Freelance Limited Company (FLC) offering from IPSE

[eek]

Yes, I think I need to take off my economist hat and put on the politician hat, as I've been looking at the IR35 bit from a yield perspective, rather than political appearances, which probably explains the deficit of hard facts in pushing through this reform.

From a political point of view, its a mess that doesn't work but they can't get rid of it... And they need a win on some sorts that ensures those who are taking the absolute mickey like the examples they use cannot do so any more...

[WordIsBond]

The dividend tax is probably just an old fashioned tax increase. I think it could decrease the potential tax take to £230m or so.

This is based on the Supposedly 100,000 freelancers who should be subject to ir35 (would love to see evidence behind that figure) which would increase current tax take by £430m or £4300 a year.

Yes, even if their own figures are to be believed, the dividend tax has slashed anything they could gain from IR35 in half.

[WordIsBond]

As Eek says, I think it has a lot to do with the number of workers being pushed towards brollies or PSC's by companies that previously had them on their books.

Sorry, but I don't actually believe this is really a factor at all.

It is about revenue. And they are dressing it up as "protecting the workers from the big bad corporations who are pushing them off the books and stealing their benefits." That way, they look good doing it.

But if it really is only about protecting the low-paid, this wouldn't be about IR35, because IR35 does NOT confer employment rights and it hits the worker, not the engager. And "jointly and severably liable" hits the worker, too.

[jamesbrown]

Their focus on SDC without recognising real businesses is throwing the burden of employers NI onto the workers. That's a formula for giving them some really bad press.

Where do you think the burden falls now? The employer remits employer's NI. Don't confuse remittance with who actually pays. The scope for bad press is really quite limited. The real risk, in terms of bad press, is the persistence of off-payroll arrangements in the public sector on other cases of blatant avoidance that counteract their mantra of cracking down on avoidance. There's only upside to a more robust regime. A little squealing from trade bodies is too easily dismissed (vested interests etc.).

I think a focus on case law is not at all helpful here.

You may not like it, but they've set out their stall on SDC and this is well-rehearsed in case law.

I don't actually think this is true. If the rules are based on reality, it should be easy to construct some simple rules that put most cases either clearly inside or clearly outside, and significantly reduces the number of murky cases.

Of course they can do that! That's bloody easy. Look at other jurisdictions with similar legal systems that have "strict deeming criteria": Australia, Canada, NZ. I don't think you'll find any contractors in those jurisdictions that are supportive of the rules imposed. Not only are they strict, but there's still scope for confusion and uncertainty, not least because legislators like to keep legislating. They are incessant tweakers.

Something that is so drastically open to interpretation cannot be applied without fear or favour. Nor is it equitable. IR35 already skews the B2B relationship heavily in favour of the engager. If they go solely with SDC, that will make it worse.

I think you're confusing the criteria with the administration. It's the latter that HMRC are interested in, primarily, and shifting the enforcement (and liability) to the client will have a massive impact, regardless of where the criteria may focus. It won't be equitable, but it won't be in favour of the engager either. It will achieve the objective of dramatically increasing the tax take from IR35. That is the stated objective. The shift to SDC isn't the real issue here (as I keep saying).

Really? Statutory law is full of specifications of cases that aren't in the scope of the legislation.

How does this fit with the stated objective of increasing the tax take from IR35? They are not in the business of clearly placing PSCs outside, only maintaining the deterrent effect and clearly positioning some inside. If there are good criteria (ones that bear some resemblance to employment status and are not easily circumvented), I think they will listen. The point is there aren't. If there were, they'd be in place. Look at the other jurisdictions that use strict deeming and you'll find that the criteria are pretty arbitrary and bear little resemble to factors supported by case law on employment status. You seem to be arguing for simple criteria that are valuable because they are....simple. Not because they are fundamentally useful in distinguishing employees from the self-employed. Moreover, if you think that simple criteria will be less discriminatory towards a typical contractor than SDC, you're likely to be disappointed. The aim is to increase tax take. In doing so, it will utterly fail to distinguish between employees and the self-employed. I'd much prefer SDC, thanks. The elephant in the room is administration, not SDC.

Doesn't affect me much because I mostly WFH. But the proposals are terrible.

Likewise, and I don't fall within the agency legislation either. However, we need to think collectively. This is why I'm inherently against measures that discriminate between businesses on the basis of what they do, how much they do it, where they do it, and what they get paid for it, but I also agree with Eek and Lisa that excessive incorporation (and the deficit) is a motivating factor and that issue is mainly focused on low paid workers. As Lisa and Eek have said, no one has proposed a concrete alternative. I can't think of one that isn't difficult and expensive (i.e. focused on the causes).

