The All Things IR35 Related Thread

KiNgPiN83 said:
Problem - Companies were hiding staff by using contractors to lower their bills/tax/etc
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No, I would say as far as HMRC are concerned the problem was contractors working effectively as long term permanent employees but paying a much lower tax percentage on their earning (even if the absolute takings might actually be higher) and HMRC viewing it that those people should be paying the same percentage as PAYE employees. It's the contractors themselves HMRC think are taking the ****, not the companies they're working for. To solve this, they've decided that the end clients should be telling HMRC if these people are genuinely contracting or 'disguised employees' rather than the contractors themselves, who for obvious reasons will say they're genuinely contracting whether they are or not.

The issue that raises is that because of the liabilities placed on those clients for making 'wrong' judgements, many either can't or won't deal with it properly and so are taking what they deem to be the path of least risk - get rid of contractors or tell HMRC they're all disguised employees. There is little incentive for a big business to bother spending time making truly individual judgements or reporting people as genuinely contracting (until all the contractors start leaving perhaps but my experience at the moment is that most businesses are taking a "and then go where? this applies to everyone" approach).
 
I was a bit miffed at paying £100 for the clients external audit IR35 test but at least it came back as outside which I knew it would.
Didn't stop the client trying to put it inside by reassessing it twice in their HR department and contracts manager, think I had quite a big grin on my face when even they agreed it was outside IR35 as well.

Im hearing the percentage for outside IR35 is a lot higher than expected, i always thought this might be the case anyway as IR35 isn't new and the rules have always existed. Maybe it's just that the proper small business contractors know how to conduct their business in the correct manner which really should be the case anyway.
 
The problem with IR35 while is for NI collection, which could have been easily enforced to our PCSs decided to use the crude approach to effectively force everyone to employment like salary & terms. Regardless if contractors don't get paid holidays, regardless if we have more than one stream of income through our companies or if we actually draw all the money earned from out contracts. Let alone many of us need to maintain second house/hotel, or commute 600-1000 miles per week.

Because both options now for Umbrella or OPV inside IR35 apply full rate of income tax, regardless if from the 100,000 income, we only need 36000 net to live by, and the rest remain in the company bank account as "savings" also without getting taxed at 40% income tax outright.

And that is my main problem here. We are forced to pay 40% income tax on money that otherwise would have paid corporation tax only, until we drew them from our business accounts to our personal account. And if we had "retired" in some cheap country, we would withdraw only the amount needed for 0% tax rate (allowance) and go by.

Because not everyone takes all the money through dividends every year.
That +22% tax is the biggest hitter, including VAT claims on basic expenses including travel & accommodation.
 
Django x2 said:
Won't work. HMRC have already mitigated against this approach.
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Of course they have, if it’s obvious that you’re doing it to avoid IR35, which isn’t why I’m looking to do it.

I’m looking to do it because I want to start a consultancy with the eventual aim of not actually having to be hands on after a while when you can get the clients and can hire others to do the work for you. HMRC can’t do anything as that’s a viable business model, you just need a group of people you trust and know are good enough to do it
 
Jokester said:
https://www.energyvoice.com/oilandg...ractors-set-to-shun-sector-over-ir35-changes/

https://www.energyvoice.com/oilandg...not-surprised-by-north-sea-contractor-flight/

Big North Sea shutdown this summer as the Forties Pipeline is shutting down for maintenance (stops 50% of UK oil production). Likely to be a total shambles.
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It's going to cause a huge upset to the industry, especially with this lull we're in at the moment with low oil and gas prices again (I work gas side myself). Several of my colleagues have had enough and thrown in the towel, most seeking contracts further afield than UK waters now rather than sit through this ball-ache.

The mass exodus though has left some alarming staffing shortages, or rather made them more dire - the site I work at is short of technicians and incapable of recruiting any before anyone has decided to leave!
 
Steedie said:
Of course they have, if it’s obvious that you’re doing it to avoid IR35, which isn’t why I’m looking to do it.

I’m looking to do it because I want to start a consultancy with the eventual aim of not actually having to be hands on after a while when you can get the clients and can hire others to do the work for you. HMRC can’t do anything as that’s a viable business model, you just need a group of people you trust and know are good enough to do it
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I'm not sure the UK needs another test consultancy though mate ;)
 
My wife works as a free-lance consultant in the media/marketing industry. She set up as a sole trader as she was advised against LTD route for a numerous reasons, and sole trader was easy and simple to set up, and has worked well.

