back to article IT contractor has £240k bill torn up after IR35 win against UK taxman

IT contractor Richard Alcock has won an appeal against HMRC after the UK taxman said he owed more than £200,000 in national insurance contributions (NICs) and income tax under off-payroll rules. The IR35 legislation states that individuals who work alongside PAYE staff in similar roles should pay the same amount in income tax …

  1. Anonymous Coward
    Anonymous Coward

    I cannot understand why HMRC pursues contractors so much.

    Says someone who just dodged a tax bill of around £250,000.

    I thought contractors were supposed to be clever....

    1. Anonymous Coward
      Anonymous Coward

      Re: I cannot understand why HMRC pursues contractors so much.

      Read it again, it says the full balance wouldn't have been due as he'd made payments towards these. So the full bill would be ~£240k but if he'd paid £230k then that's only £10,000 left to pay.

      They calculate the full amount you're due and then later can subtract what you've already paid.

    2. phuzz Silver badge

      Re: I cannot understand why HMRC pursues contractors so much.

      If one contractor had a potential quarter of a million quid tax bill, can you imagine how much they'd rake in if (eg) Amazon paid their share?

      1. Jellied Eel Silver badge

        Re: I cannot understand why HMRC pursues contractors so much.

        If one contractor had a potential quarter of a million quid tax bill, can you imagine how much they'd rake in if (eg) Amazon paid their share?

        Amazon probably are paying their share. It's just easier for HMRC to go after small businesses than huge ones like Amazon and their legions of accountants & lawyers.

        And HMRC seems to like making things up. I had a company created specifically to design, build and commission a system for a client. Job done, VAT & taxes paid for that work, but then HMRC sent an assessment for another £210k VAT to be paid within 7 days, or else. Then some fun trying to get HMRC to explain their calculations, which included asking the police if they'd consider investigating HMRC for fraud.. And apparently the police can't investigate HMRC without HMRC's permission. Fun times. Luckily I didn't have to go legal & got it resolved.

      2. fnusnu

        Re: I cannot understand why HMRC pursues contractors so much.

        Amazon pay every penny they owe. This might not be the amount your sixth-form socialist mind thinks it should be, but that's why we don't have teenagers setting tax laws.

        1. Anonymous Coward
          Anonymous Coward

          Re: I cannot understand why HMRC pursues contractors so much.

          Too right, have an upvote! Corporation tax is based on net profit, so if by the end of the year Amazon have managed to spend all their profit elsewhere then they don't end up paying much corporation tax. It's really not a tricky concept. If you don't like how little corporation tax they have to pay then blame the government who set the rules on how it works, not the company working within the system.

          I suspect many of the technologies that have come out of Amazon over the years owe a lot to the reduction of net profit. Make a load of profit... dump it into R&D to produce the Kindle, or Alexa, or Echo etc, or the many tried and failed projects I'm sure they've had that never came to anything.

          1. Anonymous Coward
            Anonymous Coward

            Re: I cannot understand why HMRC pursues contractors so much.

            Wonder how much lobbying is taking place to stop this candidate?

            https://www.google.com/amp/s/www.cnbc.com/amp/2019/08/19/andrew-yang-on-google-amazon-helping-pay-for-his-ubi-plan.html

          2. batfink Silver badge

            Re: I cannot understand why HMRC pursues contractors so much.

            Agreed that it's up to governments to set the tax rules properly. However, this gets tricky when a company like Amazon is operating in multiple different jurisdictions.

            However, I disagree that "Amazon have managed to spend their profit elsewhere". There are many ways of making "excess" profits disappear from the books, such as the time-honoured route of charging your operations in other countries "licence fees" to use your name/IP/whatever. This certainly doesn't count as "spending" IMO - this counts as "shuffling".

            1. BrownishMonstr Bronze badge

              Re: I cannot understand why HMRC pursues contractors so much.

              But what if you are a company genuinely licensing from another? What if you were so creative that you named it the same as the one you're licensing it from.

            2. Roland6 Silver badge

              Re: I cannot understand why HMRC pursues contractors so much.

              There are many ways of making "excess" profits disappear from the books, such as the time-honoured route of charging your operations in other countries

              But those 'loopholes' aren't really anything to do with Corporation Tax, they are more to do with the international taxation agreements/treaties and the creative interpretation of business expense rules and internal pricing for cross charging.

              Corporation Tax is a voluntary tax, something the tabloids and Joe Public seem to have difficulty understanding. Government policy until circa 2016 was to encourage inward investment ie. to effectively encourage overseas companies to spend their R&D budgets in the UK, where the government would benefit from slices off business rates, PAYE/NI etc.

            3. LucreLout Silver badge

              Re: I cannot understand why HMRC pursues contractors so much.

              There are many ways of making "excess" profits disappear from the books, such as the time-honoured route of charging your operations in other countries "licence fees" to use your name/IP/whatever. This certainly doesn't count as "spending" IMO - this counts as "shuffling".

              This can be the primary purpose for licensing IP from other legal entities, but its far from the only reason.

              Lets say I start Lout Corp in America. Its a massive success and I branch out abroad. I start Lout (UK) Ltd in England - these are separate entities so it needs to licence the branding, trademarks etc I established in America. Next up I branch out further into say, Singapore with Lout (SGP). Again, it needs to licence the existing IP.

              Things get more complicated when these spin off entities generate their own IP that I want toi use in other jurisdictions. Eventually it gets complicated enough that I need one central entity to own and manage all my global IP. That's not shuffling, it's recognizing the innate complexity of dealing with several governments and civil services, which is to organisational effectiveness what herding is to cats.

              Given I have a totally free choice where to put that new entity, Lout (IP) xxx, why not put that somewhere friendly towards IP? It's why U2 have their music rights managed out of Holland. Its why the Guardian kept the Scott Trust offshore for many decades and still to this day uses tax avoidance vehicles to reduce taxable gains (see its sale of Autotrader etc for details). That may look like shuffling to you but to place it where it will pay more tax to one arbitrary nation or another than you need to is just dumb. When IP has been generated form the work in several countries, it's simply not possible to assign ownership across all the jurisdictions and say that they own it for tax purposes.

              These are the facts people. You may not like them, but they are nonetheless facts. International business and finance just isn't as simple as political soundbites or guardian journalists. Two faced and duplicitous though they may be.

              1. Glen 1 Silver badge

                Re: I cannot understand why HMRC pursues contractors so much.

                "Lets say I start Lout Corp in America. Its a massive success and I branch out abroad. I start Lout (UK) Ltd in England - these are separate entities so it needs to licence the branding, trademarks etc I established in America. Next up I branch out further into say, Singapore with Lout (SGP). Again, it needs to licence the existing IP."

                Given that you control both sides of that transaction.The licence fees can be anything from zero, to some number conveniently made up to be just below last years profit. That's the complaint.

                Add to that certain CEOs paying less in tax (as a %age of their income) than the lowest employee, it is little wonder where the animosity comes from.

                SMEs are the lifeblood of the economy. Large multinationals are parasites.

                1. LucreLout Silver badge

                  Re: I cannot understand why HMRC pursues contractors so much.

                  Given that you control both sides of that transaction.The licence fees can be anything from zero, to some number conveniently made up to be just below last years profit. That's the complaint.

                  The relative value of the IP can be considered in simple terms as "Would the transaction have happened without the branding/IP?" In most cases, the answer is no. If I could have use of the Coke brand for a few weeks I could make a fortune selling alternative drinks, many many times what I could make selling the same drink without it. So is it the drink or the brand that the sale derived from?

