Is this the end of contracting - Discuss
Discussion
That's very concerning, as are the similar wins for HMRC this year.
The most insidious thing about the whole issue is that a government agency can effectively tear up a legal contract between two businesses and introduce a "notional contract" of their own choosing that may be contrary to the intent of the parties concerned.
But of course that's all been said before.
The only ray of light is that most of these high profile cases are of high worth. If, as is more normal, you tend to do shorter contracts of 6 - 12 months, you're a smaller target as each contract has to be fought in isolation.
God help us all if they find a way of ruling that your entire business practice is similar and therefore all contracts were caught, because that would be the end of contracting.
Having said that, I think the concept of "perma-temp" might endure but it would have to be economically viable for the person concerned.
The most insidious thing about the whole issue is that a government agency can effectively tear up a legal contract between two businesses and introduce a "notional contract" of their own choosing that may be contrary to the intent of the parties concerned.
But of course that's all been said before.
The only ray of light is that most of these high profile cases are of high worth. If, as is more normal, you tend to do shorter contracts of 6 - 12 months, you're a smaller target as each contract has to be fought in isolation.
God help us all if they find a way of ruling that your entire business practice is similar and therefore all contracts were caught, because that would be the end of contracting.
Having said that, I think the concept of "perma-temp" might endure but it would have to be economically viable for the person concerned.
Having to comply with IR35 is not the end of the world. Granted, you are definitely not as well off as you would be if you didn't but you will probably still be better off than a mere employee. Obviously, the real problems arise when someone is retrospectively recategorised for IR35 and has to pay backdated tax, NI and interest - and they may not have sufficient reserves put aside to pay this.
Edited by Eric Mc on Thursday 4th September 13:15
I must say I agree with Eric on this one.
The point of the Ltd Co framework is to make it viable for an entrepreneur to grow and expand a company, purchase assets, employ people etc while limiting their personal liability.
The point of a Ltd Co is not to create a 'shell' for someone who is self employed, or even solely employed on a contract so they can pay less taxes.
IMHO, the cat and mouse game will just go on and on. If you want to take the risk of chancing a grey area, then you take that risk with the knowledge that you might have to pay back what you saved in years before.
The point of the Ltd Co framework is to make it viable for an entrepreneur to grow and expand a company, purchase assets, employ people etc while limiting their personal liability.
The point of a Ltd Co is not to create a 'shell' for someone who is self employed, or even solely employed on a contract so they can pay less taxes.
IMHO, the cat and mouse game will just go on and on. If you want to take the risk of chancing a grey area, then you take that risk with the knowledge that you might have to pay back what you saved in years before.
JonRB said:
The most insidious thing about the whole issue is that a government agency can effectively tear up a legal contract between two businesses and introduce a "notional contract" of their own choosing that may be contrary to the intent of the parties concerned.
And that is the rub indead. The fact that , for example, a contract (be it direct or through an agency) states that substitution is an option, the revenue can disagree and demand back payment for what it thinks is due. If you look at the dates associated with this case, one has to wonder whether one will ever be safe from investigation on a whim.Eric Mc said:
Granted, you are definitely not as well off as you would be if you didn't but you will probably still be better off than a mere employee.
How can this be when the revenue are determined to increase the tax burden and you still don't get the benifits of sick pay / holiday pay etc? and have to pay NI twice!
JustinP1 said:
I must say I agree with Eric on this one.
The point of the Ltd Co framework is to make it viable for an entrepreneur to grow and expand a company, purchase assets, employ people etc while limiting their personal liability.
The point of a Ltd Co is not to create a 'shell' for someone who is self employed, or even solely employed on a contract so they can pay less taxes.
IMHO, the cat and mouse game will just go on and on. If you want to take the risk of chancing a grey area, then you take that risk with the knowledge that you might have to pay back what you saved in years before.
I disagree, the government made it a requirement that people working through agencies etc had to be limited as too many "self employed" people were paying, the then, notional tax and NI rates.The point of the Ltd Co framework is to make it viable for an entrepreneur to grow and expand a company, purchase assets, employ people etc while limiting their personal liability.
