Reply to: Quick IR35 2.0 question

[malvolio]

These tests are not there for our benefit. They are a PR exercise for HMRC to try and knock down one of the main complaints about IR35 - it's uncertainty in it's applicability.

If 98% of IT contractors are assessed as high risk - HMRC will just shrug and say "now there is no uncertainty - no more bitching about it and pay the ~@&% up"

No, they are a lot more than that.

[centurian]

And don't get too wrpapped up in what the tests mean; they are an attempt (albeit a piss-poor one) by HMRC to identify companies that should not be treated as IR35 fodder. In other words, if you score highly on the in business tests, you should never get investigated for IR35 in the first place. That's why PCG and others are bitching about the scoring - if everyone passes or everyone fails, the tests have no value whatosever.

These tests are not there for our benefit. They are a PR exercise for HMRC to try and knock down one of the main complaints about IR35 - it's uncertainty in it's applicability.

If 98% of IT contractors are assessed as high risk - HMRC will just shrug and say "now there is no uncertainty - no more bitching about it and pay the ~@&% up"

[JohnDoe]

Bizarrley, the actual answer is we don't know, it hasn't happened or if it has the details have nevee been published (to be fair, HMRC/taxpayer affairs are confidential, after all). The assumption is that the contract will be reassessed for IR35 and the total tax due calculated, and any CT already paid deducted leaving a PAYE/NICs balance outstanding.

A further wrinkle is that the tax is due from the Company, which might not have the necessary funds for all sorts of reasons (not least being that it didn't know it had to pay this extra tax). What happens then is a mystery.

That still leaves the question about accounting for dividend income, since those dividends should not have been paid since the profits weren't there to pay them. I'm guessing that the taxpayer will get a revised assessment, treating them as straight salary.

But then we only have 10 cases to work with, spread over 12 years.

I wonder how many new IR35 inspectors HMRC is actually going to employ? I read a FOI request said there are currently only 29! No wonder they have won so few cases over the years! But if they are not changing any of the fundamentals of IR35 legislation or case law, then what is this going to acheive except perhaps as an added deterrant which is the only area where IR35 makes any money.

[malvolio]

What happens if you are found to be within IR35 and have to pay all the excess PAYE and NI? Do you also get a refund of the extra Corporation tax you have paid (which would have been a lot less after paying out employee and employer PAYE?).

Bizarrley, the actual answer is we don't know, it hasn't happened or if it has the details have nevee been published (to be fair, HMRC/taxpayer affairs are confidential, after all). The assumption is that the contract will be reassessed for IR35 and the total tax due calculated, and any CT already paid deducted leaving a PAYE/NICs balance outstanding.

A further wrinkle is that the tax is due from the Company, which might not have the necessary funds for all sorts of reasons (not least being that it didn't know it had to pay this extra tax). What happens then is a mystery.

That still leaves the question about accounting for dividend income, since those dividends should not have been paid since the profits weren't there to pay them. I'm guessing that the taxpayer will get a revised assessment, treating them as straight salary.

But then we only have 10 cases to work with, spread over 12 years.

[JohnDoe]

What happens if you are found to be within IR35 and have to pay all the excess PAYE and NI? Do you also get a refund of the extra Corporation tax you have paid (which would have been a lot less after paying out employee and employer PAYE?).

[northernladuk]

You won't get clobbered by having generic skills. You might get clobbered if you don't distinguish yourself from the permies in your team. PCG have only ever tried to advise people on how to achieve that

And the point that distinguishes you from them is the fact you take on risk they don't and run a limited co so have a different relationship to the client which is perfectly acceptable. They are buying in your skills because they don't have them internally for one reason or another. Coming back to my original point is that to hide behind business process for taxation it would be a good check to make sure the director has the basic grasp of how to actually run a business.

[v8gaz]

Bear in mind it is possible for someone to have a contract of employment for a defined period, which can be as short as one day. The fact that you have a series of short-term contracts with different clients by itself says nothing about whether you are "employed" by them.

I thing the question is not whether there is MOO, but how much there has to be. If you hire a plumber to fix a leaky tap, you expect him to finish the job once he's turned up and started work, and he expects to get paid. In other words, even in that obviously self-employed situation there is MOO.

If you turn up at 9am expecting to get paid for the day (even if say a network or security problem should happen to make it impossible to do any work) then MOO exists within that day, I think.

I've heard it said in relation to contractors that HMRC regard MOO as operating on a day-to-day basis. In other words, if you are free not to turn up on any day you don't feel like working, and the client is free to tell you at any time to skip some days in yout contract, then you have lack of MOO. (The fact that this may be HMRC view doesn't necessarily mean it's correct.)

I don't know what exactly it takes to get out of IR35 due to lack of MOO.

Beginners guides are on the right.

[malvolio]

They can pay to train someone, if the cost is prohibitive or they are engaged in an area where they don't have in-house expertise they shouldn't be involved in the first place. I'm not saying I agree but I just don't see why there should be a special case for businesses that are engaged with organisations that choose to take on work when they don't have the resources to complete.

I am the sole contractor in a support team of 6, should I be clobbered just for having generic skills? I am a flexible resource just like a developer or PM yet I get the feeling the PCG would happily sell me down the river to save their 'niche' skilled members with their 'proper' businesses.