                  Most companies using IP transfer keep to sensible levels - Starbucks (I believe though haven't checked in a while) remits about 3% of revenue for the use of the mermaid logo.

                  The real dodge comes from the transfer pricing - buying the coffee used by SB UK from SB Wholesale at significant markup from what wholesale coffee sells at. Now there's always a markup no matter what you buy from whom, but yes, some companies (I'm not suggesting Starbucks is one before their dogs of law attack) do use it more for avoidance than operational effectiveness.

                  However, people seem to think words like "fair" or "moral" apply to taxation when they don't. They don't even really mean anything, sort of like "ethics" as a concept. International companies don't give a toss what your local road looks like or whether your diversity is sufficiently coordinated. No matter how much moaning people do about it, you, we, all of us, are in a global competition for their tax revenue which they can realistically assign almost anywhere with very little to stop them. The least worst answer is to compete, rather than get none of the revenue because you didn't want to try. You can downvote that all you like but it won't change the facts in reality.

                  1. WageSlave

                    Re: I cannot understand why HMRC pursues contractors so much.

                    Nope, Competing just ends up a race to the bottom of the Corp Tax brackets.

                    The only way to solve dodging like that is international collaboration; ideally via a supra-national organisation that member countries freely enter into, in the understanding that it puts a stop to Corporate manipulation of tax loopholes, and that profits from a country and fairly counted and taxed in that country, and can ensure that members actually do what is agreed, and police their businesses and taxes.

                    The benefit of a level playing field is that everybody benefits fairly. Trading locally should be fairly taxed locally, otherwise e.g. Stairblocks* effectively levies a corporate tax on the local country & siphons profits overseas.

                    If only...

                    * Made-up psuedo-international company name, which does not represent any existing company

          3. jmch Silver badge
            Mushroom

            Re: I cannot understand why HMRC pursues contractors so much.

            "If you don't like how little corporation tax they have to pay then blame the government who set the rules on how it works, not the company working within the system."

            I do blame the government that nominally sets the rules. I blame even more the companies who pay huge sums to lobbyists, government entities, think-thanks etc to get laws written for them in a way that they can game the system and save obscene amounts, next to which the huge amounts they pay to get what they want are a relative pittance. And the government officials allowing this are doubly fools for being so cheaply bought.

            1. VulcanV5

              Re: I cannot understand why HMRC pursues contractors so much.

              @jmch: "I do blame the government that nominally sets the rules. I blame even more the companies who pay huge sums to lobbyists, government entities, think-thanks etc to get laws written for them in a way that they can game the system and save obscene amounts, next to which the huge amounts they pay to get what they want are a relative pittance. And the government officials allowing this are doubly fools for being so cheaply bought."

              Sorry to disagree, but there's very little that's foolish about government officials playing fast and loose with legislation and indulging the profit-chasing money-grubbing of various private sector enterprises -- generally, the bigger the better -- until such time as said officials are due to take early retirement from the Civil Service. At which point, the well-known revolving door between public sector and private sector spins again and, by remarkable coincidence, the same officials who over the years have been so lenient in regulatory matters in regard to certain companies, find themselves in plum jobs at senior management or Board level at those same companies. 'Tis the way the world work, sadly, and is tolerated by an electorate too du and too inert to campaign for the demolition of that revolving door.

          4. katrinab Silver badge
            Flame

            Re: I cannot understand why HMRC pursues contractors so much.

            Except that, the profit goes to various offshore entities which are outside HMRC's reach, so not really.

            The laws that seek to disallow such expenses could be reviewed, and the loopholes removed. After a decade of whack-a-mole, they did eventually manage it for inheritance tax.

            1. DiViDeD Silver badge

              Re: laws ... could be reviewed ... loopholes removed

              Except that the very consultant companies (PW, EY, etc) who are paid large sums of money to "assist" governments to draft those laws are the very same consultancies who are also paid large sums of money to "assist" companies to take advantage of the loopholes built into those very same laws.

              Trebles all round, I think!

          5. BuckeyeB

            Re: I cannot understand why HMRC pursues contractors so much.

            I don't understand why many people don't get that corporations treat taxes like any other expense. Of course, they try to reduce it as much as legally possible. But in the end, they want to make a certain profit and will increase their prices to offset any increased expenses(taxes). So therefore, the consume pays all corporate taxes. So a vote to increase a corporate is just a vote to force the corporation to increase their prices so you can pay more. Except, you think you aren't paying the tax. And you can then blame the price increase on greed.

            1. WageSlave

              Re: I cannot understand why HMRC pursues contractors so much.

              it all depends on where the tax happens.

              If I'm a UK consumer I don't want to think all I'm doing is lining the pockets wealthy shareholders overseas. I'd rather the locally-profitable portion of my UK purchasing gets taxed in the UK and so ploughed back into UK services like bins & healthcare.

              If the international brand "royalties" are siphoning profits into a lower-tax offshore haven, representing near-0 taxable profits in the UK, but resulting in healthy overseas dividends then I feel short-changed, and it ends up looking like an effective tax on the country

        2. Anonymous Coward
          Anonymous Coward

          Re: I cannot understand why HMRC pursues contractors so much.

          Yes, all £14m of tax last year on £2.3bn revenue and £75m profit.

          If those same ratios were applied then this contractor would have been paid £41m for his work...

          So perhaps it would be worth applying the same rules to large companies and single person organisations

          1. Steve Foster

            Re: I cannot understand why HMRC pursues contractors so much.

            The standard UK rate of corporation tax is 19%, and that is levied on pretax profit.

            19% of £75m is £14.25m, so it sounds like Amazon did indeed pay their due share, according to the current method of taxing companies that we operate in the UK.

            1. jmch Silver badge

              Re: I cannot understand why HMRC pursues contractors so much.

              "19% of £75m is £14.25m, so it sounds like Amazon did indeed pay their due share, according to the current method of taxing companies that we operate in the UK."

              Nobody (that I know) is arguing the 19% of £75m, the argument is how many of the £2.225bn expenses were real expenses (payroll, warehousing, delivery costs, IT infrastructure etc) and how many were fake/inflated costs used to extract the profit to a lower-taxation jurisdiction.

              To be clear, I have no problem per se with things like IP being cross-border licensable, but if IP was developed in, say, USA, IP / licensing rights should be paid to USA. I don't think Amazon (or Google, Apple etc) have all their development done in Bermuda. And I don't think Amazon (or whoever) in Bermuda (or wherever) ever paid the real market value to buy the IP from the places in US, UK etc etc who actually developed it.

              1. katrinab Silver badge
                Flame

                Re: I cannot understand why HMRC pursues contractors so much.

                The group made a net margin of 5%. The UK made a net margin of 3%. 19% of the difference is the tax avoided through offshore stuff.

              2. Steve Foster

                Re: I cannot understand why HMRC pursues contractors so much.

                Their 2018 figures don't detail all the administrative expenses (published accounts rarely do), but they do show that payroll costs alone were just under £0.8bn. That's a lot of staff (~22000, according to the figures).

                It also lists their property lease commitments - almost £1.3bn in total (not all payable/charged against one year, of course), and more than £0.4bn on finance leases (again, multi-year).

                As for transferring costs to other bits of their organisation, there are rules and limits around what companies can do in this regard set out both in domestic legislation and international treaties.

