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A suggestion - for free - for critique

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    A suggestion - for free - for critique

    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something about tax, my knowledge of how the contracting world works at a practical level is at least 15 years out of date.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.
    Best Forum Adviser & Forum Personality of the Year 2018.

    (No, me neither).

    #2
    A few immediate thoughts.

    If the net income is less than I would get from being a one man band (even allowing for the potential changes) then I'm not interested. I already manage my Ltd. cash flow to allow for down time etc. I don't need someone else to do it for me and pay for the priveledge and I dont want to rely on the largess of others for my income.

    Who sets the day rates for the work being done? Does each individual go at at their own rate? If you are negotiating collectively and the rate is lower than I could get myself why would I work for less?

    Who decides who does each job? If it's a subset of the members there is a risk it wll be abused so that A,B and C dish out the work which is all done by D,E and F while A,B and C sit back and take the profits.

    Likewise, if a plum gig comes up that several members want, who decides who gets it?

    I still carry all the tax liabilities I did before with the addition of the fact that should HMRC decide this "scheme" didnt work I could be liable for even more.
    Last edited by DaveB; 22 October 2015, 12:29.
    "Being nice costs nothing and sometimes gets you extra bacon" - Pondlife.

    Comment


      #3
      Originally posted by DaveB View Post
      A few immediate thoughts.

      If the net income is less than I would get from being a one man band (even allowing for the potential changes) then I'm not interested. I already manage my Ltd. cash flow to allow for down time etc. I don't need someone else to do it for me and pay for the priveledge and I dont want to rely on the largess of others for my income.

      Who decides who does each job? If it's a subset of the members there is a risk it wll be abused so that A,B and C dish out the work which is all done by D,E and F while A,B and C sit back and take the profits.

      Likewise, if a plum gig comes up that several members want, who decides who gets it?

      I still carry all the tax liabilities I did before with the addition of the fact that should HMRC decide this "scheme" didnt work I could be liable for even more.
      Valid points all.

      The key advantage is that you are far less likely to be seen as being within IR35 or in disguised employment.

      The company in the partnership has the majority of the income and this is distributed to each shareholder pro rate. I'd see the management of the income generated by each individual very much in the control of that individual but with some contribution to the common fund.

      I accept that it works only for those with common aims (specialisms or as I learnt this morning "scrum teams").
      Best Forum Adviser & Forum Personality of the Year 2018.

      (No, me neither).

      Comment


        #4
        The time and effort spent forming this team and agreeing will take so long the time spent on the bench sorting it would outweigh any possible benefits....

        The politics and management of a disparate team of individuals pretending to work as a cohesive team will be an utter nightmare.

        Are there not plenty of small consultancies that already offer services such as this to the client without them risking a bunch of contractors forming a tax dodging unit and coming in unmanaged and unfocussed?

        Even if this did work I don't think I'd want to be part of it. I see no one in a position of authority or responsibility here and if it worked once future applications would just degenerate in a free for all to join a tax dodge set up.

        The set up might work if you tweaked it but would any client ever go for this. You are forgetting we are suppliers and we need clients and they aren't really mentioned here.
        'CUK forum personality of 2011 - Winner - Yes really!!!!

        Comment


          #5
          Originally posted by webberg View Post
          Valid points all.

          The key advantage is that you are far less likely to be seen as being within IR35 or in disguised employment.

          The company in the partnership has the majority of the income and this is distributed to each shareholder pro rate. I'd see the management of the income generated by each individual very much in the control of that individual but with some contribution to the common fund.

          I accept that it works only for those with common aims (specialisms or as I learnt this morning "scrum teams").
          Just to add, as I edited my post after you had quoted it.

          Who sets the day rates for the work being done? Does each individual go at at their own rate? If you are negotiating collectively and the rate is lower than I could get myself why would I work for less?

          And I dont think it removes or reduces the risk of IR35 as HMRC could actually challenge on the fact that I am a disgused employee of the "collective" as it decides where I am going to work and when, and how much I will get paid for it.
          "Being nice costs nothing and sometimes gets you extra bacon" - Pondlife.

          Comment


            #6
            One more,

            How do you pro-rata payments based on work done when you are distributing those funds via Dividends?

            Having anything other than a simple share structure will give HMRC grounds to challenge it as an artificial arrangement purely to avoid paying it as taxable income under PAYE.
            "Being nice costs nothing and sometimes gets you extra bacon" - Pondlife.

            Comment


              #7
              Originally posted by DaveB View Post
              And I dont think it removes or reduces the risk of IR35 as HMRC could actually challenge on the fact that I am a disgused employee of the "collective" as it decides where I am going to work and when, and how much I will get paid for it.
              I think that's the basis for mooting 20 people, i.e. 5% ownership. There are some (pre)conditions of liability for the application of IR35, and this is one of them, i.e. >5% of the ordinary share capital.

              Similar schemes were proposed when IR35 was first implemented. The fundamental problem, unavoidable by design, is that any such aggregation of workers will lead to problems surrounding fairness and allocation of the rewards of the business gained. I wouldn't, under any circumstances, entertain the possibility of collaborating with unknown individuals in order to gain a tax advantage. I want to control the direction of my own business. It's bound to end in tears because it's all about the tax tail wagging the dog.

              Comment


                #8
                Originally posted by northernladuk View Post
                The time and effort spent forming this team and agreeing will take so long the time spent on the bench sorting it would outweigh any possible benefits....

                The politics and management of a disparate team of individuals pretending to work as a cohesive team will be an utter nightmare.

                Are there not plenty of small consultancies that already offer services such as this to the client without them risking a bunch of contractors forming a tax dodging unit and coming in unmanaged and unfocussed?

                Even if this did work I don't think I'd want to be part of it. I see no one in a position of authority or responsibility here and if it worked once future applications would just degenerate in a free for all to join a tax dodge set up.

                The set up might work if you tweaked it but would any client ever go for this. You are forgetting we are suppliers and we need clients and they aren't really mentioned here.
                The collective element operates mainly to divi up funds/set conditions once a year.

                The client point is valid but the client would continue to deal with their trusted contractor and/or put it out to tender anyway,
                Best Forum Adviser & Forum Personality of the Year 2018.

                (No, me neither).

                Comment


                  #9
                  Originally posted by DaveB View Post
                  Just to add, as I edited my post after you had quoted it.

                  Who sets the day rates for the work being done? Does each individual go at at their own rate? If you are negotiating collectively and the rate is lower than I could get myself why would I work for less?

                  And I dont think it removes or reduces the risk of IR35 as HMRC could actually challenge on the fact that I am a disgused employee of the "collective" as it decides where I am going to work and when, and how much I will get paid for it.
                  Who sets day rates = you.
                  Individual sets own rate = yes
                  No collective negotiation. Each partner is an agent for the partnership and negotiates on his/her own behalf and for the partnership.
                  IR 35 risk = you are a self employed partner responsible for client and to partnership. A partner cannot be a disguised employee unless they are salaried.
                  Best Forum Adviser & Forum Personality of the Year 2018.

                  (No, me neither).

                  Comment


                    #10
                    Originally posted by DaveB View Post
                    One more,

                    How do you pro-rata payments based on work done when you are distributing those funds via Dividends?

                    Having anything other than a simple share structure will give HMRC grounds to challenge it as an artificial arrangement purely to avoid paying it as taxable income under PAYE.
                    Share classes have different entitlements to dividends.

                    Second point, I'd disagree with. HMRC can ignore artificial arrangements but not those having real effect such as shares. To be tested of course.
                    Best Forum Adviser & Forum Personality of the Year 2018.

                    (No, me neither).

                    Comment

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