Reply to: IR35 investigation less likely?

[THEPUMA]

At the moment the marginal tax cost of extracting salary from a company for a higher rate taxpayer is 47.7%. The marginal cost of extracting a dividend has just gone up from 39.25% to 40%.

Assuming PAYE, NIC and tax on dividends remain the same, small companies' CT would have to rise to 30.27% for the same tax burden to arise.

However, this does not account for the fact that there are 2 other major tax savings potentially possible via your company.

Firstly, you can defer or avoid tax by leaving residual profits in the company.

And secondly, you can utilise your spouses' basic rate allowances by splitting dividends.

Following up on a query made earlier in the thread, someone asked how to convince an EB to give you an "IR35 friendly" contract. My usual tactic is gto explain to them the consequences of the Muscat vs Cable & Wireless case.

This was the case where Mr Muscat, who operated via his own limited company, ENuff Limited (he had the hump about being forced to go limited!) sued C&W for unfair dismisaal and won.

The upshot of this case is that all contractors working on non-IR35 friendly contracts have full employment rights. So it is very much in their (the EB and end-client) interests to give you an IR35 friendly contract.

[VectraMan]

If increasing CT is going to be a trend for Gordo, Can we have a couple of accountant tell us at which point does CT and Div tax rises become the the same as the tax on paye and NI.

Correct me if I'm wrong (very possibly), but there's no upper limit on employers NI. So inside IR35 is -13% then - 20% = 30% ish , and outside is -22% (assuming you stay out of the upper rate and ignore employee NI and salary).

The upper rate will be -13% - 40% = 48%, and outside will be -22% - 25% = 41.5% ish.

So not even close as yet.

[Ennui]

That's the question that a lot of people are asking.

Anyone know the answer?

[mictech]

If increasing CT is going to be a trend for Gordo, Can we have a couple of accountant tell us at which point does CT and Div tax rises become the the same as the tax on paye and NI.

[Diestl]

I disagree, although GB won't explicitly say IR35 is lame legislation (because he still wants people to worry about it enough to make them pay full PAYE), his small business corp. tax increase is replacing it. I am much less worried now about IR35.

If you have an outside contract and maybe PCG membership, then I think you are safe. Even in the 0.1% chance you get investigated, and then 0.1% chance you get found inside, it only applies to one contract and if they are 3-6 monthers then your talking a small amount to payback.

[gingerjedi]

Judging by the amount of views this thread has had there are a lot of twitching bums out there, including mine!

[kingshuk]

Thanks Denny! Very useful tips.

[gingerjedi]

Yes great advice, thanks.

[Denny]

A hefty invoice will grace your front door mats any day now.

[Flubster]

Denny....I think I love you...

[Burdock]

Many thanks again, Denny! Very useful tips

[Denny]

Thank you again!

And finally, just to be crystal clear, to what extent can you be blatant about being concerned about IE35.. I like the way you can convince a client that some measures are to their own advantage, but when it comes to the crunch, can you ever just admit (to client and EB): "Look, I need to strengthen my hand against IR35".

I doubt my current client would have a clue what IR35 is! He would probably think I was trying to break the law!

It's not a bad idea if you are dealing with an intelligent hiring manager. Most will suss this out anyway as they are not daft and will always assume some self interested motive in there somewhere. The trick is to sell the advantages to you reap more advantages to them as well. If presented correctly, how can they object?

So how do you present your case to the client?

Don't use it as the first reason you mention because (a) there are more client focused reasons for talking benefits of flexible working to them. (b) the IR35 risk is not important or relevant to them as a payment risk and mentioning this first and the client benefits second makes the latter appear to be convenient add ons to get you only what you want and are more likely to be refused. Also the combo of (a) and (b) leads to a win win situation not a win lose situation for one party at the others' expense.

It doesn't matter so much what you say to the EB. They are always being asked about IR35 friendly contracts and expect this kind of enquiry. However, do make sure you get firm written verification that their contracts are back-to-back with the client (and never accept telephone reassurances) once the offer is on the table.

[Burdock]

Thank you again!

And finally, just to be crystal clear, to what extent can you be blatant about being concerned about IE35.. I like the way you can convince a client that some measures are to their own advantage, but when it comes to the crunch, can you ever just admit (to client and EB): "Look, I need to strengthen my hand against IR35".

I doubt my current client would have a clue what IR35 is! He would probably think I was trying to break the law!

[Denny]

Denny,

That is an excellent post.

I am just completing my second contract. The problem that I see is that most job advertisements for my line of work (programming), and I presume clients, are looking for 'bums on seaters' when hiring.

Surely EB's and clients will quickly lose patience with contractors who dispute or niggle about contracts, and offer the work to someone else?

I guess this comes with the territory. I will definitely try out your advice when looking for my next contract.

Finally, how sympathetic are EB's when you explain to them, 'Can you re-word this and that, show me evidence of back to back contracts etc...as I need to place myself outside IR35'...?

Cheers for your advice!!

There is a genuine fear that contractors won't be offered the role if they kick up too much fuss about terms. You really have to make this assessment yourself, depending on your economic situation, the length of the contract, the amount of negotiating power you have and so on. Everyone is different. However, in all fairness, once you have decided terms and started, you should accept that others around you may have a better deal negotiated and should behave professionally and try to negotiate better for next time. Don't behave or bitch like a jealous permie as this is very unfair.

Clearly the more junior your equivalent permie counterpart would be in if the role existed for a permie the more likely you will be caught by IR35 if you are part of a numbers game (loads of people can do your job easily).

However, to shine some light on this gloom. There have been a couple of surprising developments which I would take into account. One is a comment made by Simon at SJD about 'client control' being less important than people think for IR35 purposes. The post is under expert in Shout99 (apparently even being asked to take lunch at a particular time, is not that important).

I think the key to all this is what you do, why you need to be on site in a more controlled and supervised environment. If you clearly are a security risk outside of the client company or you have to see people during office hours or you have to use fixed pieces of equipment to do your job on site, then IR35 compliance is not really a threat. If, as in my case, you may be asked to be on site and controlled for unconvincing reasons that pose no threat to the client, the quality of the deliverables, and simply appear to be a way of supervising hours or conforming to rules that apply to others then there is a problem. Luckily, I am a good negotiator and can convince my clients that my reasons for working flexible hours and at home is actually to their advantage (which they genuinely are) and because I work at fairly senior level (for a permie equivalent role). With the best will in the world, most hiring managers are permies and think like permies, so they will always negotiate terms based on what they consider is your 'status' in the project team and how important you are to them. Of course, this is all wrong, as being in business has nothing to do with being status conscious as we are not interested in promotions or company cars. Hwever, you can't teach a cat to bark.

Motive is more important than request, it appears.

[Burdock]

Denny,

That is an excellent post.

I am just completing my second contract. The problem that I see is that most job advertisements for my line of work (programming), and I presume clients, are looking for 'bums on seaters' when hiring.

Surely EB's and clients will quickly lose patience with contractors who dispute or niggle about contracts, and offer the work to someone else?

I guess this comes with the territory. I will definitely try out your advice when looking for my next contract.

Finally, how sympathetic are EB's when you explain to them, 'Can you re-word this and that, show me evidence of back to back contracts etc...as I need to place myself outside IR35'...?

Cheers for your advice!!