RBS, contractors and IR35

[JohntheBike]

All, the purpose of this thread and several others of a similar nature is to discuss the way in which the reform to manner in which IR35 is to be applied, is going to impact FUTURE contracts and working arrangements.

The point I'm struggling to make is that the old ways are going to be history soon and that new ways of managing the end client/intermediary/contractor relationship are inevitable and can (and should) include a very active contractor input.

To a large extent, the lessons from history have limited impact here.

We now have a whole group of end clients who have relied for years on intermediaries for contract staff but who will soon be making very key decisions - often on no preparation.

We have intermediaries who are scrabbling to hold onto influence, input, revenue.

We have contractors who are almost certainly being squeezed - again.

So the point is that if there is no single body who contractors trust - TO MOVE FORWARD - then should there be one?

I get the references to personal positions and often there is much to be learnt from those, but in a new world in which the old order is no longer an influencer, there is a limit to how much relevance we can draw.

It may be that this thread is now redundant however given that RBS deny the original premise it started with and perhaps we all need to move on?

agreed, the old order has not proven to be a significant influence on the issues, but clearly with the Winchester, Elbourne and Alcock cases, there is now a more concerted effort to use the ET to influence the situation. We must fight the legislation with other legislation. Lobbying has not demonstrated any meaningful results. But a rising number of court cases of whatever type, just might have some influence.

[JohntheBike]

I think so.

As I've said, no amount of lobbying is going to reverse this, despite what IPSE and others might like to think. Lobbyists have a vested interest in over-selling their magical powers and confusing correlation with causation.

The future needs to be viewed w/r to where the power lies in the client/contractor relationship.

BoS contractors are not in a position of power. What are they going to do when their contracts are turned into FTCs? Not work? No amount of lobbying is going to change that. No BoS contractors union is going to change that. This power relationship is dictated by their comparative lack of value in the marketplace.

Specialists are in a different boat because the power relationship is reversed. When a specialist says feck off, I'm not working to those terms, what is a company that desperately needs that specialist going to do? They can't go elsewhere. It rarely makes sense to employ a specialist, unless they are part of a client's BAU.

The only uncertainty is about where the line between these two things will fall.

Sit back, relax, and wait for it to unfold. No one knows precisely how it will pan out.

clients have routinely employed specialist contractors for BAU. I'm one, and there have been many others that I've worked with who were also. Up until now the clients have always benefited from this approach, with virtually no hassle, but clearly the times they are a changing.

I agree at this late stage, we can only sit back and wait and see what happens. History will show who's opinions were the most accurate.

[webberg]

agreed, the old order has not proven to be a significant influence on the issues, but clearly with the Winchester, Elbourne and Alcock cases, there is now a more concerted effort to use the ET to influence the situation. We must fight the legislation with other legislation. Lobbying has not demonstrated any meaningful results. But a rising number of court cases of whatever type, just might have some influence.

There is generally no crossover between employment and tax law. The Taylor "Good Work" report included as one of its recommendations a proposal that the law should be aligned so that an employee was an employee for all purposes. This was one of the few recommendations that was not accepted and instead was basically kicked into the long grass, there to lie forgotten.

There is no particular reason why employment and tax law should be aligned and it is entirely possible that if they were, more gaps would be found for tax planners to exploit.

Further, HMRC having spent may decades narrowing the scope for avoidance on employment/not employment are not going to admit at this time a late change that undoes all of that.

I understand that employment law cases may change end client behaviour but I cannot see it influencing tax law.

[JohntheBike]

There is generally no crossover between employment and tax law. The Taylor "Good Work" report included as one of its recommendations a proposal that the law should be aligned so that an employee was an employee for all purposes. This was one of the few recommendations that was not accepted and instead was basically kicked into the long grass, there to lie forgotten.

There is no particular reason why employment and tax law should be aligned and it is entirely possible that if they were, more gaps would be found for tax planners to exploit.

Further, HMRC having spent may decades narrowing the scope for avoidance on employment/not employment are not going to admit at this time a late change that undoes all of that.

I understand that employment law cases may change end client behaviour but I cannot see it influencing tax law.

There is no case law which supports the assertion that an individual can be an employee for tax purposes but not for employment benefits. No one has taken an employed for tax purposes judgement from the 1st Tier Tribunal (previously the Tax Commissioners) to the Employment Tribunal, let alone receive a different judgement.

Any evidence submitted to the 1stTT to prove an employment relationship, is most likely to prove a full employee relationship in the ET. HMRC perpetuates the myth because it suits them to have uncertainty. The only fly in the ointment is that cases in the ET must be lodged within 6 months of the engagement in question and IR35 investigations tend to be for periods outside of that timescale.

