Hammond plans tax crackdown on 'synthetic self-employed'

[dx4100]

Haven't they become advocates for benefits for contractors who are caught inside? I thought they'd pretty much abandoned trying to get IR35 overturned.

That said, will the likes of IPSE and QDos be changing their IR35 insurance offerings if the private sector roll-out goes ahead?

I would expect the likes of the insurance offered by QDos and Abbey Tax will be totally pointless and will disappear if the changes go ahead. There is a whole industry around IR35 that is effectively over ? IPSE membership and its benefits will probably stay as IR35 isn't the only tax challenge / issue we face and the fight will no doubt focus on obtaining rights for caught contractors etc.

[Joolsey86]

There seems to be an assumption that clients will raise their daily rate to accommodate an IR35 extension to private sector.

The thing is if IR35 client responsibility extension is in PUBLIC and PRIVATE, then there is nowhere left to run, so clients can charge what they want. We are under the illusion, we the contractor sets the rates. The market does.

[DaveB]

There seems to be an assumption that clients will raise their daily rate to accommodate an IR35 extension to private sector.

The thing is if IR35 client responsibility extension is in PUBLIC and PRIVATE, then there is nowhere left to run, so clients can charge what they want. We are under the illusion, we the contractor sets the rates. The market does.

It will vary by client. The HMRC case that IPSE fought means that we can now point out to clients that by putting us inside they leave themselves open to claims for employee benefits, which is entirely fair. If they are going to treat us like employess then we should get the same benefits. They can either provide the benefits, up the rate in return for being indemnified against that, or they can declare us outside.

[Joolsey86]

It will vary by client. The HMRC case that IPSE fought means that we can now point out to clients that by putting us inside they leave themselves open to claims for employee benefits, which is entirely fair. If they are going to treat us like employess then we should get the same benefits. They can either provide the benefits, up the rate in return for being indemnified against that, or they can declare us outside.

You are right, but that will mean dramatically decreased rates, I was at a very large accountancy firm until recently. Their IR35 pay worked out about the same as a permie, as they deducted holiday, sickness and PAYE obviously from their rate.

Scary times.

[WordIsBond]

There is danger for both where both agree to be outside IR35. In that case, I can see a lot of contracts with indemnity clauses pushing the potential cost of tax and employee NIC back onto contractor. (Employee NIC is ALWAYS the obligation of the end user if the public sector rules are followed).

Interesting times will see the rise of interesting "solutions".

Some of those solutions will have the potential to create the same tax problems we see today from the use of schemes in the past.

A much simpler interesting solution will simply be for QDOS, etc, to issue a new kind of insurance policy to cover that indemnity.

I see three significant risks that go away under this scenario:
1. Since Employer NIC (not Employee as you stated) is the obligation of the end user, the end user is also on the hook if the case is lost, so the risk of them saying stupid things to HMRC is much lower. It won't be some HR bod answering HMRC questions, it will be some lawyer making sure they don't say anything dumb.

2. Today, the contract with the agency may be IR35 friendly but the upper contract may not be. That is much less likely under this scenario. Clients will want to avoid those kinds of clauses in the upper contract if they will get them in trouble later.

3. Many clients tend to want to treat contractors like employees. Under this scenario, HR/Legal will be telling their own people/management that contractors are independent and not employees and should not be viewed as such. Contractors should have to fight less to maintain their independence.

All of that should mean that the cost of indemnity insurance should be markedly lower. Given that, there will be less incentive for schemes, etc. QDOS sells a policy, it's a matter of negotiation between the client and the contractor who pays for it, but the cost should be low enough that it really isn't a big deal.

[Joolsey86]

A much simpler interesting solution will simply be for QDOS, etc, to issue a new kind of insurance policy to cover that indemnity.

I see three significant risks that go away under this scenario:
1. Since Employer NIC (not Employee as you stated) is the obligation of the end user, the end user is also on the hook if the case is lost, so the risk of them saying stupid things to HMRC is much lower. It won't be some HR bod answering HMRC questions, it will be some lawyer making sure they don't say anything dumb.

2. Today, the contract with the agency may be IR35 friendly but the upper contract may not be. That is much less likely under this scenario. Clients will want to avoid those kinds of clauses in the upper contract if they will get them in trouble later.

3. Many clients tend to want to treat contractors like employees. Under this scenario, HR/Legal will be telling their own people/management that contractors are independent and not employees and should not be viewed as such. Contractors should have to fight less to maintain their independence.

All of that should mean that the cost of indemnity insurance should be markedly lower. Given that, there will be less incentive for schemes, etc. QDOS sells a policy, it's a matter of negotiation between the client and the contractor who pays for it, but the cost should be low enough that it really isn't a big deal.

I pay nearly £1000 a year for full cover (including tax owed), I feel this is worth it as it takes a little weight off my shoulders. I hope it works out like you say, but think most HR will just err on the side of caution.

[WordIsBond]

You are right, but that will mean dramatically decreased rates, I was at a very large accountancy firm until recently. Their IR35 pay worked out about the same as a permie, as they deducted holiday, sickness and PAYE obviously from their rate.

The market is not a monolith. There will be clients who like the reduced obligations of outside IR35 contracts. They will get the best contractors, and so other clients will have to either have outside roles or pay more. It's basic economics -- an equilibrium will be achieved. Inside IR35 roles will pay more, outside roles will pay less. Clients won't be able to just say, 'I'm going to pay the same but go risk-averse and declare everyone inside.' The market will shift and they won't get good contractors if they do that.

Contractors won't be able to just say, 'I'm going to demand outside roles and the same pay,' either. Since more contracts will be inside, clients will want a discount on the rates for outside roles. There will be a new equilibrium for outside roles as well.

In the end, because neither contractors nor clients are monolithic, supply and demand will mean new equilibriums will be reached. It is going to cost both contractors and clients money -- neither group has the power to force the entire cost to fall on the other group, because neither group will form a unified cartel.

So, less money for us, less money for clients, more money for HMRC -- but the economic damage may also, in the long run, mean less money for HMRC, too. It certainly isn't going to be as profitable for them as they think it will be. Economics doesn't work that way.

[WordIsBond]

I pay nearly £1000 a year for full cover (including tax owed), I feel this is worth it as it takes a little weight off my shoulders. I hope it works out like you say, but think most HR will just err on the side of caution.

Many will, and I wasn't talking about them. I was talking about webberg's comments about those who are willing to take the risk of outside contracts. But there's another risk -- that employment rights kick in. Avoiding one risk brings another risk for them, and if they avoid both, and grant employment rights, then it becomes very expensive.

[legal]

Hammond plans tax crackdown on 'synthetic self-employed' - BBC News

Nothing new but time to take this seriously now?

The Treasury is finalising plans to overhaul tax rules which allow self-employed people to avoid paying national insurance contributions.

The move will be targeted at people who set themselves up as private companies to take on work.

It could be announced in the Budget at the end of the month, I understand.

Looks like the content of article is amended after I initially got the extract.

This line is removed, "It could be announced in the Budget at the end of the month, I understand.".

[ChimpMaster]

Isn't one of the greatest risks that, if the client chooses to declare a contractor within IR35, then potentially the short-sighted HMRC will deem that contractor as always having been within IR35 at that client, for however long the contract has run.

This could see many thousands on contractors forced to pay IR35 tax going back up to 6 years, i.e. however long the contractor has been at business with that client.

Another retro-tax.