Will IT contractors be considered permanent employees after one month on site?

[eazy]

Autumn Statement Predictions : Tweaking IR35

Autumn Statement Predictions : Tweaking IR35

Autumn statement predictions | AccountingWEB

The government appears determined to deter tax-incentivised incorporation. The dividend tax is one line of attack, another is the restriction of travel and subsistence expenses for contractors working through intermediaries. Both changes are due to take effect from 6 April 2016. On top of those there is a rumour of further tweaking of the IR35 rules to force contractors on to their engager’s payroll where the engagement lasts for a set period – possibly as little as 12 months.

The Autumn Statement promises to be exciting – but possibly not in a good way for small businesses.

[LondonManc]

Autumn Statement Predictions : Tweaking IR35

Autumn statement predictions | AccountingWEB

The government appears determined to deter tax-incentivised incorporation. The dividend tax is one line of attack, another is the restriction of travel and subsistence expenses for contractors working through intermediaries. Both changes are due to take effect from 6 April 2016. On top of those there is a rumour of further tweaking of the IR35 rules to force contractors on to their engager’s payroll where the engagement lasts for a set period – possibly as little as 12 months.

The Autumn Statement promises to be exciting – but possibly not in a good way for small businesses.

That'll make an absolute mockery of the whole situation. Have they considered the accounting implications of it?

From hereon in, he'll be know as George The Plum

[GB9]

That'll make an absolute mockery of the whole situation. Have they considered the accounting implications of it?

From hereon in, he'll be know as George The Plum

Someone remind me where it is stated that the decision to ban T&S on contracts through intermediaries has been taken.

[MrMarkyMark]

Someone remind me where it is stated that the decision to ban T&S on contracts through intermediaries has been taken.

It hasn't.

In addition, they have tried the same thing, at some stage before, they couldn't get it through that time round.

[IR35 Avoider]

Here are some comments on various responses to my earlier posts.

If I make a specific prediction about how the world will end, that doesn't mean I'm in favour of it ending that way, or in any other way. You have to be a bit cognitively challenged to draw that conclusion.

If I'm right that this would be implemented as a tweak to IR35, assuming anything like a one-month rule happens, then I agree people who depend on substantial expenses will be more affected than I originally suggested.

I don't see why this isn't easy to legislate, it's hugely simpler than what was legislated in IR35 Mk1, and can build on that foundation. Without actually trying to compose anything, I'd guess you might be able to add as little as one sentence/paragraph to the existing legislation, and catch 95% of those not currently caught. (By catch I mean get to actually comply, the other 5% would be caught but not complying.)

It's possible that there will be a duty on clients to notify HMRC, but I doubt that's really necessary or practical, and in any case it won't be the thing that make a difference. The rule that more than one month means caught is what would matter, whether clients and agents help enforce it or PSC owners are expected to self-assess is secondary. IR35 mk1 failed because people could get away with wrong (in HMRC's eyes) self-assessments, that doesn't happen if the criteria for caught becomes very simple and obvious.

[jamesbrown]

Here are some comments on various responses to my earlier posts.

If I make a specific prediction about how the world will end, that doesn't mean I'm in favour of it ending that way, or in any other way. You have to be a bit cognitively challenged to draw that conclusion.

If I'm right that this would be implemented as a tweak to IR35, assuming anything like a one-month rule happens, then I agree people who depend on substantial expenses will be more affected than I originally suggested.

I don't see why this isn't easy to legislate, it's hugely simpler than what was legislated in IR35 Mk1, and can build on that foundation. Without actually trying to compose anything, I'd guess you might be able to add as little as one sentence/paragraph to the existing legislation, and catch 95% of those not currently caught. (By catch I mean get to actually comply, the other 5% would be caught but not complying.)

It's possible that there will be a duty on clients to notify HMRC, but I doubt that's really necessary or practical, and in any case it won't be the thing that make a difference. The rule that more than one month means caught is what would matter, whether clients and agents help enforce it or PSC owners are expected to self-assess is secondary. IR35 mk1 failed because people could get away with wrong (in HMRC's eyes) self-assessments, that doesn't happen if the criteria for caught becomes very simple and obvious.

