Freelance Limited Company (FLC) offering from IPSE

[WordIsBond]

I fully agree, should really have been done sooner. In my view contractors should have been paying approx 50% maybe 60% to themslves as PAYE and you say keeping the rest in the business etc, with dividends being a small part of their earnings.

I suspect if there was no NI advantage, that's how it would have been.

Basically you can see the point, a contractor is a high earner making minimal contributions. The task is to come up with a figure that would reflect a fair contribution.

I think really contractors should be pushing this, because if this doesn't get sufficient momentum everyone will be inside IR35 and not being able to offset expense.

You know what? I'm pretty risk averse, so if I could pay myself 50% (or even 60%) in PAYE and be guaranteed of not being chased for IR35, I'd do it. And it would be very, very hard for them to nail me on IR35, but it is the old certainty thing -- like most businessmen, I'd pay quite a bit for certainty.

But since I have to run the IR35 risk anyway, I'll compensate myself for that by paying minimal salary and slashing my tax as much as I can. If they want to hang onto a gun that they can point at my head, well, might as well be shot for a sheep as a lamb.

But this is yet another easy way to do it -- give a guarantee that you are exempt from IR35 if you pay a certain percentage in PAYE. The right percentage, from HMG's perspective, is the one that is high enough to generate revenue without being high enough for people to say, "It's not worth it, I'll risk IR35." If you put it at 30%, everyone pays it but you don't get much revenue. If you put it at 70%, everyone will say, "Forget it, certainty isn't worth that much, I'd go umbrella if I was that concerned."

If they did something like this, they wouldn't have to reform IR35, they'd accomplish their purposes without doing so.

[Zero Liability]

Absolutely, that is a big part of the solution. (I'm a lot less optimistic that it will ever happen, and I'm not a believer that Osborne will ever do something that can be demagogued as unfair to workers, as that would be.)

Absolutely, as long as you have disparities in the system, people will find ways to move income into the low-tax regimes, and if you block them you will defeat the purpose of the disparities.

The NI/income tax merger won't solve the whole thing, though, unless you remove the investment incentive from the tax system, and that would probably be disastrous as well as punitive for a lot of pensioners.

Or lower all taxes, i.e. my preferred resolution. Unlikely as it is. I'm not of the view that the risk in investment justifies a lower level of taxation specifically for it, especially since profits are meant to be that reward. At the same time, you need entrepreneurs, capitalists, landowners and labourers to all be engaged in producing wealth, as all take risks to varying degrees. I think all should be rewarded by being allowed to keep as much of their earned income as possible. Tinkering with what activities should or should not be encouraged in the very subjective opinions of bureaucrats and politicians is just asking for trouble, whereas the tax system should be funding some level of spending deemed necessary to fulfil the functions of law, order, defence, and some basic infrastructure provisions and perhaps a very basic level of welfare, rather than serving political motivations. Beyond this, I would consider it superfluous and apt to cause distortions in the economy. So, I'd rather all taxes were harmonised with the CT rather than vice versa, and then lowered even more, with spending and borrowing reduced commensurately. All of little relevance to the present discussion, but this is the overarching direction I'd like to see the UK head in.

[jamesbrown]

give a guarantee that you are exempt from IR35 if you pay a certain percentage in PAYE.

It may seem quite a logical trade-off, but look at this from HMRC's perspective; if you provide a simple (non-FUDable) option to pay less tax, that's most certainly what will happen. The majority of employers/employees will follow the path of least resistance. This would become the default option for all those employees that are pressured into a self-employed arrangement (perhaps many more of them) and all of those that would otherwise be inside IR35, as well as many of those (like you) that prefer to take a conservative route, even though you shouldn't be taxed like an employee. Those that gain most should really gain the least and vice versa. On top of that, HMRC aren't in the business of being pragmatic; they are in the business of collecting all taxes due (in their opinion).

[mudskipper]

You know what? I'm pretty risk averse, so if I could pay myself 50% (or even 60%) in PAYE and be guaranteed of not being chased for IR35, I'd do it. And it would be very, very hard for them to nail me on IR35, but it is the old certainty thing -- like most businessmen, I'd pay quite a bit for certainty.

But since I have to run the IR35 risk anyway, I'll compensate myself for that by paying minimal salary and slashing my tax as much as I can. If they want to hang onto a gun that they can point at my head, well, might as well be shot for a sheep as a lamb.

But this is yet another easy way to do it -- give a guarantee that you are exempt from IR35 if you pay a certain percentage in PAYE. The right percentage, from HMG's perspective, is the one that is high enough to generate revenue without being high enough for people to say, "It's not worth it, I'll risk IR35." If you put it at 30%, everyone pays it but you don't get much revenue. If you put it at 70%, everyone will say, "Forget it, certainty isn't worth that much, I'd go umbrella if I was that concerned."

If they did something like this, they wouldn't have to reform IR35, they'd accomplish their purposes without doing so.

Isn't this exactly what the FLC is aiming to do? (FTAOD, I'm not a proponent, but am trying to see both sides)

[Zero Liability]

It may seem quite a logical trade-off, but look at this from HMRC's perspective; if you provide a simple (non-FUDable) option to pay less tax, that's most certainly what will happen. The majority of employers/employees will follow the path of least resistance. This would become the default option for all those employees that are pressured into a self-employed arrangement (perhaps many more of them) and all of those that would otherwise be inside IR35, as well as many of those (like you) that prefer to take a conservative route, even though you shouldn't be taxed like an employee. Those that gain most should really gain the least and vice versa. On top of that, HMRC aren't in the business of being pragmatic; they are in the business of collecting all taxes due (in their opinion).

Indeed, and that is where the government would have to provide a bit of a steer to its collections department, if it were so inclined.

