Reply to: Super dumb question re. employment status/IR35

[JohntheBike]

Now as in, effective from 1999.... It's as new as IR35

the CIS scheme was introduced in its earliest form in 1972.

[ladymuck]

yes, now it is. But in effect it's the same as IR35. The contractor has to prove that they are independent.

Now as in, effective from 1999.... It's as new as IR35

[ladymuck]

The individual pays the same taxes regardless of whether they are employer or employee, but the client pays more NICs for employees. So there is a difference, from HMRC's perspective, regarding sole trader vs employee, so it is in their interests to 'upgrade' sole traders to employees. However in reality it seems that clients already know this so don't hire sole traders.

Yes, agreed, that's why we all had to go the LtdCo route...

It was more about why IR35 does / doesn't apply to the self employed.

[proudfeet]

But a self employed person pays all their taxes via self assessment so there isn't any need to apply IR35. Or am I missing something?

The individual pays the same taxes regardless of whether they are employer or employee, but the client pays more NICs for employees. So there is a difference, from HMRC's perspective, regarding sole trader vs employee, so it is in their interests to 'upgrade' sole traders to employees. However in reality it seems that clients already know this so don't hire sole traders.

[JohntheBike]

Isn't the CIS thingummy in place for the building world equivalent?

yes, now it is. But in effect it's the same as IR35. The contractor has to prove that they are independent.

[ladymuck]

Isn't the CIS thingummy in place for the building world equivalent?

[JohntheBike]

Except that the IR35 legislation, as currently written only applies to 'PSCs' (and don't start with the no legal definition of a PSC because we alreay know that). The point is that the intermediary has to be AN INCORPORATED ENTITY.

yes, it was always designed to hit us and no one else.

however, the principle of any person working in an employment type role being taxed as an employee existed before IR35. A friend (yes I do have some NLUK) of mine who was a builder was acutely aware of ensuring that his contractors were not classed as employees. So, although IR35 is directly targeted at we who use Ltd. companies, the principle of the employment status determining what tax is due and how it is paid remains for everyone.

[TestMangler]

it's not about what taxes are paid or how they are paid, it's about the actual employment status determining what taxes are due and how they are paid. In that context, I contend that a sole trader could be subject to IR35.

Except that the IR35 legislation, as currently written only applies to 'PSCs' (and don't start with the no legal definition of a PSC because we alreay know that). The point is that the intermediary has to be AN INCORPORATED ENTITY.

[northernladuk]

it's not about what taxes are paid or how they are paid, it's about the actual employment status determining what taxes are due and how they are paid. In that context, I contend that a sole trader could be subject to IR35.

But IR35 is targeting payment via an intermediary i.e. PSC and that doesn't exist so no it couldn't.

And what are you wanting to gain by contending this... another thread ruined with your pointless tedium achieving nothing?

[JohntheBike]

But a self employed person pays all their taxes via self assessment so there isn't any need to apply IR35. Or am I missing something?

it's not about what taxes are paid or how they are paid, it's about the actual employment status determining what taxes are due and how they are paid. In that context, I contend that a sole trader could be subject to IR35.

[ladymuck]

yes, we are all mostly aware of the differences, but what about my contention that a sole trader working for a client in an employee like way, if any one does, should be classed as an employee for tax purposes, in the same way that IR35 would judge any one of us so? So in effect IR35 could apply to a sole trader. Clients didn't engage with sole traders prior to IR35, so in effect this risk existed prior to IR35. Clearly clients adopted the Ltd approach to get around this issue, as well as perhaps to reduce their costs.

But a self employed person pays all their taxes via self assessment so there isn't any need to apply IR35. Or am I missing something?

[JohntheBike]

[QUOTE=northernladuk;2731010]Interesting comparison here.

Sole trader v. limited company: key tax & legal differences - RossMartin.co.uk


yes, we are all mostly aware of the differences, but what about my contention that a sole trader working for a client in an employee like way, if any one does, should be classed as an employee for tax purposes, in the same way that IR35 would judge any one of us so? So in effect IR35 could apply to a sole trader. Clients didn't engage with sole traders prior to IR35, so in effect this risk existed prior to IR35. Clearly clients adopted the Ltd approach to get around this issue, as well as perhaps to reduce their costs.

[northernladuk]

Surely it's not about avoiding tax, is about whether or not the relationship and the engagement is one of employment? So I contend that it is theoretically possible to be a sole trader working for a client in an employment like role and it would be the sole trader who is liable for the tax, just as IR35 made us (or our LTD's in the past) liable.

Interesting comparison here.

Sole trader v. limited company: key tax & legal differences - RossMartin.co.uk

[JohntheBike]

Self employment isn’t strictly a matter of “choice”. Your relationship with the client is generally a matter of fact. If you’re working as self employed but your relationship is more like one of employment then HMRC can seek to ensure you are taxed as an employee.

However, for sole traders the risk is on the client, not the sole trader. It’s not the sole trader who is avoiding tax, it’s the client (who can be left on the hook for unpaid NIC and other employment rights).

Surely it's not about avoiding tax, is about whether or not the relationship and the engagement is one of employment? So I contend that it is theoretically possible to be a sole trader working for a client in an employment like role and it would be the sole trader who is liable for the tax, just as IR35 made us (or our LTD's in the past) liable.

[TheCyclingProgrammer]

Self employment isn’t strictly a matter of “choice”. Your relationship with the client is generally a matter of fact. If you’re working as self employed but your relationship is more like one of employment then HMRC can seek to ensure you are taxed as an employee.

However, for sole traders the risk is on the client, not the sole trader. It’s not the sole trader who is avoiding tax, it’s the client (who can be left on the hook for unpaid NIC and other employment rights).