Reply to: Risk

[The Lone Gunman]

You can be a sole trader and pay tax on all your income less expenses.

That is almost impossible to do, though many of us would take the option if it were possible. The clients will not touch sole traders. Maggie implemented a law, when BT started this Fri to Mon thing, making the client (and possibly the agent) responsible for any unpaid tax the contractor did not pay. Since then the clients have insisted on Ltd status (even if they don't know why).

[oraclesmith]

You seem to have fallen for the revenues bulltulip.

If you mean that I can understand where they're coming from then yes.

There are any number of people who have started their own business as a vehicle for their employment and/or as a method of increasing their earnings.
There are thousands of one man businesses that have no intention of ever being more than a one man business.

Fair point, but there are any number of permanent employees who but for IR35 could easily convert to long term contractors in the same office doing the same work as before, with the taxpayer chipping in a chunky pay rise for good measure. The tax has to come from somewhere so the more income tax avoidance, the more that other areas like inheritance and capital gains will be squeezed.

Some corporates used to encourage perma-contractors as a way of shifting some of the salary budget to a supplier budget and avoiding hassles with unions; with contractor-employees being in post for 10 years and more. It still goes on.

The only reason we are being compared to employees is because the revenue say we should be. They deliberately ignore the factors that make us businesses.

I would say that most contractors who know their way round a limited company are genuinely in business on their own account. But it's a few abusers and newbies who fall into setting up a limited as an 'accounting option' that spoil it for the majority. The likes of Giant and their Trailblazer product will only make it worse as more and more artificial companies spring up.

Remember it is their rules that stopped us being self-employed too.

You can be a sole trader and pay tax on all your income less expenses.

[The Lone Gunman]

But it's their personal cash flow - eg. meeting the mortgage etc, not the limited company's. A lot of small businesses are started whilst the director is in full time employment elsewhere. For a typical IT contractor, the limited is necessarily a vehicle for their employment so it's not surprising the HMRC are after us.

I'm not saying that IR35 is right, but I think it's wrong not to make an effort to be a real IT services business. There are many contractors out there whos limited's are effectively run by their accountants and who haven't a clue as to how to run a proper company. They come into contracting as a means of higher paid employment and use their limited as a method of being paid more - they have no intention of building it into something bigger.

In order to understand the situation with IR35 and HMRC, it's necessary to look at the distinction between permanent employees (and nothing's that permanent nowadays) and contractors performing the same role.

You seem to have fallen for the revenues bulltulip.
There are any number of people who have started their own business as a vehicle for their employment and/or as a method of increasing their earnings.
There are thousands of one man businesses that have no intention of ever being more than a one man business.

The only reason we are being compared to employees is because the revenue say we should be. They deliberately ignore the factors that make us businesses.
Remember it is their rules that stopped us being self-employed too.

[Bluebird]

**** me, that's a first. Someone agrees with me ... I usually just spout drivel

I said I agreed with you, I didn't say it wasn't drivel

[Flat Eric]

Eric,
It's a good point you make.

I'd like to think that in a year od so's time 'My Company' has a number of employee's, and I'm still the majority shareholder and pay myself a small salary to maximise the profits of the company - lots of small companies do this.

**** me, that's a first. Someone agrees with me ... I usually just spout drivel

[Mustang]

Hear, hear Eric!

[Bluebird]

Eric,
It's a good point you make.

I'd like to think that in a year od so's time 'My Company' has a number of employee's, and I'm still the majority shareholder and pay myself a small salary to maximise the profits of the company - lots of small companies do this.

[Flat Eric]

...they have no intention of building it into something bigger.

How do you prove this intent ?

I'm pretty much in the situation you describe, I've set up a limited company to go contracting to increase my effective pay. I'm not trying to avoid tax but I'd be stupid to not take advantage of legal opportunities to do so.

I'd like to think that I could build my ltd company into something more than a vehicle for my PAYE and I'm certainly investigating this but It's difficult to do this and still find time to earn money. Then Gordo come along and wants to clobber me....

[oraclesmith]

Most contractors who fail do so because of cash flow. Contracts end and they can't find another. No cash flow, bang goes the business.

But it's their personal cash flow - eg. meeting the mortgage etc, not the limited company's. A lot of small businesses are started whilst the director is in full time employment elsewhere. For a typical IT contractor, the limited is necessarily a vehicle for their employment so it's not surprising the HMRC are after us.

