IR35 Consultation Responses?

[jamesbrown]

I'm very happy with the IPSE responses to both proposals too.

I thought the response to the T&S consultation was very good, which arguably matters more given the order in which these will reach legislation. However, I thought the response to the IR35 discussion was (much) less well structured and argued. Incidentally, I thought Abbey Tax put together a very well-argued response to both, here. (FWIW, I don't agree with all of it, but it is well-argued and evidenced).

[ShandyDrinker]

I thought the response to the T&S consultation was very good, which arguably matters more given the order in which these will reach legislation. However, I thought the response to the IR35 discussion was (much) less well structured and argued. Incidentally, I thought Abbey Tax put together a very well-argued response to both, here. (FWIW, I don't agree with all of it, but it is well-argued and evidenced).

Thanks for the Abbey Tax links. I agree with you and don't agree with all of the points, but well put together and another voice to argue against both the T&S and IR35 consultations.

[mudskipper]

Eek was one of the few willing to step up to the plate on behalf on contractors, his self enforced holiday is a great shame.

I don't disagree with that - but nor do I agree that it's fair to blame someone who was making a genuine offer of help, no matter how much you may personally dislike them, for his decision.

[TykeMerc]

Abbey Tax put together a very well-argued response to both, here. (FWIW, I don't agree with all of it, but it is well-argued and evidenced).

Thanks for the link, I hadn't seen it before.

As you say the response from Abbey Tax is excellent, it's well written, has no emotive statements, avoids heading down the "fairness" rabbit hole and it provides a reasoned analysis with proposed action. I strongly support their points, it's clear they have a good understanding of the current and possible future situations.

[Zero Liability]

They didn't address the flaws in calculating the 'protected yield' or the Ben/Jo cases, however, which the reply Lisa put forward did, as did IPSE's to a lesser extent; I think it's significant, because hector is using pre-dividend tax figures and a lot of incomplete/shoddy analysis to try make their case that there is a 'problem'. It is however a very good reply, particularly in analysing the alternative put forward in the discussion doc, and suggesting how it isn't going to be effective and may have severe downsides to it, plus in pointing out where they're currently going wrong. Like James, I don't agree with all of it, but the main issue is getting it through that the current proposals are unrealistic and may have severe (possibly) unintended consequences.

It's best to view them as complementary, as the discussion doc contained a lot of material, and Lisa's and IPSE's covers all these more broadly, whereas the AT is more focused on their proposed alteration of the 'tests' employed and possible better alternatives, including relating control to a project-based criterion.

[mudskipper]

They didn't address the flaws in calculating the 'protected yield' or the Ben/Jo cases, however, which the reply Lisa put forward did, as did IPSE's to a lesser extent; I think it's significant, because hector is using pre-dividend tax figures and a lot of incomplete/shoddy analysis to try make their case that there is a 'problem'. It is however a very good reply, particularly in analysing the alternative put forward in the discussion doc, and suggesting how it isn't going to be effective and may have severe downsides to it, plus in pointing out where they're currently going wrong.

It's best to view them as complementary, as the discussion doc contained a lot of material, and Lisa's and IPSE's covers all these more broadly, whereas the AT is more focused on their proposed alteration of the 'tests' employed and possible better alternatives.

And I think that's good - lots of identical responses don't add anything. All the responses I've seen make good points - not always in agreement, but together they're pretty compelling. Whether that will have any effect remains to be seen...

[Zero Liability]

Yes, precisely. I can see what James means in terms of the professionalism/focus of the AT reply, but as this is only stage 1 anyway and as the documents concerned all touch on different points, can't say I'm really dissatisfied with any of them. Now to see what is actually absorbed.

[webberg]

IR 35 - response to discussion document

The following was our contribution to the debate.

We have also made some points about poorly thought through new legislation likely to see the growth of "solutions" and the inability (or unwillingness) of HMRC to intervene early to kill the "unacceptable" versions leading to huge problems in the future. However these were eventually deemed to be off message and distracting and were excluded.

Nothing new in the note below perhaps and apologies for the length:

HMRC Discussion document of 17 July 2015 on
Intermediaries Legislation (IR35).

Preamble

WTT considers that the rationale for changing the present regime is flawed. It must be a core tenet of UK law that an individual can organise their business affairs in a manner that best suits them and their customers. Self employed individuals are a fundamental part of the UK’s working population and often described as the engine of growth. Any change of law that damages that part of the population will be counter productive for the economy of UK Plc.

The assumption that that those using PSC’s are doing so as an “unfair manipulation” of the IR35 rules is unproven and exposes the real rationale for the proposed change which is that the tax take has been disappointing and needs to increase. The price of self assessment and the huge savings it has brought to HMRC’s budget, is the reliance upon the goodwill and ingrained desire of the huge majority of the population to be law abiding citizens.

Any change based on increasing tax collection is inherently unfair and should be used with great caution if trust and confidence in the tax system as a whole is to be preserved. By making arbitrary changes to law designed to increase taxes and with little evidence of malpractice, the Government risks being seen as failing to honour its side of the tax covenant.

