This is the end of contracting...
Discussion
As many of us said - there have been no specific changes to IR35 apart from a tighter control on some expense claims. Any fundamental changes to IR35 have to be made with a view to the whole issue of "Employment/Self Employment Status" - which is a much broader area encompassing a lot more than just IR35.
Have agreed with most of the comments made on here today, whilst at first glance unless you are involved in the offshore loan type schemes then nothing really changes from whats already been outlined during the previous budget.
Having a read through the OTS document linked previously, again that seems to be as clear as mud with respect to solid recommendations. Yes it is acknowledged something needs to change but on the other hand it nods towards being very careful as not to unfairly capture contractors working outside of IR35.
As alluded to previously I can see a revised status test coming into play at some point, but will be very surprised if that is any time soon.
I do believe that those working in the contract environment should probably start making plans for an eventual change in employment status (if inside IR35 at the moment) or move to a business model outside of it.
Key quotes from the OTS document:
Employment Status Indicator (ESI)
An industry representative also commented that updating and adapting the ESI tool seemed like a good idea, but thought it unlikely that it could be sufficiently accurate, transparent and reliable for the contractor taking the test on an ongoing basis. It was also thought that HMRC may be concerned
that it would be manipulated in order to produce a preferred result.
A self-employed trade group said their experience of using the ESI was not positive, and it would need to be significantly changed to be of value to professionals and the self-employed.
Statutory Employment Test
A respondent to the report was in favour of a court based approach, with guidance picking up on employment law principles established, rather than a targeted statutory test which could fail to achieve practical effect.
An industry representative commented that a simple short set of quantitative tests may be the only workable solution, but this could also prove to be draconian, dragging in too many contractors who are genuinely in business on their own account. It was considered the test would also need to replace IR35, and it was likely that enforcement would be very difficult
Having a read through the OTS document linked previously, again that seems to be as clear as mud with respect to solid recommendations. Yes it is acknowledged something needs to change but on the other hand it nods towards being very careful as not to unfairly capture contractors working outside of IR35.
As alluded to previously I can see a revised status test coming into play at some point, but will be very surprised if that is any time soon.
I do believe that those working in the contract environment should probably start making plans for an eventual change in employment status (if inside IR35 at the moment) or move to a business model outside of it.
Key quotes from the OTS document:
Employment Status Indicator (ESI)
An industry representative also commented that updating and adapting the ESI tool seemed like a good idea, but thought it unlikely that it could be sufficiently accurate, transparent and reliable for the contractor taking the test on an ongoing basis. It was also thought that HMRC may be concerned
that it would be manipulated in order to produce a preferred result.
A self-employed trade group said their experience of using the ESI was not positive, and it would need to be significantly changed to be of value to professionals and the self-employed.
Statutory Employment Test
A respondent to the report was in favour of a court based approach, with guidance picking up on employment law principles established, rather than a targeted statutory test which could fail to achieve practical effect.
An industry representative commented that a simple short set of quantitative tests may be the only workable solution, but this could also prove to be draconian, dragging in too many contractors who are genuinely in business on their own account. It was considered the test would also need to replace IR35, and it was likely that enforcement would be very difficult
Eric Mc said:
My hunch is that it will end up in the "Too Difficult" box. It's one of those areas where once you start digging into it, the permutations and complications that arise make it all a bit messy.
This is my gut feeling too, however I don't think we can discount the fact that1. Osborne feels the need to do something to get all the tax avoiders who have almost become criminalised even though most are operating within the current legal laws as it will be a good PR win on "morale" grounds.
2. There is still a big hole in the budget which they've stated they are hoping to claw back by going after all the evil little tax dodgers.
3. Never underestimate HMRC's ability to do something totally illogical and removed from reality.
I suspect they will try to change something but that it will either end up being totally ineffective like the last iteration of IR35 or will be OTT draconian and end up causing a massive headache\backlash.
I've had countless people approach me offering me these 100% foolproof offshore schemes, I wouldn't go near them with a barge pole and not sure how any sane person would either. Paid via an offshore "loan" that you never have to pay back....riiiiigghhhtt, like that doesn't sound dodgy at all.
I prefer to work harder, earning money legitimately and growing my business rather than trying to game HMRC and pay a few percent less in tax. Unfortunately large uptake of these schemes are part of the reason why HMRC are now coming after all of us, we've all been tarred with the same "tax avoider" brush.
I prefer to work harder, earning money legitimately and growing my business rather than trying to game HMRC and pay a few percent less in tax. Unfortunately large uptake of these schemes are part of the reason why HMRC are now coming after all of us, we've all been tarred with the same "tax avoider" brush.
Guvernator said:
I've had countless people approach me offering me these 100% foolproof offshore schemes, I wouldn't go near them with a barge pole and not sure how any sane person would either. Paid via an offshore "loan" that you never have to pay back....riiiiigghhhtt, like that doesn't sound dodgy at all.
