Hammond plans tax crackdown on 'synthetic self-employed'

[pjt]

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

No need for any insurance if your outside IR35 under the new rules. All the risk sits with the client making the decision. IR35 worries go away when you get the outside determination.

[Swamp Thing]

Is it just me or is anyone else suspicious of Hammond using the label ‘synthetic self-employed’?

He’s such a donkey he wouldn’t have come up with this term. It feels like an emotive label used by one of his team of millennial advisors to grab the popular vote. Probably from the same cohort of advisors that steered Osborne towards the new BTL tax regime (plenty of emotive spiel in that white paper). You know, the young ones with a big axe to grind against entrepreneurship and risk-taking.

[Hobosapien]

Clients like the relative simplicity of contractors not being employees and all the red tape and inflexibility that goes with it, so I expect them to default to 'inside IR35' to keep things simple and lower risk, and the contractor just has to make sure the rate offsets all the taxes the client has offloaded on them.

Though if the government really wanted to stop 'fake self employment' they'd make it illegal for a company to use an individual that isn't an employee, requiring proper B2B contracts that could then allow the individual to be genuinely self-employed and not have to operate via a PSC to fulfil agency requirements.

[Joolsey86]

Clients like the relative simplicity of contractors not being employees and all the red tape and inflexibility that goes with it, so I expect them to default to 'inside IR35' to keep things simple and lower risk, and the contractor just has to make sure the rate offsets all the taxes the client has offloaded on them.

Though if the government really wanted to stop 'fake self employment' they'd make it illegal for a company to use an individual that isn't an employee, requiring proper B2B contracts that could then allow the individual to be genuinely self-employed and not have to operate via a PSC to fulfil agency requirements.

But the government wont do that, as they want their cake and eat it.

They want a dynamic flexible workforce (Cake) and they want this dynamic workforce to pay more tax than anyone else in the country and receive no employee benefits whatsoever (Eat it.)

Will never ever vote Conservative again.

[dx4100]

Given contractors who are caught inside IR35 are going to demand higher rates and employee style benefits I would imagine it will be the kick up the arse clients / agents need to start properly declaring contractors outside of IR35 and start treating them as much.

I don't think the private sector will react quite like the public sector did. I can see a lot of private firms simply accepting we are truly independent. I mentioned it today at my current gig and he said, "well you are independent - I don't see the issue". Of course just one opinion but there is the possibility this works well. And if it doesn't - well I will take all those employee benefits and a resonable fee thank you very much....

[dx4100]

But the government wont do that, as they want their cake and eat it.

They want a dynamic flexible workforce (Cake) and they want this dynamic workforce to pay more tax than anyone else in the country and receive no employee benefits whatsoever (Eat it.)

Will never ever vote Conservative again.

Yup but who is going to do that ? I contract first and foremost because I like the flexibility and style of work I get as a contractor but ultimately if it doesn't pay enough to make it worth while then simple economics kick in and I won't do it.

I ain't no mug

[sira]

Another ridiculous money grab. In the long term, Hammond's coffers will be worse off.

If it passes Parliament, will be interesting how companies react. If they decide to take the easy route and offer only perm, or even worse FTC's, then we are all royally screwed.

In terms of Accounting, there are loopholes around IR35 (source: my accountant) but is contingent on employers not shifting to FTC's.

Another tertiary consideration is how agencies will handle it, given that half of them don't even know what IR35 is.

Personally, if the worst case scenario pans out and contracts dry up, then I'll be on the first plane outta here. Wont let the coffers be boosted with 40% of my income.

[WordIsBond]

Still not persuaded this will go through, especially not without some tweaks to CEST. But if it does clients will generally fall into the following groups:

1. Highly risk averse clients who are willing to pay for risk avoidance. They will just increase rates and declare everyone inside, with iron-clad 'no employment rights' provisions.

2. Highly risk averse clients who are not willing to pay. They will declare everyone inside, lose the best contractors, and may end up having to pay anyway.

3. Moderately risk averse clients. They will look to adjust working practices on some roles, declare others inside, and for those outside, buy a new insurance product that QDOS will come up with, TLC35 For Clients, or something similar. Contractors may end up paying for that insurance or it becomes part of the negotiation, but it will protect the client, not the contractor.

4. Aggressive and/or stupid clients. They will decide that they don't want to lose contractors, they don't want to pay extra, and so they will just declare contractors outside. Maybe they'll make some small modifications to working practices / contracts.

QDOS will still sell insurance to contractors who are afraid that the rules will change on them or afraid that the client will go under and HMRC will come after ContractorCo. This insurance will be inexpensive. It will also cover contractors with foreign clients (that insurance also should be inexpensive).

A lot of people will be inside IR35 that probably shouldn't be, due to categories 1&2 above. The rest of us can mostly stop worrying about IR35. And HMRC will be mostly happy because a lot more people will be paying a lot more tax.

But corporate profitability will drop both because they will have to pay more for contractors and because they have the extra cost of administering the whole thing, and because companies will be more hesitant to take on contractors because it is now a hassle and/or risky. So the benefit of the flexible workforce will diminish. So they'll probably lose half or more of the extra revenue in reduced corporation tax. But that isn't important to the narrative so they will declare it a success.

[Hobosapien]

The other option that clients are already using is to outsource to large consultancies to supply the resource in an attempt to offload all risk and responsibility. Some clients may even think it will save them money and be no less efficient in terms of quality, the other clients will accept the increased cost as the fee for doing business this way.

I wonder if the consultancies will sub contract to us instead of getting cheaper foreign labour to fill the 'skills shortage'.

Should still be clients out there that have already been burned by potentially lower quality resource at inflated consultancy prices that are willing to engage contractors via the established channels.

[webberg]

The view above from WordisBond I think I would largely agree with.

However HMRC will also be aware of this.

Their emphasis will switch from chasing contractors who declare themselves outside IR35 to those end clients who make that declaration without really changing any of the documented terms of their engagement, or worse, the actual terms of the engagement.

I sense a revolution coming in how all sides of this equation need to think.

Being inside or outside IR35 is not a choice. It's a position derived from the facts. In weighing those facts, whilst some weight is carried by how the engagement is documented and whether or not a PSC is used, the reality is that the matter being tested is what the job is and how it is done.

I suspect a lot of engagers are going to be very nervous and will flee to the high ground of a blanket inside IR35.

There will then commence a trial of strength between the contractor and the end user. Who needs the other most?

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.