You won't get clobbered by having generic skills. You might get clobbered if you don't distinguish yourself from the permies in your team. PCG have only ever tried to advise people on how to achieve that

[gingerjedi]

Because the company may not have the skill set to complete the task and if it isn't their main business they may not have the stomach to take them on, particularly if it is going to be a short term piece of work. Outsourcing work that isn't their main focus is an acceptable business model. Companies often have oursourced canteens, plant cleaners etc for the same reason.

The idea of taking contractors on is because they are specialists in the area of work required and can be finished once the work is done. You cannot do that with an employee.

Now I do not have an argument for these clients that have 10 PM's then contract in another 20 and have been doing for years. You would think they could up that to 15, maybe 20 and contract 10 in. That is another story.

I am not trying to write policy here, just banding ideas around.

They can pay to train someone, if the cost is prohibitive or they are engaged in an area where they don't have in-house expertise they shouldn't be involved in the first place. I'm not saying I agree but I just don't see why there should be a special case for businesses that are engaged with organisations that choose to take on work when they don't have the resources to complete.

I am the sole contractor in a support team of 6, should I be clobbered just for having generic skills? I am a flexible resource just like a developer or PM yet I get the feeling the PCG would happily sell me down the river to save their 'niche' skilled members with their 'proper' businesses.

[IR35 Avoider]

If as a temporary contractor none of us have any MOO - is this simply not enough to sink any investigation regardless of other points? Or is it murkier than that.

Bear in mind it is possible for someone to have a contract of employment for a defined period, which can be as short as one day. The fact that you have a series of short-term contracts with different clients by itself says nothing about whether you are "employed" by them.

I thing the question is not whether there is MOO, but how much there has to be. If you hire a plumber to fix a leaky tap, you expect him to finish the job once he's turned up and started work, and he expects to get paid. In other words, even in that obviously self-employed situation there is MOO.

If you turn up at 9am expecting to get paid for the day (even if say a network or security problem should happen to make it impossible to do any work) then MOO exists within that day, I think.

I've heard it said in relation to contractors that HMRC regard MOO as operating on a day-to-day basis. In other words, if you are free not to turn up on any day you don't feel like working, and the client is free to tell you at any time to skip some days in yout contract, then you have lack of MOO. (The fact that this may be HMRC view doesn't necessarily mean it's correct.)

I don't know what exactly it takes to get out of IR35 due to lack of MOO.

[malvolio]

Main reason is budgetary. Permies go on the bottom line, contractors are paid out of revenue and so don't affect BigCo's profit margins and dividends. Avoiding the associated on costs of a permie and the ability to bin them when you want are useful adjuncts, but not the main driver.

[northernladuk]

Surely a company could employ anyone with the right skills to do whatever they require, why do they need to engage a business instead of employing someone?

All of my contracts could have been done by an employee, give me a scenario where this isn't the case.

Because the company may not have the skill set to complete the task and if it isn't their main business they may not have the stomach to take them on, particularly if it is going to be a short term piece of work. Outsourcing work that isn't their main focus is an acceptable business model. Companies often have oursourced canteens, plant cleaners etc for the same reason.

The idea of taking contractors on is because they are specialists in the area of work required and can be finished once the work is done. You cannot do that with an employee.

Now I do not have an argument for these clients that have 10 PM's then contract in another 20 and have been doing for years. You would think they could up that to 15, maybe 20 and contract 10 in. That is another story.

I am not trying to write policy here, just banding ideas around.

[gingerjedi]

But you have just defined a hidden permie, not a business. All it means at these people are taxed differently. They do the same job, just hired in a different way. That is not a business and should not therefor be taxed as one. This isn't making it hard to get roles or jacking it in, just being taxed differently that is all. It is this push to take people on via contract to do permie work which is the root of all this.

Too early to tell but from this and what Mal says it is looking good for people that operate as a business.

Surely a company could employ anyone with the right skills to do whatever they require, why do they need to engage a business instead of employing someone?

All of my contracts could have been done by an employee, give me a scenario where this isn't the case.

[northernladuk]

What about people, for example, many IT contractors, who work through Ltd Companies because the industry in general prefers to hire on a temporary basis and does not generally like to hire people as self employed. Not everyone is trying to avoid tax. Some people are just trying to work which is what the government supposedly wants people to do. How can making it harder for people to work in a profession in which they are experienced encourage more people to work. Penalising people will just encourage more people to jack it in and go on the dole.

But you have just defined a hidden permie, not a business. All it means at these people are taxed differently. They do the same job, just hired in a different way. That is not a business and should not therefor be taxed as one. This isn't making it hard to get roles or jacking it in, just being taxed differently that is all. It is this push to take people on via contract to do permie work which is the root of all this.

Too early to tell but from this and what Mal says it is looking good for people that operate as a business.

[gingerjedi]

If (after comparing hypothetical scenarios and scoring badly) a contractor decides they are caught after all do you think there will be a moratorium so contractors can arrange their status to be compliant or will HMRC instantly bankrupt thousands?

If it's the later surely this will just lead to many burying their heads in the sand as they do now.