Reply to: PCG Statement on IR35

[malvolio]

The point I make is, we're sort of forced into using Ltd (or umbrella) by agencies/clients, or simply that it is a way to pay less tax. I think few of us would say we'd have set up Ltds working as contractors if Sole Trader status a)didn't lead to more tax b)was something agencies were happy with c)had no liability questions. Some would (me, probably since I do hire people for example) but in general Ltd contractors are an anomaly of the system. Nothing wrong at all with us exploiting it, but it's a flaw in the system to start with.

You have a company because of S44-47 (what used to S134c). If that was repealed you could work as Sch D self-employed and IR35 wouldn't even be needed. And the total tax bill on earnings between that and LtdCo is not that great.

[d000hg]

What's CGT got to do with contracting then, I thought we were talking something specific? Doesn't CGT only come in if you're viewed as deliberately making money from your house-sale, i.e if you make a huge profit selling a house when you move, it doesn't apply?

[cojak]

CGT to rise to 40-50%?

[thunderlizard]

Anyway, I say well done to the PCG for raising enough awareness to get IR35 onto the coalition programme.
Now they just need to keep steering the issue a sensible course!

[d000hg]

Yeah, that crossed my mind. The CGT changes theyre talking about are a start in that direction. However, difficult to see how that can be done. Annual profit is taxed annually, and can sit in the compnay or be taken as a dividend. And IR35 is about NICs, not taxes; while putting NICs on dividends is superficially simple, it has all sorts of complications when applied to the whole population.

I haven't been keeping up, what's the CGT change you refer to?

And we are not "tax convenience" companies, we are "complying with the demands of S44-47 ITEPA 2003" companies. Big difference.

The point I make is, we're sort of forced into using Ltd (or umbrella) by agencies/clients, or simply that it is a way to pay less tax. I think few of us would say we'd have set up Ltds working as contractors if Sole Trader status a)didn't lead to more tax b)was something agencies were happy with c)had no liability questions. Some would (me, probably since I do hire people for example) but in general Ltd contractors are an anomaly of the system. Nothing wrong at all with us exploiting it, but it's a flaw in the system to start with.

[malvolio]

IR35 going or being replaced with something that catches us all might not even be the biggest piece of the picture. Changes to NI and personal tax thresholds might still mean that we as small companies could end up better off. I wouldn't bet on it but since small companies probably don't generate much tax, nurturing them might be a good longer-term idea without really costing much... a bit like making the UK a tax haven but only for new/small businesses.

So small companies might be better off as companies... the question is if they decide 1-man-tax-convenience Ltds are something to be tolerated under new changes, or targeted. We could have the situation our companies are not taxed as much but when you try to get the money out, they jump on you.

Yeah, that crossed my mind. The CGT changes theyre talking about are a start in that direction. However, difficult to see how that can be done. Annual profit is taxed annually, and can sit in the compnay or be taken as a dividend. And IR35 is about NICs, not taxes; while putting NICs on dividends is superficially simple, it has all sorts of complications when applied to the whole population.

My hope is they leave us UK nano-businesses alone and focus on big corporate tax avoidance and all the clever offshore schemes. We don't generate that much tax in the overall scheme of things (as compared to Philip Green's tax free £1.2 bn dividend payment the other year for one example...) and are at least productive, valuable and necessary contributors to the UK economy. The biggest change HMG can make is to differentiate between mostly steady-state one-man bands and businesses that plan to grow.

And we are not "tax convenience" companies, we are "complying with the demands of S44-47 ITEPA 2003" companies. Big difference.

[d000hg]

IR35 going or being replaced with something that catches us all might not even be the biggest piece of the picture. Changes to NI and personal tax thresholds might still mean that we as small companies could end up better off. I wouldn't bet on it but since small companies probably don't generate much tax, nurturing them might be a good longer-term idea without really costing much... a bit like making the UK a tax haven but only for new/small businesses.

So small companies might be better off as companies... the question is if they decide 1-man-tax-convenience Ltds are something to be tolerated under new changes, or targeted. We could have the situation our companies are not taxed as much but when you try to get the money out, they jump on you.

[malvolio]

That implies that the uncertainty of paying say 10k or 20k (in or out of IR35) but probably having to pay 10k (given the risk of investigation) is worse than knowing you certainly have to pay 20k. Sounds just like how Labour thought when setting up IR35, so I see no good news in getting an inavoidable son of IR35.