                (https://www.gov.uk/guidance/transfer-pricing-transactions-between-connected-companies would be the starting point if one wanted to dig further into that)

                1. Anonymous Coward
                  Anonymous Coward

                  Re: I cannot understand why HMRC pursues contractors so much.

                  Amazon shares are around the $1800 mark and have generated around 40% returns for the last 10 years, despite no dividends being paid. However the shares can be used as collateral for loans, which provides a lot of scope to invest elsewhere.

                  1. MonkeyCee Silver badge

                    Re: I cannot understand why HMRC pursues contractors so much.

                    "However the shares can be used as collateral for loans, which provides a lot of scope to invest elsewhere."

                    As I understand it, that's pretty much how shares (and investments) generally work.

                    You buy it as cheap as possible. You never sell it. Ever. You rent it out, you borrow money against it, but never sell.

            2. Muppet Boss

              Re: I cannot understand why HMRC pursues contractors so much.

              >19% of £75m is £14.25m, so it sounds like Amazon did indeed pay their due share, according to the current method of taxing companies that we operate in the UK.

              I do not seem to find any info on how much VAT Amazon paid in the UK, is it available anywhere? It could be an interesting number to look at.

          2. maffski

            Re: I cannot understand why HMRC pursues contractors so much.

            Why would a contractor, selling mainly their time and skills; have the same profit margin as a Amazon; the UK arm of which is mostly logistics I think (the warehousing and delivery services)?

            1. NeilPost Bronze badge

              Re: I cannot understand why HMRC pursues contractors so much.

              ... and world’s biggest - by far - provider of Cloud Computing Hosting/Services powered by Amazon Web Services (AWS). This sort of IT infrastructure ain’t cheap and is expanding at a huge rate. Built from nothing over the last 13 years. Global revenue $26bn (2008).

              AWS have recently opened a UK Compute Zone.

        3. cynic56
          Flame

          Re: I cannot understand why HMRC pursues contractors so much.

          Wibble

        4. Champ

          Re: I cannot understand why HMRC pursues contractors so much.

          > Amazon pay every penny they owe

          In Luxembourg

          There, fixed that for you

        5. Anonymous Coward
          Anonymous Coward

          Re: I cannot understand why HMRC pursues contractors so much.

          @fnusnu and "Amazon pay every penny they owe" proof?

          I would imagine that Amazon would, like ever other company, pay every penny of tax they cannot avoid paying.

          That tax laws are IMHO intentionally convoluted is so that tax lawyers can make a living. A single tax based upon income that would make tax law interpretion unnecessary would cut costs for everyone but then everyone would have to pay their fair share and since those avoid tax have chunks of cash hidden away they can afford to have make certain that others pay their share for them.

      3. jmch Silver badge

        Re: I cannot understand why HMRC pursues contractors so much.

        "If one contractor had a potential quarter of a million quid tax bill"

        It's over 5 years so £50k a year including both NI and Tax, which for relatively high earners together make up close to 50% of income. So while it looks like our chap was fairly well paid, it's not like he was raking it in.

        Furthermore, no mention is made of how much he actually DID pay, which likely wasn't too far off.

    3. batfink Silver badge

      Re: I cannot understand why HMRC pursues contractors so much.

      RTFA. He didn't "dodge" a tax bill of £240k. He never owed that tax in the first place.

      The £240k only existed in the minds of HMRC.

      1. DavCrav Silver badge

        Re: I cannot understand why HMRC pursues contractors so much.

        "RTFA. He didn't "dodge" a tax bill of £240k."

        I did read it. He did dodge taxes. Tax avoidance and evasion are both dodges, the difference is which is legal.

        People say Starbucks (for example) dodges taxes all the time, and there's no suggestion that that is evasion.

        1. Graham Dawson

          Re: I cannot understand why HMRC pursues contractors so much.

          I dodge tax too. I don't pay the top rate of income tax, because I don't earn that much. Wish I did... I avoid paying the extra sales tax on new yachts, because I don't buy yachts. Avoidance - not paying what you don't owe - is not evasion - not paying what you do owe - and equivocating them even in the slightest is dishonest, to say the least.

        2. JimBob01

          Re: I cannot understand why HMRC pursues contractors so much.

          I would suggest that the way Starbucks operates is closer to evasion than avoidance.

          Also, if Starbucks UK has never operated profitably why has it not been wound up as a non-viable business?

        3. philipcsmith70

          Re: I cannot understand why HMRC pursues contractors so much.

          Everyone avoids taxes to some extent. Putting extra cash into pension for example. Perhaps you could volunteer your free pay allowance - if you have one - and pay tax from the ground? Or pay into your pension pot after tax?

        4. anothercynic Silver badge

          Re: I cannot understand why HMRC pursues contractors so much.

          Anywhere where you saved on taxes makes you a tax dodger too then.

    4. Dr. Mouse Silver badge

      Re: I cannot understand why HMRC pursues contractors so much.

      He didn't "dodge a tax bill", the court found he didn't owe it.

      HMRC could come up to you and say "You owe us a meeeeelion pounds in back taxes", with no basis for the claim. If you took it to tribunal and they cleared you, would you be happy if people declared you had "dodged a million pound tax bill"?

      HMRC keep trying to pull a fast one, and time and again the courts knock them back. Even more are dropped before they even get to tribunal.

      That's why they're changing the rules: They think they'll be more successful in scamming companies into taking undeserved taxes from genuine contractors.

      1. matjaggard

        Re: I cannot understand why HMRC pursues contractors so much.

        No, HMRC are trying to find out how to apply a difficult bit of law. People are still paying less tax by being long term contractors which is what this legislation was trying to stop. Unfortunately, writing legislation is really hard - also shown by the Amazon example above.

        1. EnviableOne Bronze badge

          Re: I cannot understand why HMRC pursues contractors so much.

          its not a dificult bit of law, they wrote the IR35 rules.

          and PSCs tend to pay more tax on earnings than employees anyway, as HMRC has constantly changed the rules to disadvantage them.

        2. geekguy

          Re: I cannot understand why HMRC pursues contractors so much.

          Sorry but the new laws aren't trying to stop long term contractors anymore they are trying to provoke companies to no longer engage contractors by passing the risk to the engager, as such large clients such as the banks are announcing they will no longer engage contractors at all. This is an own goal as people then forced into full time employment will no longer raise vat (most are flat rate vat), and will be paid less (less to tax) meaning a net loss to the treasury. Its stupid, a better way would have been to scrap ir35 and raise corporation tax, I say this as a now ex contractor

          1. dajames Silver badge

            Re: I cannot understand why HMRC pursues contractors so much.

            Its stupid, a better way would have been to scrap ir35 and raise corporation tax ...

            A better way would be to scrap NI and raise the money instead through income tax and corporation tax.

            IR35 is a badly drafted piece of legislation that manages completely to miss the point of what it is supposed to prevent ... which is staff working through shell companies and declaring their income as dividends rather than salary in order to avoid paying NI.

            NI is a stupid tax that discourages employment. It's only function is to enable the government to pretend that the rate of income tax on employment is lower than it really is, by hiding part of that tax under the label of NI.

            Do away with NI and there would be no need for IR35. Let's have honest, transparent, simple tax laws that are easy to understand, and easy to implement.

            1. This post has been deleted by its author

            2. Muppet Boss
              WTF?

              Re: I cannot understand why HMRC pursues contractors so much.