She's now been asked to fill in an IR35 form by one of her clients, and my first reaction is she doesn't need to as IR35 only covers entities (i.e. LTDs) not sole traders. I'm still happy in that assertion.

However in finding a few confirmatory sources, I came across these, with some interesting quotes

https://www.contracteye.co.uk/ir35-sole-trader.shtml

“The specific legislation only applies to limited companies (and partnerships). However, status is also an issue for sole traders. The main difference is that the end client would foot the bill if they were deemed to be disguised employees, rather than the contractor himself.”
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https://www.qdoscontractor.com/news/2019/02/26/are-sole-traders-affected-by-ir35

There are many ways in which a sole trader can be hired by a client. The client organisation will be responsible for paying the additional taxes, interest and possibly penalties should a sole trader be considered to be an employee. Whilst the sole trader does not carry any liability, they would have course suffer a deduction on their future earnings, as the likelihood is that they would have to be placed onto the payroll of the end client.
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In what case would she need to be placed on the payroll? And what additional taxes would be due in this case? She currently pays tax and NI via self-assessment, with nothing deducted at source, as she is very much a self-employed consultant and not an employee.
 
dl8860 said:
In what case would she need to be placed on the payroll? And what additional taxes would be due in this case? She currently pays tax and NI via self-assessment, with nothing deducted at source, as she is very much a self-employed consultant and not an employee.
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In simple terms IR35 is something that seeks to stop employees avoiding PAYE by inserting a non-natural person in between themselves and the employer. It's not needed for sole traders as if the reality is that they are an employee then they should be treated as such regardless of whether they are "contracting".

To answer the question above I assume you understand how PAYE operates in terms of tax and take home pay, which is what would happen if moved onto payroll.
 
If she gets put on payroll then I guess the client will need to pay NI and will will pay NI and tax at source? I don't see why they'd want to do that though.

This article mentions the Income Tax (Earnings and Pensions) Act 2003, but is that only when using an agency?
 
If IR35 places you as a disguised employee it doesn’t matter what vehicle the disguised employee uses.

Since a sole trader will be presumably paying full NI/income tax at a personal level HMRC aren’t too interested in the individual.

The point here would be that after an IR35 judgement the tax would be at source and the sole trader would become a PAYE contractor. Whether there is an actual income cost net of tax to the sole trader in this case I’m not sure, though I guess as a sole trader you can offset expenses against income which you wouldn’t be able to do as a PAYE contractor?
 
dl8860 said:
If she gets put on payroll then I guess the client will need to pay NI and will will pay NI and tax at source? I don't see why they'd want to do that though./
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What they want to do isn't really relevant to the question of whether they should be doing it.

[his article mentions the Income Tax (Earnings and Pensions) Act 2003, but is that only when using an agency?
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ITEPA is the taxing legislation primarily concerned with employment income and related areas. It can apply in lots of situations including employment and agency workers.
 
Jokester said:
If IR35 places you as a disguised employee it doesn’t matter what vehicle the disguised employee uses.

Since a sole trader will be presumably paying full NI/income tax at a personal level HMRC aren’t too interested in the individual.

The point here would be that after an IR35 judgement the tax would be at source and the sole trader would become a PAYE contractor. Whether there is an actual income cost net of tax to the sole trader in this case I’m not sure, though I guess as a sole trader you can offset expenses against income which you wouldn’t be able to do as a PAYE contractor?
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IR35 legislation does not apply to sole traders though. I know there is a raft of changes occurring with how IR35 is applied, I'm trying to find out if there is some other hidden changes that haven't been mentioned that apply to sole traders.

As you say HMRC aren't going to be gaining any more tax than they are as she's already paying at PAYE rates rather than corporation rates, so my guess is there's no issue here but it seems clear as mud!
 
dl8860 said:
As you say HMRC aren't going to be gaining any more tax than they are as she's already paying at PAYE rates rather than corporation rates, so my guess is there's no issue here but it seems clear as mud!
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I wouldn't be so sure because you're ignoring employer's NIC (although that would reduce the employer's CT) and the difference in deductibility of expenditure. The numbers would have to be run.

Edit: but you are correct, this isn't anything to do with IR35 and probably shouldn't have been moved into this thread.
 
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