Freelance Limited Company (FLC) offering from IPSE

[LisaContractorUmbrella]

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.

So, if I understand you, low-paid would pretty much be inside IR35 when would the client liability come into play immediately (so full employer tax liability from the word go) or in the event of the workers operating outside?

[WordIsBond]

Low-paid wouldn't HAVE to be inside IR35, but the client would be liable for the full hit if they operate outside it and are later ruled to be inside it.

Clients would never want that open-ended liability. So they would either A: put the worker on payroll or B: insist on an umbrella they trust to operate PAYE (which pushes up the cost, since the worker still has to get Living Wage) or C: increase the rate above the low-pay threshold.

In the real world, it will kill over 90% of low-paid Ltd Co contracting, because engagers won't have much benefit in pushing the low-paid off of payroll anymore. But the legislation would allow it in the cases where it does make sense, and wouldn't hinder real businesses who are struggling / just starting up / going through a non-revenue product development stage.

[LisaContractorUmbrella]

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.

I can see that it would take the low paid workers out of the loop but we'd still be left with the employment status based test of IR35 wouldn't we? If so, that still leaves legislation which is hard to police and even harder to produce a definitive test which historically has been the pain in the backside for HMRC and HMG

[Guesstimator]

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...

That example is the one that makes little sense and IMO should be countered robustly, indeed they both should actually. The focus needs to be moved from "income to Government coffers" to "cost to engager" to fully appreciate the two stated objectives of the discussion (protect the coffers/level the playing field) and to understand why contractors are used.

In neither of cases given is the real cost to the engager being shown (PAYE includes sundry non-taxed benefits, plus the less quantifiable overhead of fixed workforce) thus when comparing the workers they are not comparing apples with apples; instead it's comparing one person that costs 70k "plus" with one that costs 70k flat. Naturally there's a difference in tax take from the two because one is effectively earning less than the other.

I also seriously call into question the likelihood of a contractor accepting the same "income" as PAYE at the lawyer end of the skills scale (not that I particularly want to draw any distinctions but evidently there is abuse by some employers at the other end). To enable a "levelling of the playing field" to offset lack of employee benefits (and coincidentally take the burden off the engager) I would anticipate a much higher rate than the PAYE employee, which would result in higher tax being paid.

Hang on....that looks suspiciously like the flipside of the same issue mentioned above...

The two objectives of the discussion are intertwined in a way that the example cases wholly misrepresent, nevermind the "difficult to price" but evident advantage that engagers see in having the ability to hire/fire/plan with ease.

What the discussion document thinks it's fixing is not real, or at best is not real to the degree it thinks it is though sadly I realise it's futile to try to change the focus of the discussion to something that resembles actuality

[WordIsBond]

I can see that it would take the low paid workers out of the loop but we'd still be left with the employment status based test of IR35 wouldn't we? If so, that still leaves legislation which is hard to police and even harder to produce a definitive test which historically has been the pain in the backside for HMRC and HMG

Sure. But if we're being told that all they want to do is solve the problem of low-paid workers being pushed off of payroll by unscrupulous employers, then this solves it. I thought you were telling us that it isn't about raising revenue, that it really is primarily about the low-paid. You don't really have to have IR35 working well if the engager is liable, all you need is the threat of it in most cases.

But if the problem is they want more revenue from us, that's a separate issue which is at least half solved with the dividend tax. At which point they need to ask the question of how big of a problem they really have any longer, and how much damage do they want to do to the flexible workforce (and the economy) to try to solve it.

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

If the former, they should do something like what I suggested.

If the latter, they need to come up with a solution that doesn't completely destroy the flexible workforce market or skew it heavily in favour of large consultancies vs the little guy. And they really should stop and consider that they've already done much of it with the dividend tax.

[LisaContractorUmbrella]

That example is the one that makes little sense and IMO should be countered robustly, indeed they both should actually. The focus needs to be moved from "income to Government coffers" to "cost to engager" to fully appreciate the two stated objectives of the discussion (protect the coffers/level the playing field) and to understand why contractors are used.

In neither of cases given is the real cost to the engager being shown (PAYE includes sundry non-taxed benefits, plus the less quantifiable overhead of fixed workforce) thus when comparing the workers they are not comparing apples with apples; instead it's comparing one person that costs 70k "plus" with one that costs 70k flat. Naturally there's a difference in tax take from the two because one is effectively earning less than the other.