Despite having been asked to do so, no representative organisation has to my knowledge approached the ET for a statement on this issue. There is a provision to appeal an out of time decision, if there is genuine cause to do so. I would contend that a "retrospective" IR35 judgement should be enough reason to allow an ET claim out of time. If that were not allowed, the impartiality of the law could be brought into question.

Study the Winchester, Elbourne and Alcock cases to understand more.

[webberg]

There is no case law which supports the assertion that an individual can be an employee for tax purposes but not for employment benefits. No one has taken an employed for tax purposes judgement from the 1st Tier Tribunal (previously the Tax Commissioners) to the Employment Tribunal, let alone receive a different judgement.

Ergo, as I said, there is no generally no crossover in law between tax and employment law.

Any evidence submitted to the 1stTT to prove an employment relationship, is most likely to prove a full employee relationship in the ET. HMRC perpetuates the myth because it suits them to have uncertainty. The only fly in the ointment is that cases in the ET must be lodged within 6 months of the engagement in question and IR35 investigations tend to be for periods outside of that timescale.

I'm not sure I would agree with that. I'm a tax specialist, not employment law, so perhaps I'm just uncomfortable because I don't know enough about employment law.

Despite having been asked to do so, no representative organisation has to my knowledge approached the ET for a statement on this issue. There is a provision to appeal an out of time decision, if there is genuine cause to do so. I would contend that a "retrospective" IR35 judgement should be enough reason to allow an ET claim out of time. If that were not allowed, the impartiality of the law could be brought into question.

Again, with respect, I would not support that contention because I think that the tax law exists outside employment law and is not dependent upon any aspect of that in order to operate. I do not see that employment law can pray in aid tax law either. It would be not, in my view, impart any partiality if the Tribunals choose to ignore each other.

Study the Winchester, Elbourne and Alcock cases to understand more.

I have read two of the above along with Autokleenz and a few others. They offer useful pointers but there is no read across or precedent that a tribunal would regard as anything other than obiter.

Unless and until a case is taken that steps over the boundaries, we are left looking at each set of rules in isolation.

[WordIsBond]

Unless and until a case is taken that steps over the boundaries, we are left looking at each set of rules in isolation.

It would have been hard to take such a case over that boundary in the past. The fact that the contractor was deemed by HMRC to be an employee had nothing to do with the client. It simply wasn't their business.

Under the new rules, it is the client who says, 'You are an employee for tax purposes.' It is going to be hard for them to turn around and say, 'You aren't an employee in employment law.'

A court will be found eventually that says, 'No, that is unjust. You can't do that. If you are going to declare that a person is an employee re: tax, you have to take responsibility for that decision.' To flip HMRC's 'fairness' rhetoric around, you cannot have two people doing the same job and declare that one has to pay high taxes whilst giving the other tax-free employment rights.

This 'reform' is as half-baked as the original manifestation of IR35. Someone is going to win a court case and a whole lot of clients are going to end up with liabilities because they threw contractors under the IR35 bus. That's why some clients are saying no contractors at all. They aren't stupid. They know they have risk of big liabilities if they declare people outside, and risk of big liabilities if they declare them inside. But it is going to blow up on some people and when it does, suddenly HMG is going to be under a lot of pressure from clients. This 'reform' is going to have to be tweaked again, if we don't get a sane Chancellor to pull it and try to come up with a formula to get it right. Hammond is intelligent enough to have figured it out but he's too busy plotting anti-Brexit coups to pay attention to his day job.

[webberg]

I'm sorry to harp on about this, but being taxed as an employee does not make you an employee for any other purpose.

IR35/Chapter 10 ITEPA is a deeming provision.

It "deems" that a person should be taxed as though they were an employee FOR THE PURPOSES OF TAX.

Such a deeming provision carries absolutely no weight outside tax law.

If it was the case that a tax definition had power in employment law, then surely in the last 19 years, we would have seen at least one successful case?

[JohntheBike]

I'm sorry to harp on about this, but being taxed as an employee does not make you an employee for any other purpose.

IR35/Chapter 10 ITEPA is a deeming provision.

It "deems" that a person should be taxed as though they were an employee FOR THE PURPOSES OF TAX.

Such a deeming provision carries absolutely no weight outside tax law.

If it was the case that a tax definition had power in employment law, then surely in the last 19 years, we would have seen at least one successful case?

As I've said, there has never to my knowledge been any case which links a decision in the 1stTT and the ET. However, I would contend that my EAT made a link in reverse.

