IR35: IPSE proposal for a ‘Freelancer Limited Company’ (FLC)
Discussion
TooLateForAName said:
Be honest, lots of contractors are basically temp employees. They are not really running a business in any real sense.
I've worked in IT for 15 years and have worked with hundreds of contractors during that time. If I think very hard I can think of maybe a handful of contractors who are not temporary employees. They are a conspicuous minority in the IT industry. 
bga said:
TooLateForAName said:
Be honest, lots of contractors are basically temp employees. They are not really running a business in any real sense.
I've worked in IT for 15 years and have worked with hundreds of contractors during that time. If I think very hard I can think of maybe a handful of contractors who are not temporary employees. They are a conspicuous minority in the IT industry. If there were another vehicle for being an independent freelancer than operating through a limited company, then I might investigate it. But I consider being a free agent able to provide expertise to multiple clients in parallel to be the mark of running a business. It is something that temporary staff most definitely do not do.
bga said:
TooLateForAName said:
Be honest, lots of contractors are basically temp employees. They are not really running a business in any real sense.
I've worked in IT for 15 years and have worked with hundreds of contractors during that time. If I think very hard I can think of maybe a handful of contractors who are not temporary employees. They are a conspicuous minority in the IT industry. In my (permie) job, I've been seconded to a client and worked directly for them, pretty much as a temporary employee. There were permies and 'contractors' doing the same role. I'd be amazed if ANYONE working there as a contractor could legitimately claim to be outside of IR35.
It's what puts me off contracting really. I know exactly what the roles are like, and I see no chance of them standing up to an IR35 investigation. Then once you're inside IR35 you're no better off financially, doing the same role as many permies, so what's the point?
blank said:
Then once you're inside IR35 you're no better off financially, doing the same role as many permies, so what's the point?
Well, for a start, you don't have all the b
ks about Appraisals, goals, being expected to stay late and do unpaid overtime, take on extra responsibility for no extra money, deal with company politics, and other such bullst. You work and you get paid. It's delightfully honest and bullst-free. You also have no pressure to be promoted out of a technical role and into a management one.
Besides, just because you don't want to go contracting doesn't mean nobody else should either.
I spent many years as a Ltd Co freelance contractor but now I’m a self-employed sole trader with my own customers. In terms of risk the difference is huge and doesn’t compare. Many of the contractors I worked with wouldn’t even know (or care) where to get a business card made let alone “run their own business”. The only real business admin is getting the weekly time sheet approved by the line manager and the expenses over to the accountant! In terms of working practices any contractor in the financial sector will recall situations where the politics is virtually the same as permies too.
However, just because they’re not self-employed in the traditional sense doesn’t mean that they don’t take any risk, so it seems bizarre that there’s not a simple tax structure for freelancers rather than all this fear and doubt that still surrounds IR35.
However, just because they’re not self-employed in the traditional sense doesn’t mean that they don’t take any risk, so it seems bizarre that there’s not a simple tax structure for freelancers rather than all this fear and doubt that still surrounds IR35.
Bikerjon said:
I spent many years as a Ltd Co freelance contractor but now I’m a self-employed sole trader with my own customers. In terms of risk the difference is huge and doesn’t compare. Many of the contractors I worked with wouldn’t even know (or care) where to get a business card made let alone “run their own business”. The only real business admin is getting the weekly time sheet approved by the line manager and the expenses over to the accountant! In terms of working practices any contractor in the financial sector will recall situations where the politics is virtually the same as permies too.
Hmmm, it's a fair point I guess. Bikerjon said:
However, just because they’re not self-employed in the traditional sense doesn’t mean that they don’t take any risk, so it seems bizarre that there’s not a simple tax structure for freelancers rather than all this fear and doubt that still surrounds IR35.
Yes, absolutely. I think that's what IPSE are trying to achieve (just to veer back on topic briefly 
)But they don't take very much risk.
I've been in a similar situation to Bikerjon. I ran a ltd company, mainly myself, many concurrent customers, used subcontractors for some projects. It is a very different situation to the BOS (bum on seat) contractor.