I also seriously call into question the likelihood of a contractor accepting the same "income" as PAYE at the lawyer end of the skills scale (not that I particularly want to draw any distinctions but evidently there is abuse by some employers at the other end). To enable a "levelling of the playing field" to offset lack of employee benefits (and coincidentally take the burden off the engager) I would anticipate a much higher rate than the PAYE employee, which would result in higher tax being paid.

Hang on....that looks suspiciously like the flipside of the same issue mentioned above...

The two objectives of the discussion are intertwined in a way that the example cases wholly misrepresent, nevermind the "difficult to price" but evident advantage that engagers see in having the ability to hire/fire/plan with ease.

What the discussion document thinks it's fixing is not real, or at best is not real to the degree it thinks it is though sadly I realise it's futile to try to change the focus of the discussion to something that resembles actuality

You are exactly right in what you say - it's the fundamental difference between what Government thinks happens in business and what actually happens and it is important to move the focus of the discussion to that. What works in theory does not necessarily work in reality. We had this argument with HMRC when we met with them - their idea of applying SDC as a determining factor works if you apply their understanding of SDC as they use it in their internal manuals but it doesn't work as a single determinant in law 1. because you are trying to prove a negative and 2. because if you took the concept to the nth degree then no-one would be outside IR35. While there is the potential for HMRC lawyers to argue to the nth degree businesses are not going to take the risk of debt transfer. So, either we need to move away from SDC altogether or HMRC need to write clearly defined guidance which cannot later be subject to 'that's not what Government intended' as happens so often now.

[LisaContractorUmbrella]

Sure. But if we're being told that all they want to do is solve the problem of low-paid workers being pushed off of payroll by unscrupulous employers, then this solves it. I thought you were telling us that it isn't about raising revenue, that it really is primarily about the low-paid. You don't really have to have IR35 working well if the engager is liable, all you need is the threat of it in most cases.

But if the problem is they want more revenue from us, that's a separate issue which is at least half solved with the dividend tax. At which point they need to ask the question of how big of a problem they really have any longer, and how much damage do they want to do to the flexible workforce (and the economy) to try to solve it.

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

If the former, they should do something like what I suggested.

If the latter, they need to come up with a solution that doesn't completely destroy the flexible workforce market or skew it heavily in favour of large consultancies vs the little guy. And they really should stop and consider that they've already done much of it with the dividend tax.

I do believe it's about the numbers working off payroll but we need to consider how business would react to the change that you're suggesting - again are they going to run the risk of debt transfer? While IR35 still exists, if it's up to the client to decide whether people are in or out and they'd face penalties for getting it wrong, the less people are likely to fall outside - whether they are genuinely in business on their own account or not.

This is just my opinion and it could well be wrong but what is fantastic is that people on here are actually putting together viable proposals to give to HMRC as alternatives to what they've come up with - I don't think we've really done this before and with this and the surveys that are running, I think we have a real chance to get through some sensible changes

[Dylan]

They will just do what they want.

[WordIsBond]

I do believe it's about the numbers working off payroll but we need to consider how business would react to the change that you're suggesting - again are they going to run the risk of debt transfer? While IR35 still exists, if it's up to the client to decide whether people are in or out and they'd face penalties for getting it wrong, the less people are likely to fall outside - whether they are genuinely in business on their own account or not.

This is just my opinion and it could well be wrong but what is fantastic is that people on here are actually putting together viable proposals to give to HMRC as alternatives to what they've come up with - I don't think we've really done this before and with this and the surveys that are running, I think we have a real chance to get through some sensible changes

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.

[eek]

They will just do what they want.

Personally I don't think they will. HMRC want this fixed in a way that works and I believe if we provide viable alternatives that give them most of what they want to fix in a clean cut way they will run with and support those alternatives...

Remember we are not writing a responses that just says this is tulip its going to destroy our business.

We are producing

1) surveys that will show the size of the problem,
2) clear cut explanations of what is likely to happen if things are implemented in the suggested manner and
3) solutions that have been thought through from multiple different angles.

Yes we are trying to exclude ourselves from the pain but we are also trying to provide HMRC with solutions that solve most of the problems they have been told to fix in ways that are easy to implement and follow...