Reply to: "IR35 could well be dead in a few months" ?

[jamesbrown]

I was thinking about the trades example:

Plumber has Ltd Co.

Kitchen fitter fits kitchen. He subcontracts fitting the boiler to the plumber. Presumably as it stands, this would fall under the reporting requirements. But what if the plumber employs (under PAYE) a plumber's mate. The plumber may do the job herself, or she may get her employee to do it. How does that fit in?

I think it would depend on whether the work was actually conducted by the PAYE employee; if not (in whole or in part), there would be a reporting requirement, and you'd only find out by asking the subcontractor (with fairly high risk of being told to bugger off, no doubt).

[jamesbrown]

Well this is interesting. Read this:

Contractor Employment Intermediaries reporting still in doubt, despite HMRC response

Note the part about subcontractors. Sounds like what we have been saying all along right?

Only problem is, the guidance this appears to be quoting had changed and it no longer says anything like this.

Is it just an oversight or did HMRC change their mind about the scope of this?

It should be blindingly obvious to HMRC that reporting on general (sub)contracts for goods/services that do not involve the direct supply of workers will be completely untenable. Perhaps they're having this debate internally and some of the cracks are being exposed to the outside world. Either way, we need to make this representation to HMRC in the coming months. I'd be interested to know if ContractorCalculator could shed any light on that quote; as you say, the link is the one we've been quoting here, which makes no such distinction. The post from Lisa is also helpful insofar as it confirms our understanding of "agency" and seems to indicate that not all subcontractor relationships are covered by the reporting requirements (which begs the question, where is the line drawn? Hopefully, as described above.)

[mudskipper]

I was thinking about the trades example:

Plumber has Ltd Co.

Kitchen fitter fits kitchen. He subcontracts fitting the boiler to the plumber. Presumably as it stands, this would fall under the reporting requirements. But what if the plumber employs (under PAYE) a plumber's mate. The plumber may do the job herself, or she may get her employee to do it. How does that fit in?

[TheCyclingProgrammer]

Well this is interesting. Read this:

Contractor Employment Intermediaries reporting still in doubt, despite HMRC response

Note the part about subcontractors. Sounds like what we have been saying all along right?

Only problem is, the guidance this appears to be quoting had changed and it no longer says anything like this.

Is it just an oversight or did HMRC change their mind about the scope of this?

[TheCyclingProgrammer]

OK, that seems a bit more positive.

How can this be communicated to IPSE and how can HMRC provide better guidance on their website?

It still seems like you face the decision of deciding whether something should or shouldn't be reported each time you sub contract and face fines for getting it wrong.

[LisaContractorUmbrella]

Morning chaps

This was the response I received from HMRC:

This is very helpful. The accountant has grasped the distinction. By providing services we mean your company hiring someone else to provide services to the client. Paying someone to design a logo for your company which you then sell on to the client is not caught. This is all about PSCs supplying another worker to work for the client to deliver the services you are charging the client for - providing services alongside you, or instead of you.

An agency is any third party interposed between the worker and the client for whom they provide the services. We publish our Employment Status Manual which is the guidance for our staff and it cointains a useful detailed treatment of what an agency is.

http://home.active.hmrci/ESMmanual/ESM2033.htm

I trust this helps

[Zero Liability]

The fact that the impact of this regulation is so far-reaching may mean it'll have a higher chance of being defeated. If it just impacted contractors, interest in it would be lower. IPSE should challenge this anyway.

IR35 is dead, it's kept around as a deterrent to newbie contractors who don't know any better. Your more likely to win the lottery than get IR35 investigated. Anyone who says otherwise, is either HMRC, selling insurance in some way.

It's a bit higher than that, but it ranks as more improbable than some of these scenarios.

I do find it funny how Labour and its goons are still trying to push this whole thing as part and parcel of the tax avoidance debate. They're barking up the wrong tree as the figures and arguments just do not stack up. I can definitely see them pushing the FLCs should they come to power, since they're losing on every other front...

[jamesbrown]

This talks about PSC's but how would it impact building contractors - surely they are also a 'PSC' business? Builders often sub-contract work, so are they also caught in this or is it only white collar contracts? For e.g., I may hire a main contractor to install a bathroom, but he/she may then sub-contract out the tiling and the electrics but keep the plumbing to himself ... any ideas?

Nothing is out of scope insofar as the aim is to identify payments that are made outside of PAYE, via an intermediary, and the intermediary is onshore. However, I can't see how many builders would get away with being outside of the SD&C of the main contractor(?)

By the way, on the SD&C point, I think this is clearly moot w/r to the definition of "agency" because operating under SD&C implies that PAYE should be operated, so a definition of "agency" for the purposes of reporting that depended on lack of SD&C would be meaningless (because it only applies when PAYE doesn't); in short, SD&C has nothing to do with the reporting requirement, except that it doesn't apply, by definition.

