Freelance Limited Company (FLC) offering from IPSE

[LisaContractorUmbrella]

How would business react? They'd scream and yell and have a fit -- but if the scope of it is narrowly defined as the low-paid, they'll just scream at Davie and Georgie in private, because they don't want to be portrayed in the press as taking advantage of the low paid. And if you get the low-pay threshold right, so it really isn't costing them any more than an employee at Living Wage, and they can still be free of employment rights, they might not even scream that much.

But business won't be deciding "in or out" if HMG does something like I suggested on the low-paid. They'll be deciding to make sure it never comes to an "in or out" decision.

As to your second paragraph, I doubt the proposals we make on the Internet will go too far, but who knows? But the surveys you and others are running, and the level of responses, has to be sending a message that there are some people who are really unhappy with where they are going. And those people and their friends and families are voters, AND they are from the segment that they would normally expect to be Tory voters.

And it is also providing cold, hard facts (though I think the political calculations are more likely to have an impact than actual facts).

So what you are doing may have a huge impact, and we all should be very grateful.

The only political issue I can see remaining is if the client can still absolve themselves of any employment rights - this is the sort of thing that the left wing media and think tanks will run with and make an issue for the Government

Thanks for your kind comments

[WordIsBond]

The only political issue I can see remaining is if the client can still absolve themselves of any employment rights - this is the sort of thing that the left wing media and think tanks will run with and make an issue for the Government

Thanks for your kind comments

Yes, but if it is done through an umbrella, so employment rights/responsibilities are in the scope of the umbrella / worker relationship instead, how do you legislate against that?

Go back to a builder doing an extension on my house. If he hires someone to help him, are employment rights my responsibility or his? His, obviously, even if you say I'm the end client. Any legislation intended to put the responsibility for employment rights on the engager rather than the umbrella has to be written in a way that doesn't catch people it shouldn't catch.

Anyway, even if the employment rights problem isn't solved, I think what I proposed goes a long way towards solving the problem of low-pay contracting. Let the left complain if they want but it would be a substantive improvement and would put a lot more people back on payroll. And it's stupid to make the perfect the enemy of the good. Maybe "left" and "stupid" are synonymous, but that's not our problem.

[jamesbrown]

The problem with leaving the liability anywhere other than with the client is that the client is the only one in a position to determine whether or not they are going to exercise or retain the right to exercise SDC. It doesn't matter what the contractor does or says or what's written in a contract (to a degree) - this is something the contractor or the agency will have no control over whatsoever. Therefore the liability for an incorrect judgement must lie with the end client which is why IMHO the chances of anyone falling outside these proposed changes are slim to none

I don't agree with your analysis, but I do agree with your conclusion (as I've mentioned before, and this is what we need to focus on). In the current arrangement, the reality of the working practices are never entirely clear until the contractor is on site, and they are further at risk through the higher level contract in an agency arrangement. Thus, a contractor conducts their due diligence (or not) but has to trust the client in describing the working practices honestly and the agency in not implementing a contradictory upper contract. The contractor then mitigates that risk (or not) by taking insurance against legal costs and tax liabilities. In the new scheme, the contractor will have a better understanding, upfront, about the reality of the working practices (or at least, an understanding that is no worse) and will know that the client is onside and has a vested interest in describing those working practices truthfully.

Putting aside whether a client will take this risk, the risk must be borne on both sides; the contractor will have even more information about the reality of the working practices than they do currently, but they are still taking a risk, and that burden should be shared. In the event that the working practices change, the contractor can leave. It's possible for IR35 status to change (see JLJ). Furthermore, it will be very difficult for HMRC to demonstrate SDC through litigation when both the client and the contractor are in agreement. We've already had this discussion about SDC and how it is prosecuted through case law, so I don't intend to get into that again, but I'm sure you'd agree that it helps to have the client onside.

