IR35: IPSE proposal for a ‘Freelancer Limited Company’ (FLC)
Discussion
Anyone else a member of IPSE (née PCG) had the email about the consultation document for a proposal to HMRC to end the uncertainty of IR35?
Since it's an internal consultation document, I won't (can't) post a link. But just like their contracts it tries to balance business reality with the needs of the respective shareholders (ie. make it too beneficial, or harsh, to any one faction and it won't get accepted).
It makes for interesting reading.
Since it's an internal consultation document, I won't (can't) post a link. But just like their contracts it tries to balance business reality with the needs of the respective shareholders (ie. make it too beneficial, or harsh, to any one faction and it won't get accepted).
It makes for interesting reading.
Eric Mc said:
I honestly don't think that the Treasurey is very receptive to any moves to lessen the harshness of IR35.
IPSE's goal is laudable though - an attempt to remove the uncertainty and make the whole thing more a matter of law than opinion. If freelancers end up paying more tax than we do now, well at least we know where we stand and aren't playing a stupid game of 'cat and mouse' with HMRC. Then they can concentrate their efforts on the real 'tax dodgers' (sic). As you say, though, I don't hold out much home for HMRC being receptive to of any kind of simplification or transparency. Even if it ends up netting them more tax by making things clearer and more deterministic.
Edit: Just to clarify, they're not seeking to lessen the harshness. They know that the reality is that HMRC want more money. What they are trying to do is remove the uncertainty even if it means we pay more tax than now (which, let's be honest, we're going to be anyway).
Eric Mc said:
It will probably achieve the same success as their attempt of having a Judicial Revue of the original IR35 legislation.
Well at least they are trying, which is more than can be said for most. I don't see the BCS or the FSB doing a whole lot to try to establish firm foundations on which to build a business. Anyway, the idea of this thread wasn't really to discuss whether or not IPSE are tilting at windmills and should just not bother; it was whether their proposal had any merit.
Guvernator said:
The fact that I am often remunerated above permanent employees I just see as recompense for giving up all the benefits of being a permie like holiday pay, sick pay, health benefits, life insurance etc.
It's a simple choice, more risk vs more reward but for some bizarre reason some people seem to take this as a personal affront, that somehow I am robbing THEM of their tax money. Very bizarre state of affairs.
Indeed. As I usually say to permanent employees who give me stick about it, "if you think that I'm so much better off than you financially, then why aren't you doing it too? I'm happy to help you get into freelancing if you want to". Amazing how quickly they come up with all the reasons why they can't / won't. It's a simple choice, more risk vs more reward but for some bizarre reason some people seem to take this as a personal affront, that somehow I am robbing THEM of their tax money. Very bizarre state of affairs.
It's swings and roundabouts, and just a different way of working. It's also off-topic for this thread.
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.
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.
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 )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.
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.
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
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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