You're probably not going to like this - we certainly don't

[teapot418]

What's a PSC?

I fear that battle is all but lost.

[teapot418]

Running figures through a calculator - £400 a day, 44 weeks a year, 6K pension contributions you end up with around £10K a year extra tax liability if IR35 caught (rough figures)

So that would be 44,000 PSCs who should be'IR35 caught' but not declaring themselves as such. According to the doc, 10% of those that should be are, so that's a total of 49,000 IR35 caught PSCs - back of fag packet calculation.

From previous discussion doc, there are 265,000 PSCs.

I haven't got a gut feel for whether 49,000 of 265,000 is too high, too low or about right - any thoughts?

Ah, from the original discussion document

Whilst many PSCs would not fall within the legislation because the worker would properly be
regarded as self-employed, the government would still expect to see a larger increase in the
number of people paying tax and NICs under IR35. In 2011-12 around 10,000 people paid tax
under IR35, an estimated 10% of those who should have paid tax on at least part of the
income their PSC receives under the legislation.

So they think 100,000 should be 'caught' (an extra 90,000) - in which case their estimate of additional tax take seems low...

[missinggreenfields]

Running figures through a calculator - £400 a day, 44 weeks a year, 6K pension contributions you end up with around £10K a year extra tax liability if IR35 caught (rough figures)

So that would be 44,000 PSCs who should be'IR35 caught' but not declaring themselves as such. According to the doc, 10% of those that should be are, so that's a total of 49,000 IR35 caught PSCs - back of fag packet calculation.

From previous discussion doc, there are 265,000 PSCs.

I haven't got a gut feel for whether 49,000 of 265,000 is too high, too low or about right - any thoughts?

HMRC say that this will affect 20000 PSCs, and raise £400 million. So that means that every PSC will be stung for an extra £20000 for those numbers to add up.

But that doesn't factor in the cost of the tribunals, staffing, appeals, tax repayment, complexity etc that this will bring in. The numbers don't add up, but they never do.

[teapot418]

HMRC say that this will affect 20000 PSCs, and raise £400 million. So that means that every PSC will be stung for an extra £20000 for those numbers to add up.

But that doesn't factor in the cost of the tribunals, staffing, appeals, tax repayment, complexity etc that this will bring in. The numbers don't add up, but they never do.

No, I don't think they do - they say non-compliance "costs" £440 million. I don't believe they're suggesting that this proposal would recover £440 million.

[malvolio]

No, I don't think they do - they say non-compliance "costs" £440 million. I don't believe they're suggesting that this proposal would recover £440 million.

The £440m has been around for years. When IPSE got the real numbers, it was a tiny percentage of that. It's another of those pointless numbers that HMRC invents to justify their existence, where they add up the "lost" tax revenue caused by people using things like their personal allowances and other entirely sensible measures.

There's a reason I don't pay full employee PAYE and NICs on MyCo's income: it's because MyCo is not an employee.

[Mordac]

The £440m has been around for years. When IPSE got the real numbers, it was a tiny percentage of that. It's another of those pointless numbers that HMRC invents to justify their existence, where they add up the "lost" tax revenue caused by people using things like their personal allowances and other entirely sensible measures.

There's a reason I don't pay full employee PAYE and NICs on MyCo's income: it's because MyCo is not an employee.

Or we could just do a "Sir Shifty" and flog the company for a quid. Which wouldn't be nice, but wouldn't be illegal...

[SueEllen]

The £440m has been around for years. When IPSE got the real numbers, it was a tiny percentage of that. It's another of those pointless numbers that HMRC invents to justify their existence, where they add up the "lost" tax revenue caused by people using things like their personal allowances and other entirely sensible measures.

There's a reason I don't pay full employee PAYE and NICs on MyCo's income: it's because MyCo is not an employee.

So HMRC wants contractors going down the job centre and claiming JSA (and any associated benefits) every time we have a break between contracts? Sounds a bit like the DVLA and their tax discs.

[Wombat14]

I noted something which might be useful:

HMRC has already confirmed in its consultation document that it will be bound by the decision determined by the tool. However, Horswill went on to suggest that the tool would be able to replicate the outcome that case law judges would issue in court.

“The questions that we ask will be based on case law. We are confident in the expertise that we have in house and we believe we will be able to ask a set number of questions and get a result that is almost certainly what the courts and the tribunals would come out with.”

Philip Horswill is the HMRC rep quoted in the article.

A couple of things come to mind on reading that quote:

1) The obvious point is that we/IPSE/interested parties will presumably be able to run historic tribunal cases through this tool to see whether or not it does indeed spit out the same end results. This will probably not be terribly helpful (though worth a look anyway) because we know that HMRC cherry-pick their cases. However:

2) We will collectively have lots of cases where HMRC have opened an IR35 investigation and chosen not to take it to a tribunal (e.g. cases where the contractor had IR35 insurance and HMRC would have had to do some actual work). We could run the facts of those contracts through the tool as well. This will lead to one of two outcomes:

a) The verdict of the tool is "outside IR35". Great! Perhaps this is a genuinely excellent bit of software development - well done Hector! I'm sure that this is the excellent outcome that we are all confidently expecting.

b) The verdict of the tool is "inside IR35". Well hang on a minute, HMRC looked diligently at these cases with full consideration of applicable legislation, and concluded that there was not sufficient prospect of victory to justify proceeding to tribunal. But the tool is providing a different result. So is the tool wrong, or did HMRC make the wrong decision in all of those cases? And in either case, Mr Horswill's confidence in HMRC's expertise in these matters is demonstrably misplaced.

No doubt (b) is highly unlikely to occur, but I think that IPSE (with input from the records of helpful solicitors such as B&C) should conduct this exercise on the remote off-chance that Mr Horswill's team is not quite as expert as he believes.

[eek]

The thing to remember is that HMRC are trying to get new rules here. They have continually lost ever time an ir35 case ends up looking at substitution and mutual obligation. As such they don't want those rules in their perfect ir35 world.

[Wombat14]

You're right, of course, I'm sure they would love to establish new rules. But their consultation paper suggests that they're not doing that, they're only changing the means by which those rules are applied:

The basis on which the rules are applied to determine whether a worker would have been an employee if engaged directly is not changing. This is the case for engagements with both private and public sector clients. The new rules move the liability to make the determination about whether the intermediaries rules apply, and the associated tax liability if so, from the PSC to the public sector end-client or agency or other third party closest in the chain to the PSC if there is one.

And:

To provide greater clarity and certainty HMRC has developed a new simplified process using the current employment status rules which will make it easier to make a decision on an engagement. This will be supported by a digital tool to provide upfront certainty.

It's entirely possible that I'm missing something, though.