Reply to: IR35 Consultation Responses?

[webberg]

And for that reason I didn't read any further sorry.

As you wish.

[northernladuk]

You may be correct in your assessment of my view of IR35.

And for that reason I didn't read any further sorry.

[webberg]

I don't fully understand this but its still think you are missing the very fundamental point . This has nothing to do how an employer sees a contractor. HMRC couldn't care less about the employment status. They are just about correcting the tax which ever status the person has.
In the case that you mention HMRC should have been hovering like vultures as the guy proved he was in deemed employment so effectively shaft himself IR35. That said HMRC would have still cocked up and lost the case :suicide

But as I say... I still don't think you've grasped exactly what IR35 is trying to do which is pretty fundamental to the whole thing.

You may be correct in your assessment of my view of IR35.

Most of my experience in IR35 stems from the original introduction. At that time I was working in the tax department of a large bank. The new rules arrived at the same time as the bank was introducing a new accounting system. We were therefore trying to measure the effect of the rules and design a module for the accounting system that would cope.

We decided at that time that there was a real danger that the bank would be seen as the employer of most of the thousands of contractors working in the bank. As such we devised a series of tests that each budget holder would be required to set against the contractor arrangements. If those said that the contractor might be seen as an employee, then the budget holder could decide that either they would hold funds for the potential PAYE liability, bring the contractor on to the books, change the circumstances of engagement or let the contractor go.

Perhaps 60% of the contractors left the bank within a year either because they did not want to be employees or because the budget holder did not have enough funds for a contingency.

It has to be said that the organisation of the bank allowed for a wide variety of practices and consistency was one of the first victims of this exercise. Nonetheless the bank considered the result satisfactory as it no longer had to carry financial provision for HMRC claiming employee status for many contractors.

This experience is what drives my view of HMRC policy. They want contractors to pay more tax and for that tax to be collected and paid to HMG with as little expense as possible (for HMG). That is why I think we will get a simple and blunt test that leaves little subjectivity such a SD&C test.

This is a Gordian knot of a problem and unfortunately HMRC has a clear purpose and objective and the contractors and their collective bodies are diversified and incoherent in terms of proposing a reasonable alternative, backed with empirical data.

Whilst I would like to see engagers become responsible for applying whatever test is used and be responsible for the tax/NIC if they get it wrong, I think that the defeaning silence from that quarter in this debate means that we will get more tests of tax liability being applied by non tax experts who will be preyed upon by those with a "solution".

[webberg]

As is amply demonstrated above, there is no simple answer here and it is to be hoped that the difficulties of devising and applying a (series of) tests to determine status will reflect that.

My fear is that HMRC will use the fact of complexity of status x complexity of personal circumstance to argue that the "ONLY" way to achieve their aim (of collecting more tax) is to have a universal and simple test.

That implies gong to the lowest common denominator (time, contract value) that can be measured objectively.

I'm aware that there have been surveys and similar based on this website membership to analyse and hopefully supply data in response to the latest proposals. I've not seen them but my hope is that they amply show the difficulties that such a low denominator will bring.

Unfortunately I'm also cynical enough to think that the responses to the discussion document have already been written and that after paying lip service to the process, new law is already in draft and waiting to go on 25th November or perhaps next March.

[LisaContractorUmbrella]

Yes, exactly. Almost no time at all IMHO and, as I've said elsewhere, I would fully support IPSE in taking that route, in practice, even if I'm against being identified as an employee in principle. There is existing case law precedent for this when SDC has been agreed upfront. So you're absolutely correct and, if anything is going to dissuade the gov't from taking this route, it's probably that argument; in other words, if they don't place an upfront liability on the employee for employment rights when subject to SDC, it will probably happen via the backdoor pretty soon thereafter. This suggests to me that either they will drop the suggestion to have engagers determine status (as they did in 1999) or there are going to be some seriously unhappy engagers

I am hoping that this is a case of 'can open, worms everywhere' and that HMG will have a rethink on the whole proposal - I am fairly sure that something will still come out in the Autumn Statement but I am hoping that it will be moderated - if not I think they'll end up being an awful lot of extremely happy lawyers in the next few months

[Zero Liability]

Yes, exactly. Almost no time at all IMHO and, as I've said elsewhere, I would fully support IPSE in taking that route, in practice, even if I'm against being identified as an employee in principle. There is existing case law precedent for this when SDC has been agreed upfront. So you're absolutely correct and, if anything is going to dissuade the gov't from taking this route, it's probably that argument; in other words, if they don't place an upfront liability on the employee for employment rights when subject to SDC, it will probably happen via the backdoor pretty soon thereafter. This suggests to me that either they will drop the suggestion to have engagers determine status (as they did in 1999) or there are going to be some seriously unhappy engagers

At the very least, it'll present an obstacle to blanket presumption of SDC.

[SussexSeagull]

I have long suspected they will go down the length of contract route to determine employment status, not because it if fair but because it is straightforward.

As for contractors going to court for employment rights, if a company comes out and say they have SDC over someone then surely it is irrelevant if it was the HMRC asking? They either control your daily work or they don't and if they do you are an employee?

