Can't El Reg get anything right?!
Well done El Reg on *completely* mischaracterizing IR35.
"The rules were introduced by Labour in 2000 to target the "disguised employment" loophole. Contractors would set up their own limited company and take a low salary to cut their income tax burden, while paying themselves in large dividends to avoid National Insurance."
Both true statements, but unrelated. *All* sane contractors set up limited companies, take a low salary, and pay themselves in dividends. You don't only avoid NI, you also pay corporation tax instead of income tax, which is much cheaper.
But IR35 did not address these usual tax avoidance schemes at all. IR35 instead addressed the cases when the contractor was a de-facto employee of his client - stayed for years, had an office, trained juniors up, that sort of thing - but was avoiding his National Insurance obligations through the limited company (you can set this up so you pay zero NI, but still get credited with having paid for the year).
IR35 said that if they decided you were doing that, on broadly arbitrary grounds, then you would have to pay NI on your entire business income - including refunds of out-of-pocket expenses (e.g. air travel, books, equipment) which regular employees do *not* pay NI on.
The problem was that if you were a bona fide contractor who happened to get a client for a long time, things were looking pretty sticky for you and no-one could predict whether or not IR35 would catch you out.
The pernicious thing about IR35, you see, is that HMRC apply it by basically *inventing* a contract that doesn't exist, saying it's an "employment contract", and claiming that a huge amount of tax is now payable under IR35. This contract is supposedly based on how things work "in practice" but the whole thing is somewhat subjective, to say the least.
There are a dozen other issue which the IR35 legislation throws up. Every one of them serves to slightly sour the deal you are trying to make with a client. The client may (rightly) be concerned about who is liable for any NI under IR35. The client may want to specify things in the contract which are incompatible with IR35 (for instance, that you work at their office, a not unusual and not unreasonable request). The client may not want you nit-picking on their "standard" contracts.
The sooner IR35 is discarded, the better. If HMRC want to address some free-loading issues they need to do it with legislation that is at least objective and deterministic, and which doesn't affect the relationship between clients and bona fide contractors.
Biting the hand that feeds IT
