IR35 update for any contractors on here

[elaine@cheapaccounting]

The Office of Tax Complication and Equivocation

[FONT=&quot]Set up in the summer of 2010 it took the Office of Tax Simplification (OTS) some 8 months to produce an 82 page report, part of which contained long awaited recommendations on IR35.[/FONT]
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[FONT=&quot]Well I say recommendations.[/FONT]
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[FONT=&quot]It gave two options:[/FONT]

• [FONT=&quot]Suspend IR35, with a view to abolishing the legislation permanently[/FONT]
• [FONT=&quot]Retain IR35 legislation in its existing form but with explicit commitments from HMRC to make specified changes to the enforcement of the legislation[/FONT]

[FONT=&quot]So guess which one has been selected :[/FONT]
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[FONT=&quot]Retain IR35 legislation
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[FONT=&quot]As confirmed in yesterday’s budget :[/FONT]
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[FONT=&quot]The Government has decided to retain IR35, as abolition would put substantial revenue at risk.[/FONT]


[FONT=&quot]So we get:[/FONT]

• [FONT=&quot]dedicated helpline staffed by specialists [/FONT]
• [FONT=&quot]guidance on those types of cases HMRC view as outside the scope of IR35 [/FONT]
• [FONT=&quot]targeting compliance activity by restricting reviews to high risk cases [/FONT]
• [FONT=&quot]setting up an IR35 Forum which will monitor HMRC’s new approach[/FONT]

[FONT=&quot]Now is it me but what a load of tosh![/FONT]


[FONT=&quot]A help line run by HMRC will just confirm – are they really likely to say “of course you are not inside IR35”![/FONT]
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[FONT=&quot]Compliance on high risk cases only – what does that mean?[/FONT]
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[FONT=&quot]Will they be identified by turnover and potential tax to collect?[/FONT]
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[FONT=&quot]In which case, why not set up a new limited company for every contract, contract renewals or every year to keep under the trigger thresholds.[/FONT]
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[FONT=&quot]Set up an IR35 forum – so that can see which companies / individuals are worried that they are caught by it. Oh what a good idea![/FONT]
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[FONT=&quot]Our tax authority, HMRC, requires us as individuals to self assess our tax liability by completing the self assessment tax return.[/FONT]
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[FONT=&quot]Now in a tax regime that requires an individual to self assess there must be rules that are:[/FONT]

• [FONT=&quot]clear [/FONT]
• [FONT=&quot]concise [/FONT]
• [FONT=&quot]understandable [/FONT]
• [FONT=&quot]enforceable[/FONT]

[FONT=&quot]If the rules are not – then rip them up and start again.[/FONT]


[FONT=&quot]We are no further forward on IR35 – in fact I think that this is a step backwards.[/FONT]
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[FONT=&quot]In my opinion the OTS MUST give a recommendation – not options.[/FONT]


[FONT=&quot]If they can’t do that then I fail to see the purpose of them and I think that they will soon lose credibility if this is the standard of what they intend to produce.[/FONT]

 

[MrPAYE]

I agree with most of your comments but in defence of the OTS, they did say, and I quote,

"Our remit requires the OTS to address the complexities that exist within the IR35 legislation. As indicated above, the structural change of integrating income tax and NICs would take away the need for IR35 but we recommend two options that the Government should consider adopting until the structural changes are introduced"

The options given in their report were only intended to be short term until the bigger issue of merging tax and NI has been addressed.

HMRC were NEVER going to drop IR35 completely so yesterday's announcement was expected.

 

[elaine@cheapaccounting]

Merging of Tax and NI - I am not holding my breath on that one.

Not in my working life time

 

[David Griffiths]

[FONT=&quot]
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[FONT=&quot]In my opinion the OTS MUST give a recommendation – not options.[/FONT]


[FONT=&quot]If they can’t do that then I fail to see the purpose of them and I think that they will soon lose credibility if this is the standard of what they intend to produce.[/FONT]

It's down to the terms of reference they were given.

From their report

6.2 The OTS cannot make any decisions about individual reliefs. It is ultimately for the Chancellor of the Exchequer to decide on changes to tax legislation, and in doing so he will take account of the recommendations from the OTS. Such proposals from the Chancellor will in addition be subject to the normal parliamentary process.

For every relief identified, there will be winners and losers if it is changed. The OTS can identify those, but only the government can decide the importance of any change in relation to the cost.

They were most unlikely to abolish IR35 given the amount of energy that they've spent trying to impose it in recent years. There have been thousands of tribunal cases, most of which the Revenue have lost, but behind the scenes who knows how many people have caved in to the demands, or not even tried to get round it because of the FUD (fear, uncertainty and doubt) caused by the Revenue's attitude.

I doubt that there were any professionals who didn't take the cynical view that the Revenue specialists would simply tell people that they are caught.

 

[elaine@cheapaccounting]

to quote your quote ...

6.2 The OTS cannot make any decisions about individual reliefs. It is ultimately for the Chancellor of the Exchequer to decide on changes to tax legislation, and in doing so he will take account of the recommendations from the OTS. Such proposals from the Chancellor will in addition be subject to the normal parliamentary process.


recommendations not options!

 

[alanc]

Quality post, elaine!

I'd like to know why the Chancellor thinks that abolition would 'put substantial revenue at risk'. They have never acheived anything like the original promised earnings from IR35, and given the court case costs, they have probably made an overall loss.

I'm always fascinated by the fact that they have never managed to give this piece of legislation a sensible name. It has always been known by the number on the original announcement: IR35. I think the problem lies that if it were accurately named, it would show up that it has really been targeted at a specific group of people - something the government is not normally allowed to do with tax legislation.