[WordIsBond]

Isn't this exactly what the FLC is aiming to do? (FTAOD, I'm not a proponent, but am trying to see both sides)

I said that in principle the FLC idea has merit. But this particular one is deeply flawed.

Does it come with a no-IR35 guarantee? No.

And because it is a separate structure, and because clients are going to be on the hook, clients will only deal with FLCs, making it mandatory (in practice, not in law). Everyone will have to go FLC.

What I was talking about is truly optional. Everyone still has a Ltd co. That's all clients know. It's none of the client's business how we are paid. But if HMRC comes knocking and asking about IR35, if we've chosen to pay PAYE to a certain level, discussion is over.

[malvolio]

I said that in principle the FLC idea has merit. But this particular one is deeply flawed.

Does it come with a no-IR35 guarantee? No.

And because it is a separate structure, and because clients are going to be on the hook, clients will only deal with FLCs, making it mandatory (in practice, not in law). Everyone will have to go FLC.

What I was talking about is truly optional. Everyone still has a Ltd co. That's all clients know. It's none of the client's business how we are paid. But if HMRC comes knocking and asking about IR35, if we've chosen to pay PAYE to a certain level, discussion is over.

Wrong on several levels, but I'm not going to repeat myself yet again as to why; however:

This version of an FLC does not work if it is not optional and if it has serious entry criteria. Which it does.

And no, there are no IR35 silver bullets, but this version of an FLC will mean HMRC won't even look at you.

As for Ltd Cos, they are dead and buried and a new model has already come about, and is going to get worse. Comparing new FLC to old Ltd is pointless.

[WordIsBond]

It may seem quite a logical trade-off, but look at this from HMRC's perspective; if you provide a simple (non-FUDable) option to pay less tax, that's most certainly what will happen.

You mean to pay more tax than they are paying today, but less than HMRC thinks maybe they can get out of people if they can change the rules drastically enough.

HMRC still works, last time I checked, for HMG. And HMG's remit is not to get as much tax as they can, but to balance it with their other purposes -- help the economy, "fairness", etc. Well, it may not be "fair" for contractors to pay as much less than employees as they are paying today, but it also isn't "fair" for them to pay as much as employees, given the risks, etc. And it won't help the economy if you kill the flexible work force, either.

This is political, it is driven by politics, and a political compromise which is actually logical could be at least part of the solution. Any proposal like the suggestion I just made should be targeted at HMG, at politicians, not HMRC. It would solve HMRC's biggest goal -- it would bring in more tax while being easy to administer, so if the politicians are convinced, HMRC is not likely to complain.

[WordIsBond]

Wrong on several levels, but I'm not going to repeat myself yet again as to why; however:

This version of an FLC does not work if it is not optional and if it has serious entry criteria. Which it does.

And no, there are no IR35 silver bullets, but this version of an FLC will mean HMRC won't even look at you.

As for Ltd Cos, they are dead and buried and a new model has already come about, and is going to get worse. Comparing new FLC to old Ltd is pointless.

Does the FLC IPSE has proposed come with a no-IR35 guarantee? That's a yes or no.

Is there any realistic scenario under which agents/clients will work with a Ltd Co rather than FLC if your proposal is accepted? I've not seen you put one forward. Which means it won't be optional. What I suggested is optional.

And Ltd Cos are not dead and buried until the government kills them, and they won't. But your proposal will kill them for contracting if it is accepted.

Is FLC the only possible solution to the problem? You seem to think so.

And yes, there are a lot of ways to kill IR35. Because of the political realities, all involve some concessions on the part of contractors that the current taxation structure for low salary high dividend needs some changes. But IR35 is an offence to good legislation and good taxation, and it can indeed, and should, be killed and replaced with much simpler measures. And it can be done while "protecting the Exchequer" too.

[jamesbrown]

You mean to pay more tax than they are paying today, but less than HMRC thinks maybe they can get out of people if they can change the rules drastically enough.

HMRC still works, last time I checked, for HMG. And HMG's remit is not to get as much tax as they can, but to balance it with their other purposes -- help the economy, "fairness", etc. Well, it may not be "fair" for contractors to pay as much less than employees as they are paying today, but it also isn't "fair" for them to pay as much as employees, given the risks, etc. And it won't help the economy if you kill the flexible work force, either.

This is political, it is driven by politics, and a political compromise which is actually logical could be at least part of the solution. Any proposal like the suggestion I just made should be targeted at HMG, at politicians, not HMRC. It would solve HMRC's biggest goal -- it would bring in more tax while being easy to administer, so if the politicians are convinced, HMRC is not likely to complain.

Yeah, one way or another, I think we at least have to hope for that, i.e. that HMG and HMRC are two different things, but that holds only to a point. I think the concern for HMG with any proposal that seeks to find a compromise would be that the compromise itself attracts a lot of people that might otherwise be deemed employed. IMHO, it's completely impractical and unsaleable (and the analysis from EY doesn't really push against this, it simply notes the contingency upon it) to establish two sets of rules, with a consequence that one set is somewhat less demanding than the other set (IR35) and has a somewhat reduced tax burden. They will want to know that those who should be employees are being taxed as employees. There will be one set of rules, I'm certain of that, if nothing else.

In any case, I'd suggest we focus on the deeming criteria, rather than something bigger. That way, whomever is right, we'll still have a reasonable set of criteria (for the FLC, or for some other tax compromise or anything else). If we can find a decent set of deeming criteria that are simpler than IR35, while increasing the tax take for those that really should be employees, and allowing SDC to be applied in a more practical way (because I can't see it being dropped, given the various other pieces of legislation that are likely to reference SDC), I think that's what we're after. It would be great if we could stop arguing about the FLC and start arguing about the deeming criteria more.