Freelance Limited Company (FLC) offering from IPSE

[jamesbrown]

Agreed. If we all end up permanently IR35 caught, Osborne actually did us a favour with the dividend tax change.

[WordIsBond]

My fear is that its currently fairly easy to win an IR35 case. You show Moo or substitution and your done.

Yeah, I'm the opposite. I can't substitute because I'm the only guy I know who does what I do. My market is very narrow, but I'm very, very specialist, so SDC is easy for me to win on.

Under what I proposed, the contractor could still refuse to operate under IR35 if he thought he could beat it on the other tests -- say you substituted during the contract. But he'd be more likely to be investigated, and more likely to lose, if the client affirmed he was under SDC.

Proving a negative and showing that you were never under the hypothetical threat of SDC is a far harder task.

True. But if both engager and contractor affirm you weren't under SDC, doesn't that shift the burden of proof to HMRC?

Insurance may work as its rarely required, and so it may be cheap. My fear is that it won't be because the test needed to avoid paying out is far, far harder to pass.

See my point on burden of proof.

How do you show, today, that you aren't SDC? The first step is get a confirmation of arrangements, right? Basically all I'm saying is the client gives you a confirmation of arrangements that you aren't SDC, and if they don't, they have to pay Class 5 (or whatever we want to call it). But if they do give you that confirmation of arrangements, it's going to be hard for HMRC to nail you (and them).

So I do think the insurance would be cheap, and few cases would be lost. The increased IR35 revenue would come from the contracts where clients just don't want to be bothered or think about it, and so they just declare it under SDC and pay their share. And most contractors would then shrug and say, "OK, this one's IR35, but at least I don't have to pay employer's NI." And a lot of contracts would go that way -- but insurance would give contractors a chance to convince some clients to take it the other direction.

[sapexpert]

Wrong

The whole problem lies that everyone is trying to find a solution to a problem that is not one problem, but various: mainly the low-end market and the contractor that is ex-employee and never had other roles and/or does the same job as any other internal staff for many years and not just a quick gig/project.

If I ring a plumber and hire his services, to do the plumbing on my new self built house, is he my employee?
What if my Ltd rings the same plumber to do the plumbing, for 6 months, on our brand new office, is he our employee?
I think is fair to say that HMRC would say: no, he is not your employee.

Thus, why should I, an expert in a particular software working for companies that do not produce this software, but use it, be considered their employee?

Their employees cannot code, cannot configure and don't know all the ins and out of the software.

I invest money and time in being the best in what I do, and do it for more than one customer at present, plus did it for many in many jurisdictions/continents. I keep expanding business relationships with other companies, partners, events, etc.
Why should my company or our customer have to deal with the problem of the low-end market being exploited or the 'contractor' that was an employee of the same company before and is now 'contracting' on the same role for 8-10-15 years and had no other customer?

Is rather easy to come up with rules based on real life on about what is a real company and what is just disguised employment.

Plus, would the other Ltd companies from the EU have to deal with this nonsense?

My 2p.

Yeah, I'm the opposite. I can't substitute because I'm the only guy I know who does what I do. My market is very narrow, but I'm very, very specialist, so SDC is easy for me to win on.

Under what I proposed, the contractor could still refuse to operate under IR35 if he thought he could beat it on the other tests -- say you substituted during the contract. But he'd be more likely to be investigated, and more likely to lose, if the client affirmed he was under SDC.

True. But if both engager and contractor affirm you weren't under SDC, doesn't that shift the burden of proof to HMRC?


See my point on burden of proof.

How do you show, today, that you aren't SDC? The first step is get a confirmation of arrangements, right? Basically all I'm saying is the client gives you a confirmation of arrangements that you aren't SDC, and if they don't, they have to pay Class 5 (or whatever we want to call it). But if they do give you that confirmation of arrangements, it's going to be hard for HMRC to nail you (and them).

So I do think the insurance would be cheap, and few cases would be lost. The increased IR35 revenue would come from the contracts where clients just don't want to be bothered or think about it, and so they just declare it under SDC and pay their share. And most contractors would then shrug and say, "OK, this one's IR35, but at least I don't have to pay employer's NI." And a lot of contracts would go that way -- but insurance would give contractors a chance to convince some clients to take it the other direction.

