Reply to: How does being inside IR35 work if you have staff?

[jamesbrown]

My understanding is they made some minor tweaks that basically made it crystal clear PILON was taxable. Prior to that HMRC certainly viewed PILON as taxable anyway, but there was some ambiguity.

Is it possible to have non-contractual PILON?!

I think those tweaks were precisely related to whether the payment was contractual or non-contractual. If a payment is non-contractual then, technically, it may be classified as something else(?), but I distinctly recall the discussion at the time about the non-contractual loophole, which was closed.

[Maslins]

I thought that 30k redundancy payment was only tax-free if non-contractual

Yup. A few other criteria too, but yes, if it's contractual, it's not ex gratia.

and, more importantly, that the tax-free element disappeared in 2018... pretty sure they made contractual and non-contractual PILONs taxable at that point.

My understanding is they made some minor tweaks that basically made it crystal clear PILON was taxable. Prior to that HMRC certainly viewed PILON as taxable anyway, but there was some ambiguity.

Is it possible to have non-contractual PILON?! Surely to be PILON (payment in lieu of notice), there must be an agreed (ie in a contract) notice period. If the notice period is in the contract, payment for it is also obligatory. Hence to my mind payment for any notice period must be contractual, so in turn PILON must be contractual too?

Anyway, I think we're agreed Really Not Real's wife's redundancy would not qualify as tax free, sorry RNR! In practice I struggle to think of any situations where a contractor type company could pay out a £30k tax free redundancy to the owner/significant other.

[webberg]

Correct in that the £30k is not an allowance but rather a limit provided certain conditions are met.

For example, paying somebody £5k a year for 2 years and then a £30k redundancy, would almost certainly not qualify the £30k for relief.

[jamesbrown]

• Market rate absolutely.
• T&C's are contained inside something commonly called a contract.
• An element of humour re: rehiring after redundancy, but yes I'm already suitably brushed up on redundancy (i.e. there is no restriction on re-employing somebody [the same person] who has been made redundant) are you?

I thought that 30k redundancy payment was only tax-free if non-contractual and, more importantly, that the tax-free element disappeared in 2018... pretty sure they made contractual and non-contractual PILONs taxable at that point.

[Really Not Real]

At a market rate for the time and level of her duties I'm sure. That's nice but it's a contract she needs. Not T&Cs.

Might need to brush up on the laws around redundancy there fella.

• Market rate absolutely.
• T&C's are contained inside something commonly called a contract.
• An element of humour re: rehiring after redundancy, but yes I'm already suitably brushed up on redundancy (i.e. there is no restriction on re-employing somebody [the same person] who has been made redundant) are you?

[northernladuk]

Well, I employ the wife (for accountancy, office admin, etc.) and have done so for the last 8 years.

At a market rate for the time and level of her duties I'm sure.

According to her T&C's (yes she really has them!)

That's nice but it's a contract she needs. Not T&Cs.

I guess I'll just have to put her on a rehire-redundancy-rehire-redundancy loop..

Might need to brush up on the laws around redundancy there fella.

[Really Not Real]

Redundancy

I am contracting for a large bank via an agency. As with most I'm bracing myself for the new rules in April 2020 and trying to understand any potential impact as best I can. I don't hold much confidence in the client and agency being particularly contractor friendly, especially given another bank's recent position on the matter (HSBC), so am bracing myself for a worst case scenario Inside IR35 decision

At the moment, the model is well understood. From an invoice, we take off business expenses such as salary, pension contributions, accountancy fees etc. What's left is the gross profit. 20% of that goes to corporation tax, leaving net profit which can be paid as dividend. Easy.

As I understand it, if caught by IR35 we get a 5% business expenses allowance, and the rest is assumed to be personal income and will be taxed as such by the agency. So 95% of my invoice will be treated as if it is personal income and will be taxed at source. That's OK if your limited co only employs you (well, it's not, but that's another argument), but what happens if you have staff costs other than your own?

In my case I employ a part time office administrator on a 1 day a week basis. I pay her a small salary and pension contributions.

In the Inside IR35 model, my need for an office admin doesn't change, so I still need to employ her and pay her. But the company income that I would be paying her from would already have been taxed on the incorrect assumption that all of that income is mine.

Are there provisions in the Inside IR35 rules to cover staff costs like this? How is it meant to work?

