Reply to: The Ben/Jo case study and IR35

[XLMonkey]

There isn't a "right" number for the case studies, since it depends on a whole load of different factors. However, there is definitely a wrong number, which is the one that HMRC used.
The math I did on scenario 2 was as follows:

Mark - gross salary 27,345, net income 21,684
Sarah - limited company turnover £30,000, net income 25,800
- minus £3910 (to match the pension contributions made on Mark’s behalf by the NHS trust)
- minus £2379 (27 days holiday entitlement out of a total 246 working days in each year, which Mark would be entitled to but Sarah would not)
- minus £1100 operating costs associated with running a personal service company (principally accountancy and payroll administration costs)
- plus gain on Flat Rate VAT Scheme of £1050 (assuming that the gain results in a profit post corporation tax of 3.5%, which is typical for a personal service company)

Sarah’s net income is in fact £19,461, not 25,800. This of course ignores the value of sickness pay, training and redundancy entitlements that Mark might expect to accrue over a period of time that Sarah would not receive.

[supersteamer]

When Jo finds out she's got the job she moves house to be close by. The employer pays relocation expenses and she now has a 15 minute walk to the office.

Ben knows he might not be there more than 3 months so he can't move house. He commutes 4 hours by train at peak hours on Monday and stays in a B&B four nights a week near the office before commuting home again 4 hours at peak hours.

[SueEllen]

Ben gets to party hard once a year on £150 tax free.
He could also be claiming home-as-office expemses for doing his accounts at home.
Unfortunately it also means Ben is probably providing his own stationary, paying for his calls to the bank and very likely does a lot less general chit chat than the employees in the office, as he thinks he's running a business and wants to instil an air of professionalism (not necessarily a financial gain that one).
Also, did Ben pay for his contract to be checked, pay for IPSE membership so he's covered for HMRC inspections etc.

Since Ben deals with contract law he doesn't have to get his contract checked as he does it himself. However he does belong to a small business group as well as various groups for Solicitors which he pays for.

[pr1]

Jo gets to party, too, but her employer pays for it, while Ben pays for it out of the £70K.

Ben doesn't have IPSE membership or pay to get his contract checked. HMRC invented him out of thin air, so he probably doesn't even know IPSE exists.

I'd talked about a brief summary statement to headline this, and eek said the detail would go into the appendix of what he's submitting. Unfortunately, I don't have time to focus on the summary statement and probably won't have time to do so the rest of the month, so perhaps someone else can boil it all down into 3-4 short paragraphs.

wouldn't get your hopes up for eek submitting anything

[WordIsBond]

Ben gets to party hard once a year on £150 tax free.
He could also be claiming home-as-office expemses for doing his accounts at home.
Unfortunately it also means Ben is probably providing his own stationary, paying for his calls to the bank and very likely does a lot less general chit chat than the employees in the office, as he thinks he's running a business and wants to instil an air of professionalism (not necessarily a financial gain that one).
Also, did Ben pay for his contract to be checked, pay for IPSE membership so he's covered for HMRC inspections etc.

Jo gets to party, too, but her employer pays for it, while Ben pays for it out of the £70K.

Ben doesn't have IPSE membership or pay to get his contract checked. HMRC invented him out of thin air, so he probably doesn't even know IPSE exists.

I'd talked about a brief summary statement to headline this, and eek said the detail would go into the appendix of what he's submitting. Unfortunately, I don't have time to focus on the summary statement and probably won't have time to do so the rest of the month, so perhaps someone else can boil it all down into 3-4 short paragraphs.

[darrylmg]

Ben gets to party hard once a year on £150 tax free.
He could also be claiming home-as-office expemses for doing his accounts at home.
Unfortunately it also means Ben is probably providing his own stationary, paying for his calls to the bank and very likely does a lot less general chit chat than the employees in the office, as he thinks he's running a business and wants to instil an air of professionalism (not necessarily a financial gain that one).
Also, did Ben pay for his contract to be checked, pay for IPSE membership so he's covered for HMRC inspections etc.

[WordIsBond]

Very, very helpful. I have updated it again, added a new section for CPD, and modified other sections. Something you said also triggered thoughts on VAT, and I've added a new section relative to that as well.

Maybe a self-employed lawyer will chime in at some point.

[SueEllen]

Someone in the IT industry DOES use a second hand laptop? To each his own, but I need fast equipment.

I use new laptops and mine vary greatly in price.

Anyway, a lawyer might spend a little more than £600, but he'll also use the computer for three or four years, right? So how much are we talking? Perhaps not more than £300 / year.

That's fair but I would exclude software e.g. anti-virus, office package, e-signatures from those costs.

I sent you a PM with information I've gleamed.

Anyway the point of the whole exercise is that HMRC actually did proper background work for their lawyer case study it would not be so full of holes and be discreditable. Next time they should choose case studies where these things weren't relevant.

[WordIsBond]

No one who isn't in the IT industry will use a second hand laptop for their business.

Put in the price of a mid-range one from the likes of Currys-PC World which is about £600.

Someone in the IT industry DOES use a second hand laptop? To each his own, but I need fast equipment.

Anyway, a lawyer might spend a little more than £600, but he'll also use the computer for three or four years, right? So how much are we talking? Perhaps not more than £300 / year.

I don't think the amount matters, particularly. It's just one more thing that demonstrates the injustice of their comparison. If we say, "Well, you forgot pension and accounting fees," that doesn't have the same impact as saying, "You forgot pension and PI and computer and accounting fees and stationery and mobile phone and relevant life plan, all of which Jo has paid for her by her employer." We can debate amounts but none of it is free and it all adds up.

[SueEllen]

I think whoever suggested it also suggested the ongoing maintenance costs, upgrades, software licensing etc.

The cost of a laptop is 300 quid on eBay.

No one who isn't in the IT industry will use a second hand laptop for their business.

Put in the price of a mid-range one from the likes of Currys-PC World which is about £600.

[WordIsBond]

Covered under "employment risk/employment rights"

[suityou01]

Another thought. Would Ben be entitled to severance / redundancy pay?

[WordIsBond]

Whoever it was would be annoying me if he wasn't right.

Ok, I've edited it again.

[suityou01]

As suggested on another thread, I've added the cost of a laptop to something Ben may have to pay for himself, while Jo probably has hers provided.

I think whoever suggested it also suggested the ongoing maintenance costs, upgrades, software licensing etc.

The cost of a laptop is 300 quid on eBay.

[WordIsBond]

As suggested on another thread, I've added the cost of a laptop to something Ben may have to pay for himself, while Jo probably has hers provided.