Contractors: IR35 & general discussion

[tighnamara]

Clockwork Cupcake said:

What do you mean by "worry"?

A tax investigation, even when you are pretty certain you are squeaky clean and in the clear, can be very stressful and is in itself a worry.

Whilst it is true that HMRC are less likely to investigate a squeaky clean company, it is a constant worry for all PSCs operating outside of IR35.

Of course an investigation would be a worry but if you have been sensible in how you run the company the implications of a future large tax bill will be reduced so less worry.

[Clockwork Cupcake]

tighnamara said:

Of course an investigation would be a worry but if you have been sensible in how you run the company the implications of a future large tax bill will be reduced so less worry.

Your naivety is very endearing.

[g7orge]

Clockwork Cupcake said:

tighnamara said:

Of course an investigation would be a worry but if you have been sensible in how you run the company the implications of a future large tax bill will be reduced so less worry.

Your naivety is very endearing.

[g7orge]

Blown2CV said:

g7orge said:

Blown2CV said:

overly simplistic analogy there i think. I mainly say that because there is no way to beat the system when it comes to tobacco and duty... however when it comes to work and income, the system is so complex and diverse that there are whole industries devoted to beating the system. The system catches up though, eventually. It then comes down to in that 'gap' the difference between morality and the law, and morality is very much not a black and white, universally defined thing. It becomes harder to judge the moral ideas of "yea but you knew you were doing something wrong" or "spirit of the rules"

in your tobacco smoking analogy, you actually defined a far closer similarity to the permie PAYE worker - the only way you can avoid tax is not to work.

are you sure? - https://www.gov.uk/tax-relief-for-employees

how is that avoiding tax... you get additional allowances for expenses you have incurred, that the employer refused to reimburse you for... it is therefore inherent that all parties would agree this reduction in tax is fair and due. Avoidance implies you are avoiding paying tax whilst having incurred no associated expense, in other words it is not fair and due.

It is avoiding tax (not evading) Legally lowering your tax bill - The same as contractors do..

[Clockwork Cupcake]

Blown2CV said:

how is that avoiding tax... you get additional allowances for expenses you have incurred, that the employer refused to reimburse you for... it is therefore inherent that all parties would agree this reduction in tax is fair and due. Avoidance implies you are avoiding paying tax whilst having incurred no associated expense, in other words it is not fair and due.

This is why the word "avoidance" is so emotionally charged and subject to confusion and misunderstanding. And HMRC do nothing to disabuse people of this confusion as it is in their interest not to.

The word "avoidance" in common parlance implies, as you say, something that you should have incurred but have slithered out of paying. But that is not what the word means in the context of taxation.

My smoking analogy was deliberately over-simplistic to point out that by not smoking you have avoided the tax on smoking. It's tax avoidance because you have avoided paying it. That's really all I meant with it - to highlight the fact that any tax you legitimately don't pay because you don't need to pay it is an avoidance of sorts.
Don't read anything more into it than that, as there is no more to read.

So, by using additional allowances you have avoided the tax you would have otherwise paid, by making use of a legitimate allowance. It's still tax avoidance because you have (legally) avoided paying it.

That's what tax avoidance means!

Edited by Clockwork Cupcake on Wednesday 19th February 17:53

[Blown2CV]

g7orge said:

Blown2CV said:

g7orge said:

Blown2CV said:

overly simplistic analogy there i think. I mainly say that because there is no way to beat the system when it comes to tobacco and duty... however when it comes to work and income, the system is so complex and diverse that there are whole industries devoted to beating the system. The system catches up though, eventually. It then comes down to in that 'gap' the difference between morality and the law, and morality is very much not a black and white, universally defined thing. It becomes harder to judge the moral ideas of "yea but you knew you were doing something wrong" or "spirit of the rules"

in your tobacco smoking analogy, you actually defined a far closer similarity to the permie PAYE worker - the only way you can avoid tax is not to work.

are you sure? - https://www.gov.uk/tax-relief-for-employees

how is that avoiding tax... you get additional allowances for expenses you have incurred, that the employer refused to reimburse you for... it is therefore inherent that all parties would agree this reduction in tax is fair and due. Avoidance implies you are avoiding paying tax whilst having incurred no associated expense, in other words it is not fair and due.

It is avoiding tax (not evading) Legally lowering your tax bill - The same as contractors do..

and this is why i was careful to avoid saying it was morally obvious, because it isn't enough for that to be the case. However just because something isn't illegal yet doesn't mean it shouldn't be, it just means there are cleverer people on one side than the other. It's difficult for any contractor to just play the entirely passive "well it's legal so that's all there is to it" card because we all know tax avoidance is about loopholes.