You cannot simply change legislation by adding a one liner. If the intention were to achieve a "caught" scenario after one month, the legislation would need to be re-written, defining the appropriate conditions, in such a way that those conditions could not be easily circumvented (and this is more difficult than you might think), while also removing the extraneous stuff that no longer applies. Obviously, that could be done. That isn't the issue, really. The problem is more with your premise that self-assessment works, and the point of failure is, therefore, with the specific set of rules that apply. According to HMRC, it fundamentally does not work, which is why they want to involve the engager. It's much easier to chase a few engagers for compliance and, ultimately, a liability than several hundred thousand contractors. A large fraction of contractors don't even consider IR35 (i.e. they aren't aware of it). In that sense, CUK is not representative.

[IR35 Avoider]

We can agree that writing the legislation is not an obstacle. I'm surprised that you think that defining "more than one month at a client" is not vastly simpler than "has a relationship with a client that looks like employment", but it seems you agree it can be done.

I've been thinking about this some more, and if the bit about killing off the PSC is correct, here's how I think it could be done: there could be an extra "follow the money" rule that says if IR35 is not complied with, whoever paid money to the non-complying company becomes liable for payroll taxes. This is analogous to what happened with self-employment: as soon as companies, and later agencies, became liable for sole traders payroll taxes when they were deemed employees, they each stopped dealing with sole traders. So in the world of "IR35 Mk2 with client-enforced compliance" no-one will deal with a PSC, as they do not trust them to operate IR35 correctly. Clients and agencies will be willing to pay other large companies, such as agencies, umbrellas and large consultancies, but contractors will have to be PAYE with a large company they do not control.

In this world the ideal vehicle for a contractor would be a large-consultancy owned by its employees. I hope IPSE would create the ideal one. Contracting would work mostly as now, but with the large-co taking the place of the PSC/umbrella. There would be some complexities involved in Large-co ensuring income was not IR35-caught, which would probably require contractors not having a benefits package directly linked to fees generated. They would have to trust large-co to remunerate them fairly on average over the long-term. Discretionary bonuses would be an essential tool in large-cos employee-benefits armoury. Large-co might be able to do some clever things that even PSCs can't, such as paying 30K tax-free redundancy when work dried up for unusually long periods. Some (relatively small) level of dividends from employee owned shares would also be possible.

[IR35 Avoider]

The problem is more with your premise that self-assessment works, and the point of failure is, therefore, with the specific set of rules that apply. According to HMRC, it fundamentally does not work, which is why they want to involve the engager.

The reason it doesn't work is because there is plausible deniability when contractors get self-assessment wrong. Plausible deniability means there are no penalties. If status is so simple that there is no plausible deniability, then there are penalties for not complying, so then there is no compliance problem.

[malvolio]

Apart from the commercial issues (which are significant), there are two key problems with the large consultancy for contractors model - it would have to sidestep the MSC legislation, and it is very easy for HMRC to define it as a sham organisation under Ramsay on the basis that it has no other commercial purpose; the Big 4, after all, have a solid commercial presence in their own right. Even without stretching Ramsay, any such organisation could be easily identified and marked a "special case" so you end up as a PAYE employee anyway.

[IR35 Avoider]

Clearly there are large consultancies that don't even have to think about status issues, so it must be possible to sufficiently resemble one so that an employee-owned one is in the same boat. The only question to be settled is what exactly "sufficiently" means. (And yes, I do recall that you and I have had this exact conversation before. )

Having said that, the issue of having to give up "your" income to the consultancy might well make it a commercial non-starter, due to contractors simply not being willing to do that.

I remember working at a client where the majority of other outside workers, more than 50, were supplied by a large consultancy. I recall my eyebrows shooting up when one of their people mentioned that they were a "charity". He could see the funny side of that description, when new graduates were being charged at multiples of what they themselves were being paid, and rapidly explained that their status was just a tax-related thing. Anyway, my insignificant point is that a legitimate large consultancy doesn't have to have external owners raking off a large proportion of the profits.