Reply to: IR35 post April 2011

[malvolio]

Thanks guys... Sitting here on a late shift baby sitting a migration programme and really getting a real rise from the humour in this thread.

FWIW there are no answers yet about what is going to happen to IR35, except that we can say wtih some certainty that it won't exist in its present form forever. It's also likely that it won't be replaced with something more draconian, it's far more likely that the whole area of small business taxation will be re-evaluated.

If you want to actually do something about it, rather thean speculating and fear mongering out here, get on the PCG forum and join the debate there. They are looking for input from all sides about how best to utilise their position on the OTS to the best advantage of their members.

Or sit here crying over your beer and making guesses on incomplete information. - Bit like the programme management on this migration...

[Fred Bloggs]

I'm guessing we'll be 90% caught, it's only fair after all................

[centurian]

And guess in which category the 90% will be?

Actually my post was a little unclear. What I mean is that if the new simplified rules are easy to pass, then pretty much every contractor will be freed from IR35 - they might as well just abolish it. However, if they are strict, virtually all of us will be caught.

You just can't get any middle ground, because if a test was designed to catch half of contractors, the other half will just modify their circumstances in order to pass the test.

Wouldn't be suprised if we did end up with something like employee's NI applied to dividends - not straightforward though as there are many indirect dividends (pension funds, OAP's ).

[Fred Bloggs]

A simple test doesn't mean it will be good for us. If it is made simplier, then it will mean 90%+ of us will be freed from IR35, or 90%+ of us will be caught.

There just isn't any middle ground when it comes to "simple" criteria.

And guess in which category the 90% will be?

[Fred Bloggs]

I still maintain that quite possibly, this campaigning to get rid of IR35 could leave us with a worse situation than the current.

Those that openly admit from the outset that they are caught by IR35 will pay a heftier tax bill.

Those that stay mute may or may not get caught but the realities of the situation is that court cases find in favour of the contractor, by and large.

Simplification could very well mean across the board taxes and NI, all of which will leaves us with less in the pocket.

I am figuring, stay with the devil-you-know.

Here here. It seems that I am no longer in a minority of one. I wish nobody had ever started this stupoid campaign against IR35. I can live with it and I am prepared for the worst that it can inflict on me. I fear we are getting a huge rise in contractor taxation here.

[simes]

I still maintain that quite possibly, this campaigning to get rid of IR35 could leave us with a worse situation than the current.

Those that openly admit from the outset that they are caught by IR35 will pay a heftier tax bill.

Those that stay mute may or may not get caught but the realities of the situation is that court cases find in favour of the contractor, by and large.

Simplification could very well mean across the board taxes and NI, all of which will leaves us with less in the pocket.

I am figuring, stay with the devil-you-know.

[Jog On]

The most recent IR35 case that was won by HMRC means that unless you have more than one contract on the go at the same time or you undertake lots of short contracts it will be very difficult to pass the existing test.

My view is existing test will be abolished - which should be good news for most contractors - and there will not be a replacement test. Instead there will be a new class of NI on dividends.

The result will be that those contractors who (use a PSC) would normally fail IR35 (i guess 90%) will be better off by 10-20%. BUT those contractors who currently pass (say 10%) will be worse off.

Q/ Why would HMRC do this .

A/ Because it will reduce admin and it will bring back contractors from offshore schemes. This will result in a large increase in tax revenue from contractors.

Why would it do this?

[Alan Jones]

A simple test doesn't mean it will be good for us. If it is made simplier, then it will mean 90%+ of us will be freed from IR35, or 90%+ of us will be caught.

There just isn't any middle ground when it comes to "simple" criteria.

The most recent IR35 case that was won by HMRC means that unless you have more than one contract on the go at the same time or you undertake lots of short contracts it will be very difficult to pass the existing test.

My view is existing test will be abolished - which should be good news for most contractors - and there will not be a replacement test. Instead there will be a new class of NI on dividends.

The result will be that those contractors who (use a PSC) would normally fail IR35 (i guess 90%) will be better off by 10-20%. BUT those contractors who currently pass (say 10%) will be worse off.

Q/ Why would HMRC do this .