I prefer to work harder, earning money legitimately and growing my business rather than trying to game HMRC and pay a few percent less in tax. Unfortunately large uptake of these schemes are part of the reason why HMRC are now coming after all of us, we've all been tarred with the same "tax avoider" brush.
100% This. I prefer to work harder, earning money legitimately and growing my business rather than trying to game HMRC and pay a few percent less in tax. Unfortunately large uptake of these schemes are part of the reason why HMRC are now coming after all of us, we've all been tarred with the same "tax avoider" brush.
I have read through the documents and it seems like business as usual for most legit contractors, even those borderline IR35, it seems to me ozzy is just after those that are on those blatantly dodgy "schemes" - I'm pretty sure they all know they are doing something dodgy... If it seems to good to be true it probably is.
I really can't see how they can introduce some rules that only catch some and not all contractors, even if they are borderline ir35, it's so complicated that if they try some exact rules the clever accountants/knowledgeable people will just work around the rules and the situation is back to how it was.
The new dividend tax seems to be the best compromise as a catch all for a bit more cash without causing a total cluster f
k of it all.
But I am just a normal chap making a living, so I probably don't know jack...
I really can't see how they can introduce some rules that only catch some and not all contractors, even if they are borderline ir35, it's so complicated that if they try some exact rules the clever accountants/knowledgeable people will just work around the rules and the situation is back to how it was.
The new dividend tax seems to be the best compromise as a catch all for a bit more cash without causing a total cluster f
k of it all.But I am just a normal chap making a living, so I probably don't know jack...
Jim909 said:
I have read through the documents and it seems like business as usual for most legit contractors, even those borderline IR35, it seems to me ozzy is just after those that are on those blatantly dodgy "schemes" - I'm pretty sure they all know they are doing something dodgy... If it seems to good to be true it probably is.
I really can't see how they can introduce some rules that only catch some and not all contractors, even if they are borderline ir35, it's so complicated that if they try some exact rules the clever accountants/knowledgeable people will just work around the rules and the situation is back to how it was.
The new dividend tax seems to be the best compromise as a catch all for a bit more cash without causing a total cluster fk of it all.
But I am just a normal chap making a living, so I probably don't know jack...
I think you've summed it up well to be honest - my business is always conducted in what I perceive (with the agreement of my IR35 specialist who reviews every engagement) to be outside IR35 and that is where I will stay - I fortunately have enough 'ad hoc' consultancy work and retainers with multiple clients to survive without the longer term engagements - but I've built that network precisely because I want to make a business rather than drift between individual clients.I really can't see how they can introduce some rules that only catch some and not all contractors, even if they are borderline ir35, it's so complicated that if they try some exact rules the clever accountants/knowledgeable people will just work around the rules and the situation is back to how it was.
The new dividend tax seems to be the best compromise as a catch all for a bit more cash without causing a total cluster f
k of it all.But I am just a normal chap making a living, so I probably don't know jack...
Despite feeling 'comfortably' outside IR35 I feared we were going to be burdened with a considerable load of extra red tape and I am also highly sceptical of clients and agencies insofar as their ability to distinguish between what I call 'permtractors' and the genuine freelance, and indeed payrolled staff. You can have your working practices firmly outside IR35 but if your 'employment status indicator' is judged by some HR bod you could find yourself caught in a difficult situation.
The dividend tax I take on the chin; I think we've had it fairly good and I appreciate the government's need to close the income/expenditure gap. If that's me doing my little bit for the greater good then so be it - I'm still getting a decent enough deal.
Two questions if I may:
a) What are the chances of this being applied retrospectively? I understand it's been done before in extreme cases but this isn't always feasible.
b) Although I spend time working for clients, almost certainly one at a time, I spend some time working for myself trying to develop products. Does this count as taking a financial risk via no company income earned, or do you think HMRC see it as taking a jolly? (I'm guess it depends on what they see as proof).
By my reckoning being caught inside IR35 means paying about 30-50% extra tax for a standardish contractor.
a) What are the chances of this being applied retrospectively? I understand it's been done before in extreme cases but this isn't always feasible.
b) Although I spend time working for clients, almost certainly one at a time, I spend some time working for myself trying to develop products. Does this count as taking a financial risk via no company income earned, or do you think HMRC see it as taking a jolly? (I'm guess it depends on what they see as proof).
By my reckoning being caught inside IR35 means paying about 30-50% extra tax for a standardish contractor.
Here's the email I got from IPSE (formally the PCG) this afternoon... As I suspected neither the hmrc or exchequer are prepared to move people off a "scheme" they can see, monitor and understand and hence slowly squeeze and control to one they can't as yet even imagine (like incorporating in Europe, using llp or other such measures) the main target for this and the original ir35 implementation was always large umbrella schemes and dodgy agencies not one man ltd companies using local high street accountants.
