Reply to: 5% expense allowance

[Euro-commuter]

The taxation thing is Gay Gordon's master plan. Since he has convinced himself that we have companies to avoid paying tax, as opposed to we have companies because we want to work and S134c means we can't do it as Schedule D self employed, and because IR35 has proved ineffectual, and because the CIS scheme has also not worked for construction workers, he seems to have decided the only way to do it is to set the same taxation levels for small company self-employed and real employee. And just to make that really stick, to threaten our route to market, the agencies, with the debt for any tax we fail to pay according to the NL fairness rules.

Cut this one out and keep it, folks. It's the clearest description you'll find of what it's about.

[malvolio]

And there is a PCG member who is very keen on taking the opposite approach - I have been caught for IR35, therefore I demand employment rights - and wants a volunteer to sue on that basis. Ain't going to happen becase they are entirely different beasts.

The taxation thing is Gay Gordon's master plan. Since he has convinced himself that we have companies to avoid paying tax, as opposed to we have companies because we want to work and S134c means we can't do it as Schedule D self employed, and because IR35 has proved ineffectual, and because the CIS scheme has also not worked for construction workers, he seems to have decided the only way to do it is to set the same taxation levels for small company self-employed and real employee. And just to make that really stick, to threaten our route to market, the agencies, with the debt for any tax we fail to pay according to the NL fairness rules.

So basically, at any chance you get, vote for anyone other than Labour.

[ASB]

On the subject of EATs though, I thought that the results of a recent case involving one Mrs Dacas meant that when a contractor has no employment rights there is no mutuality of obligation and that the contract must therefore be unequivocally outside of IR35.

The short answer is no. EAT use different definitions amongst other things. Also it is perfectly possible to have different employment status for the purposes of actual employement - which is required for an EAT (will generally turn on contractural nexus) - and IR35. In the latter case contractural nexus is irrelevant. [By example I could negotiate some temrs with my client which obliged me to do certain things but you get to carry the can ]

However, if you went to the bother of getting yourself declared not an employee at an EAT (though Muscat did get himself declared an employee there were some very specific and unusual facts) it seems rather unlikely the IR would have a go at IR35 - but there is nothing stopping them and they could win.

[ittony]

Thud - again...

If you are caught by IR35 (big IF, but some people seem to be determined to pay as much tax as possible for no reason), your deemed taxable income is set at 95% of your gross less a small amount of deductable expenses (mostly pensions and legal/accounting fees). Hence HMG kindly allows you 5% of your effective gross to pay for all the permie benefits you aren't getting because you're a contractor despite them treating you as an employee, except you can't actually use being caught by IR35 in an EAT case to claim employment rights (although I know some people want to try that one out one day, the so-called Nuclear Option).

So you can see how sensible and coherent it all is, can't you.

Of course the new MSC legislation, by a combination of bad advice, poor planning and incoherently drafted legislation, has rendered IR35 largely irrelevant now, since every man and his dog will want you to pay full PAYE and NICs just in case Hector goes after them for it under the debt transfer rules. Even ATSCo, who really should know better, are getting on that bandwagon now, and if the organisation that claims to represent recruitment agencies doesn't (or won't, more likely) understand the rules, what chance have we got?

Thank God for the PCG, says I - who are trying to bring some order to this chaos.

Hi Malvolio, thanks for the informative reply. The situation's a right mess isn't it. On the subject of EATs though, I thought that the results of a recent case involving one Mrs Dacas meant that when a contractor has no employment rights there is no mutuality of obligation and that the contract must therefore be unequivocally outside of IR35.

I'm not sure what you mean about IR35 being rendered irrelevant by every man and his dog wanting contractors to pay full PAYE. Who do you mean, clients or accountants? I can't imagine any of my clients knowing the first thing about it all, and I'm not even sure I could expect an accountant to either, if I pick a non contractor-specialist firm, which would otherwise be my preference.

I quite agree with you about the PCG, they seem a very worthy outfit and it's been my pleasure to join them.

[VectraMan]

Being involved with your company includes benefitting financially on an ongoing basis from the provision of your services (could include receiving a fee) or influencing the way money is paid from the company (could include tax advice re remuneration structure).

That has to be the silliest thing yet. Accountants can't charge monthly and advise you because they might be crossing the line into MSCs.

I fear this isn't worth worrying about because it won't be long before they'll go after proper PSCs (whatever that turns out to mean), and we'll all be worrying about that instead.

[THEPUMA]

It's bollocks, the rules are quite clear and you can use any real accountant you like, small or large, without fear.