I think this will be palatable to HMRC because they will understand that most clients (probably all, realistically) will assume SDC by default. Compared to the current regime, the risk would be less about an outside determination being found wrong, and more about an outside determination not being available (i.e. client not onside); in short, very few cases would ever get to litigation. Unfortunately, if we can find a mechanism that encourages clients to make a realistic assessment on SDC, that might be less palatable to HMRC, because they'd be up against the client and the contractor saying the same thing (plus a clearly aligned lower and upper level contract in an agency arrangement) That said, while I don't believe they are focused only on low-paid employees, they are probably less concerned about the implications of an outside determination and more concerned about the (large) fraction of contractors that currently ignore IR35 all together.

[jamesbrown]

So we come to the question -- are you trying to protect the low-paid, or are you trying to nail well-paid contractors?

I'm afraid it's both of those things, to varying degrees, and those degrees also vary between the T&S consultation and the IR35 discussion, as Eek pointed out earlier. We only became in-scope of the T&S consultation following representations to the T&S discussion (i.e. a risk of mass incorporation for tax purposes). In contrast, and let's be very clear about this, we are squarely in scope for the IR35 discussion. We're going to struggle in furthering this debate unless we can agree on that (I don't mean you specifically, I mean all of us). For the IR35 discussion, it will not be enough to propose something that targets low-paid employees only.

[eek]

I'm afraid it's both of those things, to varying degrees, and those degrees also vary between the T&S consultation and the IR35 discussion, as Eek pointed out earlier.

T&S
We only became in-scope of the T&S consultation following representations to the T&S discussion (i.e. a risk of mass incorporation for tax purposes).

IR35
In contrast, and let's be very clear about this, we are squarely in scope for the IR35 discussion. We're going to struggle in furthering this debate unless we can agree on that (I don't mean you specifically, I mean all of us). For the IR35 discussion, it will not be enough to propose something that targets low-paid employees only.

+1.

T&S

we can show that its unfair and produces situations that are likely to fail a judicial review. We can also suggest variations on this that solves most of the problems..

IR35

We need to give HMRC something that puts the examples in the document firmly in scope. They are a £70k lawyer and a £30k nurse. Neither of those are low paid...

[LisaContractorUmbrella]

Yes, but if it is done through an umbrella, so employment rights/responsibilities are in the scope of the umbrella / worker relationship instead, how do you legislate against that?

Go back to a builder doing an extension on my house. If he hires someone to help him, are employment rights my responsibility or his? His, obviously, even if you say I'm the end client. Any legislation intended to put the responsibility for employment rights on the engager rather than the umbrella has to be written in a way that doesn't catch people it shouldn't catch.

Anyway, even if the employment rights problem isn't solved, I think what I proposed goes a long way towards solving the problem of low-pay contracting. Let the left complain if they want but it would be a substantive improvement and would put a lot more people back on payroll. And it's stupid to make the perfect the enemy of the good. Maybe "left" and "stupid" are synonymous, but that's not our problem.

This was why we came up with the idea of anyone on living wage plus 20%, for example, can't be paid through an intermediary - it takes all the low paid workers out of the equation and leaves them in permanent employment - HMRC's problem solved, political fallout averted

[WordIsBond]

I'm afraid it's both of those things, to varying degrees, and those degrees also vary between the T&S consultation and the IR35 discussion, as Eek pointed out earlier. We only became in-scope of the T&S consultation following representations to the T&S discussion (i.e. a risk of mass incorporation for tax purposes). In contrast, and let's be very clear about this, we are squarely in scope for the IR35 discussion. We're going to struggle in furthering this debate unless we can agree on that (I don't mean you specifically, I mean all of us). For the IR35 discussion, it will not be enough to propose something that targets low-paid employees only.

OK.

Then if we are looking to target multiple problems, it is in most cases going to be a lot easier to solve them while avoiding unpleasant unintended consequences by formulating separate solutions. And that's a big part of the problem with IR35 as it stands right now, it is supposed to be solving multiple problems.

So, they want more money from contractors? Fine. They've hit us with the dividend tax, and taken away the employment allowance.

So here's something that is easy to enforce, easy to comply with, easy all around, on IR35.
1. Abolish IR35 except for the low paid, where (as I suggested above, the liability falls on the engager).
2. Increase the dividend tax another 2.5%. (Increase the dividend allowance to £10K for pensioners, this isn't about hitting them.)

