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IR35 Consultation Responses?

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    IR35 Consultation Responses?

    Bit of a long post this... just thought it might be useful to share any responses that people have actually submitted to HMRC re. the IR35 consultation... This is the first part - looking at those lovely case studies

    XLM

    -----

    Dear Sir/Madam

    I am writing in response to the discussion document on the Intermediaries Legislation (IR35).

    The discussion document sets out a number of legitimate concerns about the impact on the Exchequer of the avoidance of employment taxes. However, it makes a number of errors in framing the consultation questions which I want to address before responding to the questions themselves.

    The two case studies set out at the beginning of the paper are entirely unrealistic

    The main errors relate to the case studies that are used to illustrate the problem being addressed in the document. They are both entirely unrealistic.

    - Case study 1 sets out two hypothetical individuals - Jo and Ben - engaged to undertake legal work for gross payments of £70,000 per year, and then outlines the tax saved by the Ben of £5,171 and by the engager of 8,541. This tax saving is achieved by both parties due to the fact that Ben operates via a limited company and invoices the legal company for services rendered, whereas Jo is an employee.

    This scenario is unrealistic because Ben has no surety of receiving £70,000 per year at the outset of the contract, whereas Jo does. This is a central difference between freelance work and employment. At any point during the year Ben’s engagement could have been terminated by the legal company without liability - for example if the flow of cases had reduced or the profitability of those cases had proven insufficient to justify his costs. That is not the case for Jo, who would have had a statutory notice period in her contract, along with redundancy and other rights that may have accrued.

    If Ben had been assured of the £70,000 from the outset, and assured of a continued flow of work to do, then the argument of loss to the exchequer might be sustained. However, this scenario is already well provided for within current employment legislation, where mutuality of obligation (on an employer to provide work and an employee to do it) is one of the central tests of IR35 compliance.

    If Ben is not assured of the £70,000 from the outset, then it is likely that he would have fallen outside the scope of IR35, and thus no additional tax would have been due. Since the discussion document asserts that the government does not wish to extend the scope of IR35 in the first place, then there is no loss to the exchequer.

    - Case study 2 sets out a similar scenario, albeit this time in the context of an NHS trust, but varies it by suggesting that the NHS trust negotiates a reduction in salary to cover the employers national insurance contributions that it saves. This implicitly makes the same mistake as the first case study by use of the word salary to refer to Sarah’s income. It assumes that Sarah has the same security of tenure that Mark does when clearly she does not. If that were the case, she would fall inside the scope of IR35 as currently defined.

    This scenario is also unrealistic because it assumes that the only cost to the employer is national insurance. Any NHS employee will receive pension contributions from their employer of a minimum of 14.3% effective 1 April 2015 (see link http://www.nhsbsa.nhs.uk/i/Pensions/..._Update_V1.pdf). Similarly, most employers have a range of costs associated with paid holidays, sick pay, training and other entitlements that would not normally be subject to employers or employees national insurance or tax. In fact, all statutory employment rights have the same economic effect as national insurance - they increase the relative cost of employing people as compared with other types of investment.

    These are real costs, and affect the decision that a trust may make about whether it can afford to take on a full time member of staff, and about the relative costs and benefits of doing so vs. using temporary staff.

    Finally, both of these case studies ignore the costs associated with operating a limited company, which would substantially reduce the effective income that you have outlined.

    To make the point as clearly as possible, here are more representative costs for your scenario 2.

    Mark - gross salary 27,345, net income 21,684
    Sarah - limited company turnover £30,000, net income 25,800
    - minus £3910 (to match the pension contributions made on Mark’s behalf by the NHS trust)
    - minus £2379 (27 days holiday entitlement out of a total 246 working days in each year, which Mark would be entitled to but Sarah would not)
    - minus £1100 operating costs associated with running a personal service company (principally accountancy and payroll administration costs)
    - plus gain on Flat Rate VAT Scheme of £1050 (assuming that the gain results in a profit post corporation tax of 3.5%, which is typical for a personal service company)

    Sarah’s net income is in fact £19,461, not 25,800. This of course ignores the value of sickness pay, training and redundancy entitlements that Mark might expect to accrue over a period of time that Sarah would not receive.
    Plan A is located just about here.
    If that doesn't work, then there's always plan B

    #2
    Ours can be found here: HMRC issue discussion document on IR35 Legislation, AUCAE urge contractors to #haveyoursay - All Umbrella Companies Are Equal - follow the 'click here to find out more links'
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    ContractorUK Best Forum Advisor 2015