The full definition is at http://www.hmrc.gov.uk/employment-st...ftchapter9.pdf if you're really interested, and you would need to meet all four of the main criteria to fail the MSC test. Unless you're stupid enough to be running with an ex-MSC's scheme, you won't.

After the pasting I took last time, I don't particularly want to be controversial but the legislation is anything but clear.

It basically says that you are an MSC if your company sells your services, pay the majority of the income arising to you in a manner that gives rise to less of a liability than if you were an employee (so far all of you who treat yourself as not caught by IR35 are caught) and an MSC provider is involved with your company.

Being involved with your company includes benefitting financially on an ongoing basis from the provision of your services (could include receiving a fee) or influencing the way money is paid from the company (could include tax advice re remuneration structure).

So far anyone who treats themselves as not caught by IR35 and has an accountant who they pay is potentially caught.

But you cannot be an MSC Provider if you merely provide accountancy services in a professional capacity.

So now it all boils down to the interpretation of that phrase. Apparently the word "merely" is crucial.

The way I see it, all ex-MSC providers could claim to be merely providing accountancy services but equally HMRC could argue that any accountancy firm has crossed the undefined line to be not merely providing accountancy services.

For example, if you ask your accountant to recommend you a bank and he does, is that merely providing accountancy services? What about if you ask him for an invoice template? Or run a credit check on a potential client?

As accountants are we now obliged to be entirely unhelpful in order not to overstep the mark into non-accountancy services?

I am naturally inclined to agree that we are not all caught but I think it is incorrect to say that the rules are clear. They are deliberately vague with disproportionate penalties designed to bully people into submission.

[malvolio]

Thud - again...

If you are caught by IR35 (big IF, but some people seem to be determined to pay as much tax as possible for no reason), your deemed taxable income is set at 95% of your gross less a small amount of deductable expenses (mostly pensions and legal/accounting fees). Hence HMG kindly allows you 5% of your effective gross to pay for all the permie benefits you aren't getting because you're a contractor despite them treating you as an employee, except you can't actually use being caught by IR35 in an EAT case to claim employment rights (although I know some people want to try that one out one day, the so-called Nuclear Option).

So you can see how sensible and coherent it all is, can't you.

Of course the new MSC legislation, by a combination of bad advice, poor planning and incoherently drafted legislation, has rendered IR35 largely irrelevant now, since every man and his dog will want you to pay full PAYE and NICs just in case Hector goes after them for it under the debt transfer rules. Even ATSCo, who really should know better, are getting on that bandwagon now, and if the organisation that claims to represent recruitment agencies doesn't (or won't, more likely) understand the rules, what chance have we got?

Thank God for the PCG, says I - who are trying to bring some order to this chaos.

[ittony]

How much do you understand about the Intermediaries Legislation? If the answer is "Huh?" you need to go do some more reading...

OK, just read it. The only 5% they mention is a 5% shareholding threshold.

[malvolio]

How much do you understand about the Intermediaries Legislation? If the answer is "Huh?" you need to go do some more reading...

[ittony]

Thud...thud...thud....

It's the grant HMG give you for not being in business.

So it's not something which applies to limited companies?

[malvolio]

Thud...thud...thud....


It's the grant HMG give you for not being in business.

[ittony]

What is this 5% allowance anyway?

[Red 7]

acocuntant.

Deliberate typo ?

[Euro-commuter]

Don't apply logic to IR35. 5% is HMG's estimate of the cost of a one-man company providing the kind of employee benefits that full-time employees get - you know, SSP, health care, holidays, that kind of trivia - and demonstrates just how well thought out the whole thing was.

Well, no, it's for things that they do accept that even IR35 contractors need but employees do not. Like an acocuntant.

[malvolio]

I thought the 5% was to allow for legitimate expenses that would not be available under Schedule E, i.e. that an employee could not claim; accountant's fees being precisely the example specifically mentioned by HMG?

Don't apply logic to IR35. 5% is HMG's estimate of the cost of a one-man company providing the kind of employee benefits that full-time employees get - you know, SSP, health care, holidays, that kind of trivia - and demonstrates just how well thought out the whole thing was.

As regards accountants, there are four criteria in the rules, all of which have to be met if a company is to fall under the definition of an MSC. HMG is well aware that various providers are claiming to be accountancy firms in order to escape the MSC rules: what's happening is the FUD that results has been seized upon to put people like SJD into the MSC box. It's bollocks, the rules are quite clear and you can use any real accountant you like, small or large, without fear.

The full definition is at http://www.hmrc.gov.uk/employment-st...ftchapter9.pdf if you're really interested, and you would need to meet all four of the main criteria to fail the MSC test. Unless you're stupid enough to be running with an ex-MSC's scheme, you won't.