An insurance policy would name the engager as the beneficiary for the employers NI portion. So it wouldn't die with a PSC. So indemnification via insurance can work. The insurers will be offering products like that if the engager becomes liable.

Let's not debate the specifics of insurance, because it's moot. With joint and several liability, who do you think HMRC will pursue? How much will that cost them in legal fees, let alone any tax plus interest and penalties? The engager will default to SDC, we all know that, unless there's a very good reason not to. Even if we can think of a good reason not to, they'll still need to insure/budget for a host of associated liabilities, including legal fees.

[WordIsBond]

The scope for bad press is really quite limited.

Really? We just had press about employers pushing people off payroll. Why can't someone (IPSE, if they are such a wonderful representative for us) start banging the drum that not only are employers doing it, but the government is making it worse with IR35 by punishing the workers?

I think a focus on case law is not at all helpful here.

You may not like it, but they've set out their stall on SDC and this is well-rehearsed in case law.

I probably wasn't clear. We're in a political fight here, and talking about case law in discussing how it should be fought isn't going to help. There is almost certainly going to be statutory law, and we'd do better to be trying to frame the discussion of what it should say.

I think you're confusing the criteria with the administration. It's the latter that HMRC are interested in, primarily, and shifting the enforcement (and liability) to the client will have a massive impact, regardless of where the criteria may focus. It won't be equitable, but it won't be in favour of the engager either. It will achieve the objective of dramatically increasing the tax take from IR35. That is the stated objective. The shift to SDC isn't the real issue here (as I keep saying).

Of course they want to shift enforcement and liability to the client. But big business has a seat at the table in Downing Street and we don't, and they'll say (reasonably) that it isn't workable. So what will be the compromise? Big business will say, "Ok, we'll help with enforcement by certifying inside or outside, but we aren't going to pay a thing. We certainly aren't going to pay employers NI or income tax." And so the worst happens.

I'm proposing something that is actually politically palatable for HMG, limits client exposure, and at least gives us a chance of some contracts being outside IR35.

How does this fit with the stated objective of increasing the tax take from IR35? They are not in the business of clearly placing PSCs outside, only maintaining the deterrent effect and clearly positioning some inside.

On its own, it doesn't. But the whole package of what I suggested does. If we're going to start making concessions (FLC), at least let's get some concessions in return. And the one I proposed is actually something that is easy to explain -- "of course we aren't targeting those who really have their own business, we are targeting those who are employees and have been for years doing the same thing."

Likewise, and I don't fall within the agency legislation either. However, we need to think collectively.

Agreed, of the four contracts we've got running right now, only one is agency. A lot of this stuff doesn't affect me. And if they start relying on clients for IR35 admin, I doubt it will hurt me much since many of my clients will be in Europe or America. With those clients, I'm pretty much IR35 proof right now, and the more it goes to SDC, the more IR35 proof I get. But if they keep down this line, they'll get me, too, eventually.

I also agree with Eek and Lisa that excessive incorporation (and the deficit) is a motivating factor and that issue is mainly focused on low paid workers.

Well, maybe, but I'm dubious.

Let's not debate the specifics of insurance, because it's moot. With joint and several liability, who do you think HMRC will pursue? How much will that cost them in legal fees, let alone any tax plus interest and penalties? The engager will default to SDC, we all know that, unless there's a very good reason not to. Even if we can think of a good reason not to, they'll still need to insure/budget for a host of associated liabilities, including legal fees.

This is why I suggested a proposal that, while not eliminating client liability, limits it to strictly employers NI. That CAN relatively easily be insured against, and the cost of that insurance will be small enough that contractors could even offer to pay for it as part of the negotiation process.

Joint and several liability for all taxes is a dead issue. It isn't going to happen. Clients won't accept it and everyone will be umbrella, unless an alternative is raised.

And clients ARE going to be dragged into enforcement. That IS going to happen. So we'd do well to try to come up with proposals that involve clients in enforcement and at least place some of the burden on them if they throw us into IR35. Employers NI is the obvious target.

Engagers will (understandably) fight hard against any structure that holds them liable for employee NI or income tax. But they'll have a hard time claiming (via SDC) that we should be taxed as employees if they aren't willing to pay the employers NI. It just seems a reasonable compromise that also gives them at least some incentive to not reflexively throw us all into IR35.

[LisaContractorUmbrella]

Sorry, but I don't actually believe this is really a factor at all.

It is about revenue. And they are dressing it up as "protecting the workers from the big bad corporations who are pushing them off the books and stealing their benefits." That way, they look good doing it.

But if it really is only about protecting the low-paid, this wouldn't be about IR35, because IR35 does NOT confer employment rights and it hits the worker, not the engager. And "jointly and severably liable" hits the worker, too.