Addressing the questions:

Any evidence on the use of other types of intermediaries, aside from PSC’s, to which IR 35 may apply?
Any evidence for how PSC’s currently operate IR35 and the issues the rules create for individuals and businesses across the market?

WTT has no specific evidence to offer.

Anecdotally the growth and membership of Umbrella schemes and similar arrangements and the proliferation of providers offering “IR35 compliant solutions” indicate that the confusing and complicated IR35 rules and the dangers of interpretation being applied in retrospect have convinced many contractors that their best option is to reach for an “expert” who can “solve” the problem.

Any proposals for how to improve the effectiveness of IR35 that meet the objectives outlined in this document?

The ENGAGER should at all times be responsible for determining status of the contractor.

History shows that the complicated and unworkable nature of the rules cannot be applied by individuals who are expert in other fields. Instead they turn to (and are exploited by) firms who are allegedly expert but who have a track record of creating more tax problems than are solved.

With the observation that the objectives as outlined are not justified by the reasoning given, it is clear that the complexity and uncertainty created by the rules, both existing and proposed, will further distance the ability of those impacted by them, to understand and implement them correctly. With many contractors already making valid accusations of HMRC being at least partly responsible for their current uncertain position, adding salt to the wound should be avoided.

The onus for determination should be placed upon the engager. It is the engager who has scoped the work, knows what is required, for how long and what degree of supervision is needed.

Perhaps the first series of tests should be time driven. A contract for 6 months or less where the contractor is not retained or reengaged for a minimum of a month after the end of the contract, should be seen as the contractor being genuinely self employed (or as necessary, the PSC being applied as envisaged) and all payments etc as being outside IR35.

Where the contract is longer than 6 months but less than 24 months (the minimum required for many employment benefits to kick in), the degree to which the engager can demonstrate that the necessary skills were not “in house” at the outset, nor at critical milestones, is determinative. The concept here is that an engager who truly wishes to exercise enough supervision, direction and control of a project or its outcome will engage that resource at some point in the process.

The exception is where the engager recruits resource to operate the results of the project rather than work on the project creation. There is an inevitable overlap as projects near completion and are fine tuned to be useful to the engager.

Contracts or a series of contracts on essentially the same terms or where the project parameters are substantially the same and which are written at the outset for more than 24 months, or which eventually extend more than 24 months, should render a contractor engaged for the entire period as being within IR35, irrespective of vehicle used to supply services.

Where a time basis is inappropriate, perhaps because of the uncertain nature of the project or a change in objective for a project at some point, a “skills gap” test is possible.

Does the engager have the skills required within its workforce or not? If not, does the engager intend to acquire that resource but needs the project to begin immediately? Does the engager require the initial contractor to teach a new employee the project and eventually take over?

If the answers are that the engager has a skills gap which is expected at the outset to be temporary then the contractor is outside IR35. This is a position to be reviewed at say 3 month intervals.

Finally, where a contractor is engaged and over time comes to be regarded as an employee, the benefits of employment should be immediately due, with recognition of time served. This is likely to be a major burden for engagers but will mean that the potential cost of getting the question wrong, will force a conservative and consistent approach.

In an ideal world, the engager (and the contractor?) would be able to approach HMRC for an advance ruling. Whilst this would be a paid for service, there are practical concerns in that HMRC is unlikely to be able to respond quickly enough and would be unwilling to give an advance assurance that a particular situation is within or without IR35. Unfortunately therefore this option to resolve the situation is considered unworkable at this time.

Respondent

WTT Consulting Ltd is a tax enquiry advisory firm. We have a large number of contractors who are clients and who seek help in understanding their position for schemes provided in the past 10 years, which they were assured were “tax compliant” and which, despite 10 years of HMRC enquiry, remain unresolved.
The need to avoid similar situations in the future is critical.

Director WTT Consulting Ltd

[GB9]

Your suggestions sound sensible. The only one I disagree with is that any contract 'extending' over 24 months should be deemed as being inside ir35 for the whole duration. This would lead to either a significant overdue tax liability for the psc, or more likely, the psc declining the extension over 24 months to avoid the back tax.

Surely anything post 24 months being treated as within IR35 would be more sensible? This would also fall in line with a previous ir35 judgement deciding that a psc had not become embedded into the client until after 4 years.

[northernladuk]

Your suggestions sound sensible. The only one I disagree with is that any contract 'extending' over 24 months should be deemed as being inside ir35 for the whole duration. This would lead to either a significant overdue tax liability for the psc, or more likely, the psc declining the extension over 24 months to avoid the back tax.

Surely anything post 24 months being treated as within IR35 would be more sensible? This would also fall in line with a previous ir35 judgement deciding that a psc had not become embedded into the client until after 4 years.

Not really. If a gig goes over 24 months then the reasoning is it wasn't a contracting gig. It was always going to be an enduring one from day one. It's the type of work they are trying to clarify. If it's short term it's a contract gig but if it's long term it's a disguised permie role so will be inside. Makes sense to me.