              >NI is a stupid tax that discourages employment. It's only function is to enable the government to pretend that the rate of income tax on employment is lower than it really is, by hiding part of that tax under the label of NI.

              >Do away with NI and there would be no need for IR35. Let's have honest, transparent, simple tax laws that are easy to understand, and easy to implement.

              I could not agree more. Maybe HM Diminishing Revenues & Cock-ups could get some training and advice from their Chinese counterparts: China's corporate tax at 25% is in the healthy middle of G20 (UK's 19% is one of the lowest) while personal taxes are not too high: a highly skilled salaried employee that costs the employer £120K a year (NI included) will bring home £69K a year in the UK (42.5% effective tax rate) and £88.5K in China (26.5% effective tax rate). That's almost £20K extra (and a way better purchasing power too)! It is not about politics, few really cared about Chinese politics when they were a poor country, it is about becoming a wealthy nation.

              I wonder how their taxing local entrepreneurs out of existence while boasting about leaving all trading alliances and making new, better trade deals is going to work out. They seem to think that other countries are still eager to exchange gold for brass and mirrors.

        3. BrownishMonstr Bronze badge

          Re: I cannot understand why HMRC pursues contractors so much.

          The people who created the rules were obviously on drugs.

          The ones implementing them obviously have a rusty stick up their arse.

        4. Dr. Mouse Silver badge

          Re: I cannot understand why HMRC pursues contractors so much.

          No, HMRC are trying to find out how to apply a difficult bit of law.

          By ignoring the precedents set by the courts in dozens of cases, all of which have been brought by HMRC themselves? Are they slow learners, or are they purposely trying to subvert the law to their own ends?

          People are still paying less tax by being long term contractors which is what this legislation was trying to stop.

          It's nothing to do with "long term contractors". The courts, the law and HMRC themselves say that the length of a contract has no bearing on IR35 status.

          It's supposedly there to prevent "disguised employment". What most contractors do is not employment, disguised or otherwise. Most of us are not in it for tax reasons, or even for financial reasons. It's for the completely different way of working, for control over our own decisions. We accept the risks, the extra work involved in running or own companies, having to plan to cover our own sickness, holidays etc as part of the sacrifice needed to give us the way of working we desire.

        5. Ian Michael Gumby Silver badge
          Boffin

          @Matjaggard Re: I cannot understand why HMRC pursues contractors so much.

          Nope.

          A true contractor will incorporate. (I’m in the states and I’m going to explain how we do it here. )

          The contractor then has an MSA signed between his company and the client company. Then SOWs are issued based on the work to be performed for the period of the contract. At the end of the contract, either a new contract is signed or the contractor finds more work.

          A captured employee is one who isn’t incorporated, and is issued a 1099. That person is required to pay their taxes and benefits.

          By not incorporating the issue of employee status is not as clean. Here in the states, Microsoft used to have two levels of employees. Those who were W2 and those who were 1099 ‘independent contractors’. Both performed the same work, and the 1099 contractors were not eligible for stock options or bonuses. The employees sued and won. What this did was cause companies to stop using independent contractors or setting up rules that even if they are incorporated, the contractor could only work on site for 2 years before they had to take a 6 month ‘gardening period’.

          I used to contract and I had multiple NDAs, MSA’s and contracts with different clients. I could work w clients for more than 2 years because of the track record so that I wasn’t a ‘captured’ employee.

          A guy I used to work with who was also an ‘independent’ never incorporated, and had buried himself in to a company such that only he could support the systems he wrote and wouldn’t allow anyone who could challenge his ‘expertise’ near his work. He charges an outrageous rate, and if the IRS or local state were to investigate, he would fail the sniff test and it would be ruled he was a captured employee. This is bad because he would be sued by client because the client would be on the hook for the entire payroll plus penalties while he worked there.

          While not the same as in the UK, you can see the parallel.

          The legislation isn’t difficult,. Its just not generating the revenues they thought it would because most contractors are like me and follow the law. The tax dodgers like my friend are in the minority.

    5. HMRCSlayer

      Re: I cannot understand why HMRC pursues contractors so much.

      Jealous anonymous?? Well sign up and become a contractor and stop bleating!

    6. Anonymous Coward
      Anonymous Coward

      Re: I cannot understand why HMRC pursues contractors so much.

      He didn't "dodge a tax bill of around £250,000", the tax bill shouldn't have existed in the first place.

      He was clearly outside of IR35, and HMRC should never have brought this to tribunal. As he was outside IR35, he doesn't pay income tax and NI as an employee because he WASN'T an employee. The bill should never have been raised.

      What's missing from this story is the fact that RALC had to let go of two employees and the business is in the process of, or has already folded, purely because of the action by HMRC - who were wrong all along. That's horrific. A government department has unlimited funds to pursue a case, get it wrong, and do it all over again, all while ruining peoples' lives. Think about that.

      Also, STOP THE LOAN CHARGE! (That's another HMRC-devised policy that's seen seven people kill themselves over made-up tax bills.)

      1. Jellied Eel Silver badge

        Re: I cannot understand why HMRC pursues contractors so much.

        What's missing from this story is the fact that RALC had to let go of two employees and the business is in the process of, or has already folded, purely because of the action by HMRC - who were wrong all along.

        To me, that's the biggest abuse of process. HMRC can make an assessment which has legal force, ie pay up, or else. The else being arguing the merits with HMRC, and finally taking the matter to tribunal. Which can be an expensive process, ie hiring a tax specialist and/or legal counsel. Or just a time consuming & stressful process that diverts time from running a business. Especially given HMRC has wide powers to seize funds and assets leaving nothing to pay staff, or pay for a defence.

        Also, STOP THE LOAN CHARGE! (That's another HMRC-devised policy that's seen seven people kill themselves over made-up tax bills.)

        Yup, like IR35, that's another badly thought out policy. I do however think there are problems around company loans, especially interest-free loans to directors that are never repaid. But there are also legitimate loans, like season ticket loans for staff.

      2. Dr. Mouse Silver badge

        Re: I cannot understand why HMRC pursues contractors so much.

        What's missing from this story is the fact that RALC had to let go of two employees and the business is in the process of, or has already folded, purely because of the action by HMRC - who were wrong all along. That's horrific.

        Yep. A tax investigation is, in itself, a horrific process. Going to tribunal even more so. Yet HMRC hound contractors who are obviously outside IR35. They are not trying to apply the law, they are on a witch hunt against contractors. They are attempting to force everyone out of contracting by making things as difficult for them as possible, even though they know this will lead to lower tax receipts than if they leave things alone.

  2. Doctor Syntax Silver badge

    Odd that they intend to appeal. A tribunal doesn't set a precedent. An appeal might. Will they go through with it?

    1. Anonymous Coward
      Coat

      Appeal?

      To whom does HMRC appeal?

      Though to be fair, they're far from the only appellants who make it into the news to be thoroughly unappealing.

      1. Electronics'R'Us Bronze badge
        Holmes

        Re: Appeal?

        This decision was at the first tier tax tribunal.

        To appeal they would need to go to the upper tribunal but as the judgement came from an upper tribunal judge sitting in the first tier (not unusual apparently) success seems highly unlikely.

        1. EnviableOne Bronze badge

          Re: Appeal?

          Unlike in criminal law, the uper tribunal does not retry the case, you can only refer it to them if there is an issue in their interpretation of the Law or in the procedures they used to come to the decision.

          So effectivley the unfairly harrased contractor has won.

          1. Mike Pellatt

            Re: Appeal?

