Contractors: IR35 & general discussion

[Countdown]

g7orge said:

Income shifting is legal (I don't do it myself) - Claiming for expenses that are not incurred in the running of your business wouldn't be - (I don't do that myself either and I don't know anyone else that would - maybe you should stop hanging around with dodgy people.. )

I'm an Accountant, dodgy people come with the territory.

[Gazzab]

I have met some dodgey contractors using all sorts of ways to avoid tax (sometimes paying no tax at all). I have met someone who reroofed their house as an expense (I assume they pretended that their separate office / coach house was reroofed). My expenses include travel, hotels, PC, phone, office furniture etc.... All very boring and typically means I dont gain much from vat or in reducing my tax bill. Without shareholders it is even ‘worse’. It does mean that if I move to inside IR35 that with lower rates, covering the eNI (ie they generally pass this on as well as a general reduction in rates), with less days per year (there’s less work) etc etc I now expect to pay maybe 30 to 50% less tax pa. You can also add vat to that. Ok my situation might not be typical but it isn’t rare.

[Clockwork Cupcake]

Countdown said:

To avoid any disingenuousity I'll be clear - I don't believe the use of all such allowances is fraud. As an Accountant Im supposed to know what the allowances are for and ensure that clients make maximum use of them. But equally I know of self employed people who consider what we both agree to be "fraud" as "maximising their tax allowances". They're the ones that seem to get most upset when you ask them whether claiming for XYZ is legitimate and appropriate. I also believe it's the latter ones who are most worried about the potential of a HMRC investigation.

Fair enough.

Both my Accountant and I are risk averse, and we never sail anywhere close to the wind on claims and allowances. I've used income shifting in the past, back when I was married, until HMRC started to "clarify" Section 660a at which point we reviewed it.

I think it's fair to say that some will sail closer to the wind than others. The most high profile case, in the public mind at least, was Jimmy Carr and he's been the butt of tax jokes ever since (although, in fairness, he plays it up for comic effect).

Arguably more high profile, but nicely forgotten about now, is the MP's expenses scandal. There was some quite breathtaking piss-taking going on there, for sure.

However, I do feel that you are tarring all with the same brush in some of your posts. If that's not your intent then I apologise, but that is how it comes across to me.

Edit: Incidentally, we're not talking about self-employed people - they're not subject to IR35. We're talking about people who operate through a PSC.

Edited by Clockwork Cupcake on Thursday 20th February 10:55

[Countdown]

Clockwork Cupcake said:

However, I do feel that you are tarring all with the same brush in some of your posts. If that's not your intent then I apologise, but that is how it comes across to me.

Not at all. Your reply to me earlier on was crystal clear, in that you said the examples I gave were fraud. That should have been clear to everybody but I know from practical experience that it's not the case. As i said earlier on there's a spectrum of how "honest" people are. There are 10% who are as pure as tye driven snow and there will be 10% who would defraud an orphanage without a second thought. The majority of people are somewhere along the line between the two extremes.

Clockwork Cupcake said:

Edit: Incidentally, we're not talking about self-employed people - they're not subject to IR35. We're talking about people who operate through a PSC.

Edited by Clockwork Cupcake on Thursday 20th February 10:55

The conversation moved onto tax avoidance/mitigation/evasion. the principles which apply to Self employed people (in terms of offsetting business expenses) are similar to Ltd Companies.

[Gazzab]

I disagree that the majority are, by your %’s assertion, conducting their tax affairs such that they are sometimes fraudulent. That might be your experience or assumption but having contracted for 20 years it’s not my experience. There might be a moral argument but paying your spouse, sharing dividends with your spouse, paying for a co meal once a year, paying for your mobile phone, buying a laptop, redecorating your home office, paying for a pension etc etc are allowable and are items recommended by accountants. A minority are using dodgey umbrellas or are buying their kids TVs for Christmas etc. My accountant wouldn’t let me do such things. When I bought a bike to commute to work and avoid train fares and tubes I had to convince my accountant that it was only for that but we still only put half of it through just to be safe.

[Clockwork Cupcake]

Gazzab said:

I disagree that the majority are, by your %’s assertion, conducting their tax affairs such that they are sometimes fraudulent. That might be your experience or assumption but having contracted for 20 years it’s not my experience. There might be a moral argument but paying your spouse, sharing dividends with your spouse, paying for a co meal once a year, paying for your mobile phone, buying a laptop, redecorating your home office, paying for a pension etc etc are allowable and are items recommended by accountants. A minority are using dodgey umbrellas or are buying their kids TVs for Christmas etc. My accountant wouldn’t let me do such things. When I bought a bike to commute to work and avoid train fares and tubes I had to convince my accountant that it was only for that but we still only put half of it through just to be safe.

Indeed.