Not sure myself but someone will almost certainly try and prove it in court.

[teapot418]

Duration should not count, it doesn't in actual B2B contracts, for an example my current client has had this engineering support contract with BP for 15 years, it gets renewed every 2-3 years based on good performance.

If both my client & their client can have this long term B2B relationship, why can't small businesses or one man bands?

The two year thing isn't something I personally support (and I would be 'caught'), and I agree with your point about being treated differently to big businesses, but I can see its attraction. It could never be retrospective, but could apply in a similar way to T&S - i.e. at the point that you know you will be engaged for > 24 months, and would also need to have an equivalent to the 40% rule. In fact, it could work on the same basis as T&S - only they're changing that, aren't they.

The difficulty comes when there's clearly different projects - but I guess if it was to be kept 'simple' it would simply be a time based rule regardless of the nature of the work.

I don't like it, but it's not as bad as some of the alternatives.

[malvolio]

Yes, exactly. Almost no time at all IMHO and, as I've said elsewhere, I would fully support IPSE in taking that route, in practice, even if I'm against being identified as an employee in principle. There is existing case law precedent for this when SDC has been agreed upfront. So you're absolutely correct and, if anything is going to dissuade the gov't from taking this route, it's probably that argument; in other words, if they don't place an upfront liability on the employee for employment rights when subject to SDC, it will probably happen via the backdoor pretty soon thereafter. This suggests to me that either they will drop the suggestion to have engagers determine status (as they did in 1999) or there are going to be some seriously unhappy engagers

I'd guess the latter...

They will devolve it on to the agencies; after all, most hiring managers have bought the agency line that we work for them already, and most BigCos have convinced themselves that RPOs are a good idea despite all the evidence. While HMRC have zero understanding of contracting they are fairly good at imposing their own outcomes; until, of course, it gets to court...

[jamesbrown]

how long will it be before someone challenges it from the employment law side and demands employee rights?

Yes, exactly. Almost no time at all IMHO and, as I've said elsewhere, I would fully support IPSE in taking that route, in practice, even if I'm against being identified as an employee in principle. There is existing case law precedent for this when SDC has been agreed upfront. So you're absolutely correct and, if anything is going to dissuade the gov't from taking this route, it's probably that argument; in other words, if they don't place an upfront liability on the employee for employment rights when subject to SDC, it will probably happen via the backdoor pretty soon thereafter. This suggests to me that either they will drop the suggestion to have engagers determine status (as they did in 1999) or there are going to be some seriously unhappy engagers

[northernladuk]

The point raised above about a long term contractor suing for employment rights is probably exactly why the HMRC papers make the distinction about not becoming an employee.

I wonder what would happen if most contractors said "OK, forget it, either I work as an employee or not at all!" would make the Red Book arithmetic interesting?

I don't fully understand this but its still think you are missing the very fundamental point . This has nothing to do how an employer sees a contractor. HMRC couldn't care less about the employment status. They are just about correcting the tax which ever status the person has.
In the case that you mention HMRC should have been hovering like vultures as the guy proved he was in deemed employment so effectively shaft himself IR35. That said HMRC would have still cocked up and lost the case :suicide

But as I say... I still don't think you've grasped exactly what IR35 is trying to do which is pretty fundamental to the whole thing.

[webberg]

No need to apologise or feel bad about this. You also made some good points IMHO, and there are very few responses where I've agreed with everything raised. The fundamental problem arises at the point a particular model/approach is accepted as a starting point. If you accept case law as a starting point, that has both serious problems and advantages. If you accept a statutory test (deeming criteria) as a starting point, that has both serious problems and advantages. If you accept that employment status should be removed from the equation altogether and that the differences between self-employed and employed taxation should be much narrower, that also has serious problems (in the sense that HMG/HMRC aren't willing to go this far) as well as advantages. Much of this stems from the starting point, and HMG/HMRC have dispensed with some options upfront.

Agreed, if HMRC put into law a definition of "employee", "employer" etc whilst that would produce some certainly for many, it would be a starting gun for those clever minds who can use it to create a "non-employee" or "non-employer".

A combination of statute and case law and frankly common sense is best in determining status.

Unfortunately HMRC has managed to allow public confidence and trust in its ability to operate a fair system to evaporate or be sacrificed on the altar of political expediency (non doms?) and they are 50 years away from regaining that precious commodity.

[webberg]

The point raised above about a long term contractor suing for employment rights is probably exactly why the HMRC papers make the distinction about not becoming an employee.

I wonder what would happen if most contractors said "OK, forget it, either I work as an employee or not at all!" would make the Red Book arithmetic interesting?

[northernladuk]

If only!

Maybe HMRC'S objective is to slowly grind us into dust

Well if it cuts the newbie money chasing chaff out of the equation and we can start to pick and chose and negotiate what's left it won't be that bad... Dunno what's going to happen though.

[GB9]

Oh well we'll just have to wait and see what happens - could all end up being a storm in a teacup

If only!

Maybe HMRC'S objective is to slowly grind us into dust