Discussion document on IR35 published

[Underbase]

Employee or Contractor .
In order to be independent the contractor should be able to prove at least two conditions :-
The nature of the work is irregular. Implementing a significant system change is irregular whereas providing help desk support is regular employee work.
At least two clients in 3 years , three clients in 5 years .
Notice period less than one month
Commuting more than 90 min a day

There are contractors on my current site in London who would not even meet one condition

I agree with the rest, but just because someone wants to live in central London they shouldn't be penalized.

[SueEllen]

Again with the risk. Contractors don't take on any risk, other than not finding work, and that's no different than temps. But unlike temps you get paid a lot more than the equivalent permie, and you get to avoid tax to boot.

Not true.

As a temp as long as you turn up and do your hours you get paid.

As a contractor both direct clients and agencies can try to get out of paying you. We have more in common with high skilled self employed than temps.

[tractor]

....

Not true.

As a temp as long as you turn up and do your hours you get paid.

As a contractor both direct clients and agencies can try to get out of paying you. We have more in common with high skilled self employed than temps.

Unfortunately, for the purposes of this discussion, HMRC would say that we have the same protections as employees in that we can Opt Out. In practice, if an agent/client wishes to disallow this, they can with impunity given that the value of a single contract is unlikely to be enough to induce one to take the matter to court for a definitive and binding decision that will be of value to the rest of us in terms of case law precedent.

And BIS or whatever they are called this week would shrug and say 'wibble, wibble, wobble, pook'

I am sure someone will be along in a moment and swear on his granny's life that IPSE have been looking high and low for a case to take to court for years. But it hasn't happened and neither will it.

So if you are forced to opt out to secure a role, HMRC will say that you forewent those protections voluntarily.

[WordIsBond]

I read the document again this weekend, taking a little more time on it. And the thing that struck me about it all is that we've already lost the argument, as far as the government is concerned, and if we want to have any hope to win it then the argument has to be re-framed.

Right now, the government clearly sees this in HMRC's terms. Those terms say that incorporation of freelancers is a negative for the government, because it means loss of revenue. It is bad for us to be independent, it is bad for us to be employees of our own companies rather than employees of our clients, because that model means less tax revenue. So there will always be this tug of war where they are trying to drag more of us back into the clutches of the tax model that maximises tax revenue.

That's a losing argument for us, because money talks. So they will constantly be doing things to drag us back into that model.

It seems to me that we need to make the case for why it is beneficial to the economy for us to have our own business, and to be incorporated, and to be accepted as businesses in our own right. This consultation document reads as if that isn't accepted as beneficial by government at all.

The document says IR35 must be failing because there is a whole industry that has grown up around beating IR35, and as contractor numbers increase, contractors operating under IR35 haven't increased. Maybe that means people are using that anti-IR35 industry to cheat. But maybe it means people are using it to structure their businesses to stay outside IR35. And maybe it means industry is choosing to work with contractors because they find it useful to have skilled and flexible workers available on a temporary basis, and so are willing to structure contracts and working relationships to accommodate contractors wishing to stay outside IR35. Maybe it isn't cheating. Maybe IR35 has changed behaviour....

But even if they accept that, it won't change anything, because they aren't getting the revenue they want. So they will just go after us in another way (like travel expenses?).

We need to not only make the case for flexibility, we also need to make the case for being limited companies, for being separate businesses. We need to make the case that the flexible workforce can't exist if we aren't protected from liability, so we have to form limited companies. We need to make the case that the flexible workforce has variable income, so having a limited company allows us to smooth out personal compensation between good years and bad years, and if we can't do that we'll have to push up costs to industry. We need to make the case to our client industries, to big business, that if we're the target of government, it is going to cost them, in increased fees but even more in the loss of parts of their available pool of skilled workers, and get them on board with arguing our case to government.

Right now, we're just a cash cow that isn't being milked, as far as government is concerned. The dividend tax, the expenses, the whole tone of this document, makes that clear. We need to make the case that our current model is needed, or they'll keep hitting it until it dies. We may fight off one thing, or another, but they'll just keep coming at us. We have to find a way to change the discussion.

[jamesbrown]

if we want to have any hope to win it then the argument has to be re-framed

There's an element of messaging insofar as very few MPs actually understand micro-businesses or existing government policies towards them, let alone the impacts of these policies. For that reason, we need to support and shape the message from those lobbying on "our" behalf (such as IPSE). However, I think we also need to be realistic and bear in mind that; 1) lobbying is an exercise in fishing rather than catching and it frequently doesn't work; 2) notwithstanding a more general level of ignorance among MPs, that many (with input from HMRC) do have a very strong sense of what and whom they're trying to target, and this involves a subset of self-employed workers (e.g. those on low/moderate incomes incorporating largely for tax purposes or those on high incomes blatantly milking the public purse through off payroll arrangements); and 3) that we'll need to better distinguish ourselves from that subset in order to avoid becoming collateral (although, frankly, I'm not sure this is a battle that can be won, because the complexity of these distinctions is well established).