The point of a Ltd Co is not to create a 'shell' for someone who is self employed, or even solely employed on a contract so they can pay less taxes.
IMHO, the cat and mouse game will just go on and on. If you want to take the risk of chancing a grey area, then you take that risk with the knowledge that you might have to pay back what you saved in years before.
So everyone went ahead and formed limited companies, just so they could get work through agencies, and suffered the additional overheads associated with this (expense, time, insurances etc).
No dispensation comes from the revenue to cover these costs, including paying NI twice. They deem that all revenue income from a contract caught by IR35 is taxable! Yet make no provision for unemployment benefit, sick pay, holiday pay and all the other things that "employed" people can claim.
Then they have the gaul to start in on claimable expences. Travel costs to my clients sites have increased manyfold in the last 12 months, yet is there any movement on mileage allowances? I think not!
JustinP1 said:
The point of the Ltd Co framework is to make it viable for an entrepreneur to grow and expand a company, purchase assets, employ people etc while limiting their personal liability.
The point of a Ltd Co is not to create a 'shell' for someone who is self employed, or even solely employed on a contract so they can pay less taxes.
Says who? The point of a Limited Company is to limit the liability of the owners and shareholders in conducting their legitimate business. The point of a Ltd Co is not to create a 'shell' for someone who is self employed, or even solely employed on a contract so they can pay less taxes.
Eric Mc said:
Nope.
But it might just drag a few more into IR35.
Check your contracts and redraft them if necessary.
This is one of the big issues in this case, the guy did re-draft over a period of time, to reflect the changing "situation", and had new contracts issued for each particular project he worked on, yet they still deemed he was employed and are demanding £99k from the company.But it might just drag a few more into IR35.
Check your contracts and redraft them if necessary.
S690
I wasn't making any comment on the right of an individual to operate through a company - if that is the correct option for them and it matches the commercial (rather than the tax) needs of the relevant parties involved.
As far as a an IR35 based company paying over less tax than an ordinary employee on equivalent salary levels, that is a fact. The problem for the individual is that the Employer's element of NI has to be collected and paid over by him. It would normally be collected and paid over by his employer. That means he has to factor in the Er's NI in his billing and, psychologically, will look at it as part of his "before tax" income. As an employee, he wouldn't normally be factoring this cost when negotiating his Gross Salary - but his employer would be..
An IR35 company is allowed claim for estimated expenses up to £5,000 when computing the "deemed" salary - something that no ordinary employee can do.
I certainly don't ever remember the government "making it a requirement" for contracting individuals to form their own limited companies.
As far as a an IR35 based company paying over less tax than an ordinary employee on equivalent salary levels, that is a fact. The problem for the individual is that the Employer's element of NI has to be collected and paid over by him. It would normally be collected and paid over by his employer. That means he has to factor in the Er's NI in his billing and, psychologically, will look at it as part of his "before tax" income. As an employee, he wouldn't normally be factoring this cost when negotiating his Gross Salary - but his employer would be..
An IR35 company is allowed claim for estimated expenses up to £5,000 when computing the "deemed" salary - something that no ordinary employee can do.
I certainly don't ever remember the government "making it a requirement" for contracting individuals to form their own limited companies.
Edited by Eric Mc on Thursday 4th September 14:05
JonRB said:
JustinP1 said:
The point of the Ltd Co framework is to make it viable for an entrepreneur to grow and expand a company, purchase assets, employ people etc while limiting their personal liability.
The point of a Ltd Co is not to create a 'shell' for someone who is self employed, or even solely employed on a contract so they can pay less taxes.
Says who? The point of a Limited Company is to limit the liability of the owners and shareholders in conducting their legitimate business. The point of a Ltd Co is not to create a 'shell' for someone who is self employed, or even solely employed on a contract so they can pay less taxes.
http://en.wikipedia.org/wiki/Limited_companyJonRB said:
JustinP1 said:
The point of the Ltd Co framework is to make it viable for an entrepreneur to grow and expand a company, purchase assets, employ people etc while limiting their personal liability.