From the taxman's point of view I can understand IR35/S660 etc. The IT industry especially is full of people who are contractors and are pretty much indistinguishable from 'real' employees in terms of working practices but are paying themselves and their partner minimum salary, stuffing all sorts of expenses through which wouldn't be allowed for a permy and often playing silly buggers to avoid tax. The easiest way to deal with that is to deem them virtual employees and hence ir35.
I've been in a similar situation to Bikerjon. I ran a ltd company, mainly myself, many concurrent customers, used subcontractors for some projects. It is a very different situation to the BOS (bum on seat) contractor.
From the taxman's point of view I can understand IR35/S660 etc. The IT industry especially is full of people who are contractors and are pretty much indistinguishable from 'real' employees in terms of working practices but are paying themselves and their partner minimum salary, stuffing all sorts of expenses through which wouldn't be allowed for a permy and often playing silly buggers to avoid tax. The easiest way to deal with that is to deem them virtual employees and hence ir35.
TooLateForAName said:
The IT industry especially is full of people who are contractors and are pretty much indistinguishable from 'real' employees in terms of working practices but are paying themselves and their partner minimum salary, stuffing all sorts of expenses through which wouldn't be allowed for a permy and often playing silly buggers to avoid tax. The easiest way to deal with that is to deem them virtual employees and hence ir35.
As opposed to the permies who are getting sick pay, holiday pay, pensions, dental cover, and all sorts of perks that wouldn't be allowed for a contractor. What exactly is your argument here? You know right well that they are just different ways of working.
You need to be careful you don't grind that axe away and have to buy a new one. And you'd better not put it down as a business expense even if it is a totally legitimate one.
JonRB said:
As opposed to the permies who are getting sick pay, holiday pay, pensions, dental cover, and all sorts of perks that wouldn't be allowed for a contractor.
Of course those are allowed for contractors operating through limited companies.They claim to be running a legitimate business working for their very own limited companies. If that is the case the directors of those companies, ie themselves, can pay whatever taxable perks they want to their employees, ie themselves, such as sick pay, holiday pay, private health etc.
If they choose to work for a company such as this that doesn't provide these perks they should have a word with the directors.
Ok.
So, we have established that some goatee-wearing powerfully-built Company Directors running "proper" (sic) companies have an axe to grind about freelancers who they consider aren't "proper" enough. And we have established that some permanent employees consider freelancers to be on some kind of tax dodge or whatever.
Blah blah
, same old. It's getting boring now, guys. Same tired old crap whenever a thread of this type is started.
So, given the fact that some freelancers most definitely don't want to become permanent employees of their clients, and given that some freelancers are unwilling or unable to have more than one or two clients at a time, and given that I started this thread to discuss the IPSE proposal for a ‘Freelancer Limited Company’ (FLC) that would allow those freelancers who want to work that way to work that way...
... with hindsight, I shouldn't have bothered starting the thread.
So, we have established that some goatee-wearing powerfully-built Company Directors running "proper" (sic) companies have an axe to grind about freelancers who they consider aren't "proper" enough. And we have established that some permanent employees consider freelancers to be on some kind of tax dodge or whatever.
Blah blah
, same old. It's getting boring now, guys. Same tired old crap whenever a thread of this type is started. So, given the fact that some freelancers most definitely don't want to become permanent employees of their clients, and given that some freelancers are unwilling or unable to have more than one or two clients at a time, and given that I started this thread to discuss the IPSE proposal for a ‘Freelancer Limited Company’ (FLC) that would allow those freelancers who want to work that way to work that way...
... with hindsight, I shouldn't have bothered starting the thread.
No goatee and certainly not powerfully built.
As I'm not a member of the PCG (I stopped a long time ago) I don't have the detail of the proposals to hand. All I've seen is an article on cuk proposing FLC without providing any details.
I think UK tax law is enough of a mess without introducing new entities.
As I'm not a member of the PCG (I stopped a long time ago) I don't have the detail of the proposals to hand. All I've seen is an article on cuk proposing FLC without providing any details.