The T&S changes were originally quoted as netting the Treasury £400m -that's now been downgraded to £265m which would keep HMRC going for about a month or the NHS going for about an hour and a half - in the grand scheme of things it's peanuts.

If SDC is applied to IR35 with debt transfer to the end client, the tax take is likely to be higher but, again, not enough to warrant the sledgehammer approach.

[WordIsBond]

The T&S changes were originally quoted as netting the Treasury £400m -that's now been downgraded to £265m which would keep HMRC going for about a month or the NHS going for about an hour and a half - in the grand scheme of things it's peanuts.

If SDC is applied to IR35 with debt transfer to the end client, the tax take is likely to be higher but, again, not enough to warrant the sledgehammer approach.

Yeah, you're right, it's peanuts. So maybe I'm wrong (again).

So why was our dear leader, er, beloved chancellor talking about "protecting the Exchequer"? Was that just window dressing?

[jamesbrown]

Really? We just had press about employers pushing people off payroll.

I thought I was being clear that the scope for bad press is minimal if they introduce a more robust regime. Indeed, it's the recent bad press from off-payroll arrangements that is motivating this, in part. From a bad press POV, it's clearly heading in one direction, towards a more robust regime. A few lobbying groups and trade bodies are small potatoes.

But big business has a seat at the table in Downing Street and we don't, and they'll say (reasonably) that it isn't workable. So what will be the compromise? Big business will say, "Ok, we'll help with enforcement by certifying inside or outside, but we aren't going to pay a thing. We certainly aren't going to pay employers NI or income tax." And so the worst happens.

Perhaps, but you need to understand that this Tory government is claiming the "centre ground". They are out-Labouring Labour. They are more than willing to stomach a little whining from a few clients (many of them are gov't departments!) and trade bodies, and all of this will actually benefit the larger consultancies that donate to the Tories.

I'm proposing something that is actually politically palatable for HMG, limits client exposure, and at least gives us a chance of some contracts being outside IR35.

I don't think it's any of those things, but we can argue about that all day.

Agreed, of the four contracts we've got running right now, only one is agency. A lot of this stuff doesn't affect me.

We appear to be in a very similar position. I'm about as far away from this mess as one can possibly be and, worst case scenario, I can easily move overseas, but I don't want do do that, and I am concerned about contracting in general in this country.

Joint and several liability for all taxes is a dead issue.

I'm not sure it is. Look at this from HMRC's perspective. It's so much easier to chase a few, large and solvent, clients than thousands of PSCs. We'll get the first indication in FB15 when the new T&S legislation comes into force, because one option is precisely that (Option 1 in fact ). I suspect, in practice, liability will remain with the PSC, but a penalty regime will be applied to the clients.

[LisaContractorUmbrella]

Yeah, you're right, it's peanuts. So maybe I'm wrong (again).

So why was our dear leader, er, beloved chancellor talking about "protecting the Exchequer"? Was that just window dressing?

Yes I think it was just window dressing - what greater deterrent is there for a business than to say - Ok, if you keep forcing your workers to a brolly/PSC and you can't prove something which is utterly objective in law and also proving a negative then you are liable for their taxes and/or interest and/or penalties. It's a bit of a no brainer for a business owner as they'll no longer have the cost savings that encouraged them to make those decisions in the first place. Most of the workers who are being forced into these situations are low paid - care workers, drivers, child minders etc etc and should be in permanent employment - these changes in legislation will possibly ensure that happens BUT if it doesn't work then the worker will be negatively financially impacted and if it does work then a load of contractors will have been (IMHO) unfairly penalised. It would be far better to introduce legislation which guaranteed that low paid workers could not be moved from permieland to brolly or PSC in the first place.

[WordIsBond]

Joint and several liability for all taxes is a dead issue.

I'm not sure it is. Look at this from HMRC's perspective. It's so much easier to chase a few, large and solvent, clients than thousands of PSCs. We'll get the first indication in FB15 when the new T&S legislation comes into force, because one option is precisely that (Option 1 in fact ). I suspect, in practice, liability will remain with the PSC, but a penalty regime will be applied to the clients.

When I say it is a dead issue, I mean that there is no way clients will be left open to joint and several liability on all taxes. They just won't do it. If they have to force everyone under umbrellas, they will. In practice, there aren't going to be clients out there accepting these kinds of liabilities.

If, however, we can find a middle ground where employers' liability remains with the client, we might have a shot at getting something like that passed. And that is something clients might be willing to accept, or at least accept if insured.

If New Labour (that's what I'm calling Davie and Georgie now) keep listening to the unions and take IR35 where it looks like it is going, everyone will be in brollies. You may not like what I suggested, but it would be better than THAT and would still increase HMG's take substantially.