When I started conducting most of my business from home a year or so ago, my electricity bill doubled due to the fact that I am running a rack full of kit for testing. I had a hell of a job convincing my accountant that this was a direct business expense and had to put together a business case for it, with data going back several years to show average electricity consumption vs this year's. This will then be used as evidence to present to HMRC should it be queried.

[aeropilot]

Gazzab said:

My expenses include travel, hotels, PC, phone, office furniture etc.... All very boring and typically means I dont gain much from vat or in reducing my tax bill. Without shareholders it is even ‘worse’.

Yep, likewise.
PPE, travel, domain hosting for work email, professional membership fees, insurance and paying as much as I can afford to into my pension in the last few years before retirement was about it for me. I didn't even do the phone as I just couldn't be arsed with the bother of having to carry 2 of the bloody things around, given 80% of its use would be personal use.

Like you, going brolly will see my tax down, but for me the impact of that on the pension is my biggest gripe, especially with max 5 years left of working.....no way to recover unless I can find outside only roles. Not a huge amount of indication of that on the horizon in the immediate future though.

[Autopilot]

tighnamara said:

Guvernator said:

At my current client, those few who are switched on and know the risk are all planning to leave to avoid HMRC knocking. However at least 60% of the contractors at my workplace are blindly oblivious to this danger and the company is positively encouraging them to stay on, even after an inside assessment and this is repeated across many organisations.

HMRC must be positively rubbing their hands together.

I think a lot will depend on how the contractor run their company, if they were blatantly flouting the tax then no doubt there should be worry in being investigated.

If you ran your company "sensibly" and paid your fair share of tax, ie not paying wife salary, pension etc and paying a decent amount of Corporation Tax I doubt there should be too much to worry about.

Hence why they are keeping it very "wooly

I don't think you really understand this! NOTHING will depend on how the contractor runs their company and to "doubt there should be too much to worry about" if you've paid your CT etc etc is the most naïve thing I have read and isn't even vaguely related to what is being discussed here.

The point Guvernator is making is that if a contractor deems their engagement to be outside but the client (rightly or wrongly) deems it to be inside and you were to stay after April, you're putting yourself at risk and attracting HMRCs attention.

When they come knocking, they will use the fact that you agreed with the end client that it is an inside role (if you didn't agree you wouldn't be there would you?) and that the role has ALWAYS been inside. They won't care how much CT you've paid and the fact you only bought one new printer on expenses, they are there because they want to retrospectively apply your new T's and C's (paying NIC/PAYE on the full invoice amount) from when you started the original engagement with them. I dare say that even if you were pushing the boundaries with the way you run your company a bit that it may go unnoticed or investigated as that would required effort, the NIC/PAYE bit is easy pickings and the main objective here.

On a slight tangent...…

I was at my previous client for 10 months and treated my engagement as outside IR35. They made a blanket statement putting all contractors inside IR35 after April. I started 2 new engagements this week, one inside IR35 and one out. I personally would not take the risk of being in an existing contract after April and being deemed inside unless I'd only been there a very short time so any risk becomes small and manageable.

[Autopilot]

Clockwork Cupcake said:

tighnamara said:

What part is rubbish, the part that you shouldn't have much to worry about if you ran the limited company sensibly or the part that you should worry if you didn't run your limited company sensibly.

I would say those that have run their company sensibly, have had the correct contracts and insurance in place should have a lot less to worry about that those who have being "taking the mickey"

Only an opinion...........................

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.

It depends on how you define squeaky clean. Surely anybody who self declared themselves outside of IR35 only to agree with the end client and then stay and be inside, surely that is corrupt as corrupt can be!! Deliberately avoiding all that NIC/PAYE but falsifying your true employment status by saying you were outside all that time!! That's loads worse than sneaking a laptop on expenses for the wife!!

[Ceeejay]

Autopilot said:

I was at my previous client for 10 months and treated my engagement as outside IR35. They made a blanket statement putting all contractors inside IR35 after April. I started 2 new engagements this week, one inside IR35 and one out. I personally would not take the risk of being in an existing contract after April and being deemed inside unless I'd only been there a very short time so any risk becomes small and manageable.

My thoughts exactly... quite a few staying with my current client, switching from outside to inside... Some have been here quite a few years. I bet there's thousands who will do the same. Hopefully this will keep HMRC busy for a while

[Autopilot]

Ceeejay said:

Autopilot said:

I was at my previous client for 10 months and treated my engagement as outside IR35. They made a blanket statement putting all contractors inside IR35 after April. I started 2 new engagements this week, one inside IR35 and one out. I personally would not take the risk of being in an existing contract after April and being deemed inside unless I'd only been there a very short time so any risk becomes small and manageable.

