How many contractors does it need to be a business rather than a PSC?

[m0n1k3r]

Can you elaborate or provide links to further info re: individuals owning 5% of the company?

Income Tax (Earnings and Pensions) Act 2003

See 51(4).

[northernladuk]

Income Tax (Earnings and Pensions) Act 2003

See 51(4).

Why do I get the feeling we'll shortly be seeing a post where this is regurgitated incorrectly very soon.

[breaktwister]

Why do I get the feeling we'll shortly be seeing a post where this is regurgitated incorrectly very soon.

Why do I get the feeling that everytime I post something, an idiot will pop up with some attempt at an insult which only serves to prove his idiocy.

[RonBW]

Can you elaborate or provide links to further info re: individuals owning 5% of the company?

See page 8 of this guide: http://www.accountingweb.co.uk/sites...2015%20(6).pdf

HMRC guidance on whether you have a material interest can be found here.

[breaktwister]

Any engagement with a PS body that exhibits any degree of control over the worker will be deemed to be inside IR35 anyway. You may not be inside, in fact, but getting the imposed taxes back is your problem.

From my understanding of the ITEPA 2003 it seems that many discussions are incorrectly simplifying what is meant by "inside IR35" focusing only on the elements at 49(1) "similar to an employee" etc while making an assumption that conditions as specified in 50 and 51 are satisfied (including material interest in the intermediary receiving payment).

I tend to agree with fidot on this, if you do not hold more than 5% interest or control of the intermediary company receiving payment then the earnings of that intermediary cannot be deemed to be employment earnings for income tax purposes which is a triggering condition in s61M(d)(I) of the Finance Bill 2017.

In short, if you do not own or control more than 5% of the company supplying services there is no legal right for any entity to make any "deemed employee" deductions from that companies earnings; and there would be no legal onus to provide your NI details to any party to enable such a deduction.

It seems that a company with 21 equal shareholders escapes any IR35 issues, although this might be extremely difficult to operate in practice. Dividend distribution would be a nightmare. But, at least "legitimate business expenses" could once again be offset before taxation. This structure has advantages for a group of contractors who wish to team up where T&S is not available under any other avenue. I am unsure if there are any laws, other than ITEPA or the Finance Bill, which step in to cover this gap and disallow such a structure?

[northernladuk]

You mean like the IPSE Flc?

[breaktwister]

You mean like the IPSE Flc?

First I've heard of that, I see the idea cropped up in 2014 or so, did it ever take off?

From a personal perspective, I don't care that much about having to take a hit on a payroll, but I need T&S to be deductible or most contract opportunities simply will not be viable for me (I live in a remote part of the UK, I won't be moving my family around with me and I want to get home every weekend). With no T&S I am royally screwed and will be forced to look for scraps or poorly paying permie roles in and around my home area. I am sure a lot of contractors will be left in this position, especially if they roll this nonsense out to the private sector.

[northernladuk]

With no T&S I am royally screwed and will be forced to look for scraps or poorly paying permie roles in and around my home area. I am sure a lot of contractors will be left in this position, especially if they roll this nonsense out to the private sector.

I guess that would be somewhere in Wales would it?

[breaktwister]

I guess that would be somewhere in Wales would it?

A 1-in-3 chance but NO!

2 choices left!

[breaktwister]

You mean like the IPSE Flc?

I read the FLC thread on here from 2015 and it didn't actually say what the scheme was or provide any links to it. I guess it never took off.

Here is my idea: Something similar to an umbrella company where contractors team together to form a consultancy/services firm. No individual is allowed to own more than 5% of the firm. The firm handles invoicing etc and everyone is paid a basic minimal salary. Each contractors daily rate determines his percentage of ownership so that dividends can be paid proportionally. IR35 cannot be applied to these individuals regardless of "end-client SDC" as they do not meet the criteria of s51 ITEPA 2003. The firm can rightly bill out to the end-client or agency and expect to receive the full amount without the "deemed employee" deductions. Operating under this structure can be sold to end-clients as an "IR35 free" solution where they are not required to determine SDC.

The advantages of this structure over a typical umbrella company are obvious; the full range of business expenses can be deducted before tax. This structure would be particularly useful for contractors who need to stay away from home.

Disadvantages are likely to be a larger administrative burden, dealing with contractors who want to leave the group as an immediate replacement would need to be found to transfer the share ownership; potential legal complications or disputes if a contractor refuses to give up ownership or dies (meaning his shares will pass to his estate). This would need to all be accounted for in the legal contract between the share owners of the firm. I guess there will be other challenges that need to be ironed out.

I expect to be abused for this idea but I'll put it out for discussion anyway.