I think UK tax law is enough of a mess without introducing new entities.
TooLateForAName said:
I think UK tax law is enough of a mess without introducing new entities.
Perhaps. But we do have the LLP entity which didn't used to exist - precisely because there were many partnerships that were seeking Limited Liability but for whom a full Private Limited Company was not appropriate. We have a similar situation here - for effectively Sole Traders who need Limited Liability and tax status assurance for their clients - none of my clients would engage me as a Sole Trader as they want a B2B relationship with no possibility of HMRC making them liable for employers' taxation on the Sole Trader. The amusing thing is that if being caught by IR35 meant you could then go after your client for employee rights then you can be sure clients would be as vehemently against IR35 as contractors are. But I digress. HMRC have already started the ball rolling with their adoption of the term "PSC" (Personal Service Company) which they ask you to self-incriminate with on your return. It doesn't seem like a huge leap to making that some kind of legal entity.
Clearly there is a need for some sort of clarification of the muddy and crocodile-infested waters of IR35 (I would have said shark-infested, but sharks don't tend to like muddy waters but crocodiles do). I don't hold out much hope of HMRC coming up with something *less* complicated than what we have now, but certainly PCG / IPSE were told by HMRC "ok, so you come up with something then" and that's what they're trying to do. At least give them some credit for that.
Edit: The irony is that HMRC spend literally millions and millions of pounds on legal challenges to IR35, and their net tax take on successful prosecutions barely breaks even. If we could somehow come up with a compromise that was fair for all (ok, ok, but if we could) then they would actually end up bringing in a lot more tax revenue. But we all know that government doesn't work that way.
Edited by JonRB on Monday 24th August 18:08
JonRB said:
Ok.
So, we have established that some goatee-wearing powerfully-built Company Directors running "proper" (sic) companies have an axe to grind about freelancers who they consider aren't "proper" enough. And we have established that some permanent employees consider freelancers to be on some kind of tax dodge or whatever.
Blah blah, same old. It's getting boring now, guys. Same tired old crap whenever a thread of this type is started.
So, given the fact that some freelancers most definitely don't want to become permanent employees of their clients, and given that some freelancers are unwilling or unable to have more than one or two clients at a time, and given that I started this thread to discuss the IPSE proposal for a ‘Freelancer Limited Company’ (FLC) that would allow those freelancers who want to work that way to work that way...
... with hindsight, I shouldn't have bothered starting the thread.
Agree with this. I can understand the sentiment about 'permtractors' - we have all worked with them - and I have met one or two fully paid-up members of the inside-IR35 club too - but for those of us trying to run a bona fide consultancy its frustrating being tarred with this brush.So, we have established that some goatee-wearing powerfully-built Company Directors running "proper" (sic) companies have an axe to grind about freelancers who they consider aren't "proper" enough. And we have established that some permanent employees consider freelancers to be on some kind of tax dodge or whatever.
Blah blah
, same old. It's getting boring now, guys. Same tired old crap whenever a thread of this type is started. So, given the fact that some freelancers most definitely don't want to become permanent employees of their clients, and given that some freelancers are unwilling or unable to have more than one or two clients at a time, and given that I started this thread to discuss the IPSE proposal for a ‘Freelancer Limited Company’ (FLC) that would allow those freelancers who want to work that way to work that way...
... with hindsight, I shouldn't have bothered starting the thread.
Right now I'm working for a 'main' client more-or-less full time in addition to my handful of retained customers and sideline project activities, and could be construed as being a member of a 'project team'... guess what... so are 20 other people in the room, who are almost exclusively employed by one or two massive global SIs (engaged by the 'customer' which itself is an outsourcer for the actual end client) and assigned to their project. They all spend 5 days a week with bum in seat, claim loads of expenses and generate profits for the shareholders of their respective employers.
In every contract I've worked there is a complex business-to-business supply chain involving big and small companies, all in the business of providing professional services. The problem I have, is that its business as usual for the big boys, yet the independent contractors are now being 'deemed' to be staff in all but title?
