW doing a lot to stop such schemes because they don't want people to switch en masse - it's a matter of life and death, Govt can't exist without taxes so they'd do everything to deal with it. And yes, obviously big multinationals do such things but even they are going to get squeezed to fall in line.

This is politics more than law, people in charge will make sure the law is changed to suit their policy - like they are doing now with 2019 tax charge. It's really amazing that scheme providers are not even being pursued legally with a view to write those loans off - total lack of action against the very people who got you lot in trouble is disturbing.

[QCApproved]

It was not the case that the scheme delivered 0% Tax for an individual - I would say most were paying 13-14% tax and a fee of 7% not far removed from your figure.
They are clearly not content with 80% of 100% for much longer from the ltd cos.
The only difference between the avoidance method you have chosen and some poor folk here have followed is that the legislation to stamp out the former was conceived and royally botched in a more tolerant era and they are addressing it now in a less vigorous way.

[AtW]

It was not the case that the scheme delivered 0% Tax for an individual - I would say most were paying 13-14% tax and a fee of 7% not far removed from your figure. They are clearly not content with 80% of 100% for much longer from the ltd cos.

I don't know about your circumstances, but I believe in at least one High Court decision figure of 3% tax was mentioned. If as you say people paid 13% tax plus 7% fee, then 20% in total, how the heck it was that beneficial to do compared to Ltds - just 20% difference or so?

Yes for sure HMRC is trying to get 110% from Ltds, but it's a lot easier for them to stop the rot and prevent Ltds from going to schemes (which I believe is the effect they've pretty much reached already, but they can't give up now otherwise deterrent will be lost). The tax difference between PAYE and Ltd is shrinking, so anybody who gets into problem with Ltd will have paid vast majority of tax anyway, so the negative effects are much easier to deal with.

[DonkeyRhubarb]

85% of contractors I have met are de facto employees working for a year or six in the same role doing appraisals managing staff and generally falling squarely within the IR35 rules.

Personally, I've never met a contractor who was genuinely self-employed (in business on their own account). They were all using a Ltd to pay less tax, contrary to what Parliament intended through IR35.

It's only because IR35 is unworkable for HMRC that virtually everyone gets away with it.

Those of us who used schemes, because of IR35, made a bad choice.

[AtW]

Personally, I've never met a contractor who was genuinely self-employed (in business on their own account).

Then they must not exist at all

Case in point - acountant for my firm is a contractor, he travels from far away to our office couple of days a week, he picks time that suits his work pattern, he's got a number of different clients that he contracts for during the same week, he is not under IR35 SDC - he tells ME what to do.

So, he is a totally genuine contractor and I personally know, doing great job too.