            Which is actually just like a criminal appeal. Unless new evidence has come to light or a arguable case can be made that the law was misapplied, an appeal won't be heard.

        2. Anonymous Coward
          Headmaster

          Re: Appeal?

          Whoosh!

          A job for Henry Higgins here. Good English, but oblivious to meaning.

    2. Simon Beckett

      Of course they intend to appeal. Unlike Mr Alcock, it's not their money at risk. It's ours.

  3. Giovani Tapini Silver badge
    Flame

    How much has HMRC spent on this pursuit?

    Almost certainly spent more than their potential recovery on this, and they want to appeal again?

    It seems to me that HMRC are now pursuing this out of the need to justify their over-complicated and irrational pursuit of personal services companies rather than any genuine attempt at recovery of unpaid tax. To top it all this guy was part of a supply chain to HMRC themselves - if they can't manage their own shop what hope does anyone else have of dodging the arbitrary harassment hammer they seem to be wielding...

    1. d3vy Silver badge

      Re: How much has HMRC spent on this pursuit?

      There's a role currently advertised for an *outside IR35* java developer in Telford...

      Can you guess who the client is?

      1. geekguy

        Re: How much has HMRC spent on this pursuit?

        Clearly that's hmrc delivery centre

    2. Anonymous Coward
      Anonymous Coward

      They once claimed...

      It is their legal duty to collect every penny of tax that is due, even if it costs £1M to collect each penny.

      If that's true, then the law is an ass. More likely that's just the interpretation of some muppet at HMRC - probably the same one that decides how IR35 "works".

      1. Dr Dan Holdsworth Silver badge
        WTF?

        Re: They once claimed...

        They have been complicit with the Government in producing the largest tax code in the developed world. The end effect here is that neither HMRC nor the contractors nor anyone else actually understands all of the tax code.

    3. Anonymous Coward
      Anonymous Coward

      Re: How much has HMRC spent on this pursuit?

      Just ended a saga with HMRC where they have been pursuing me for the underpayment of income tax of £234. This had gone on for weeks, to-ing and fro-ing with two HMRC people. They finally agreed, very ungraciously, with my calculations that I had under-paid by £82.73 and not £234. I sent them a cheque.

      I wonder how much it cost them to get £82.73 out of me?

  4. Mike Shepherd
    Meh

    In case this is all confusing...

    UK income tax includes the notionally separate "National Insurance", originally to support welfare programmes (like the NHS) but now just a trick to ensure that investors (who can move their money overseas) pay a much lower rate than employees (an easier target, because it's more difficult to move overseas to work). National Insurance contributions are paid only on income from "employment", not from investment or other activities where the resulting income is ill-defined.

    Computer "contractors" have long had to operate through companies (which employ the contractors), because contract agencies will not deal with the self-employed, since the Inland Revenue would consider the agency liable for any tax unpaid by a contractor who "disappears". The Inland Revenue (which now claims that the companies are only a vehicle to avoid tax) must now wriggle among the principles of long-established company law (which are diffcult to overturn) and so has invented the notion of "disguised employment", to claim that supplying services from a company is just like other employment (and to imply that such arrangements are a deliberate deception).

    1. batfink Silver badge

      Re: In case this is all confusing...

      Plus this only applies to "Personal Services Companies", which are companies that don't have any employees who aren't also Directors.

      So, this creates two tiers of Company. These rules don't apply if you happen to be, say, Accenture, but do apply if you're a small enough minnow that HMRC think they can pick on you.

      1. Anonymous Coward
        Holmes

        Spot the difference

        Doesn't Accenture use regular employees to do the work - whatever that might be?

        So they pay the full whack of tax. And get less for it than a traditional public-sector employee with gold-plated pension entitlement.

        1. Roland6 Silver badge

          Re: Spot the difference

          Doesn't Accenture use regular employees to do the work - whatever that might be?

          So they pay the full whack of tax

          Err no!

          Yes an SI/Consultancy will use regular employees (although they might be on zero hours contracts), who will be paid a salary. However, "the full whack of tax" will only be paid on the employee component of the fee, the (typically larger) company slice will be subject to all the usual HMRC sanctioned tax avoidance tricks...

      2. d3vy Silver badge

        Re: In case this is all confusing...

        "Plus this only applies to "Personal Services Companies", which are companies that don't have any employees who aren't also Directors."

        Technically there's no such thing as a PSC, there's no legal definition of it, it's just a term that they came up with to separate contractors running a LTD company from other limited companies... It's a silly thing they came up with for silly reasons and the more people who accept that it's a real thing the worse the problem gets.

        1. katrinab Silver badge
          Gimp

          Re: In case this is all confusing...

          Or, it could mean a company that provides services of a personal nature, such as a massage parlour.

          I prefer that definition.

    2. devTrail Bronze badge

      Re: In case this is all confusing...

      I agree with part of your comment, however I think there are a couple of details to clarify.

      Computer "contractors" have long had to operate through companies (which employ the contractors), because contract agencies will not deal with the self-employed, since the Inland Revenue would consider the agency liable for any tax unpaid by a contractor who "disappears".

      Here the reason is not just tax liability, there are other liabilities related to the few labour rights left in a contract.

      The Inland Revenue ... and so has invented the notion of "disguised employment"

      The notion of disguised employment was not invented by the Inland Revenue and in any case did you see the standard contracts?

      Standard No competition Clause, Intellectual Property Clause and similar are so restrictive that even if the contractors declares themselves part of a consulting company they are strictly bound to one single work provider. If you are not allowed to provide your service to anyone else, but the current client you are working as an employee. Furthermore this is not a contractor choice, I tried to fight many times against these clauses and sometimes I had to reject a job offer becasue these clauses went too far. I talked to some colleagues and all of them are bound by similar clauses and none of them is happy about it. So, wherever I worked I found client offering contract roles, but asking the full time commitment of permanent employees.

      1. geekguy

        Re: In case this is all confusing...

        Anyone that signs a contract which states they cannot work elsewhere is controlled and inside ir35, these people are fools its exactly how Christa ackroyd was caught (amongst many other things) some of us refused work based on contracts like that

      2. Dr. Mouse Silver badge

        Re: In case this is all confusing...

        I have never signed a contract which stopped me from working for other companies. I have had clauses which stated I was unable to work for a client of my client (understandable), and of course all the work I do for the client belongs to the client in most cases. I also get a choice in the contracts I sign, and have often renegotiated them before accepting.

        If a client is offering what should be a full time permanent role through contract, I will turn it down. I have no interest in being an employee. I'm an independent consultant, and that's how I will work or not at all.

        1. Chika101

          Re: In case this is all confusing...

          I think what most contractors don't even consider is that unless you actually negotiate your best position in your contract your business insurance may well be voided as it's your duty as a director to reduce the risk associated with any contract, and not your insurers job to insure you against your own stupidity. I've spoken at length to my insurers about this and have been told it's rate for small businesses to do their due diligence in this way, but many find themselves open to large legal bills when trouble arises because their insurance doesn't cover them.

          This extends to ir35 insurance too, so even if you have it, you still need to know your s**t and negotiate your best position and ensure your insurers agree. If you don't you only have yourself to blame.

      3. Sir Runcible Spoon Silver badge

        Re: In case this is all confusing...