    Comment


      #3
      The IPSE response to the IR35 consultation can be found here.
      Best Forum Advisor 2014
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      Click here to get 15% off your first year's IPSE membership

      Comment


        #4
        Originally posted by LisaContractorUmbrella View Post
        Thanks Lisa

        I clicked on the link but the response doesn't appear to be live yet? (text on the website says click here, but no actual link)
        Plan A is located just about here.
        If that doesn't work, then there's always plan B

        Comment


          #5
          Originally posted by XLMonkey View Post
          Thanks Lisa

          I clicked on the link but the response doesn't appear to be live yet? (text on the website says click here, but no actual link)
          Not working for me either.

          Comment


            #6
            Sorry chaps - obviously got a gremlin in the works - try this one HMRC issue discussion document on IR35 Legislation, AUCAE urge contractors to #haveyoursay - All Umbrella Companies Are Equal and the response to the T&S survey can be found here Budget 2015 : AUCAE launch survey urging contractors and recruiters to have their voice heard. - All Umbrella Companies Are Equal
            Connect with me on LinkedIn

            Follow us on Twitter.

            ContractorUK Best Forum Advisor 2015

            Comment


              #7
              Glad to see the final form of the IPSE response, something I can definitely get behind.

              Thank you to Lisa for all your work.

              Comment


                #8
                I've read the IPSE document and acknowledging that I am biased as I despise the organisation I'm not overly impressed.

                It mostly seems to be moaning rather than presenting a rational analysis and feedback, at least when I read it. I also feel that the entire submission can (and will be if HMRC have anyone with at least 2 working braincells) be entirely discredited with a single question.

                How many members does IPSE have on its books?

                Section 1 of the doc which is there to set the submission in context, after the usual nauseating big words on the cover page as first bullet has :-

                The Association of Independent Professionals and the Self Employed (IPSE) represents the estimated 4.5 million individuals working for themselves in the UK.

                Putting aside the colossal and totally untrue statement that IPSE represents all the self employed.

                That implies that the submission was written with the backing of 4.5 million members, that's patently a load of totally fabricated nonsense (polite version). If IPSE had even a million members it would be about the largest representative organisation in the UK and the last I heard the number 20,000 was mentioned. That's 0.44% of 4.5 million.
                As soon as they look at the membership numbers vs the headline implication it makes the whole organisation look as trustworthy as a FIFA official and any merits the document have are immediately binned.

                Hell if it's aright to use that 4.5m outright lie then I can get the chap down the road who's a self employed man in a van to join a new organisation we dream up tomorrow and make a similar claim in a glossy presented document.
                Last edited by TykeMerc; 3 October 2015, 07:38.

                Comment


                  #9
                  I strongly doubt both documents will be studied in depth.

                  However Lisa's at least has the has advantage of clearly pointing out the problems that lay ahead for the government if they go down the path they want with T&S with clear examples using gathered facts, a legal expert etc and proposed solutions.

                  The IPSE document does not offer a solution to IR35 and relies just on case law.

                  Both documents make it clear that if the tax changes are put in place at some point there will be a legal challenge to get employment rights.

                  You can write in a contract what you like about it not being employed but if you are a lower paid worker contracted via an agency to work for the public sector then this isn't hard to image.

                  In regards to funding - if two people who work in a university can use crowd funding to raise money to challenge the civil partnership laws a care worker or teacher won't have a problem.
                  Last edited by SueEllen; 3 October 2015, 05:01.
                  "You’re just a bad memory who doesn’t know when to go away" JR

                  Comment


                    #10
                    Originally posted by TykeMerc View Post
                    I've read the IPSE document and acknowledging that I am biased as I despise the organisation I'm not overly impressed.
                    As a collective I think we should be grateful to the likes of the IPSE (yes, I am a member) and people such as Lisa from ContractorUmbrella for taking the time to undertake surveys, build credible responses and generally fight our corner.

                    It's very easy to despise an organisation such as the IPSE. However, if more contractors got behind them, the more clout we'd have. Sure, they may make some mistakes (the FLC proposal was a joke), but in addition to lobbying they provide a useful service to people such as support to Geoff and Diana Jones in the Arctic Systems case. I know that in the event of any investigation they will be my first port of call.

                    Even if people don't want to join the IPSE, I hope at the very least many have taken the time to take some form of action on both the IR35 and the T&S consultations.
                    Last edited by ShandyDrinker; 3 October 2015, 06:51.

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