This will most likely end in freelancers being given a special status, but not one that is beneficial from a tax perspective (beyond, perhaps, the ability to smooth income between years, which is critical IMO). What has always irritated me is the designed lack of clarity on which IR35 relies and the persistent propaganda that micro-businesses are somehow not legitimate businesses (unless they have a plan to expand and employ others). The loss of some perceived tax advantage won't really impact my decision making one way or another (unless it's punitive).

[SpontaneousOrder]

Its funny that the primary thing that stops us contractors working together & incorporating as a 'real' businesses (supplying multiple contractors to potentially multiple clients simultaneously) is the overhead and hassle imposed by HMRC & employment law

They make it impossible or just not worth the effort (because it's wasted effort), and then try to shoot us down for running one-man bands.

The reality is they don't want too much low-level individual success. We must remember that we exist to serve the status quo. They need us to need them.

[SpontaneousOrder]

I read the document again this weekend, taking a little more time on it. And the thing that struck me about it all is that we've already lost the argument, as far as the government is concerned, and if we want to have any hope to win it then the argument has to be re-framed.

Right now, the government clearly sees this in HMRC's terms. Those terms say that incorporation of freelancers is a negative for the government, because it means loss of revenue. It is bad for us to be independent, it is bad for us to be employees of our own companies rather than employees of our clients, because that model means less tax revenue. So there will always be this tug of war where they are trying to drag more of us back into the clutches of the tax model that maximises tax revenue.

That's a losing argument for us, because money talks. So they will constantly be doing things to drag us back into that model.

It seems to me that we need to make the case for why it is beneficial to the economy for us to have our own business, and to be incorporated, and to be accepted as businesses in our own right. This consultation document reads as if that isn't accepted as beneficial by government at all.

The document says IR35 must be failing because there is a whole industry that has grown up around beating IR35, and as contractor numbers increase, contractors operating under IR35 haven't increased. Maybe that means people are using that anti-IR35 industry to cheat. But maybe it means people are using it to structure their businesses to stay outside IR35. And maybe it means industry is choosing to work with contractors because they find it useful to have skilled and flexible workers available on a temporary basis, and so are willing to structure contracts and working relationships to accommodate contractors wishing to stay outside IR35. Maybe it isn't cheating. Maybe IR35 has changed behaviour....

But even if they accept that, it won't change anything, because they aren't getting the revenue they want. So they will just go after us in another way (like travel expenses?).

We need to not only make the case for flexibility, we also need to make the case for being limited companies, for being separate businesses. We need to make the case that the flexible workforce can't exist if we aren't protected from liability, so we have to form limited companies. We need to make the case that the flexible workforce has variable income, so having a limited company allows us to smooth out personal compensation between good years and bad years, and if we can't do that we'll have to push up costs to industry. We need to make the case to our client industries, to big business, that if we're the target of government, it is going to cost them, in increased fees but even more in the loss of parts of their available pool of skilled workers, and get them on board with arguing our case to government.

Right now, we're just a cash cow that isn't being milked, as far as government is concerned. The dividend tax, the expenses, the whole tone of this document, makes that clear. We need to make the case that our current model is needed, or they'll keep hitting it until it dies. We may fight off one thing, or another, but they'll just keep coming at us. We have to find a way to change the discussion.

Not taking public sector contracts would be a start. But that won't happen.

[Danglekt]

In terms of reframing - simple maths should help.

I'm a project manager and get roughly double the gross income vs. previous perm roles I've had assuming I have reasonable utilisation through the year, which in the last couple of years I have.

In addition I am VAT registered, so HMRC get:

~14% of my gross in VAT
20% of retained profits
7.5% and 32.5% of whatever I whip out in addition to the the small salary I take.

So looking at the maths on VAT, plus CT, plus income tax and I generate SIGNIFICANTLY more income for HMRC than I ever did as a permie.

In addition to being able to provide highly experience temporary support to national and regional projects that were going no where fast with permie's pretending they had time to deliver it, helping business move forward.

Anyway, I'm off to clean my white armour

[The Spartan]

In terms of reframing - simple maths should help.

I'm a project manager and get roughly double the gross income vs. previous perm roles I've had assuming I have reasonable utilisation through the year, which in the last couple of years I have.

In addition I am VAT registered, so HMRC get:

~14% of my gross in VAT
20% of retained profits
7.5% and 32.5% of whatever I whip out in addition to the the small salary I take.

So looking at the maths on VAT, plus CT, plus income tax and I generate SIGNIFICANTLY more income for HMRC than I ever did as a permie.

In addition to being able to provide highly experience temporary support to national and regional projects that were going no where fast with permie's pretending they had time to deliver it, helping business move forward.

Anyway, I'm off to clean my white armour

It's this that they don't really understand and not just that, they want more from you they're not content with what they're getting.

[tractor]

.....

It's this that they don't really understand and not just that, they want more from you they're not content with what they're getting.

It is and always has been more than just that. It is far easier and much, much cheaper for them to police a single BigCo than 2000 LittleCos. Not to mention getting what would otherwise have been CT in the form of tax/NI, collected up to 20 months earlier.