        I've challenged all my contracts that held such a clause. On one occasion they refused to amend it (I don't mind a clause that limits me working for another client who is in direct competition with them - that just seems like common sense to me) and I simply sent them a letter via a solicitor that whilst I am signing the contract which contains clause 'x', that by counter-signing my contract they are agreeing that the clause 'x' cannot be enforced (sent to a named individual who had to sign for the letter).

        Didn't bother them a bit. It seems the main issue was that they have a 'standard' contract and there is a lot of push-back on *any* amendments to the actual document itself. Addendum's which didn't mean too much work for them wasn't an issue.

    3. Steve Foster

      Re: In case this is all confusing...

      And the government has it in its power to fix the underlying absurdities of the system to make the whole IR35 charade irrelevant.

      Of course, that would mean they had fewer places to hide the real tax rates from voters...

  5. Vulture@C64

    So had he got paid for the work he actually did, as 99.9% of contractors do, he would have owed that much tax and had to pay it. Good. It's clarified the line - you carry some risk as well as the usual tests then you can be a contractor and benefit from lower tax because you have other costs to negate that risk. That's fine.

    There's been a creeping feeling that any form of tax avoidance is good these days - paying yourself with a never to be paid back loan etc, this is obviously just theft and so would this have been had he been effectively an employee.

    1. d3vy Silver badge

      99.9%

      Where are you getting your statistics from?

      Every contract I have ever had has an element of financial risk - even if its just the "No payment without approved time sheet" clause giving an effective zero day notice period.

      Then of course there's the risk of a client simply being unable to pay you - Carillion were owe me 35k when they went bankrupt... that was a fun couple of days.

      1. Doctor Syntax Silver badge

        I think the OP's point was that this was a straightforward contractor-owned company doing some combination of standard salary and dividends, not some strange financial engineering scheme involving non-repayable loans or the like.

        The latter deserve to die; unfortunately the brunt of their dying will be borne by the contractors and the agencies or whoever designed and sold them and made their money on commissions will probably escape and keep their profits unless their victims sue.

        1. DavCrav Silver badge

          "unfortunately the brunt of their dying will be borne by the contractors"

          I have no sympathy with contractors who went looking for tax schemes that promised 1% income tax. They knew what they were getting into, it's obviously a scam and hey were hoping to make like bandits. There are (not many, but a few) permanent, normally salaried people whose companies paid them like this so that the company itself could evade the tax. Save your sympathies for them.

      2. Vulture@C64

        Approved timesheet is not a risk and neither is zero day contract, there are millions on zero day contracts and they sill pay full NIC and PAYE.

        1. d3vy Silver badge

          "Approved timesheet is not a risk and neither is zero day contract"

          Well, HMRC don't agree with you, because that's one of the things that is tested in IR35 investigations to indicate financial risk.. there's a reason most contractors want that clause even though it's potentially detrimental to them.

        2. d3vy Silver badge

          Oh, and another point, zero hours contracts (that's what you meant isn't it) have a mutuality of obligation in that the employee will in all likelihood be required to work the hours offered... And they accrue holidays, get pension payments etc.

        3. d3vy Silver badge

          And another thing!

          "there are millions on zero day contracts and they sill pay full NIC and PAYE."

          Technically contractors also pay full NIC and PAYE on their *salaries*

  6. adam payne Silver badge

    An HMRC spokesman said the department "is disappointed with the decision of the tribunal and intends to appeal"

    I'm disappointed that even after losing at the tribunal you still want to go after him and his family.

    1. Nick

      I don't understand the point of tribunals, adjudication etc in this country. They are sold to us as a means to avoid expensive court cases for "small" disputes.

      In my experience though,they are just a waste of time and money since if the "big man" wins then they win, but if the "little man" wins then the "big man" will keep appealing until "little man" runs out of money, time or (sometimes we read) life.

      (I've recently "won" two frivolous adjudication claims with my builder who, on losing the second, declared himself insolvent, leaving me with the "joint and several" liability for the costs that *he* incurred)

    2. Anonymous Coward
      Anonymous Coward

      HMRC are guilty of bullying, they've caused the deaths of people and should be held accountable.

      But they are a government agency, so they get a pass at crimes.

  7. Efer Brick
    WTF?

    Cheeky fuckers

    "What's more striking is the fact that the case was won primarily on mutuality of obligation, which should surely now be the final nail in the coffin for CEST, HMRC's online assessment tool – because this essential employment status test is still missing from their tool."

    Fukn cheeky fukn mutha fukka, fukn bastardos

    1. d3vy Silver badge

      Re: Cheeky fuckers

      Exactly - clients are using this tool now to determine the status of contractors now... Even before the legislation is in place.. Ive had a few emails from recruiters for "Inside IR35" roles in the private sector - Ive emailed back that I'm not interested and that its not their decision to make *yet*

      Probably burning some bridges but they're taking the piss.

    2. Doctor Syntax Silver badge

      Re: Cheeky fuckers

      "the case was won primarily on mutuality of obligation"

      In fact it sounds as if there was a straightforward commercial risk element. His company took the risk that a project would restart and continued to work on it, a risk that didn't pay off as it turned out. Is that in CEST? I doubt it.

  8. TonyJ Silver badge

    Why...

    ...Do HMRC seem to target IT contractors almost exclusively?

    Oh I know there have been a few other high profile cases such as TV presenters and there was some talk in the media about commercial pilots, but on the whole it seems to be far and away IT.

    And how in hell is this legislation still around? If for no other reason then they don't (can't?) abide by the results of their own checking tool!

    Whatever side of the fence you are on regarding contractors, this seems to be a very targeted abuse.

    1. DavCrav Silver badge

      Re: Why...

      "...Do HMRC seem to target IT contractors almost exclusively?"

      They don't. But if you think about who all the 'independent contractors' are, they are either zero-hours delivery drivers, or high-earning IT contractors and TV presenters. I bet the DPD driver pays the right amount of tax, and as we know here many IT contractors have set themselves up as John Smith Ltd (unlike the DPD driver). So where exactly do you expect the Eye of Sauron to fall?

      1. Chika101

        Re: Why...

        Check your facts - this legislation affects anybody who operates through a limited liability company.... Freelance GP's, surgeons, builders / tradespeople. In fact IR35 came about to tackle tax avoidance in the building trade, but the focus these days has shifted to IT because, I suspect, employers are so poor at managing the expectations of their employed staff, and that extends to HMRC itself who couldn't even accurately assess the IR35 status of their own contractors so decided to apply a blanket status for ease!

  9. Anonymous Coward
    Coat

    Nominative Determinism

    Mr Alcock has balls to tackle the taxman. Is he Dick to his friends?

  10. Anonymous Coward
    Anonymous Coward

    "However, as contractors, they are not entitled to the same holiday and sick pay benefits."

    This is a common misconception. As full time employees of PLCs, contractors are legally entitled to exactly the same holiday and sick pay benefits as the rest of us. Confusing money paid to the limited company with salary paid to you as the employee is mistake #1 on the road to getting done for IR35.

    If a contractor choose to ignore the law and not make provision as the employer for sickness and holidays for their employees, that's their choice. It's an illegal one, but given the only way it would ever be enforced is if the contractor-as-employee took the contractor-as-employer to a tribunal it is unlikely to become a point of contention under the current legal regime.

    Likewise if a contractor-as-employer chooses to pay themselves £12,500 a year in salary in order to minimise their NICs, then they have no room to complain that their "sick pay" amounts to £200 a week. That is the contractor's choice.

    1. dinsdale54

      Way to miss the point.