A/ Because it will reduce admin and it will bring back contractors from offshore schemes. This will result in a large increase in tax revenue from contractors.

[centurian]

They were talking of having a much simpler test; a set of yes/no questions that'd make it clear and obvious who was meant to be caught and who was not.

A simple test doesn't mean it will be good for us. If it is made simplier, then it will mean 90%+ of us will be freed from IR35, or 90%+ of us will be caught.

There just isn't any middle ground when it comes to "simple" criteria.

[Jog On]

I just read that the chairman of the PCG is on the board for the OTS which can't be a bad thing.

[Alan Jones]

Alan Jones begin_of_the_skype_highlighting*****end_of_the_sky pe_highlighting sold out contractors who he 'convinced' to join his scheme to HMRC. He's pulling a similar trick with BN66.

The above has nothing to do with this thread. Although i guess you are in a dodgy loan scheme. SO please keep to your own forum. HOWEVER i will respond to you:

If selling out = getting a very good deal for contractors that they could afford and allowed them to sleep at night then yes. BUT i would argue letting contractors face bankruptcy for the past 6 years and holding back information from them was more akin to "selling out" particularly when after all this time a certain promoter now announces it is getting out of the tax scheme business.

PS you are very brave hiding behind your codename and threatening people about a subject that you no very little about. For e.g. Montpelier knew about Padmore and retrospection back in 1998 - SO i assume they advised/warned prospective clients about the danger of retrospection.

[Fred Bloggs]

So the one and only reason you're a contractor is that it reduces the percentage of tax you pay?

I did my first contract through an umbrella, and I still doubled my income over my previous permie job. Paying the full amount of tax doesn't mean there's no point in contracting.

It would still be worth having a Ltd. as you can then plan your income over several years; in other words acting as a proper business. For a couple of years I paid myself exactly the right amount to not go into the 40% bracket, something I couldn't have done with an umbrella or inside IR35, but I could still do if dividends were taxed as income.

If dividends were taxed as income, then it could also follow that they could lift the requirements on small Ltds to do annual corporation tax returns and accounts, and that would be a benefit. We wouldn't really need accountants if it was just a case of doing a personal tax return once a year.

Not quite the case and indeed I do plan things in the way you describe. At the end of the day, I'll see what happens and decide. Current gig is very lucrative but I'm working away. Last two gigs were home based (on about 40 to 45% of current rate) but I took home no more (all things considered) than a top flight staff guy. If things get tougher then doing a home based gig (which is my preference) would then be pointless.

[VectraMan]

Exactly. But there'd no longer be any point in doing what I'm doing, working at the other end of the country and living off the equivalent of a decent permie take home whilst saving as much as I can into my SIPP. I'd be almost as well off on a good permie package where the employer makes a decent contribution to my pension and I get home every night and act dliatory at work like all the other staff blokes.

So the one and only reason you're a contractor is that it reduces the percentage of tax you pay?

I did my first contract through an umbrella, and I still doubled my income over my previous permie job. Paying the full amount of tax doesn't mean there's no point in contracting.

It would still be worth having a Ltd. as you can then plan your income over several years; in other words acting as a proper business. For a couple of years I paid myself exactly the right amount to not go into the 40% bracket, something I couldn't have done with an umbrella or inside IR35, but I could still do if dividends were taxed as income.

If dividends were taxed as income, then it could also follow that they could lift the requirements on small Ltds to do annual corporation tax returns and accounts, and that would be a benefit. We wouldn't really need accountants if it was just a case of doing a personal tax return once a year.

[Fred Bloggs]

If dividends were to be taxed the same as PAYE, why would you continue to pay yourself a small salary?

Surely you would leave as little profit in the company as possible?

Exactly. But there'd no longer be any point in doing what I'm doing, working at the other end of the country and living off the equivalent of a decent permie take home whilst saving as much as I can into my SIPP. I'd be almost as well off on a good permie package where the employer makes a decent contribution to my pension and I get home every night and act dliatory at work like all the other staff blokes.

[Moscow Mule]

If dividends were to be taxed the same as PAYE, why would you continue to pay yourself a small salary?

Surely you would leave as little profit in the company as possible?