[Whorty]

This talks about PSC's but how would it impact building contractors - surely they are also a 'PSC' business? Builders often sub-contract work, so are they also caught in this or is it only white collar contracts? For e.g., I may hire a main contractor to install a bathroom, but he/she may then sub-contract out the tiling and the electrics but keep the plumbing to himself ... any ideas?

[jamesbrown]

There seems to be a lot of support on the IPSE community board thread for the idea that these reporting regulations should only apply to "agencies" that engage "agency workers" which in theory, like the intermediary rules that were introduced last year, should only apply where the worker is under significant direction and control by the agency, therefore meaning that these reporting requirements are irrelevant to all but employment agencies.

HMRC obviously don't see it this way so IPSE seem to be gearing up for a legal challenge. This will obviously take some time so it looks like its something that we are all going to have to put up with for now - whether you're a PSC who works through an agency and will need to start handing out personal details, or you're a contractor that works direct with a client but sub-contracts and therefore needs to take on the reporting burden.

That may be the case, but I think it's important to consider the reporting regulations in isolation, and there's no requirement for SD&C in that context. Further, "agency" is (I would suggest) clearly defined in Section 44 of the ITEPA (2003) as being very broad, but the definition is not conditional upon SD&C, despite the other clauses there. Of course, this could be a case of willful extension/over-reach by HMRC, but any legal action would (if possible) take a long time to resolve. In the mean time, I think the implications are pretty clear (and pretty bad).

I'll be writing to my MP to express my disgust, given the Gov't rhetoric about reducing red tape for small businesses, and indicating that this will impact the voting intentions of many small business owners, because I believe it will. This is nothing more than HMRC giving up on the policing of avoidance, due to lack of resources, and putting the burden on small businesses, and it's pathetically transparent as such.

[TheCyclingProgrammer]

What are the consequences of not reporting? I apologise for not having looked through the guidance yet.

Fines. Potentially heavy ones.

[Coalman]

What are the consequences of not reporting? I apologise for not having looked through the guidance yet.

[TheCyclingProgrammer]

There seems to be a lot of support on the IPSE community board thread for the idea that these reporting regulations should only apply to "agencies" that engage "agency workers" which in theory, like the intermediary rules that were introduced last year, should only apply where the worker is under significant direction and control by the agency, therefore meaning that these reporting requirements are irrelevant to all but employment agencies.

HMRC obviously don't see it this way so IPSE seem to be gearing up for a legal challenge. This will obviously take some time so it looks like its something that we are all going to have to put up with for now - whether you're a PSC who works through an agency and will need to start handing out personal details, or you're a contractor that works direct with a client but sub-contracts and therefore needs to take on the reporting burden.

[TheCyclingProgrammer]

to above, thanks.

Here's IPSE's published guidance which, as it stands, takes the view that any sub-contracted worker will need reporting if you're direct with your client and the sub-contracted worker is not paid via PAYE (could this potentially exclude sub-contractors working through an umbrella?, not sure):

https://www.ipse.co.uk/guides/new-re...ments-agencies

[LisaContractorUmbrella]

Following sent - will let you know as soon as I have a response:

"“The HMRC response largely referred to "personal service companies" but I want them to clarify that potentially any business who sub-contracts could be caught by these new reporting requirements, whether its a one man "PSC" or a large consultancy who sometimes uses sub-contractors for client projects.

* The legislation states that only "specified employment intermediaries" need to report to HMRC and a specified intermediary is one that "is an agency". What is the definition of agency in this context and where is that definition stated?”

“The only problem is that s44 doesn't seem to give an explicit definition of "agency" that I can see; I'd like to hear it from the horses mouth”.

“How has HMRC considered the potential impacts of these new reporting requirements on any small business who uses sub-contracted resources. Their consultation appeared to be very focussed on employment agencies; yet HMRC appear to want it to apply to any small business”.

“My accountant's view is that the above statement would still indicate that reporting is only necessary if the sub-contracted party is working directly for the end client in my place (i.e. a substitute or working directly alongside me) rather than being contracted to do a very specific piece of work.

In other words, his view is very much inline with my own thoughts: If ClientCo contracted MyCo to design a website and as part of that project, I sub-contracted FreelanceDesignBod to design a logo for the website, that would not need reporting. OTOH if I sub-contracted OtherWebDesignBod to actively work alongside me as part of a two man team on the project, with MyCo acting as project lead or as a complete substitute as I was taken ill, that would need reporting.

The issue is of course that this is all a matter of interpretation so there is still a huge element of doubt in my mind.”