      The whole issue with IR35 is that HMRC wants to tax contractors as employees of company they are providing the service to while not allowing them the benefits that fulltime employees of said company receive.

      Therefore making provision for sick pay etc has to come from income that has already been taxed for that purpose.

      1. Anonymous Coward
        Anonymous Coward

        >while not allowing them the benefits that fulltime employees of said company receive.

        How so? Or are you saying HMRC are preventing you from paying yourself a salary when you take sick leave?

        >Therefore making provision for sick pay etc has to come from income that has already been taxed for that purpose.

        Yes. This is how tax works. How do you think companies that employ more than one person function?

    2. Phil Endecott Silver badge

      > As full time employees of PLCs, contractors are legally entitled to exactly

      > the same holiday and sick pay benefits as the rest of us.

      I get your point, but note that not all contractors are employed by a limited company; you can be a sole trader contractor, and many people are.

      (And it’s not a “PLC”; that’s a company that’s listed on a stock exchange.)

      1. Anonymous Coward
        Anonymous Coward

        >you can be a sole trader contractor, and many people are.

        You can count the sole traders in IT on one hand - companies largely won't deal with them because of the potential tax liability pushed back onto themselves and you'd be insane to do any dealings as a sole contractor because you are then personally liable as you don't have the company acting as a liability shield (which is its principal legitimate function).

    3. Dr. Mouse Silver badge

      "As full time employees of PLCs, contractors are legally entitled to exactly the same holiday and sick pay benefits as the rest of us. Confusing money paid to the limited company with salary paid to you as the employee is mistake #1 on the road to getting done for IR35."

      And most of us do.

      However, this cannot be done if inside IR35. All money is effectively taken as salary, leaving no provision for holidays, sick pay, pension contributions etc. It effectively stops the contractor's company from being able to operate as a responsible employer, or even a business in its own right. The decisions are taken away from the company.

      In effect, being found inside IR35 is what denies a contractor his employment rights, while at the same time calling them disguised employees... It's a travesty, pure and simple.

  11. JoMe

    is disappointed with the decision of the tribunal

    They followed your rules and your rules say he is free and clear. Stop trying to force blood from a stone, vampire.

  12. HMRCSlayer

    Listen there are so many of us contractors/locums/agency workers. Why aren't we forming some body to tackle these HMRC morons!?? I'm sure the way we are being treated is against our human rights and fair co.petition rules? If they want to penalise us then why don't we get the holiday, sickness and pension pay, to the degree of the same said employee?

    1. SloppyJesse

      "Listen there are so many of us contractors/locums/agency workers. Why aren't we forming some body to tackle these HMRC morons!??"

      Ever heard of IPSE?

  13. Anonymous Coward
    Anonymous Coward

    "working on the Universal Credit IT project"

    Assuming that was the 'Live' service, that was an absolute clusterfuck of an IT system.

    It appeared to have been designed to be not easily be updated but in an environment where changing rules, expanding capabilities and on the fly updates were expected.

    I've never known such a shitshow.

  14. russmichaels

    Re: "The former policy wonk -

    HMRC screw up, lie, overcharge, harrass and threaten people for money they do not owe every single day.

    My wife is a bookkeeper and regularly has to deal with these problems on behalf of her clients.

    1. A.P. Veening Silver badge

      Re: "The former policy wonk -

      Seems like it is time to hold HMRC accountable and have them pay damages to everybody persecuted unfairly. Besides that, HMRC staff should be held personally accountable as well with demerits and reduction in rank and pay. An honest mistake is possible, but ten mistakes at this level in a year means either gross incompetence or criminal behaviour and both possibilities should be discouraged to the utmost.

  15. vishal vashisht

    he probably deserved it

    the pandering to the rich here really annoys me in its sheer cap doffing british lickspittling.

    When hmrc had rules written by people on secondment from Accenture and pwc. When civil servants and ministers chase directorships, we see hmrc writing off billions of pounds for the wealthy and firms such as amazon.

    These firms rely on tax payer funded roads, tax payer funded universities and schools.tax payer funded policing and fire brigade and in the case of Amazon, a high reliance on the local ambulance services near their warehouses.

    We see tax EVADERS fetted by hmrc and offered discounts yet they won't take credit card payments from the self employed to save £3 million in cars fees.

    While you guys go on about corporates using "intelligence" and being clever to avoid tax....WHO MAKES UP THE SHORTFALL?! When the Earl of Westminster gets out of £4 billion in inheritance tax..WHO is going to end up paying it?!

    Yes...the pathetic tory voting middle and working classes who will see their services reduced and their taxes raised to pay for the super wealthy avoidance

    No sympathy for this guy..he probably voted tory

    1. JimBob01

      Re: he probably deserved it

      Erm do you mean the Duke of Westminster or Earl Grosvenor?

      Though inheritance tax is another out of control process at HMRC. It was originally brought in to cover large estates and was referred to as the Mansion Tax for a reason. Now, if someone leaves you a property in London you have inherited a mansion! It also seems that the threshold of this tax has not followed the index. And, as with all taxes, it is the people at the low end of the threshold that end up paying a disproportionate tax rate as they cannot afford the “smart” acountants.

      As for HMRC lack of understanding of their own processes, tax legislation is written in consultation with (by) the large accountancy firms that, in no way possible, have a conflict of interest. I mean is it really possible that these consultants write in loop holes that can then be sold as expertise to their corporate clients?

      1. Mark Ruit

        Re: he probably deserved it

        HMRC is simply not fit for purpose.

        That said I need to note that HMRC have no part in setting either the threshold nor the rate for inheritance tax That is done by the bunch of shysters now drawing more than £70k pa for the next four weeks and doing SFA for it (I don't count their finagling around to get on the gravy train for another five years).

        They are the ones who have done nothing about setting clear boundaries between employments/self-employment. They are the poltroons who won't grasp the nettle of international rules of intenational flows of profit (and capital). The list of what they have not done vastly exceeds the list of what they have done.

    2. rHiggs

      Re: he probably deserved it

      He could have bid on project.

      He small.

      He no get project.

      Accenture get project.

      He do project anyway through Accenture - who take massive cut.

      Do Accenture pay lots of tax?

  16. Jellied Eel Silver badge

    Yes...the pathetic tory voting middle and working classes who will see their services reduced and their taxes raised to pay for the super wealthy avoidance

    No sympathy for this guy..he probably voted tory

    Way to miss the point. Like disallowing contractors increases the costs to businesses and the public sector, the latter meaning more taxes needed to fund those. Many contractors work on defined projects. In this case, working on DWP's UC system. Once that's been designed and implemented, there's no real employment for those staff & it can be handed over to fewer, often cheaper permanent (or outsourced) staff to manage & maintain the system. Or in my case, I design/build/commission networks. That's not something a company does every year, so no permanent role for me in those companies once the project's completed. Most of those jobs are <1yr projects, often with gaps between stages.

    So the alternative would be for companies (or DWP) to hire staff in 'permanent' roles, and pay all the relevant costs to employ those people. Hiring costs money, as does terminating staff once there's no work for them. Or in my case, pay me salary & expenses for a few months whilst designs are deliberated prior to starting the implementation. As a contractor, that down-time is my risk/cost and I can use that downtime to do work for other clients, generating more income and more tax.

    So basically disallowing contractors increases costs, which means companies make less profit and thus pay less tax.. Which has been the case since the public sector introduced their inside-IR35 policy, and government project costs have increased as a result.. Which has always been the problem with IR35. So that favors the big consultancy firms like Accenture, PWC etc.. Who sub work out to contractors, but then mark up that work by 30-40%+ for often adding little value.