HMRC had proposed to investigate me under IR35, until I lost my claim for employment rights initially in the ET. So that would infer that they were not confident that they could make IR35 stick and I contend that is because there is a very narrow divide between the aspects of employed for tax purposes and for employee benefits.

The problem has always been that IR35 investigations were almost always undertaken outside of the ET time limit and no none saw fit to clarify whether an inside IR35 1stTT was sufficient reason to appeal an out of time ET decision. The situation is now changing. Many contractors will still be in contract with clients when clients declare them inside and so the out of time issue would not occur. So I would say it is very likely that someone will take an inside IR35 decision to the ET and given that the client will have declared the engagement as being one employment, then that is likely to carry great weight in an ET.

The Elbourne case is one where the inside CEST judgement was effectively over ruled as the judge in the ET declared that Elbourne was a self employed contractor. It isn't unreasonable to expect that another ET judge would take an opposite view. But as many are saying, which I agree with, we will have to wait and see what transpires.

I'm keeping my powder dry for the moment as there are too many variables in my personal circumstances for me to develop a clear strategy. But think on this, I'll be 72 by April 2020 and I will have contracted to my client for over 15 years. I'll leave it to you to wonder what strategy I might employ should I still be contracting and am judged inside IR35 by the client.

[JohntheBike]

It would have been hard to take such a case over that boundary in the past. The fact that the contractor was deemed by HMRC to be an employee had nothing to do with the client. It simply wasn't their business.

Under the new rules, it is the client who says, 'You are an employee for tax purposes.' It is going to be hard for them to turn around and say, 'You aren't an employee in employment law.'

A court will be found eventually that says, 'No, that is unjust. You can't do that. If you are going to declare that a person is an employee re: tax, you have to take responsibility for that decision.' To flip HMRC's 'fairness' rhetoric around, you cannot have two people doing the same job and declare that one has to pay high taxes whilst giving the other tax-free employment rights.

This 'reform' is as half-baked as the original manifestation of IR35. Someone is going to win a court case and a whole lot of clients are going to end up with liabilities because they threw contractors under the IR35 bus. That's why some clients are saying no contractors at all. They aren't stupid. They know they have risk of big liabilities if they declare people outside, and risk of big liabilities if they declare them inside. But it is going to blow up on some people and when it does, suddenly HMG is going to be under a lot of pressure from clients. This 'reform' is going to have to be tweaked again, if we don't get a sane Chancellor to pull it and try to come up with a formula to get it right. Hammond is intelligent enough to have figured it out but he's too busy plotting anti-Brexit coups to pay attention to his day job.

agreed

[WordIsBond]

I'm sorry to harp on about this, but being taxed as an employee does not make you an employee for any other purpose.

IR35/Chapter 10 ITEPA is a deeming provision.

It "deems" that a person should be taxed as though they were an employee FOR THE PURPOSES OF TAX.

Such a deeming provision carries absolutely no weight outside tax law.

If it was the case that a tax definition had power in employment law, then surely in the last 19 years, we would have seen at least one successful case?

For both employment law and tax law, the question of 'employee or not' is looked at 'in the round.' There is no statutory definition of self-employment/employment.

You are asking us in another thread to look forward and here you are insisting on looking back. Looking back, it was the contractor or HMRC that determined the subjective (certainly not objective) question as to whether IR35 applied. Looking forward, the new dynamic is that it is the engager.

In the English common law system, where 'equity' is a compelling principle, it will certainly be argued that it is inequitable for an engager to deem that someone is an employee on tax to their detriment and not an employee on employment rights (again to their detriment, and to the benefit of the engager).

This 'reform' brings an important new consideration into that 'in the round' assessment. Always before, in employment cases, engagers could say, 'We didn't hire him as an employee, we didn't pay him like an employee, we didn't treat him like an employee, we never considered him an employee in any way.' Now, legal counsel for the contractor can say, 'Then why did you decide that he had to be taxed like an employee?' It's a new aspect to that 'in the round' assessment.

If it was the case that a tax definition had power in employment law, then surely in the last 19 years, we would have seen at least one successful case?

I am not in the least suggesting that a tax definition has any impact on employment law. I am suggesting that engager/employer actions towards the worker DO have power in employment law, and that there's a new engager/employer action which has never been there over the last 19 years. Any engager which says, 'You are to be treated as an employee for tax,' is saying that your working conditions are more in line with employment than self-employment. That can't be a comfortable position for them to be in if they don't want to be dragged into an employment tribunal.