Reply to: ir35 in private sector

[madame SasGuru]

No it's not. That cost appears somewhere in the consumer chain, even if it's via a retailer recovering his costs of doing banking, which costs will include a margin for non-reclaimable VAT costs, and recovering his input VAT from his customer.



I understand VAT. I was in accountancy when it was implemented, and it hasn't really changed since. If VAT were cost neutral it wouldn't work.

HTH. BIDI.

And yet you miss the wrong argument invalidates your entire response statement 2 people here are making....

[DeludedKitten]

If all VAT were cost neutral it wouldn't work.

FTFY.

HTH. BIDi.

[madame SasGuru]

Since VAT is a tax on added value to a commodity through a service (the clue is in the name), why is that a problem? It is our work that creates a VAT liability and ultimately, income to the Exchequer. If we're comparing apples with apples, all generated taxes have to be included. Someone has to pay the ultimate difference between input and output VAT, even if it's quite a way down the line, so in revenue terms it is not tax neutral at all.

Why do these threads always end up talking about VAT multiple times?

2 points
1) HMRC consider VAT revenue neutral in our situation. Yes there are exceptions (note the NHS tax avoidance issues last week) but they are (quite) minor exceptions.
2) HMRC have a habit of ignoring statements once they've identified things that are wrong. Hence if you talk about VAT in a consultation response they could ignore the other arguments due to the part of it being inaccurate (to their eyes)...

Oh and this is a done deal - for those who haven't retired yet how are you planning to escape the replaceable bum on seat market...

[malvolio]

I didn't say it was a problem.



I provide my services to a blue chip client to improve their processes. I charge them VAT. They reclaim the VAT. There is nobody to pass this onto. It is neutral.

No it's not. That cost appears somewhere in the consumer chain, even if it's via a retailer recovering his costs of doing banking, which costs will include a margin for non-reclaimable VAT costs, and recovering his input VAT from his customer.

As I have said a number of times now, including something in your argument that is easy to rebut makes it easy to discount your entire argument. If your circumstances mean that VAT isn't neutral (and I'd think that many roles for people here are not VAT revenue neutral) then include it in the argument. But repeatedly saying "I add £30k a year in VAT" when that is entirely reclaimed and isn't passed on to anyone down the line (even way down the line) means that anyone who understands VAT can point that out, pick one hole, and then use that to extrapolate and ignore any valid points you are making.

I understand VAT. I was in accountancy when it was implemented, and it hasn't really changed since. If VAT were cost neutral it wouldn't work.

HTH. BIDI.

[DeludedKitten]

Since VAT is a tax on added value to a commodity through a service (the clue is in the name), why is that a problem?

I didn't say it was a problem.

It is our work that creates a VAT liability and ultimately, income to the Exchequer. If we're comparing apples with apples, all generated taxes have to be included. Someone has to pay the ultimate difference between input and output VAT, even if it's quite a way down the line, so in revenue terms it is not tax neutral at all.

I provide my services to a blue chip client to improve their processes. I charge them VAT. They reclaim the VAT. There is nobody to pass this onto. It is neutral.

As I have said a number of times now, including something in your argument that is easy to rebut makes it easy to discount your entire argument. If your circumstances mean that VAT isn't neutral (and I'd think that many roles for people here are not VAT revenue neutral) then include it in the argument. But repeatedly saying "I add £30k a year in VAT" when that is entirely reclaimed and isn't passed on to anyone down the line (even way down the line) means that anyone who understands VAT can point that out, pick one hole, and then use that to extrapolate and ignore any valid points you are making.

[malvolio]

I've not worked in banking but I've heard that sometimes the contract will be between agency and a VAT registered, wholly owned subsidiary (or something along those lines) so that they can claim as much VAT as possible.

There will be other industries where they can't claim the VAT back and can't loophole it though.

Since VAT is a tax on added value to a commodity through a service (the clue is in the name), why is that a problem? It is our work that creates a VAT liability and ultimately, income to the Exchequer. If we're comparing apples with apples, all generated taxes have to be included. Someone has to pay the ultimate difference between input and output VAT, even if it's quite a way down the line, so in revenue terms it is not tax neutral at all.

[DeludedKitten]

Fair point. Of course I do tend to forget that VAT is a consumption tax.

However, per this, certainly with the majority of banking clients I've had over the last few years, I understand they cannot claim back the whole amount so it isn't ultimately neutral. As someone pointed out in the thread though, between the contractor and the agency the VAT is neutral but from the agency to the bank it isn't.

I've not worked in banking but I've heard that sometimes the contract will be between agency and a VAT registered, wholly owned subsidiary (or something along those lines) so that they can claim as much VAT as possible.

There will be other industries where they can't claim the VAT back and can't loophole it though.

[SueEllen]

I cannot see how the 'reform' could work in non B2B relationships. As a householder, would I really have to run the CEST tool for my window cleaner? I'm assuming that private work would be excluded from any rollout, but ICBW.