My thoughts exactly... quite a few staying with my current client, switching from outside to inside... Some have been here quite a few years. I bet there's thousands who will do the same. Hopefully this will keep HMRC busy for a while

I know of a few people who are doing the same, complete madness in my opinion! There's enough warnings out there, so it's up to people to make the decision. I'm hoping that HMRC chase these people long enough and tie them up enough to not come after me for buying a new 32" monitor. In all honesty, I could have made do with a 28" but I just fancied the bigger one

[Autopilot]

zippy3x said:

If you think running your company sensibly will exempt you from HMRC's attention, you're being spectacularly naive.

Spoiler for you here, HMRC think every PSC is an artificial construct to avoid tax. Using the definition of fraud you yourself quoted, it's not even a stretch to believe HMRC could at any time decide any contractor-client relationship is in their opinion "fraudulent" and worthy of an investigation.

Ironically, the reason I started my Ltd was so that I was a 'legitimate' business with a business bank account, to become VAT registered and all the other things I needed to do to become a business (while safeguarding my own assets) and buy the necessary insurance policies.

I pay myself a small wage and take dividends. I am not 'avoiding' paying tax, I pay all the taxes at the appropriate levels that I am required by law to pay. A Limited Company is the standard vessel used in this country to enable me to trade as a business. I've used numerous different accountants who all tell me what I am required to do. HMRC need to go and have a chat with those guys

[Clockwork Cupcake]

Autopilot said:

Ironically, the reason I started my Ltd was so that I was a 'legitimate' business with a business bank account, to become VAT registered and all the other things I needed to do to become a business (while safeguarding my own assets) and buy the necessary insurance policies.

Not just that, but it was the only way a client would engage people like us, mainly because they were worried that if they engaged a self-employed person they might be liable for their tax.

Funny how things go.

[anonymous-user]

Autopilot said:

Ironically, the reason I started my Ltd was so that I was a 'legitimate' business with a business bank account, to become VAT registered and all the other things I needed to do to become a business (while safeguarding my own assets) and buy the necessary insurance policies.

I pay myself a small wage and take dividends. I am not 'avoiding' paying tax, I pay all the taxes at the appropriate levels that I am required by law to pay. A Limited Company is the standard vessel used in this country to enable me to trade as a business. I've used numerous different accountants who all tell me what I am required to do. HMRC need to go and have a chat with those guys

Same here.

I started a Ltd Co so that I could be legitimate, charge VAT, have a bank account in my company name, and be personally protected from what could go wrong during the course of my work.

How else are HMRC expecting us all to exist if they now have a vendetta against ‘one man band’ Ltd Co’s?

[Clockwork Cupcake]

Lord Marylebone said:

How else are HMRC expecting us all to exist if they now have a vendetta against ‘one man band’ Ltd Co’s?

They don't.

They want us to be nice salaried employees of an end client or a large bodyshop. The latter being the ones who have been lobbying hard for it ever since the 90's in the lead-up to IR35 becoming law in 1999.

This is a systematic attack on independents, and always has been.

Edited by Clockwork Cupcake on Thursday 20th February 13:44

[aeropilot]

Autopilot said:

I've used numerous different accountants who all tell me what I am required to do. HMRC need to go and have a chat with those guys

They did, and they listened, and then carried on doing what they wanted to do anyway.

[Blown2CV]

elephant in the room with the retrospective investigations on IR35 is that if you are not declared inside (that is, if you are declared outside, or no declaration was made) then all the discussions on here point to that it's the client you were working with at the time who bears the risk...?

So, why would anyone who is only just being declared inside have to worry about it?

[Gazzab]

Blown2CV said:

elephant in the room with the retrospective investigations on IR35 is that if you are not declared inside (that is, if you are declared outside, or no declaration was made) then all the discussions on here point to that it's the client you were working with at the time who bears the risk...?

So, why would anyone who is only just being declared inside have to worry about it?

Not sure I understand your points.
If you are declared outside then any retrospective risks pre April 20 sit with the contractor and beyond April 20 sit across the whole supply chain afaik.
If you are declared inside at the same client where you were previously self declared as outside then this red flag has been done to death.

[Gazzab]

It’s a total sh*t show. I have two verbal offers. Both about 20% down on my normal rate. One inside and one miles away but outside. The inside is moving faster but now the client has said to the head hunter (who normally only recruits senior perms):
- is the agency covering employers NI
- is Gary psc, paye or umbrella
Of course the agent has gone back and said no he can’t cover employers ni in his margin and the agreed rate is the rate to Gary not one to take eNI out of.
I now need to decide on psc (generally people seem to say you are best not bothering), umbrella or paye. The latter two seem to be roughly the same I guess.
This is such a painful process.

[Anubis]

Click Link

It’s official. HMRC do not give a fk about you or the aftermath of UK plc - they are going in hard.

Prepare to bend over; clients and contractors from April 6th. They simply do not care one bit - fingers are firmly in the ears with tunnel vision as they bulldoze their way through to get what they want.

For those that are considering staying on at the current client, now is the time to SERIOUSLY consider your options and risk.