Freelance Limited Company (FLC) offering from IPSE

[WordIsBond]

Yes I think it was just window dressing

So do we now believe that really, they are just trying to be nice to the low-paid and none of this was intended to target micro-businesses at all? That they aren't malicious, just incompetent?

I admit I don't find the incompetence part hard to believe, but I'm not quite ready to exonerate their intentions and think this was all Mr Good Guy.

[eek]

So do we now believe that really, they are just trying to be nice to the low-paid and none of this was intended to target micro-businesses at all? That they aren't malicious, just incompetent?

I admit I don't find the incompetence part hard to believe, but I'm not quite ready to exonerate their intentions and think this was all Mr Good Guy.

I don't necessarily think they are out to be nice to the low paid, however, I think some of us are and might have found a clean, simple way to do just that in the T&S consultation... The problem then is how ruthless HMRC wants to be with those companies who abuse the low paid. I personally hope for something like if less than £x no expenses allowed but with laws brought into effect that says that companies have to treat them as employees after x weeks... In theory that is the case now but there are get out tricks that need to be removed...

For the IR35 discussion still not a clue.. I'm looking forward to my train reading this evening...

[jamesbrown]

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.

Oh, I think I see what you mean (BTW I meant FB16, not FB15). I think you're suggesting that the client should be liable for the employer's NI only and the PSC should be liable for all other taxes in the event that an SDC decision goes against them? Seems reasonable. However, I think the upshot would be similar, namely that clients would force PSCs towards a PAYE solution (whether umbrella or operated via the PSCs own payroll). What they won't accept is having them on payroll. But I quite like the symmetry of this (i.e. the shared liability).

[WordIsBond]

Oh, I think I see what you mean (BTW I meant FB16, not FB15). I think you're suggesting that the client should be liable for the employer's NI only and the PSC should be liable for all other taxes in the event that an SDC decision goes against them?

Yes, mostly. The client has to certify SDC, yes or no. That makes HMRC happy because administration gets a lot easier. If client certifies SDC, they pay employers NI, and their problem is done.

In the event that the contractor wants to fight it, or claim that substitution / MOO means he's not under IR35, well, he can try. But he's likely to get hammered by penalties if he loses, and the insurers probably won't touch him. And if he goes with IR35, well, at least he doesn't have to pay employer NI. So few will fight it, and that means a lot of contracts immediately move under IR35. Big win for HMRC.

However, I think the upshot would be similar, namely that clients would force PSCs towards a PAYE solution (whether umbrella or operated via the PSCs own payroll). What they won't accept is having them on payroll. But I quite like the symmetry of this (i.e. the shared liability).

That's where the insurance comes in. If the contractor looks at it and says, "This isn't an SDC job," he can offer to buy an insurance policy on client's behalf. Then, the client has no risk at all -- but it brings the client on board to protect against SDC creep.

And while a lot of clients won't want to be bothered, there will be those who will say, "Sure, if you'll pay for my insurance, I'll save that 10% employers NI." So contractors may get hit with IR35 more, but it won't be as painful if the burden is shared, and sometimes a simple insurance premium will keep the contracts outside it.

But this is all a huge win for HMRC, and it should be possible to trigger some concessions (thus the point about specifying certain conditions that are clearly outside). That way, if a client gets someone in that they've never seen before to do a limited job for a few months, nobody has to even think about this at all. All the nonsense about how much notice period, and MOO, and SDC, and all this other somewhat arbitrary and confusing hodge-podge of arcane case law gets swept away, because it obviously is a short term contract between two businesses.

Help them catch the real disguised employees and make the engagers be part of the enforcement / admin process. But stop making real businesses have to worry about accidentally getting caught by some silly provision when everyone knows they aren't really employees and will be moving on as soon as the contract is over.

[eek]

So do we now believe that really, they are just trying to be nice to the low-paid and none of this was intended to target micro-businesses at all? That they aren't malicious, just incompetent?

I admit I don't find the incompetence part hard to believe, but I'm not quite ready to exonerate their intentions and think this was all Mr Good Guy.

Also I think they have to be seen to do something. And that something could impact all of us unless we provide them with a solution that gives them the brownie points without us being impacted.

[jamesbrown]

Yes, mostly. The client has to certify SDC, yes or no. That makes HMRC happy because administration gets a lot easier. If client certifies SDC, they pay employers NI, and their problem is done.

I like the idea that the employer is liable for the employer's NI portion, but I'm not sure I see the incentive either for the contractor or the client when IR35-caught. In the event that SDC applies, this would mean the PSC would effectively disappear and a particular individual would need to be on the client's payroll. I think that's a big risk to the client (almost as big as having the tax liability). It essentially spells the end of contracting for an unspecified number of people, who would no longer have a PSC and would effectively pay the employer's NI via a low permie salary (perhaps administered via an FTC or zero-hours contract or whatever).