The King is dead, long live IR36



Of course it may not be quite as bad as IR35

Except what I said was it's more than likely to be £10k, which is what the current UK tax laws mandate for limited companies. Or perhaps £12k given taxes will be going up anyway.

Sorry if that's a bit hard to follow...

[Bagpuss]

And if the result is a clear set of conditions that define you as a freelance worker operating as a genuine business with no harassment from HMRC? Sorry, but I'm not impressed with "company to save me tax" argument; not only is it wrong - the tax benefit is compensation for business risk - it's why we got IR35 in the first place. And an awful lot of people don't have a problem paying taxes, as long as they know they aren't paying any more than necessary and are clear on how much they should pay.

That implies that the uncertainty of paying say 10k or 20k (in or out of IR35) but probably having to pay 10k (given the risk of investigation) is worse than knowing you certainly have to pay 20k. Sounds just like how Labour thought when setting up IR35, so I see no good news in getting an inavoidable son of IR35.

The King is dead, long live IR36



Of course it may not be quite as bad as IR35

[malvolio]

Quite the opposite, I'm going to leave the PCG if their lobbying for an IR35 replacement ends up with me paying more tax. I'm starting to think people should have kept their heads down about this and quietly got on with doing business outside IR35.

And if the result is a clear set of conditions that define you as a freelance worker operating as a genuine business with no harassment from HMRC? Sorry, but I'm not impressed with "company to save me tax" argument; not only is it wrong - the tax benefit is compensation for business risk - it's why we got IR35 in the first place. And an awful lot of people don't have a problem paying taxes, as long as they know they aren't paying any more than necessary and are clear on how much they should pay.

They're going up anyway, directly or indirectly, regardless of what happens to IR35, so get used to it.

[Sysman]

It was at one time. The really big worry in the early 2000s was "Am I going to have to pay this or not". Dawn Primarolo clarified it for us : "If you're caught by it, you have to pay it. What could be clearer". Stupid bint.

She certainly failed to recognise the cost of travel and accommodation until it was pointed out to her. The first incarnation of IR35 didn't allow that to be deducted.

IWhere I live and work, there's no dividend route for paying yourself, because there is no tax relief on dividend payments. So anything I pay myself attracts income tax, and the local equivalent of ERNIC and EENIC. This doesn't put me off contracting. However, the Swiss are far more understanding and sensible about expenses, and have reasonable tax rates.

As far as I am aware, there are many countries which allow employees to claim against tax for travel and lunch. The UK is rather the odd man out. Introducing tax relief for travel to work could be a way to encourage a flexible and mobile workforce.

It's possibly too much of a political hot potato given the strength of the environmental lobby nowadays, but if we really want the tax system to be fair, I'll argue that tax relief for travel to work and lunch should be introduced for all. This might also encourage folks to take up part time work rather than sit at home.

And you know, it might just remove a source of conflict between permies and contractors to boot

[Wanderer]

Great news for PCG membership as IR35 looks set for the scrapheap!

Well, it's good news if you were IR53 caught but bad news if you aren't caught.

As you will be aware the PCG team has lobbied on IR35 since its inception. Efforts have stepped up in recent months and we are delighted that these efforts have borne fruit. “Review IR35 as part of a wholesale review of all small business taxation, and seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self employed, or restrict labour market flexibility.”

Since I'm not IR35 caught, I'm inclined to think that they should have kept quiet about it. The government could very well stop people like me using a limited company for tax avoidance.

So please use this positive news to encourage other freelancers to show their support by joining PCG..

Quite the opposite, I'm going to leave the PCG if their lobbying for an IR35 replacement ends up with me paying more tax. I'm starting to think people should have kept their heads down about this and quietly got on with doing business outside IR35.


I guess that only time will tell what becomes of the government's review of IR35.

[escapeUK]

Deleted, not worth argueing with.....

[SueEllen]

I dont need or ask for the vast majority of services they provide. Let the Labour voters and those that use the services pay for them. Death to socialism.

Time you learnt something about the welfare state.

As others have said you use or have used some services you haven't asked for but there are other services that are there in case you need them in the future.

[d000hg]

I dont need or ask for the vast majority of services they provide. Let the Labour voters and those that use the services pay for them.

This has to be a candidate when Sas does his next village idiot thread.