Edited by theboss on Monday 24th August 18:16
JonRB said:
TooLateForAName said:
I think UK tax law is enough of a mess without introducing new entities.
Perhaps. But we do have the LLP entity which didn't used to exist - precisely because there were many partnerships that were seeking Limited Liability but for whom a full Private Limited Company was not appropriate. We have a similar situation here - for effectively Sole Traders who need Limited Liability and tax status assurance for their clients - none of my clients would engage me as a Sole Trader as they want a B2B relationship with no possibility of HMRC making them liable for employers' taxation on the Sole Trader. The amusing thing is that if being caught by IR35 meant you could then go after your client for employee rights then you can be sure clients would be as vehemently against IR35 as contractors are. But I digress. HMRC have already started the ball rolling with their adoption of the term "PSC" (Personal Service Company) which they ask you to self-incriminate with on your return. It doesn't seem like a huge leap to making that some kind of legal entity.
Clearly there is a need for some sort of clarification of the muddy and crocodile-infested waters of IR35 (I would have said shark-infested, but sharks don't tend to like muddy waters but crocodiles do). I don't hold out much hope of HMRC coming up with something *less* complicated than what we have now, but certainly PSG / IPSE were told by HMRC "ok, so you come up with something then" and that's what they're trying to do. At least give them some credit for that.
The new entity makes perfect sense and would simplify thing enormously imho, if it means paying a bit more tax to avoid the nonsense of IR35 then so be it.
I'm a contractor for the flexibility, self-governance and regular changes of scenery, not the supposed tax dodge.
I've had a chance to read IPSE's proposal now. And whilst I can't give too much away as the document is marked "For internal discussion only", I think it's ok to talk about it in general terms.
It's looking to establish that the current legal structures we have are not sufficient to cover the unique position that freelancers are in - a desire for Limited Liability and elements of corporate structure (such as clients desiring a B2B relationship) but that also there is a lot of the Self Employed about how many Freelancers work (as already mentioned ad nauseum by some posters), thus very much a "neither Fish nor Fowl" scenario that IR35 spectacularly fails to address in a satisfactory or deterministic way.
They're proposing a corporate entity not unlike a Limited Liability Partnership (in some ways) that has well defined entry requirements and well defined taxation, that accurately reflect the actual way that many Freelancers work.
As with IPSE's contracts, it recognises that for a proposal to be workable then both parties have to find it fair, and as such the tax burden is higher than the current "outside IR35" status (which is unlikely to remain the Status Quo for much longer anyway), but also the certainty and stability are better. Think of it as the difference between a Fixed Rate mortgage and a Variable Rate one, if you wish.
Overall it seemed like a sensible and well-balanced proposal, which of course means it will probably be rejected by HMRC who seem to be completely blind to the idea that a bird in the hand is worth two in the bush.
It's looking to establish that the current legal structures we have are not sufficient to cover the unique position that freelancers are in - a desire for Limited Liability and elements of corporate structure (such as clients desiring a B2B relationship) but that also there is a lot of the Self Employed about how many Freelancers work (as already mentioned ad nauseum by some posters), thus very much a "neither Fish nor Fowl" scenario that IR35 spectacularly fails to address in a satisfactory or deterministic way.
They're proposing a corporate entity not unlike a Limited Liability Partnership (in some ways) that has well defined entry requirements and well defined taxation, that accurately reflect the actual way that many Freelancers work.
As with IPSE's contracts, it recognises that for a proposal to be workable then both parties have to find it fair, and as such the tax burden is higher than the current "outside IR35" status (which is unlikely to remain the Status Quo for much longer anyway), but also the certainty and stability are better. Think of it as the difference between a Fixed Rate mortgage and a Variable Rate one, if you wish.
Overall it seemed like a sensible and well-balanced proposal, which of course means it will probably be rejected by HMRC who seem to be completely blind to the idea that a bird in the hand is worth two in the bush.
Edited by JonRB on Thursday 27th August 17:38
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