In the event that SDC doesn't apply, the client would process a B2B payment as usual and would only be liable for the employer's NI portion in the event that the SDC determination was subsequently found wrong, but they wouldn't pay this upfront. That aspect can probably be covered by insurance one way or another. I think the real problem is with the IR35-caught scenario, on the one hand, and with convincing clients to support contracts that were genuinely not caught, on the other. When a contract is caught, the engager will be pushing to have the PSC operate a deemed payment, rather than have them on payroll, and I think the contractor would prefer this too, as they may operate other contracts that are not IR35-caught.

However, I think the idea of shared liability is a good one, and the employer's NI is a natural boundary. But, for the IR35-caught scenario, I would favor an approach whereby the contractor (PSC) could operate a deemed payment, rather than transfer to the client payroll. This might be augmented by a simple rule (as Eek and Lisa suggested) to avoid having unscrupulous employers force lower paid workers into a PSC arrangement (i.e. SDC by default for certain conditions). Likewise, perhaps HMRC would be willing to define some cases where SDC was clearly not applicable. So, not withstanding some details, I think I broadly agree with what you're saying and it may be workable, if not ideal (ideal left the building with Dim Prawn). The "clearly not caught" scenarios would require some thought. I don't think contract length is good enough (from either side of the fence).

Also, FWIW, I think one conceptual point of departure between us is probably how we view the employer's NI. In my view, the employee ultimately pays for the employer's NI, even if the employer remits it to HMRC. Having the client remit this isn't really a "win" for the IR35-caught contractor (they pay via a crappy FTC or similar). However, when a contract isn't caught I think it does make sense for the liability on that portion to rest with the client.

[eek]

We are never going to get ideal. It the moment I think I would take just about plausible without destroying the entire marketplace.

I have CAB's bogus self employment report now. I'm not sure about the size of the survey (Lisa definitely has more responses, I'm rapidly hitting that level) but some of the anecdotes and quotes are and ..

“I work in a pub where I used to be employed but then was told I must be paid as self-employed because there was not enough work. The pub owner can now employ me when he wants for whatever hours he wants and can also decide how much I get paid per hour”

Now I know we are digging up the dregs of worst examples here but really....

[jamesbrown]

We are never going to get ideal. It the moment I think I would take just about plausible without destroying the entire marketplace.

You're right. That's absolutely my mentality too; we need to salvage something from this, because I think the writing is on the wall with SDC and client involvement. The FLC response to this beggars belief...

[Zero Liability]

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.

As I said, I think you and eek are probably correct on this, because after the dividend tax is accounted for, exactly how much is the measure "protecting" anyway? If this is all about upping yields, it's a daft way of going about it, and it will raise pitiful amounts whilst potentially doing severe damage to a portion of the British economy, which helped it weather out the recent recession better than economies with less flexible labour markets, and all predicated on highly dubious assumptions. Not that I think the dividend tax is particularly praiseworthy - I think it's just another stopgap measure to help plug the holes of this and previous governments' reckless spending and will have its own damaging effects - but it renders IR35 superfluous from that POV.

It does make more sense when looked at as a measure to prevent incorporations regarding "vulnerable" workers (in tandem with the T&S stuff), although as I've previously said, it may just signal to engagers that these individuals are now too expensive to be worth the hire, so unless some "sweeteners" are thrown in, they may end up even worse off than before. I think what the government should be assessing is why is permanent employment so expensive to begin with, but that would fall under a separate remit and may bring up topics they find more than a little uncomfortable, in spite of any ostensible musings that they'd like to consider a potential merger of NI and PAYE.

So from that perspective, suggesting an alternative method of delineating the workers the government is "concerned" about from those who are not being pushed into freelancing by employers does make a lot of sense, but I think the government will have to review its biases on this topic, because they don't seem at all connected to reality, if they're suggesting that this is what a reformed IR35 would achieve and what is required for it. If it is about the money, they're scrounging for pennies and potentially inflicting a lot of damage on the freelancing sector by doing so, hence why I regard the dividend tax as a better vehicle for that.

[jamesbrown]

why I regard the dividend tax as a better vehicle for that.

Yep, the dividend tax is going to bring in an order of magnitude more than the most optimistic assessments of the deterrent effect of IR35. The main reason being scope. At the same time, it isn't a game changer for contractors (at the moment), and I think they're looking forward to 2020 when the CT rates will be running at 18% and the basic and higher rates will be significantly higher, increasing the incentives for TMI, as they call it. Also, if Osborne is serious about merging income tax and NI (he might be; he's certainly been talking about it for a long time), they will need a more robust enforcement against TMI, so long as dividends are free of NI. He's implementing or talking about a lot of mechanisms that point towards that eventual merger (including with pensions), but who knows whether it will actually happen...