I'm not saying that IR35 is right, but I think it's wrong not to make an effort to be a real IT services business. There are many contractors out there whos limited's are effectively run by their accountants and who haven't a clue as to how to run a proper company. They come into contracting as a means of higher paid employment and use their limited as a method of being paid more - they have no intention of building it into something bigger.

In order to understand the situation with IR35 and HMRC, it's necessary to look at the distinction between permanent employees (and nothing's that permanent nowadays) and contractors performing the same role.

[The Lone Gunman]

They have to buy the widgets first. They also have to put out enough advertising to persuade a customer to buy them from you and not some much bigger contractor who's bought the same make of widgets but a bit cheaper.

They do not necessarily have to buy the widgets, they could make them to order, nor do they have to invest in materials.
I know a woman whose business is producing jumpers. she knits to order. She gets the wool once a pattern has been decided.
Just 1 example from millions. She is effectively doing what I do, she just knows how long the jumper will take to produce.
As a metaphor, my client does not know how big the jumper is nor what the design is nor how many he wants.

[oraclesmith]

As I asked someone else yesterday: What is the difference between someone selling 1800 widgets at 400 each and me selling 1800 days at 400 each?

They have to buy the widgets first. They also have to put out enough advertising to persuade a customer to buy them from you and not some much bigger contractor who's bought the same make of widgets but a bit cheaper.

[The Lone Gunman]

Because small businesses generally have to spend money to make money. If you're effectively an 'employee' the amount of money you speculate to get yourself the next role/job is fairly small - limited to expenditure on phone calls, a bit of travelling etc. You may not have an income while this is going on, but you don't have to take out a bank loan to buy stock or pay for a publicity campaign for example. How likely is the average contractor to go under due to cash flow problems?

Just because my industry sector is cheap to enter and is naturally low risk as far as cash flow is concerned does not make the IR viewpoint right.
Most contractors who fail do so because of cash flow. Contracts end and they can't find another. No cash flow, bang goes the business.

There are lots of businesses out there that have garaunteed sales. M&S enter into exclusive deals with their suppliers as do Harrods. They buy all that can be produced. Farmers are tied to spurmarkets.

IR35 is just wrong.

[The Lone Gunman]

Risk i don't think is the issue, guaranteed payments are. i.e. having a low risk i.e. pay up front for 20 days work to be called down at agreed times is okay, actually it may be a nightmare from a resource point of view, but there is no risk to payment (you may of course have to refund some of the 20 days if they aren't all used).

The issue come with guarantees i.e. I'll pay you £400 a day, you just turn up, and if we have nothing for you you can still be paid. Thats when you start the IR35 pointers twitching, but even that isn't enough if other factors are favourable.

As I asked someone else yesterday: What is the difference between someone selling 1800 widgets at 400 each and me selling 1800 days at 400 each?

IR35 and risk is all about perception and the revenues view point is deliberately set to only look at the employment aspect, even then only the aspects that suit them.

[oraclesmith]

Not wishing to sidetrack, but why should low risk be an IR35 pointer?It is a responsibility of a director to reduce risk to the company.
There are any number of manufacturers out there who have sole supplier status with retailers, just as there are lots of tradesmen who are on retainers etc.

Because small businesses generally have to spend money to make money. If you're effectively an 'employee' the amount of money you speculate to get yourself the next role/job is fairly small - limited to expenditure on phone calls, a bit of travelling etc. You may not have an income while this is going on, but you don't have to take out a bank loan to buy stock or pay for a publicity campaign for example. How likely is the average contractor to go under due to cash flow problems?

[boredsenseless]

Not wishing to sidetrack, but why should low risk be an IR35 pointer?It is a responsibility of a director to reduce risk to the company.
There are any number of manufacturers out there who have sole supplier status with retailers, just as there are lots of tradesmen who are on retainers etc.

Risk i don't think is the issue, guaranteed payments are. i.e. having a low risk i.e. pay up front for 20 days work to be called down at agreed times is okay, actually it may be a nightmare from a resource point of view, but there is no risk to payment (you may of course have to refund some of the 20 days if they aren't all used).

The issue come with guarantees i.e. I'll pay you £400 a day, you just turn up, and if we have nothing for you you can still be paid. Thats when you start the IR35 pointers twitching, but even that isn't enough if other factors are favourable.