Well, I employ the wife (for accountancy, office admin, etc.) and have done so for the last 8 years. According to her T&C's (yes she really has them!) she's entitled to a £30k redundancy payment (which just happens to be the tax free maximum) which is exactly what she'll receive if I can't legally stay outside of IR35. Quite what will happen if I'm inside IR35 with one contract and then outside IR35 on the next (and so on) I don't know? - I guess I'll just have to put her on a rehire-redundancy-rehire-redundancy loop..

[JohntheBike]

It does illustrate the absurdity of IR35. When you have multiple fee-earners working for you, but no guarantee that they will be constantly fee-earning, there's the risk that IR35 could force you to pay their salaries, at times, out of funds on which you are personally taxed, and which you will never receive. And of course, they also would be taxed on those particular funds.

This is unlikely to happen now but it certainly could have happened in my first two years if someone had decided that my contracts should be inside IR35, because my own contracts were indeed subsidising salaries I was paying. And some of those contracts were borderline. I kept a printout of the BET in case I was ever challenged because, unlike most contractors, those who actually employ people (beyond paying the Mrs for bookkeeping) were helped by the BET. It had been withdrawn by then but I was advised that a BET showing me clearly in business for myself would be helpful if HMRC ever came calling.

It's absurd to argue that someone who is really employing people and using the proceeds of his contract to pay them is in hidden employment, whatever the working practices. But then, IR35 is stupid anyway.

Is anyone at IPSE asking Tory leadership candidates to commit to revisit Brown's baby?

"Is anyone at IPSE asking Tory leadership candidates to commit to revisit Brown's baby?"

don't hold your breath!

[Lockhouse]

I recall the original Mrs Mopp example from way back when where it's morally OK to send skivvys to do the work for you but woe betide you should you ever deign to get your own hands dirty. Appalling.

[northernladuk]

It wasn't new then - all these discussions were had over the original IR35 first formulated in 1999.

Yeah but it's the first time people ran in to it and we put up detailed FAQs. Many people have just being playing tick box IR35 and not understanding because it's never really applied.

[WordIsBond]

It does illustrate the absurdity of IR35. When you have multiple fee-earners working for you, but no guarantee that they will be constantly fee-earning, there's the risk that IR35 could force you to pay their salaries, at times, out of funds on which you are personally taxed, and which you will never receive. And of course, they also would be taxed on those particular funds.

This is unlikely to happen now but it certainly could have happened in my first two years if someone had decided that my contracts should be inside IR35, because my own contracts were indeed subsidising salaries I was paying. And some of those contracts were borderline. I kept a printout of the BET in case I was ever challenged because, unlike most contractors, those who actually employ people (beyond paying the Mrs for bookkeeping) were helped by the BET. It had been withdrawn by then but I was advised that a BET showing me clearly in business for myself would be helpful if HMRC ever came calling.

It's absurd to argue that someone who is really employing people and using the proceeds of his contract to pay them is in hidden employment, whatever the working practices. But then, IR35 is stupid anyway.

Is anyone at IPSE asking Tory leadership candidates to commit to revisit Brown's baby?

[NotAllThere]

None of this is new. It's been in place in the Public Sector quite awhile now.

It wasn't new then - all these discussions were had over the original IR35 first formulated in 1999.

[northernladuk]

Grief.

This becoming more and more depressing by the minute.

Next they will turn around and say that buying property and renting it out is now No longer a viable Pension option and all landlords will have to give their investments to the undeserving.

How is that even related? But just to cheer you up landlords get clobbered every year and are a very easy target so expect more of the same over the next few years.

Oh.. and for Simes and everyone else that's way behind the times. None of this is new. It's been in place in the Public Sector quite awhile now.

Maybe someone should update TF's sticky and make it generic to cover both so we don't have to go over this ad infinitum?

[BrilloPad]

Grief.

This becoming more and more depressing by the minute.

Next they will turn around and say that buying property and renting it out is now No longer a viable Pension option and all landlords will have to give their investments to the undeserving.

No. The landlords will have to give them to the deserving young.

[simes]

Grief.

This becoming more and more depressing by the minute.

Next they will turn around and say that buying property and renting it out is now No longer a viable Pension option and all landlords will have to give their investments to the undeserving.