[eek]

Yeah, I'm the opposite. I can't substitute because I'm the only guy I know who does what I do. My market is very narrow, but I'm very, very specialist, so SDC is easy for me to win on.

Under what I proposed, the contractor could still refuse to operate under IR35 if he thought he could beat it on the other tests -- say you substituted during the contract. But he'd be more likely to be investigated, and more likely to lose, if the client affirmed he was under SDC.

True. But if both engager and contractor affirm you weren't under SDC, doesn't that shift the burden of proof to HMRC?


See my point on burden of proof.

How do you show, today, that you aren't SDC? The first step is get a confirmation of arrangements, right? Basically all I'm saying is the client gives you a confirmation of arrangements that you aren't SDC, and if they don't, they have to pay Class 5 (or whatever we want to call it). But if they do give you that confirmation of arrangements, it's going to be hard for HMRC to nail you (and them).

So I do think the insurance would be cheap, and few cases would be lost. The increased IR35 revenue would come from the contracts where clients just don't want to be bothered or think about it, and so they just declare it under SDC and pay their share. And most contractors would then shrug and say, "OK, this one's IR35, but at least I don't have to pay employer's NI." And a lot of contracts would go that way -- but insurance would give contractors a chance to convince some clients to take it the other direction.

The other tests have however gone. In ir35 mark 2 the only test is the client is no exercising SDC and has no right to SDC.

That is why I think the insurance might be expensive as it's probably very easy to show sdc, 1 badly worded request could do it.

Insurance could be a possible mitigation. I just don't see it being as practical and easy as you think it is.

[LisaContractorUmbrella]

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).

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

[WordIsBond]

So, was talking to my co-director last night about this mess after we went to bed. If it really is just about protecting the low-paid from being pushed into self-employment, propose something like this.

WHAT'S OUT OF SCOPE OF THE NEW LEGISLATION
1. Work for the same engager totaling less than one month in a calendar year. (Excludes the plumber, gardener, freelance photographer.)
2. Fixed-price jobs. (Excludes the builder who gives me a quote on a house extension.) We're only talking about jobs paid on a daily / hourly / weekly basis.
3. Work paying more than 150% of the Living Wage. (Excludes contracts where the contractor Ltd Co can afford to pay taxes on the deemed payment, provide benefits, and still pay a Living Wage.)

So, draw it narrowly to engagements longer than a month on an hourly / daily rate at low pay.

WHAT THE LEGISLATION DOES FOR IN SCOPE CONTRACTS
The engager is liable for the IR35 tax on the deemed payment, if the contract is found to be subject to IR35. That's it.

BENEFITS
Those who are legitimately going into business but not making much money yet aren't hindered from getting a limited company if they need one.

You completely put out of scope the kind of contracts that this isn't trying to solve.

You protect workers from the tax liability / penalties if their employers have behaved badly. It's on the employer.

You give engagers using these kinds of services three choices: A) Pay the Ltd company enough so they can pay taxes, provide some benefits, and still pay a living wage. B) Bring the worker onto your payroll. C) Assume a big risk.

And other than a few rogue employers, they won't want to assume the risk. So they will do A or B. And A could actually encourage more people into really becoming self-employed, by paying them enough to make it work, and that's not so bad. The "party that is a friend of small business" should like that if it happens. But if it makes sense, most engagers will do B for these low-paid jobs and keep them on payroll, and that's what HMRC wants. So it will protect the Exchequer.

And for the rogues who just assume the risk (C), at least their poor workers aren't on the hook for IR35.

This is a minimalist approach to a narrowly drawn problem which would, in most cases, accomplish what the government wants.

The first rule of good legislation is to draw it as narrowly as possible to still accomplish the purpose, so as to avoid unintended consequences. The second rule is to legislate with the lightest touch possible to accomplish the goal, so as to protect freedom. You shouldn't ban a Ltd Co for low paid people, there are plenty of reasons why some low-paid people would want and even need a Ltd Co.

My co-director, despite having married me, is no fool.

[WordIsBond]

The other tests have however gone. In ir35 mark 2 the only test is the client is no exercising SDC and has no right to SDC.

IR35 mark 2 is not law, it's a discussion, and I don't think SDC as a sole test is a done deal, especially if clients have liability. There are two many unintended consequences to engagers, and the Tory party is going to lose its financial backing if it pushes too far down this road.