I will say again though that there is a difference between as you say 'legally lowering your tax bill' using schemes that not everyone would agree are acceptable (even if not illegal) and just getting an extra bit of allowance because you had to pay for a professional subscription that your employer refused to reimburse because they feel it's more on you than on them.

I also do very much accept that as the vast majority of the working public are on PAYE and therefore not able to avail themselves of tax avoidance schemes, that they inherently feel aggrieved and would be far more likely to describe such things as unacceptable. I am sure if they could use such schemes then the 'public outcry' would be far smaller.

[Blown2CV]

Clockwork Cupcake said:

Blown2CV said:

how is that avoiding tax... you get additional allowances for expenses you have incurred, that the employer refused to reimburse you for... it is therefore inherent that all parties would agree this reduction in tax is fair and due. Avoidance implies you are avoiding paying tax whilst having incurred no associated expense, in other words it is not fair and due.

This is why the word "avoidance" is so emotionally charged and subject to confusion and misunderstanding. And HMRC do nothing to disabuse people of this confusion as it is in their interest not to.

The word "avoidance" in common parlance implies, as you say, something that you should have incurred but have slithered out of paying. But that is not what the word means in the context of taxation.

My smoking analogy was deliberately over-simplistic to point out that by not smoking you have avoided the tax on smoking. It's tax avoidance because you have avoided paying it. That's really all I meant with it - to highlight the fact that any tax you legitimately don't pay because you don't need to pay it is an avoidance of sorts.
Don't read anything more into it than that, as there is no more to read.

So, by using additional allowances you have avoided the tax you would have otherwise paid, by making use of a legitimate allowance. It's still tax avoidance because you have (legally) avoided paying it.

That's what tax avoidance means!

Edited by Clockwork Cupcake on Wednesday 19th February 17:53

does it? HMRC talk in terms of sacrifice, allowance and avoidance. They are not all types of avoidance.

[Clockwork Cupcake]

Blown2CV said:

does it? HMRC talk in terms of sacrifice, allowance and avoidance. They are not all types of avoidance.

HMRC would like you think so though. And you only ever see the word "avoidance" in the media, and it is always implied to be not on the level.

Honestly, if it were up to them you would give them everything and then they would give you back some pocket money as they saw fit. Certainly that seems to be the attitude whenever you see taxation in the news.

Edit: And I still maintain that HMRC and politicians are always trying to conflate avoidance with evasion.

Edited by Clockwork Cupcake on Wednesday 19th February 18:11

[wombleh]

tighnamara said:

Fraud (in relation to HMRC) includes, in its various forms, falsification with an intention to deceive and this may be present even as a mere conscious understatement in, or omission from, a return or accounts.

That’s a good find, had often wondered what Hmrc define as fraud. Seems their definition is fraud is anything they disagree with, which lines up with statements from B&C in the past.

So actually they can investigate any case where they might disagree with IR35 status, like ones where someone else has used HMRC guidance and decided the role is inside. They can do that and not conflict with any of their statements, provided the investigation didn’t happen automatically.

[Countdown]

g7orge said:

It is avoiding tax (not evading) Legally lowering your tax bill - The same as contractors do..

So would you say paying your wife £12,499 pa when she does no work for the company is tax avoidance or tax evasion? What about expensing everybody’s laptops/mobile phones/car lease payments (when they’ve not done any work for the PSC)?

[Clockwork Cupcake]

Countdown said:

So would you say paying your wife £12,499 pa when she does no work for the company is tax avoidance or tax evasion? What about expensing everybody’s laptops/mobile phones/car lease payments (when they’ve not done any work for the PSC)?

Objection, Your Honour! Leading the witness.

You know damn well that fraudulent claims are fraudulent, under any tax regime or working practice, so singling out contractors on that is disingenuous.

May as well say that all permies fiddle their expenses and when working away claim for hotels whilst dossing down at their mates house.

[tighnamara]

Clockwork Cupcake said:

tighnamara said:

Of course an investigation would be a worry but if you have been sensible in how you run the company the implications of a future large tax bill will be reduced so less worry.

Your naivety is very endearing.

Certainly not being naive as I have been deemed out by the end user so will continue as limited ( this could change before April 5th though)

I don’t believe HMRC carried out many investigations into contractors who were limited and moved over to PAYE in the public sector 3 years ago.
Wouldn’t there be massive uproar in the private sector if HMRC now start doing something they didn’t attempt 3 years ago in the public sector.

