Reply to: Why did HMRC go with IR35?

[babason]

Babason, if you expressed yourself more clearly, then perhaps Crossroads, Sue Ellen etc. would have understood what you were getting it. Their lack of understanding is your fault,

Point taken. However, in my defence I simply hadn't spotted where the lack of clarity lay. I genuinely thought I was being clear and my actual point was being ignored.

so there's no need to get all mardy.

I'm not so sure that's fair either but for future reference, anyone who is dismissive, accusative or sarcastic with me is unlikely to bring out my best side...

[NotAllThere]

Babason, if you expressed yourself more clearly, then perhaps Crossroads, Sue Ellen etc. would have understood what you were getting it. Their lack of understanding is your fault, so there's no need to get all mardy.

"At the risk of asking a stupid question. Instead of the current regime, why didn't HMRC simply say all contractors (caught by IR35) must pay a fixed proportion (e.g. at least a third) of turnover as salary?"

There are no stupid questions - but there are a lot of inquisitive idiots.

Because they didn't consult, didn't think of that. Anyway, it would have to be a proportion of profit, not turnover.

[threaded]

At ClientCo there are alot of ccenture doing their usual stuff of wrecking everything. And another large software house about to supply 1 person.

How will HMRC tell the difference between us? Apart from "contractors" being effective and "software houses" wrecking everything...

That, in a nutshell, is what IR35 is about. The large consultancies on the whole are pathetic, the small firms are so much more effective it is embarrasing. So, if you run a large consultancy, and cannot compete, it is in your interests to get the laws changed to try and put your competition at a disadvantage.

All this about raising taxes is a myth, in fact I would not be surprised if the tax take has not in fact dropped substantially, because the truth is, not many were doing the low-income, hi-divis thing, until they read that they could because of the furor over IR35.

HTH

[BrilloPad]

Ignoring the nonsense questions of fixed rate and "Why so high a proprortion", we do tend to forget that there is a real reason behind IR35, to prevent employers setting up their workforce in such a way that they avoid responsibility for both NICs, assorted social costs and employment protections. Typical of HMG to do it by hitting the worker though (tell me, what was Labour's original raison d'etre again?) since they were too inept to do it by penalising the guilty employer.

So granted that the basic assumption of IR35 is that the worker is really an employee, you can see why they are looking to charge them full tax: the 5% discount on gross is simply to cover the admin costs of working out and paying your own tax liabilitites, not those of running a full time business.

Which goes back to the original question, put rather more clearly. Should we not be able to declare ourselves to be "permanently self-employed", exchanging employment rights (including access to ETs) for a lighter taxation profile. And don't laugh, that idea seems to be taking hold in Whitehall at last, although the current model is as laughably naive as you might expect.

At ClientCo there are alot of ccenture doing their usual stuff of wrecking everything. And another large software house about to supply 1 person.

How will HMRC tell the difference between us? Apart from "contractors" being effective and "software houses" wrecking everything...

[xoggoth]

A simpler strategy would have had more acceptance if there had been a fairer formula, employees get all sort of hidden benefits and are able to spread salary over good and lean years, that did not start to be covered by the 5%, especially for those on low rates. Having enquired about a few documentation jobs in the past it seems there are contracts on £15ph or less.

[malvolio]

Ignoring the nonsense questions of fixed rate and "Why so high a proprortion", we do tend to forget that there is a real reason behind IR35, to prevent employers setting up their workforce in such a way that they avoid responsibility for both NICs, assorted social costs and employment protections. Typical of HMG to do it by hitting the worker though (tell me, what was Labour's original raison d'etre again?) since they were too inept to do it by penalising the guilty employer.

So granted that the basic assumption of IR35 is that the worker is really an employee, you can see why they are looking to charge them full tax: the 5% discount on gross is simply to cover the admin costs of working out and paying your own tax liabilitites, not those of running a full time business.

Which goes back to the original question, put rather more clearly. Should we not be able to declare ourselves to be "permanently self-employed", exchanging employment rights (including access to ETs) for a lighter taxation profile. And don't laugh, that idea seems to be taking hold in Whitehall at last, although the current model is as laughably naive as you might expect.

