Reply to: David Gauke Comments on Newsnight / BBC / Freelances / Multiple contracts

[ASB]

The difference is you enjoy tax advantages of using a PSC that the employees of Accenture don't.

This of course kicks off a conundrum - to avoid "morally wrong" tax avoidance when starting up your own Accenture-style business, you must pay yourself entirely in salary while you start taking on your own employees and building up your business, which means you must avoid the tax reliefs set-up to encourage entrepreneurs to start up their own small business.....

While the debate of PSC's (and paying cash for your local builder) rages on, I suspect nothing will change due in part to the point you make ASB.

I do understand that Greg. It does make it all very difficult to try and think what is "right".

In terms of the consultancy they pay their employees the "going rate" and pocket the difference. This of course accrues eventually to the benefit of the partners/shareholders.

The problem is the PSC - in an IR35 world - can't do the same. Leaving aside the question of what would be the "going rate" it does seem unfair to effectively tax the PSC on a different basis.

[Greg@CapitalCity]

So putting aside the legal differences, what is the MORAL difference between someone operating a PSC and having one client at a time, and a person owning and running a one-man-band manufacturing company that lands one massive order that takes up 100% of his time and resources fulfilling that single order for a period of six months.

This is why IR35 is so incredibly hard to legislate. In a knowledge economy I think its unfair an entrepreneur selling services could be taxed differently from an entrepreneur selling widgets.

[meanttobeworking]

So putting aside the legal differences, what is the MORAL difference between someone operating a PSC and having one client at a time, and a person owning and running a one-man-band manufacturing company that lands one massive order that takes up 100% of his time and resources fulfilling that single order for a period of six months.

[Greg@CapitalCity]

Would we not be equivalent to shareholders in Accenture, who do enjoy the same tax advantages?

Yes, except Accenture itself is not a PSC, so IR35 does not apply.

[BlasterBates]

IIRC the latter scenario was also covered in one of the examples in the guidance associated with the business entity tests where the contractor was deemed inside for the main contract but outside for the other stuff. But the fact that you're juggling several clients simultaneously isn't a "big pointer outside" from anything official I have read, so I'm not sure about your first statement.....

This was a treasury minister speaking so I think this viewpoint does have credence.

You probably won't find any tribunal cases where HMRC were persuing a contractor with several clients.

But yes theoretically they could go after you. As the minister indicated though, they most probably wouldn't.

[Weltchy]

The difference is you enjoy tax advantages of using a PSC that the employees of Accenture don't.

Would we not be equivalent to shareholders in Accenture, who do enjoy the same tax advantages?

[Greg@CapitalCity]

The difference is you enjoy tax advantages of using a PSC that the employees of Accenture don't.

This of course kicks off a conundrum - to avoid "morally wrong" tax avoidance when starting up your own Accenture-style business, you must pay yourself entirely in salary while you start taking on your own employees and building up your business, which means you must avoid the tax reliefs set-up to encourage entrepreneurs to start up their own small business.....

While the debate of PSC's (and paying cash for your local builder) rages on, I suspect nothing will change due in part to the point you make ASB.

[ASB]

Taking the premise that working for a period at 1 client = "treat as salary".

Where is the difference between me doing that personally (happens to be via a PSC) and the employees of Accenture, CG et al who are normally on long term assignment at 1 client.

I find it very difficult to draw a genuine distinction. It is the same working pattern which is the model used by all the large outsourcers and consultancies.

[rawly]

Well, the BBC story continues to evolve after an article in The Times this morning. This is a new article where the BBC defends it's policy and there's also an analysis of the Pro's and Con's of using a PSC:

BBC News - Tax arrangements reports 'misleading' says BBC

Also the Blog of the Chief Financial Officer has a longer explanation:

http://www.bbc.co.uk/blogs/abouttheb...rvice-co.shtml

[jamesbrown]

If someone has several simultaneous contracts HMRC are not going to look at them. They'd just move on.

The contract by contract basis refers more to situations where you move from on contract to another.

The fact that you're juggling several clients is a huge pointer outside.

However if you had a main contract and did bits and bobs for other clients that would be fairly neutral. That was covered in a judgement.

That would be my understanding.

IIRC the latter scenario was also covered in one of the examples in the guidance associated with the business entity tests where the contractor was deemed inside for the main contract but outside for the other stuff. But the fact that you're juggling several clients simultaneously isn't a "big pointer outside" from anything official I have read, so I'm not sure about your first statement.....

[BlasterBates]

If someone has several simultaneous contracts HMRC are not going to look at them. They'd just move on.

The contract by contract basis refers more to situations where you move from on contract to another.

The fact that you're juggling several clients is a huge pointer outside.

However if you had a main contract and did bits and bobs for other clients that would be fairly neutral. That was covered in a judgement.

That would be my understanding.

[malvolio]

The IR's position has been that it is contract by contract. It is entirely possible to have two PAYE jobs - Rose and Crown at lunchtimes and the Pig and Wicket in the evenings.

Actually, the release of the Business Tests by HMRC (aka the Victim Tests) was accompanied by an assertion that they would look at the whole business, not indvidual contracts. That was a major shift from their side. However, since IR35 hasn't changed, it will still be prosecuted on a contract-by-contract basis. At the end of the day, HMRC stil have to prove their case, and the usual defences are still there to be used.

Gauke fully understands the nature of Freelancing, he's had enough briefings from PCG and others on the subject. However there is a political agenda overriding the business one.

[rawly]

Concurrent, is what I meant yes. The BBC are actually conducting a serious review of its use of Freelancers and using PSCs. The accusation being they and them are avoiding NICs and PAYE.

This is a link to the story regarding the BBC's review:

http://www.bbc.co.uk/news/entertainment-arts-18868079

"With the amount of public concern expressed today, I think I have to say yes, we will review it, and we will review it with real seriousness," Ms Patel told the committee. But can I emphasise that none of this is designed to avoid tax. That is not why we use an extensive number of freelance contracts at the BBC," she added."

On a case by case basic, the usual IR35 compliance applies here, and we can't just assume someone with a single contract with the BBC (or whoever else) should morally be paying NICs and PAYE - this was the other broad stroke comment made by Mr Gauke, if you listen to what he said.

[NotAllThere]

The IR's position has been that it is contract by contract. It is entirely possible to have two PAYE jobs - Rose and Crown at lunchtimes and the Pig and Wicket in the evenings.

[SimonMac]

If anyone saw Newsnight last night, although some of the comments are also in the general press this morning.

It was interesting Gavin Esler mentioned to Mr Gauke the BBC controversey about it's presenters working through PSCs. Mr Gauke clearly said if a presenter (but read than as any freelancer) only works for the BBC then morally that person should pay NICs, PAYE etc....

He then went onto say, BUT in the case of somone working through a PSC because they have Multiple Clients, then this way of working is completely understandable.

I find this interesting, as I have always read / been told / understood that HMRC will investigate each individual contract, and it makes no difference if you have concurrent contracts. They are all individual.

Two points that come out from his comments are him assuming if you work for just one company he thinks it is wrong to not pay NICs and PAYE as if you were working for that one employer - and vice versa he thinks it's OK if you work for more than one client to then use a PSC.

This seems to just rip up everything about what IR35 is about.

I always assumed they are taken individually as you could have two contracts, one inside one outside, however the fact you have more than one contract will be taken into consideration among the specifics of the individual contract in determining the status.