Increasing HMRC revenue via IR35 changes is flawed

[mockedguy]

I don't get the logic behind HMRC and the IR35 changes. As far as I understand the ultimate objective is to increase the tax revenue to HMRC, based on the assumption contractors are underpaying it, but the figures seem to state the opposite.

e.g. I made up a spreadsheet to compare the options. Based on the market rate for my skills/experience/location:

• As an Outside IR35 contractor I pay approx HMRC £34,440 (£18,240 company tax + £16,200 personal tax from salary and dividends).
• If this was split (e.g. wife, etc) HMRC still receive £27,440.
• If I took a similar market rate perm role, HMRC would only receive £16,200.

So HMRC are going to be receiving around £18,000 LESS in tax from me in future. HMRC are throwing away contractors being taxed double (paying personal tax on money their company has already paid tax on).

Am I missing something here? How do they think it will increase their revenue?

[northernladuk]

Nah, it's more about targeting groups that, in HMRC's eyes, are gaining an unfair tax advantage through sham setups. Doesn't matter if that means shooting themselves in the foot. Something they are very good at.

And to be fair, if HMRC suspects (lets assume correctly for the sake of argument) a group of people are treating tax incorrectly it is their job to plug the holes regardless of tax income from there. It isn't about bottom lines, it's about adherence to the law/regulation. Common sense would however dictate you'd push it to the bottom of the pile and go focus on something else instead though.

[dsc]

Is it all about NIC? what's the comparison between NIC now for you as a contractor vs. what you would pay as PAYE?

[BrilloPad]

Nah, it's more about targeting groups that, in HMRC's eyes, are gaining an unfair tax advantage through sham setups. Doesn't matter if that means shooting themselves in the foot. Something they are very good at.

And to be fair, if HMRC suspects (lets assume correctly for the sake of argument) a group of people are treating tax incorrectly it is their job to plug the holes regardless of tax income from there. It isn't about bottom lines, it's about adherence to the law/regulation. Common sense would however dictate you'd push it to the bottom of the pile and go focus on something else instead though.

PSCs are now classed as avoiderance.

[WordIsBond]

I don't get the logic behind HMRC and the IR35 changes.

Your first mistake was in putting "logic" and "HMRC" in the same sentence. One might recover from that but when you added "IR35" into the same sentence, it was hopeless. The rest follows on from those mistakes.

There's only one solution:

[simes]

I don't get the logic behind HMRC and the IR35 changes. As far as I understand the ultimate objective is to increase the tax revenue to HMRC, based on the assumption contractors are underpaying it, but the figures seem to state the opposite.

e.g. I made up a spreadsheet to compare the options. Based on the market rate for my skills/experience/location:

• As an Outside IR35 contractor I pay approx HMRC £34,440 (£18,240 company tax + £16,200 personal tax from salary and dividends).
• If this was split (e.g. wife, etc) HMRC still receive £27,440.
• If I took a similar market rate perm role, HMRC would only receive £16,200.

So HMRC are going to be receiving around £18,000 LESS in tax from me in future. HMRC are throwing away contractors being taxed double (paying personal tax on money their company has already paid tax on).

Am I missing something here? How do they think it will increase their revenue?

I have been saying the same for some months now, also and similarly unable to understand the HMRC maths - if the UK went permie.

The entire deal will be based on people staying on as contractors but paying more tax, and without the benefits... The worst of every world.

[eek]

Nah, it's more about targeting groups that, in HMRC's eyes, are gaining an unfair tax advantage through sham setups. Doesn't matter if that means shooting themselves in the foot. Something they are very good at.

And to be fair, if HMRC suspects (lets assume correctly for the sake of argument) a group of people are treating tax incorrectly it is their job to plug the holes regardless of tax income from there. It isn't about bottom lines, it's about adherence to the law/regulation. Common sense would however dictate you'd push it to the bottom of the pile and go focus on something else instead though.

It's also about protecting Employers NI and ensuring the ways that large companies are avoid it is minimised.

[AnthonyQuinn]

I don't get the logic behind HMRC and the IR35 changes. As far as I understand the ultimate objective is to increase the tax revenue to HMRC, based on the assumption contractors are underpaying it, but the figures seem to state the opposite.

e.g. I made up a spreadsheet to compare the options. Based on the market rate for my skills/experience/location:

• As an Outside IR35 contractor I pay approx HMRC £34,440 (£18,240 company tax + £16,200 personal tax from salary and dividends).
• If this was split (e.g. wife, etc) HMRC still receive £27,440.
• If I took a similar market rate perm role, HMRC would only receive £16,200.

So HMRC are going to be receiving around £18,000 LESS in tax from me in future. HMRC are throwing away contractors being taxed double (paying personal tax on money their company has already paid tax on).

Am I missing something here? How do they think it will increase their revenue?

You will not go perm. You will continue as a contractor inside IR35 and that will increase their tax take

[mockedguy]

Good article. Every contractor should read it. So it is saying HMRC are doing this mainly to chase NI contributions?

I updated my calculations, and the £5,500 or so for NI, is just going to move from my company paying it, to the an employer paying it. HMRC aren't going to increase their revenue from it?

In fact, its just moving a cost we pay, from our companies to clients, which makes me wonder why they aren't employers fighting against it?

[mockedguy]

You will not go perm. You will continue as a contractor inside IR35 and that will increase their tax take

I'm on the market atm and have been talking to a lot of agents and ex-colleagues the last couple of weeks. This is what I am hearing mainly:

• A lot of EU nationals who were just here for the money are leaving the UK if they can find something
• A lot of Brits are grabbing contracts outside of UK if they can
• Contractors are converting to perms en masse
• There are still Outside IR35 contracts coming up
• Clients are not sure what to do and sitting on roles atm

Sum total is HMRCs revenue from our skills base is going to DECREASE.

Do they understand the job we do or are turning us into glorified pizza delivery temps? I've been through many crashes, market forces will prevail in the end, I think its just going to be very ugly for 6 months.