Reply to: You can now almost Smell the end of IR35 - New announcement!

[BolshieBastard]

This is now being reported from BBC News on the annoucement of the new office for Tax Simplification.

BBC News - Tax system 'to be simplified to encourage investment'

"The "spaghetti bowl" of UK tax law is to be simplified to cut the burden on business and attract foreign investment, George Osborne has said."

It specifically mentions IR35 as being one of the first of two reviews:

"The new body will initially conduct two reviews - streamlining 400 tax reliefs, allowances and exemptions and simplifying the tax system for small businesses, including a simpler alternative to the controversial IR35 code."

Can you just smell it????? LOL

Smell what, bulltulip!?

Has it ended yet? I mean its getting on for a year now isnt it?

[lukemg]

Playing devils advocate with that >50% shout, think they have something similar in Oz.
I would settle for 25% expenses off the top (no questions asked - like the 5% now) and cough on the rest.
Permie benefits must be worth an additional 30-50% of salary so still a good deal for HMRC point of view and I get to sleep at night...

[NotAllThere]

In Switzerland, dividend income is taxed - there is no tax credit. The only way to take money out of the company is via expenses and salary. The advantage of this over IR35, is that expenses are entirely tax deductable - not just those amounting to 5% of income.

Taxing dividend income in this way in the UK in one fell swoop, would be political suicide. But the government might reduce the tax credit over time, eventually leading to the abolition.

HMRC's problem is NI avoidance. I think IR35 is unfair, as the same individual pays more tax than an employee, and can't claim the same expenses from the business. So how about

For companies with fewer than x shareholders, where the shares are of the same class.
1. EENIC on dividend income
2. Remove ERNIC for any employees who are also one of the above shareholders.

This way, you can have your expenses deducted, but pay the same tax as any other employee.

[Lumiere]

Make your wife the shareholder.

And lose £33K of tax free money every year ..

[swamp]

like that:


You provided your services through a service company if:

* you performed services (intellectual, manual or a mixture of the two) for a client (or clients); and
* the services were provided under a contract between the client(s) and a company of which you were, at any time during the tax year, a shareholder; and
* the company’s income was, at any time during the tax year, derived wholly or mainly (that is, more than half of it) from services performed by the shareholders personally

?

Make your wife the shareholder.

[Lumiere]

Why don't they just say >50% of revenue in a year from one client = caught - simples...

like that:

You provided your services through a service company if:

* you performed services (intellectual, manual or a mixture of the two) for a client (or clients); and
* the services were provided under a contract between the client(s) and a company of which you were, at any time during the tax year, a shareholder; and
* the company’s income was, at any time during the tax year, derived wholly or mainly (that is, more than half of it) from services performed by the shareholders personally

?

[Ignis Fatuus]

Why don't they just say >50% of revenue in a year from one client = caught - simples...

Why don't they just remove the artificial reason why people want to do the thing that IR35 is designed to stop them from doing?

Integrate NIC with income tax. Then let people work as employees of the end user, or through Ltd Cos, or as self-employed sole traders, as they like. It's make no difference to revenue.

[notpacino]

I spoke to my accountant a few days ago. He said they have heard from Hector that in future IR35 will be based on projects rather than contract wording and behaviour, and that if you can show you are working on defined projects then you are outside IR35.

He also said that it costs Hector around £100 to get £10 in from IR35 at the moment.

[VectraMan]

Because it's a rubbish test. I have worked at at least one consultancy who have signed big deals that amount to well over 50% of the total company revenue for a single project. There may well be 20 people working from the consultancy on that project, so it would be a nonsense to suggest that they're IR35 caught - but they would under your rules...

It doesn't apply to consultancies as the people doing the work are employees, not necessarily shareholders who get dividends.

But it is a rubbish test. Nobody would want a renewal, which doesn't really help anyone. And if you do 6 months at one client for £350 a day, and have 10 clients for 6 months at £349 a day, then you've failed the test.

[deckster]

Why don't they just say >50% of revenue in a year from one client = caught - simples...

Because it's a rubbish test. I have worked at at least one consultancy who have signed big deals that amount to well over 50% of the total company revenue for a single project. There may well be 20 people working from the consultancy on that project, so it would be a nonsense to suggest that they're IR35 caught - but they would under your rules...

Or, from a more contractor-centric point of view...2 identical contracts, one 6 months and a week, one 5 months and three weeks. The second is IR35 clear and the first is caught? Barking.

[Mr.Whippy]

Why don't they just say >50% of revenue in a year from one client = caught - simples...

And what if you work 4 months for one client and then 3 months for another and decide to go travelling for the remaining 5 months of the year you'd be caught.

Not a good solution at all.

[lukemg]

Why don't they just say >50% of revenue in a year from one client = caught - simples...

[Bagpuss]

Fantastic news. This is the end of IR35! Everything will be fixed by the Conservatives!

They may bin the cycle to work free breakfast scheme while they're at it, but it would be small price to pay.

[Sausage Surprise]

"the income is a paltry £1.2m a year directly". That's a great piece of PCG spin, but I don't think it's true. There are a lot of people who could go LTD outside IR35 and avoid tax but they don't because they just want a quiet life. In that way, IR35 has been a roaring success.

Look at all the contractors going through umbrellas these days, most likely because they think they are IR35 caught or they don't want the admin of running their own company. According to <snip>, Parasol alone contributed "in excess of £100m in income tax and NICs over 12 months". Those umbrellas wouldn't be anywhere to be seen if if were not for IR35 because we would all be avoiding tax by working through LTDs or MSCs.

Totally agree. The number of contractors I've worked with who pay full PAYE plus employers NI is staggering. All because they are terrified of IR35 and any potential consequences - the fear factor worked perfectly in this sense.

[malvolio]

"the income is a paltry £1.2m a year directly". That's a great piece of PCG spin, but I don't think it's true. There are a lot of people who could go LTD outside IR35 and avoid tax but they don't because they just want a quiet life. In that way, IR35 has been a roaring success.

Look at all the contractors going through umbrellas these days, most likely because they think they are IR35 caught or they don't want the admin of running their own company. According to <snip>, Parasol alone contributed "in excess of £100m in income tax and NICs over 12 months". Those umbrellas wouldn't be anywhere to be seen if if were not for IR35 because we would all be avoiding tax by working through LTDs or MSCs.

It's precisely correct, not spin, That number was picked up (by me...) from a HoC written answer about a year ago as the total income from IR35 declared by people who put themselves inside and paid the tax accordingly. On that basis, IR35 is a financial joke.

We don't have an accurate figure for how much unnecessary tax is being paid by people living in fear (or ignorance) of IR35 and hiding behind umbrellas, but a fag packet calculation puts it at no more than £400m a year - that's a big number, especially for taxes that almost certainly aren't actually owed, but in the greater scheme of things it's actually trivial. And from that amount you have to deduct investigation and policing costs, of course. I stand by my assertion that if IR35 was cost effective it wouldn't be under threat; you can be sure that Osborne's team have the actual numbers to hand - despite Dim Prawn's assertion they don't exist - and have done the sums properly.

And as I have said before, if you want to take notice of commentaries on the effectiveness of IR35, you first need to take notice of who wrote it. PCG are the only body who do not have a financial interest, and personally I trust their numbers above anyone else's.