[SueEllen]

Please stick to the point. The issue of definition arises whichever system you use.

.

We (Crossroads, Brillopad, max and myself) don't know the definitions so please tell us oh wise one.

[babason]

ok mr troll/hmrc mole

Give over...

I don't know any contractors - only small businesses.

That's fine by me and irrelevant...

Are you suggesting that every business should pay a fixed proportion of turnover as salary?

Nope. HMRC has come up with (arbitrary) definitions for a 'deemed employee'. HMRC then insists on PAYE and NICs for 95% of turnover from those 'captured'. The targeted small business then quite obviously resist vigorously, minimising the overall tax take.

I'm intrigued as to why HMRC went for such a large amount. If they'd gone for a more reasonable amount (say a third) the targeted small businesses would complain but would've paid, thereby increasing the overall tax take. It just seemed poor strategy on HMRC's part and I wondered if there was an explanation for it. However, it doesn't look like I'm gonna get one here as I am now a 'deemed troll'...

[Crossroads]

Please stick to the point.

I did. Jog on.

[BrilloPad]

No he didn't and now neither have you.

My question doesn't require definition of 'deemed employee', 'contractor' or 'small business'. For the sake of argument I am going with HMRC's definitions.

My question is why did they go for applying PAYE + NICs to 95% of turnover which was bound to provoke measures which ensure the actual tax take as a whole is only a tiny fraction of this.

Surely if they'd not been greedy and gone for say a third, there would have been a general reluctance maybe even irritation but on the whole it would have been paid and the tax take would have been higher for a lot less effort expended...

ok mr troll/hmrc mole - I'm bored so I will bite.

your question "At the risk of asking a stupid question. Instead of IR35 why didn't HMRC simply say all contractors must pay a fixed proportion (e.g. at least a third) of turnover as salary?"

can you define contractor please? either your own or hmrc definition.

I don't know any contractors - only small businesses.

Are you suggesting that every business should pay a fixed proportion of turnover as salary?

[max]

No he didn't and now neither have you.

My question doesn't require definition of 'deemed employee', 'contractor' or 'small business'. For the sake of argument I am going with HMRC's definitions.

My question is why did they go for applying PAYE + NICs to 95% of turnover which was bound to provoke measures which ensure the actual tax take as a whole is only a tiny fraction of this.

Surely if they'd not been greedy and gone for say a third, there would have been a general reluctance maybe even irritation but on the whole it would have been paid and the tax take would have been higher for a lot less effort expended...

Why don't you ask them?

How would we know!

[babason]

Crossroads has stuck to the point.

No he didn't and now neither have you.

My question doesn't require definition of 'deemed employee', 'contractor' or 'small business'. For the sake of argument I am going with HMRC's definitions.

My question is why did they go for applying PAYE + NICs to 95% of turnover which was bound to provoke measures which ensure the actual tax take as a whole is only a tiny fraction of this.

Surely if they'd not been greedy and gone for say a third, there would have been a general reluctance maybe even irritation but on the whole it would have been paid and the tax take would have been higher for a lot less effort expended...

[SueEllen]

Please stick to the point. The issue of definition arises whichever system you use.

Crossroads has stuck to the point. Define a "contractor" and then define a "small business".

If the government and HMRC cannot distinguish the two they cannot write a law that will not be tested through the courts causing them to lose most of their cases.

Remember lots of MPs in the House of Commons are lawyers and most laws in this country, while they may be written for specific purposes can be used in different ways.

[babason]

Stupid question indeed. Define "contractor". Do you mean a legitimate small business (who would be disadvantaged by such a move), or a disguised employee (who would gain an advantage by such a move).

Please stick to the point. The issue of definition arises whichever system you use.

I contend that IR35 is simply seen as 'over the top'. If it had been pitched more reasonably and clearly (e.g a third of turnover but feel free to insert something more reasonable and/or clear if you prefer) the greater body of contractors would've accepted it and the government would've had a bigger overall tax take with much less expense.

[Crossroads]

Stupid question indeed. Define "contractor". Do you mean a legitimate small business (who would be disadvantaged by such a move), or a disguised employee (who would gain an advantage by such a move).