A New Business Entity Test

[DaveB]

Thing is a number of us ARE disguised permies and I would like to see something separating them out from the rest of us. Just having a business and paying divis' does not mean everyone by default is a contractor in the proper sense.

Sadly I think CUK is not representative of the contracting community at large, and would go as far as saying MOST are disguised permie, or at best are ignorant of the distinction.

[jamesbrown]

Thing is a number of us ARE disguised permies and I would like to see something separating them out from the rest of us. Just having a business and paying divis' does not mean everyone by default is a contractor in the proper sense.

You're right, but this distinction is going to become increasingly irrelevant if you believe that any reduction in CT will be tied to an increase in the taxation of dividends (which will probably increase over time as well). Those in HMRC managing IR35 (I'm thinking of the examples in the discussion document) are laughably disconnected from this broader picture. Perhaps the gov't will tweak the allowance for pensioners or those without a controlling interest, but the dividend taxation provides them with a mechanism to tackle "TIM" without worrying too much about the classification of businesses or workers and they are bound to use this. In other words, subject to legislation for unscrupulous employers, I see this issue as becoming increasingly irrelevant over time.

[TykeMerc]

I wouldnt be happy with that personally. My costs are around 7.5% of turnover, but I have multiple clients, including direct B2B and my turnover is such that I'm likely to be kicked off the FRS this year. The bulk of the expenses come from working for one client so the %tge of turnover is relativley low.

Anyone working remotely, having a local client(s) etc could potentially lose out as well as T&S are generally our biggest on going costs.

Yours is a prime example of how any simplistic rules will be impractical.
You're very clearly in business, but you don't have a staff. The same way that a small practice accountant, or specialist mechanic (I know someone that tunes/tweaks engines for small racing companies and enthusiasts) or architect or any of the very many other examples you can pull out of the air.

The real failing of the last BET's other than the obvious monumental bias towards an HMRC view of the world is that small businesses are by their very nature different from each other, trying to use simplistic tests to cover all the scenarios, it's just not possible. The bias question is of course gigantic too, it's either impossible to be a small business or for 50p and a packet of Polo's everyone's a small business.

Sadly I think CUK is not representative of the contracting community at large, and would go as far as saying MOST are disguised permie, or at best are ignorant of the distinction.

I think that you're damn close to the money on that, we would have to be rather narrow minded to disagree. Many of the contractors I've worked with really are just permies with a cardboard cutout facemask.

[Zero Liability]

I'm increasingly of the opinion that we should do away with all tests and distinctions. For taxation purposes, let's stop distinguishing between real employees, disguised employees and non-employees and between real businesses and fake businesses. Even in the absence of more aggressive reforms on NI, there are mechanisms to reduce the disparity between the taxation of employees and the self-employed, including the new dividend tax. These mechanisms should be used to a degree that can be supported by the electorate. Let's deal with unscrupulous employers through legislation, as this is a distinct category.

When the differences in taxation between employment and self-employment properly reflect the additional costs (and to some degree the risks) associated with self employment, any questions about real and fake employees and real and fake businesses naturally disappear. No one wants to start a fake business unless there's a major incentive to do so, whether from the perspective of the employee or the employer. I have no problem in paying a dividend tax. I would think it's in the interests of the gov't to support a flexible workforce through T&S, but some aspects are clearly silly, so let's do away with relief on lunch and apply the T&S rules consistently to larger consultancies. All of these distinctions between real and fake employees and businesses are on a road to nowhere.

I wouldn't go so far as to say I'd have no problem with it, but if it helps them get rid of this entirely artificial, arbitrary mess they've created, I'd be at least satisfied with that in the interim, until they can undertake a wider review of the tax system.

[LondonManc]

I'm increasingly of the opinion that we should do away with all tests and distinctions. For taxation purposes, let's stop distinguishing between real employees, disguised employees and non-employees and between real businesses and fake businesses. Even in the absence of more aggressive reforms on NI, there are mechanisms to reduce the disparity between the taxation of employees and the self-employed, including the new dividend tax. These mechanisms should be used to a degree that can be supported by the electorate. Let's deal with unscrupulous employers through legislation, as this is a distinct category.

When the differences in taxation between employment and self-employment properly reflect the additional costs (and to some degree the risks) associated with self employment, any questions about real and fake employees and real and fake businesses naturally disappear. No one wants to start a fake business unless there's a major incentive to do so, whether from the perspective of the employee or the employer. I have no problem in paying a dividend tax. I would think it's in the interests of the gov't to support a flexible workforce through T&S, but some aspects are clearly silly, so let's do away with relief on lunch and apply the T&S rules consistently to larger consultancies. All of these distinctions between real and fake employees and businesses are on a road to nowhere.

+1

Totally agree. Smacks of HMG/HMRC trying to tackle two "problems" with one solution. Certainly in the office world, there's a need for a skilled contingent workforce.

Legislation to bring larger consultancies in line and level the playing field would be a good start with the real problem.

[mudskipper]

The original tests were proposed with sensible criteria - although I haven't been able to track down exactly what was proposed - I think it was something like you could 'pass' on one biggie (e.g. (and I'm guessing here) multiple concurrent clients), or several smaller indicators - insurances and the like.

The real problem came when HMRC took them, changed them beyond recognition, then claimed they were delivering what had been asked for.

I'm sure someone, somewhere has the original proposal, but would the outcome be any different if it were tried again?

[mudskipper]

Found this old thread on the IPSE forum, but I have no idea if this accurately reflects the proposal

It looks like the idea was to pass 50% of the tests.

https://community.ipse.co.uk/threads...s-yours.99239/

[LondonManc]

Thing is a number of us ARE disguised permies and I would like to see something separating them out from the rest of us. Just having a business and paying divis' does not mean everyone by default is a contractor in the proper sense.

Are we? In what way? In terms of the work that we're engaged in?
Or do you mean disguised by the employer?
Only I'd say there's a reasonable argument that development staff can legitimately largely be classed as contractors because of project-based funding whereas support staff you'd want to be primarily perm. I'd say an 80-20 rule on both sides of the fence would be a reasonable split.

[SueEllen]

Just a point about putting H&S requirements in any tests - no one regardless of how they work can ignore H&S at work legislation.

Hugo Boss, where the poor little kid was killed by a mirror, were prosecuted under it for his death.

[Murder1]

Sadly I think CUK is not representative of the contracting community at large, and would go as far as saying MOST are disguised permie, or at best are ignorant of the distinction.

I'd completely agree with that. As an example, out of the last 15-20 contractors I've worked alongside at various places only around 20% of those actually bothered with a contract review before starting an engagement.

I got back such comments as "I don't need a review, I can perform my own contract review" or "I've been here years so the contract must be alright".

Like NLUK said I think I'd like to see some of these "contractors" separated out from the rest of us.