Clearly contracting will not be the same come April 2016.
Equally clearly a number of "solutions" will be offered. Some will be transparent, some less so. I would point everybody to a thread in the HMRC Enquiries section that gives you some questions to ask of those offering solutions.
That said, I have sketched below for public examination, debate, debasement, criticism and opinion an idea.
Whilst I understand something about tax, my knowledge of how the contracting world works at a practical level is at least 15 years out of date. As such the idea here may be totally unworkable. If there are elements that might be useful however I offer them for further development.
Let's assume that there is some form of registry to which contractors could sign up. This registry contains information such as specialism, industry sector, location, etc.
Our example contractor says that he/she is expert in currant bun production for formula 1 teams.
The registry operator contacts the contractor and says, "We have 19 other people with a similar profile. Would you like to meet them and discuss going into business together?"
The 20 people discuss and agree that pooling their resources is good for them (concentration of expertise, monopoly, covering all the formula 1 teams) and that the downsides (collective bargaining, internal competition) can be smoothed out.
They form the "Currant Bun Formula 1 partnership". (CBF1)
Part of this partnership is a new company (CBF1 Co) which is formed by and owned by the 20 individuals. Their ownership is prorated according to their contribution to the partnership. (This harks back to the banking payments companies which were owned by the banks using it and where ownership percentage moved every year, dependent upon volume).
The CBF1 partnership negotiates with a client as a collective. Once the scope of service is agreed, the partnership selects which partner(s) will be allocated to do the work.
It may be that the client prefers to be invoiced by a company, in which case the company permits one (or more) of its owner/directors to do the actual work.
The partnership invoices the formula 1 team.
The profits in the partnership are allocated to each of the 20 individuals plus the company. The individual allocation is perhaps a fixed amount each year (base value). The remainder goes to the company.
The company has income from its own work (supplying people) and the work of its fellow partners allocated as a partnership share.
The company owners decide upon a distribution policy.
That might be - after corporation tax, allocate 20% of profits to a general reserve (see below), allocate 20% of profits to a shareholder reserve (see below) and distribute 60% as a dividend. (Perhaps shareholders can waive their dividend wholly or partly if the company makes a contribution to a pension fund).
The general reserve is to be used to support (make loans) to individual partners who are temporarily not contributing.
The shareholder reserve is allocated to a fund to buy out the shareholders stake. This is only available after a given time or if the value increases over a certain value.
Provisions to allow individuals to join/leave are written in.
A partnership is ill defined but can be thought of as "a group working for a common purpose", in this case, in business.
Not a PSC or an MSC. Choice of invoicing vehicle. Individual responsibility for tax. Ability to take dividends.
There are "mixed partnership" tax avoidance rules but they have a motive exemption.
Most problems might be in joining/leaving and collective bargaining?
I reckon that a 28 gram, number 8 cartridge might be enough to shoot some holes in this sketch, but I'd be interested in thoughts.
Equally clearly a number of "solutions" will be offered. Some will be transparent, some less so. I would point everybody to a thread in the HMRC Enquiries section that gives you some questions to ask of those offering solutions.
That said, I have sketched below for public examination, debate, debasement, criticism and opinion an idea.
Whilst I understand something about tax, my knowledge of how the contracting world works at a practical level is at least 15 years out of date. As such the idea here may be totally unworkable. If there are elements that might be useful however I offer them for further development.
Let's assume that there is some form of registry to which contractors could sign up. This registry contains information such as specialism, industry sector, location, etc.
Our example contractor says that he/she is expert in currant bun production for formula 1 teams.
The registry operator contacts the contractor and says, "We have 19 other people with a similar profile. Would you like to meet them and discuss going into business together?"
The 20 people discuss and agree that pooling their resources is good for them (concentration of expertise, monopoly, covering all the formula 1 teams) and that the downsides (collective bargaining, internal competition) can be smoothed out.
They form the "Currant Bun Formula 1 partnership". (CBF1)
Part of this partnership is a new company (CBF1 Co) which is formed by and owned by the 20 individuals. Their ownership is prorated according to their contribution to the partnership. (This harks back to the banking payments companies which were owned by the banks using it and where ownership percentage moved every year, dependent upon volume).
The CBF1 partnership negotiates with a client as a collective. Once the scope of service is agreed, the partnership selects which partner(s) will be allocated to do the work.
It may be that the client prefers to be invoiced by a company, in which case the company permits one (or more) of its owner/directors to do the actual work.
The partnership invoices the formula 1 team.
The profits in the partnership are allocated to each of the 20 individuals plus the company. The individual allocation is perhaps a fixed amount each year (base value). The remainder goes to the company.
The company has income from its own work (supplying people) and the work of its fellow partners allocated as a partnership share.
The company owners decide upon a distribution policy.
That might be - after corporation tax, allocate 20% of profits to a general reserve (see below), allocate 20% of profits to a shareholder reserve (see below) and distribute 60% as a dividend. (Perhaps shareholders can waive their dividend wholly or partly if the company makes a contribution to a pension fund).
The general reserve is to be used to support (make loans) to individual partners who are temporarily not contributing.
The shareholder reserve is allocated to a fund to buy out the shareholders stake. This is only available after a given time or if the value increases over a certain value.
Provisions to allow individuals to join/leave are written in.
A partnership is ill defined but can be thought of as "a group working for a common purpose", in this case, in business.
Not a PSC or an MSC. Choice of invoicing vehicle. Individual responsibility for tax. Ability to take dividends.
There are "mixed partnership" tax avoidance rules but they have a motive exemption.
Most problems might be in joining/leaving and collective bargaining?
I reckon that a 28 gram, number 8 cartridge might be enough to shoot some holes in this sketch, but I'd be interested in thoughts.
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