Dear Matthew
In recent weeks and months I have written to you to enlist your support in opposing measures which would harm the UK’s smallest businesses: the toughening up of IR35 and the restriction of travel and subsistence tax relief. Many of you have written to your MP, taken our surveys and attended our focus groups. With your help we have led a campaign to stop the Government from pursuing these harmful policies. Today’s Autumn Statement suggests our efforts have made an impact, but the fight is not over.
Rumours that the Chancellor would announce measures forcing contractors onto the client’s payroll after one month’s work thankfully proved unfounded. There was no mention at all of IR35 in the statement or the subsequently published documentation. Shortly after the Chancellor finished his statement, senior officials confirmed to us that the Government is still considering its options on IR35. The Government have listened to IPSE and told us they will take more time to find a solution which protects the Exchequer and improves fairness in the system without creating disproportionate burdens on business, or widening the scope of the rules.
We will, via our seat on the IR35 Forum, remind them of this commitment and continue to press for real reform that will benefit, not hamper UK contractors.
On travel and subsistence, the Government had proposed to introduce a test which we believe would have resulted in many contractors not being allowed the relief to which they are entitled. Encouragingly, the Government has dropped plans for this test. Instead the tax relief will only be restricted where the contractor is caught by IR35. This is a big step in the right direction and it is what we called for in our consultation response, but we mustn’t be complacent. Until we know what is going to happen to the IR35 rules we may still find unfair, damaging restrictions being imposed. We will continue to press this point with Government, knowing that the success of so many businesses rests on being able to claim this relief.
Tax avoidance remains high on the political agenda. Disguised remuneration schemes such as Employee Benefit Trusts were singled out for further scrutiny and the Government is considering new legislation that would capture any schemes devised between now and the enactment of the next Finance Bill. IPSE’s advice to its members has always been to avoid using such schemes and I am taking this opportunity to reiterate that advice.
It is only with your support that we can make the strongest case to Government. So a big thank you from IPSE for your recent efforts. You deserve a regulatory environment that lets you grow your businesses. Your success will only make the UK more successful and this is the message we will bring to policy makers
Dear Matthew
In recent weeks and months I have written to you to enlist your support in opposing measures which would harm the UK’s smallest businesses: the toughening up of IR35 and the restriction of travel and subsistence tax relief. Many of you have written to your MP, taken our surveys and attended our focus groups. With your help we have led a campaign to stop the Government from pursuing these harmful policies. Today’s Autumn Statement suggests our efforts have made an impact, but the fight is not over.
Rumours that the Chancellor would announce measures forcing contractors onto the client’s payroll after one month’s work thankfully proved unfounded. There was no mention at all of IR35 in the statement or the subsequently published documentation. Shortly after the Chancellor finished his statement, senior officials confirmed to us that the Government is still considering its options on IR35. The Government have listened to IPSE and told us they will take more time to find a solution which protects the Exchequer and improves fairness in the system without creating disproportionate burdens on business, or widening the scope of the rules.
We will, via our seat on the IR35 Forum, remind them of this commitment and continue to press for real reform that will benefit, not hamper UK contractors.
On travel and subsistence, the Government had proposed to introduce a test which we believe would have resulted in many contractors not being allowed the relief to which they are entitled. Encouragingly, the Government has dropped plans for this test. Instead the tax relief will only be restricted where the contractor is caught by IR35. This is a big step in the right direction and it is what we called for in our consultation response, but we mustn’t be complacent. Until we know what is going to happen to the IR35 rules we may still find unfair, damaging restrictions being imposed. We will continue to press this point with Government, knowing that the success of so many businesses rests on being able to claim this relief.
Tax avoidance remains high on the political agenda. Disguised remuneration schemes such as Employee Benefit Trusts were singled out for further scrutiny and the Government is considering new legislation that would capture any schemes devised between now and the enactment of the next Finance Bill. IPSE’s advice to its members has always been to avoid using such schemes and I am taking this opportunity to reiterate that advice.
It is only with your support that we can make the strongest case to Government. So a big thank you from IPSE for your recent efforts. You deserve a regulatory environment that lets you grow your businesses. Your success will only make the UK more successful and this is the message we will bring to policy makers
The problem is I don't think many people trust the IPSE as far as they can throw them. You should see what some people write about them on the contractor forums. I'm not sure what they did exactly to attract this ire but there seem to be some very strong feelings against them among many contractors.
Contractors paranoid... Nah not us lot... The pcg has morphed into something akin to a pseudo political accountants circle jerk... But I'll take their opinion over most of the contractors I know on the breeze through Westminster... The people at contractoruk.com have come to a similar conclusion...
http://www.contractoruk.com/news/0012320osborne_om...
http://www.contractoruk.com/news/0012320osborne_om...
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