 

[andygambles]

Flat rate tax simplification is all we need.

 

[awebapart.com]

[FONT=&quot]Now is it me but what a load of tosh![/FONT]

Yes utter tosh, and I'm very disappointed with the new government's handling of this.

IR35 update for any contractors on here

One of the problems with IR35, all along, is that its scope goes far beyond contractors, it can extend to any service company providing a service involving manpower (people doing work) for another company.

Which IMO is the main problem with IR35 as it adds an extra confusing legislative burden on small business, and inhibits enterprise (for small companies whose USPs are their people).

 

[Tom Egerton]

Agreed - a quality post Elaine and exactly what I thought but were too idle to write down.

Can somebody explain to my simple mind how merging tax and national insurance would make IR35 redundant? Unless tax on dividends is somehow aligned to tax on earned income I don't see the logic.

Either way the OTS have fudged the issue by not having the balls to recommend complete abolition. Abolition would simplify the tax system because we wouldn't have the uncertainty of trying to give advice in this area and it would stop the plethora of cases, many of which recently have gone in the taxpayer's favour but have been paid for by our taxes.

 

[MrPAYE]

Agreed - a quality post Elaine and exactly what I thought but were too idle to write down.

Can somebody explain to my simple mind how merging tax and national insurance would make IR35 redundant? Unless tax on dividends is somehow aligned to tax on earned income I don't see the logic.

Either way the OTS have fudged the issue by not having the balls to recommend complete abolition. Abolition would simplify the tax system because we wouldn't have the uncertainty of trying to give advice in this area and it would stop the plethora of cases, many of which recently have gone in the taxpayer's favour but have been paid for by our taxes.

The two main advantages of being a one man ltd company (aside from limited liability) are a) income is not classed as employed earnings (assuming IR35 doesn't bite) and therefore no employer's NI to pay and b) the opportunity to reduce tax and avoid NI by taking dividends rather than salary.

The OTS are saying that if both these advantages were closed off, by making tax and NI costs the same for employees/self employed/directors then there wouldn't be such a clamber to operate via a limited company any more thus removing the issue.

Comments made on this forum (and others) are the exact reason why HMRC will NEVER abolish IR35. What I mean is posts like we had last week "My boss wants me to go self employed" and the ones that pop up virtually every week along the lines of "Should I go self employed or employed" etc

These comments in my experience mirror what goes on in the outside world. There are many workers who operate via limited companies solely to pay less tax/NI although they are no more running a business than regular employees, i.e. they work for the same client Monday to friday (often this is their ex employer), contracts last for a year or three or five, there is no need to tender or advertise for other contracts, etc etc. In other words, they are not taking any real risks of operating a business unlike other genuine businesses so why should they get any tax advantages as they are employees in all but name ?

As long as this is the case HMRC cannot just cave in and say "ok, we'll just ignore situations like this and let every man and his dog do the same". That is why they are saying "substantial revenue is at risk" as the floodgates would open if they were to completely abolish IR35.

Sadly, there are genuine businesses who are caught up in the nonsense by virtue of the current legislation as they are tarred with the same brush as those I have already mentioned which is not ideal but is unavoidable.

 

[mr. mischief]

On the one hand the last post makes sense. On the other the 1999 forecast was IR35 would raise £300m per tax year. I read somewhere - and stand to be corrected - that the LIFETIME tax take is under £10m. Meanwhile it is reckoned HMRC spent £1.5m on some individual IR35 cases, so overall it has probably cost the taxpayer money.

Also the fact that it is HMRC we're talking about here instead of more commonsense better organised parts of the public sector means it's always likely to be a mess if they are behind it.

So scrap it and come up with very simple tests - black and white, not more than 3 - then we all know where we stand.

 

[David Griffiths]

On the one hand the last post makes sense. On the other the 1999 forecast was IR35 would raise £300m per tax year. I read somewhere - and stand to be corrected - that the LIFETIME tax take is under £10m. Meanwhile it is reckoned HMRC spent £1.5m on some individual IR35 cases, so overall it has probably cost the taxpayer money.

Also the fact that it is HMRC we're talking about here instead of more commonsense better organised parts of the public sector means it's always likely to be a mess if they are behind it.

So scrap it and come up with very simple tests - black and white, not more than 3 - then we all know where we stand.

Where does that lifetime figure come from? From cases won by HMRC? That would be a drop in the ocean. The amount of tax that has been paid by people who applied IR35 to their circumstances from the outset, plus the amounts from people who caved in when they were challenged is likely to be far more than that.

If you've seen the way that HMRC inspectors work, it's no surprise that unrepresented taxpayers cave in to the bullying (a word that I've used before and will stand by)

It's like a nuclear capabilty. It hasn't been used in the last 70 years, but people are still aware of it.

 

[elaine@cheapaccounting]

I would like to re-iterate my point ......

[FONT=&quot]Our tax authority, HMRC, requires us as individuals to self assess our tax liability by completing the self assessment tax return.[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]Now in a tax regime that requires an individual to self assess there must be rules that are:[/FONT]

• [FONT=&quot]clear [/FONT]
• [FONT=&quot]concise [/FONT]
• [FONT=&quot]understandable [/FONT]
• [FONT=&quot]enforceable[/FONT]

[FONT=&quot]If the rules are not - then rip them up and start again.[/FONT]


Spend money on getting rules that can be enforced and not on trying to fight cases through the courts on a set of ambiguous rules.



The only ones that benefit from that are lawyers and accountants!