My suggestion was a counter-proposal.

[eek]

IR35 mark 2 is not law, it's a discussion, and I don't think SDC as a sole test is a done deal, especially if clients have liability. There are two many unintended consequences to engagers, and the Tory party is going to lose its financial backing if it pushes too far down this road.

My suggestion was a counter-proposal.

I know it was. And as you say its a counter proposal. But as it is a discussion and as the big question left at the end of it is why can't this work its probably more important to work out and demonstrate why and where it won't work...

Once we have a set of clear cut examples where it doesn't work (project based work, specialist skills, short term surge requirements) we can then look at solutions to fix those bits or simple rules that will allow companies to show that it is excluded.

But those rules need to be simple as the drive towards self-employment is marching forward and HMRC really doesn't like it encouraged by the unions and the media on the sidelines (this battle is absolute middle ground political territory its not right wing thinking of a Tory Government). If no one can find simple tests to exclude a/b because of c/d HMRC will just go SDC = liable...

Oh and its not just the low paid that is in focus here. Yes they are at the core of the T&S discussion but the very first example in the IR35v discussion document is a £70k lawyer doing the exact same job as another £70k lawyer being paid via PAYE.... Any set of rules has to have him explicitly caught while keeping the £100k a year trouble shooter pm on a 3 month fix this project contract excluded...

[LisaContractorUmbrella]

So, was talking to my co-director last night about this mess after we went to bed. If it really is just about protecting the low-paid from being pushed into self-employment, propose something like this.

WHAT'S OUT OF SCOPE OF THE NEW LEGISLATION
1. Work for the same engager totaling less than one month in a calendar year. (Excludes the plumber, gardener, freelance photographer.)
2. Fixed-price jobs. (Excludes the builder who gives me a quote on a house extension.) We're only talking about jobs paid on a daily / hourly / weekly basis.
3. Work paying more than 150% of the Living Wage. (Excludes contracts where the contractor Ltd Co can afford to pay taxes on the deemed payment, provide benefits, and still pay a Living Wage.)

So, draw it narrowly to engagements longer than a month on an hourly / daily rate at low pay.

WHAT THE LEGISLATION DOES FOR IN SCOPE CONTRACTS
The engager is liable for the IR35 tax on the deemed payment, if the contract is found to be subject to IR35. That's it.

BENEFITS
Those who are legitimately going into business but not making much money yet aren't hindered from getting a limited company if they need one.

You completely put out of scope the kind of contracts that this isn't trying to solve.

You protect workers from the tax liability / penalties if their employers have behaved badly. It's on the employer.

You give engagers using these kinds of services three choices: A) Pay the Ltd company enough so they can pay taxes, provide some benefits, and still pay a living wage. B) Bring the worker onto your payroll. C) Assume a big risk.

And other than a few rogue employers, they won't want to assume the risk. So they will do A or B. And A could actually encourage more people into really becoming self-employed, by paying them enough to make it work, and that's not so bad. The "party that is a friend of small business" should like that if it happens. But if it makes sense, most engagers will do B for these low-paid jobs and keep them on payroll, and that's what HMRC wants. So it will protect the Exchequer.

And for the rogues who just assume the risk (C), at least their poor workers aren't on the hook for IR35.

This is a minimalist approach to a narrowly drawn problem which would, in most cases, accomplish what the government wants.

The first rule of good legislation is to draw it as narrowly as possible to still accomplish the purpose, so as to avoid unintended consequences. The second rule is to legislate with the lightest touch possible to accomplish the goal, so as to protect freedom. You shouldn't ban a Ltd Co for low paid people, there are plenty of reasons why some low-paid people would want and even need a Ltd Co.

My co-director, despite having married me, is no fool.

The only problem with all of this is that, with the client liable for taxes, there will be every incentive for them to put everyone inside IR35 - why take a risk when it has no benefit to you

[WordIsBond]

The only problem with all of this is that, with the client liable for taxes, there will be every incentive for them to put everyone inside IR35 - why take a risk when it has no benefit to you

The scope is limited to the low-paid. Allegedly, what they are trying to accomplish is to get the low paid back on payroll. This would do that and not impact anyone else, because of the scope limitations. The client liability under IR35 would only apply to the low-paid.