    1. A.P. Veening Silver badge

      but then mark up that work by 30-40%+ for often adding little subtracting a lot of value

      FTFY

    2. Vulture@C64

      But you are still acting like an employee. That's fact. So you should be taxed as an employee. The fact you charge a lot more than an employee costs gives you more income and you also have the ability to offset various things against tax, so you're better off. More money = reward for increased risk.

      I used to employ contractors - these people had specific skills we did not have in house, they worked at various sites, often starting early and finishing late, worked hard and brought a lot of knowledge, experience and skill to the pot and we were grateful to them. They cost a lot of money - £750+ a day and this was some considerable years ago.

      What's changed is the current contractors on the whole seem to think they can swan around like an employee, carrying little risk with long contracts and almost guaranteed renewals. They sit side by side with employees, doing the same job, same hours - just an outsourced employee. Employees can be terminated just as easily as contractors so there's very little difference. To a large business the redundancy payments are of little relevance.

      So you can see why IR35 came in and why HMRC are going after the pretend employees. Especially with the various fraudulent methods of tax avoidance going on and the incredible number of people talking advantage of it. Just read the news to see !

      Genuine contractors have nothing to fear - all depends what you have to offer - some have more to offer than they can ever charge for but the majority these days are not bringing much to the table - they are employees in all but name and should be treated as such.

      TheReg readers seems to be very pro-dodgy-contractor so vote me down - go on ! :) The rest of us honest tax payers who want to contribute to the NHS, the welfare system and schools etc will carry on paying tax and supporting HMRC going after the tax dodgers.

      1. A.P. Veening Silver badge

        Genuine contractors have nothing to fear

        Except for a lot of harassment by HMRC, which can't even interpret its own rules correctly. And that is, what this article truly is about, incompetence at HMRC.

      2. Jellied Eel Silver badge

        But you are still acting like an employee. That's fact. So you should be taxed as an employee. The fact you charge a lot more than an employee costs gives you more income and you also have the ability to offset various things against tax, so you're better off. More money = reward for increased risk.

        Yep. I am an employee of my company, not the client I'm contracted to. Rates charged are based on the market for my skills & experience. I can expense/offset some costs, but am not necessarily better off given the rules around expenses have been tightened up over the years. Fun example is if it's an overseas job, or working out-of-commuting range when I can only expense 5/7ths of accomodation costs. But I'm taxed on my income, just as any other employee.. Apart from also having to pay employer's payroll taxes.

        What's changed is the current contractors on the whole seem to think they can swan around like an employee, carrying little risk with long contracts and almost guaranteed renewals.

        I kind of agree on that. My work has pretty much always been project based, or ad-hoc consultancy, and rarely on jobs >1yr. But part of the problem with long-term contractors is businesses like that because it allows them to massage their accounts. So the BBC gets criticised for having a bloated payroll. Simple solution to that is outsource/contract staff and the company looks better. It's now doing more, with fewer employees! How efficient! Especially if a company's being benchmarked against competitors, looking to raise capital etc etc.

  17. matthewdjb

    HMRC aren't wanting contractors to pay the same tax as employees in the same position. They're wanting contractors to pay more - in the form of employer's NI contributions.

  18. Rich 2 Silver badge

    Are you sure?

    "The IR35 legislation states that individuals who work alongside PAYE staff in similar roles should pay the same amount in income tax and national insurance contributions as employees."

    Errr.... I'm not convinced it does say that.

  19. Anonymous Coward
    Anonymous Coward

    Are we not forgetting the Agency (Pimping Org)

    The only ones that have been making a killing over the last 3 decades is the Agencies and the cream they have been pimping off the Contractor / Client. These are the ones that should be spanked for the Tax for profiteering of the Contractors abilities (Pimping or a form of Prostituting)

    1. Vulture@C64

      Re: Are we not forgetting the Agency (Pimping Org)

      Many of the agencies are employment agencies in reality. If you go to an employment agency for employment then are you not an employee ?

      But I agree - those agencies and accountants which concocted and then peddled the concept of payment by never to be repaid loan should see their directors in jail and assets seized. Same with contractors who paid themselves this way - it's not rocket science to see that it's obviously not going to be acceptable.

  20. Anonymous Coward
    Anonymous Coward

    IR35 is complicated by design

    If PSCs weren't subject to IR35 and instead had to pay an increased rate of corporation tax, based on something simple like only directors with no employees doing invoicable work (or similar - it needn't be complicated), could you imagine how many public servant jobs would be lost? Can you imagine what the annual budgetary reduction for that particular government department would be now the paperwork was dramatically reduced? I can only hazard a guess that the old boys club want to keep their jobs and not simplify this legislation because having it keeps them employed. We've already seen an automation of VAT inspections, helping HMRC increase inspection coverage by identifying thousands more potential cases that need a much closer review. Their old system meant they could only cover around 250 a year, but not any more! It's only a matter of time before the same principles are applied to IR35 which is why I'm getting out now. Umbrellas aren't the best, but the flexibility they offer is better than going permie or buying heads with HMRC.

    1. SimonC

      Re: IR35 is complicated by design

      Just make your own umbrella. Find a contractor mate, invoice each other. Lots of contractors have done this.

  21. Jake Maverick

    Somebody and probably several people got paid bonuses (and possibly promotions) for deliberately 'miscalculating' and pursuing people over things like this.....it won't stop until that stops!

  22. Jake Maverick

    I used to be an 'agency temp', not quite the same thing....but they had me on emergency tax the whole time! I was working two jobs, 60-60 hours a week at it's peak....and my take home weekly pay was sometimes less than a hundred pound, whilst the tax for that week was sometimes several hundred. Of course, i was expecting a multi thousand pound tax refund at the end of that year, and several years around that time.....never got it! What can I do?

    In other news HMRC supposedly lost millions of people's tax records shortly after that time...just think about for a moment, multiple servers, RAIDed servers, back up tape....they all got lost at exactly the same time? How do you think they paid for the Iraq war.....never mind the others? Taxes didn't substantially increase, on paper anyway.....

    People who paid for it were the lowest paid poorest people unable to do anything about it.......

  23. Dave 15

    If only

    If only they stopped allowing starbucks, tesco and the rest from offshore profits to tax havens by paying fees to use trademarks to head office which match profits then they would not need to come extracting the colons of un protected hard working contractors

  24. Anonymous Coward
    Anonymous Coward

    As a contractor

    You can finish a contract on friday and then sign on at the Jobcentre on Monday . I did that a few times Back in the day . I know its demeaning etc etc but when you got rent to pay ...

    1. SimonC

      Re: As a contractor

      You can't claim JSA if you have 16k or more in savings, last I checked.

      If you're a contractor with less savings than that you likely have bigger problems when the work dries up in between contracts

  25. rHiggs

    Lawyers

    Why does no one get this.

    Both sides pay Lawyers.

    Substitute "IR35" for an of the following: immigration, sexual harassment claim, ppi, injury at work, bla bla bla. It's all generic.

    Lawyers and insurances companies make the world miserable. You can't have an event anymore without expensive insurance. You can't open a tea room without CCTV else your insurance is much higher.

    Lawyers and insurance companies are running the show.

    You can even buy IR35 insurance. Abstract it out - it was once suggested virus companies wrote the viruses. Same old dark business design pattern.

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