Done and dusted. Dividend tax plus CT isn't that much less than employer NI, employee NI, and income tax combined. The amount of money we're talking about here is negligible. It probably tips the balance to self-employment rather than incorporation for anyone who can get away with that, but not enough to make incorporation punitive.

Everything is simpler, most contractors would be happy to pay another 2.5% on dividends if IR35 were completely gone, HMG gets more money and less hassle trying to collect it. The only people who really lose out are IPSE and QDOS who will lose a lot of their clients (yes, I just called IPSE "members" clients).

Expenses? They want more money? Change the 24 months to 18. Don't make it about SDC, which is a complex and subjective question. That just causes more angst, FUD. Just use a simple threshold.

[LisaContractorUmbrella]

I don't agree with your analysis, but I do agree with your conclusion (as I've mentioned before, and this is what we need to focus on). In the current arrangement, the reality of the working practices are never entirely clear until the contractor is on site, and they are further at risk through the higher level contract in an agency arrangement. Thus, a contractor conducts their due diligence (or not) but has to trust the client in describing the working practices honestly and the agency in not implementing a contradictory upper contract. The contractor then mitigates that risk (or not) by taking insurance against legal costs and tax liabilities. In the new scheme, the contractor will have a better understanding, upfront, about the reality of the working practices (or at least, an understanding that is no worse) and will know that the client is onside and has a vested interest in describing those working practices truthfully.

Putting aside whether a client will take this risk, the risk must be borne on both sides; the contractor will have even more information about the reality of the working practices than they do currently, but they are still taking a risk, and that burden should be shared. In the event that the working practices change, the contractor can leave. It's possible for IR35 status to change (see JLJ). Furthermore, it will be very difficult for HMRC to demonstrate SDC through litigation when both the client and the contractor are in agreement. We've already had this discussion about SDC and how it is prosecuted through case law, so I don't intend to get into that again, but I'm sure you'd agree that it helps to have the client onside.

I think this will be palatable to HMRC because they will understand that most clients (probably all, realistically) will assume SDC by default. Compared to the current regime, the risk would be less about an outside determination being found wrong, and more about an outside determination not being available (i.e. client not onside); in short, very few cases would ever get to litigation. Unfortunately, if we can find a mechanism that encourages clients to make a realistic assessment on SDC, that might be less palatable to HMRC, because they'd be up against the client and the contractor saying the same thing (plus a clearly aligned lower and upper level contract in an agency arrangement) That said, while I don't believe they are focused only on low-paid employees, they are probably less concerned about the implications of an outside determination and more concerned about the (large) fraction of contractors that currently ignore IR35 all together.

I agree with everything you say except that the stumbling block in the whole SDC thing is 'the right of' - the contractor can surely have no influence over that especially not in a tri-party arrangement and that right could reside anywhere in the chain

[LisaContractorUmbrella]

+1.

T&S

we can show that its unfair and produces situations that are likely to fail a judicial review. We can also suggest variations on this that solves most of the problems..

IR35

We need to give HMRC something that puts the examples in the document firmly in scope. They are a £70k lawyer and a £30k nurse. Neither of those are low paid...

Agreed. The comments about the low paid were in a meeting about the T&S expenses - the thinking behind IR35 may well go beyond that

[jamesbrown]

I agree with everything you say except that the stumbling block in the whole SDC thing is 'the right of' - the contractor can surely have no influence over that especially not in a tri-party arrangement and that right could reside anywhere in the chain

Yes, but I think that comes back to our earlier disagreement about what SDC means in practice. It is well-established through case law that the right to control is necessary and sufficient, and the determination is then based on the degree of (that right to) control. There is no requirement for actual control being imposed. Nothing has or will change w/r to control in my view, because SDC are all elements of control that are currently taken in the round (sorry to get into this again ), but MoO and RoS will disappear as factors. So, I think we agree that SDC represents a tightening, but we differ on the details.