The point of a Ltd Co is not to create a 'shell' for someone who is self employed, or even solely employed on a contract so they can pay less taxes.
Says who? The point of a Limited Company is to limit the liability of the owners and shareholders in conducting their legitimate business. The point of a Ltd Co is not to create a 'shell' for someone who is self employed, or even solely employed on a contract so they can pay less taxes.
However, if the Ltd Company is set up with the full knowledge that there will only be a single employee, a single shareholder, and they will have no liability to speak of, then this does evade the 'point' of a limited company, and the reason why the Ltd Co framework was designed.
V8mate said:
Eric Mc said:
I certainly don't ever remember the government "making it a requirement" for contracting individuals to form their own limited companies.
Maybe not explicitly, but by virtue of various other changes there's almot no chance of getting any contracting work now without oneIt's not a legal requirement, its by and large a commercial and tax manouvere to assist larger companies in escaping the obligations they would normally have to take on board if hiring an individual.
Ad I said earlier, I'm not passing judgement on the rights or wrongs of these agreements or the underlying tax and emoloyee legislation which encourages these essentially artificial constructs.
Ad I said earlier, I'm not passing judgement on the rights or wrongs of these agreements or the underlying tax and emoloyee legislation which encourages these essentially artificial constructs.
Eric Mc said:
It's not a legal requirement, its by and large a commercial and tax manouvere to assist larger companies in escaping the obligations they would normally have to take on board if hiring an individual.
Ad I said earlier, I'm not passing judgement on the rights or wrongs of these agreements or the underlying tax and emoloyee legislation which encourages these essentially artificial constructs.
Hear what you are saying Eric, and forgive me, I'm not ranting at you. I'm just becomming more dissillusioned in my old age. Ad I said earlier, I'm not passing judgement on the rights or wrongs of these agreements or the underlying tax and emoloyee legislation which encourages these essentially artificial constructs.
It doesn't always go that way.
I've just come out of an IR35 status investigation (triggered as a result of a routine PAYE compliance check) on a recent 30 month contract with a clean bill of health. Bottom line is that it's not enough just to have a set of magic words in the contract, you've got to be able to show you're walking the walk as well as talking the talk and it looks like in this case the level of control the client exercised over the contractor was just too great.
It's still a bit of a PITA though because until you've actually got your feet under a desk (literally or metaphorically depending on whether you're working on site or off) it can be difficult to assess just what level of control a clients going to expect to be able to exercise over how you do your work and as that has a significant effect on how much money's going to end up in your pocket it makes it a bugger of a job to know what sort of rate you need to take on a job.
When all's said and done I find it hard to imagine going back into permanent employment even if (as seems possible) I end up being forced into working on a 100% PAYE basis. There's no way I can get any where near contract rates for the stuff I do even after figuring in holiday pay, sick pay, car allowances, health insurance etc, I don't want to stop being a "hands on" engineer, and I suck at office politics...
--
JG
I've just come out of an IR35 status investigation (triggered as a result of a routine PAYE compliance check) on a recent 30 month contract with a clean bill of health. Bottom line is that it's not enough just to have a set of magic words in the contract, you've got to be able to show you're walking the walk as well as talking the talk and it looks like in this case the level of control the client exercised over the contractor was just too great.
It's still a bit of a PITA though because until you've actually got your feet under a desk (literally or metaphorically depending on whether you're working on site or off) it can be difficult to assess just what level of control a clients going to expect to be able to exercise over how you do your work and as that has a significant effect on how much money's going to end up in your pocket it makes it a bugger of a job to know what sort of rate you need to take on a job.
When all's said and done I find it hard to imagine going back into permanent employment even if (as seems possible) I end up being forced into working on a 100% PAYE basis. There's no way I can get any where near contract rates for the stuff I do even after figuring in holiday pay, sick pay, car allowances, health insurance etc, I don't want to stop being a "hands on" engineer, and I suck at office politics...
--
JG
Gassing Station | Business | Top of Page | What's New | My Stuff