If HMRC had set a precedent and carried this out over the last 3 years in the public sector then yes there would be real worry. This hasn’t happened and would be suicide if the government allowed it to happen only in the private sector.

Again, only my opinion and you may think I am being naive but a certain level of calm is required unless you have been taking the ”mickey” in how you have run your company.

[Gazzab]

Countdown said:

g7orge said:

It is avoiding tax (not evading) Legally lowering your tax bill - The same as contractors do..

So would you say paying your wife £12,499 pa when she does no work for the company is tax avoidance or tax evasion? What about expensing everybody’s laptops/mobile phones/car lease payments (when they’ve not done any work for the PSC)?

I don’t have any shareholders and so don’t do this but don’t forget that this is not a ‘contractor’ tax reduction approach it is a standard approach that most small companies use. Not defending it but it is widespread and is an acceptable approach used for years etc

[Gazzab]

tighnamara said:

Certainly not being naive as I have been deemed out by the end user so will continue as limited ( this could change before April 5th though)

I don’t believe HMRC carried out many investigations into contractors who were limited and moved over to PAYE in the public sector 3 years ago.
Wouldn’t there be massive uproar in the private sector if HMRC now start doing something they didn’t attempt 3 years ago in the public sector.

If HMRC had set a precedent and carried this out over the last 3 years in the public sector then yes there would be real worry. This hasn’t happened and would be suicide if the government allowed it to happen only in the private sector.

Again, only my opinion and you may think I am being naive but a certain level of calm is required unless you have been taking the ”mickey” in how you have run your company.

There was a thread on linked in relating to how hmrc were going after some public sector contractors. I would say that the glaxo case was similar. You could also argue that hmrc went lightly on public sector contractors, to date, for a strategic reason - an obvious one. This situation reminds me of loan charge and anyone arguing ‘it will be fine’ should wind it in and not encourage anyone to take such a risk. This could ruin their lives - there is a risk.

[Clockwork Cupcake]

tighnamara said:

Certainly not being naive as I have been deemed out by the end user so will continue as limited ( this could change before April 5th though)

How long have you been running your own Limited Company and working outside of IR35 (with the Sword of Damocles of being inside IR35 hanging over you), might I ask?

Edit: Just to add that the idea that "Those that have nothing to hide have nothing to fear" doesn't exactly have a great track record in the history books.

Edited by Clockwork Cupcake on Wednesday 19th February 19:50

[tighnamara]

Clockwork Cupcake said:

tighnamara said:

Certainly not being naive as I have been deemed out by the end user so will continue as limited ( this could change before April 5th though)

How long have you been running your own Limited Company and working outside of IR35 (with the Sword of Damocles of being inside IR35 hanging over you), might I ask?

Edit: Just to add that the idea that "Those that have nothing to hide have nothing to fear" doesn't exactly have a great track record in the history books.

Edited by Clockwork Cupcake on Wednesday 19th February 19:50

I don’t think that’s relevant to the discussion.

[wombleh]

Countdown said:

g7orge said:

It is avoiding tax (not evading) Legally lowering your tax bill - The same as contractors do..

So would you say paying your wife £12,499 pa when she does no work for the company is tax avoidance or tax evasion? What about expensing everybody’s laptops/mobile phones/car lease payments (when they’ve not done any work for the PSC)?

Paying dividends is avoidance. Completely legal as proven by the S660 court cases. But of course if you ignore the law and just takes advice from HMRC then you’ll have a different view.

Claiming those as expenses bit different, not sure at what point that becomes legally fraud as opposed to HMRCs definition

Edited by wombleh on Wednesday 19th February 19:58

[zippy3x]

Countdown said:

So would you say paying your wife £12,499 pa when she does no work for the company is tax avoidance or tax evasion?

Neither, it is perfectly legal. HMRC attempted to stop "income shifting" as thay called it by taking Arctic Systems to court. After 6 years, the court of appeals ruled in favour of Arctic Systems and deemed income shifting legal.

https://www.contractorcalculator.co.uk/house_of_lo...

and

https://www.taxinsider.co.uk/arctic-systems-the-go...

For those claiming "HMRC won't come after me for moving outside to inside", I'd have a read of those articles.

[Gazzab]

tighnamara said:

I don’t think that’s relevant to the discussion.

Might explain your glass half full perspective though. Do not risk an investigation no matter how good your previous contracts or any insurances (who will probably play hard ball when you try and claim). The experience is designed to break you emotionally.

[Clockwork Cupcake]

tighnamara said:

I don’t think that’s relevant to the discussion.

I do. You are justifying your assertions by implying you are talking from a position of experience. I'm questioning your level of experience.