You mean everyone with a cleaner, gardener and window cleaner not employed through an agency has to run the CREST tool? [emoji54]

[ShandyDrinker]

For the majority of cases, it's B2B with VAT registered clients and so is neutral. If you're not in that majority then by all means make the genuine point that it'll reduce a VAT payment; if you aren't then you shouldn't because it's easy to discount the argument.

All my clients have been VAT registered so the thousands I pay each year in VAT are irrelevant - I charge them, they reclaim it so it's neutral to the economy. Me stopping contracting doesn't impact VAT revenue at all.

Fair point. Of course I do tend to forget that VAT is a consumption tax.

However, per this, certainly with the majority of banking clients I've had over the last few years, I understand they cannot claim back the whole amount so it isn't ultimately neutral. As someone pointed out in the thread though, between the contractor and the agency the VAT is neutral but from the agency to the bank it isn't.

[mudskipper]

I cannot see how the 'reform' could work in non B2B relationships. As a householder, would I really have to run the CEST tool for my window cleaner? I'm assuming that private work would be excluded from any rollout, but ICBW.

[DeludedKitten]

Actually I think you're wrong so we'll have to agree to disagree. My rationale is that if I were to say stuff it, I believe contracting no longer carries the advantages or is worth the risk and consider moving to another country outside the UK mainland or god help me return to the darkside that is permanent for the first time in over 10 years, then HMRC will lose the VAT (yes, I accept they'll make some back in the 2 NIs and income tax but I believe this will be less).

VAT should not in all scenarios be considered neutral as not all scenarios assume B2B. Happy to be wrong but I'm just not seeing your point if someone were to pack in contracting.

For the majority of cases, it's B2B with VAT registered clients and so is neutral. If you're not in that majority then by all means make the genuine point that it'll reduce a VAT payment; if you aren't then you shouldn't because it's easy to discount the argument.

All my clients have been VAT registered so the thousands I pay each year in VAT are irrelevant - I charge them, they reclaim it so it's neutral to the economy. Me stopping contracting doesn't impact VAT revenue at all.

[ShandyDrinker]

Including VAT in the tax that you pay is a hell of a bad point, actually, since it's easy to dismiss.

As far as HMRC are concerned VAT is neutral because you are dealing business to business and your role in the whole process is to merely act as collector for HMRC. (Yes, some industries don't claim VAT but even those have workarounds in general).

Stick to the taxes that you pay rather than just hand over or it becomes easy to ignore your figures as wrong.

Actually I think you're wrong so we'll have to agree to disagree. My rationale is that if I were to say stuff it, I believe contracting no longer carries the advantages or is worth the risk and consider moving to another country outside the UK mainland or god help me return to the darkside that is permanent for the first time in over 10 years, then HMRC will lose the VAT (yes, I accept they'll make some back in the 2 NIs and income tax but I believe this will be less).

VAT should not in all scenarios be considered neutral as not all scenarios assume B2B. Happy to be wrong but I'm just not seeing your point if someone were to pack in contracting.

For many I think it will boil down to:

1. Continue and hope for the best - private sector IR35 caught doesn't get rolled out
2. Educate clients and push for Statement of Work contracts
3. Go inside IR35
4. Leave the country
5. Go perm

In the unlikely event of 1 above not being on the table then 2 is my preference. Small clients and one man bands they seem happy to go with this, although in my experience larger companies often won't go for this option.

I would love to hear to the contrary that agencies are pushing their clients to go down the statement of work route although sadly I think they are probably even now the exception rather than the rule.

[DeludedKitten]

I'd completely ignored VAT but it's actually a hell of a good point.

Including VAT in the tax that you pay is a hell of a bad point, actually, since it's easy to dismiss.

As far as HMRC are concerned VAT is neutral because you are dealing business to business and your role in the whole process is to merely act as collector for HMRC. (Yes, some industries don't claim VAT but even those have workarounds in general).

Stick to the taxes that you pay rather than just hand over or it becomes easy to ignore your figures as wrong.

[radish2008]

That's what many said about the Public sector. I fear you are quite wrong.

For anyone in central Scotland, IPSE are having a session to pull in replies to the consultation -PM me for details.

The key point is that the government owns the public sector so they can effectively do what they want.

They do not have the same control/leverage over the private sector. This is a key point. Resistance from a few large companies will have the rollout put on a back burner. As for the queries about creating VAT I thought the net effect of contractor VAT is 0 - we charge it and companies claim it back. Don't get me started on what a total waste of time IPSE are.

[jamesbrown]

Given the rhetoric over the last couple of years with the double or quits NHS announcement over the weekend it is now a slam dunk.

Totally. Along with the CT cuts and increases in the personal allowance and higher rate threshold, because it's always easier to take away something you never had.

If we're really lucky, they might align the dividend and income tax thresholds too.