back to article UK MPs to off-payroll workers: Delay IR35 reforms until 2023? You wish

UK MPs have ignored calls to delay the implementation of IR35 tax reforms by two years meaning the off-payroll legislation remains set to come into force on 6 April 2021. MPs were due to vote on the amendment yesterday afternoon, but enough of them declined that the postponement had no chance of attaining a House majority, so …

  1. John Robson Silver badge

    Enough had declined

    So they didn’t vote.

    Do we still get to know who declined?

  2. DavCrav Silver badge

    "Therefore, the only sensible course of action is to pause these reforms and take the time to properly review the impact they'll have on the self-employed."

    I was under the impression that IR35 doesn't affect the self-employed. It only affects company directors and their employees, who are often the same person. But they aren't self-employed, that's the entire point.

    1. Zippy´s Sausage Factory

      One of the main reasons for using a limited company is literally to limit your exposure to legal issues. For example, if your agency messes up, doesn't get paid by the client and decides to sue you for the money, you simply declare your company bankrupt and open a new one. If you're self employed, you just sell your house and car, declare bankruptcy and go live under a bridge.

      No, this didn't happen to me, but someone I know.

    2. Just tell the truth

      On many forms you are considered self employed as a Ltd Company contractor. Although under IR35 ltd company contractors are employees of the client, for tax purposes anyway. For employment law purposes they are still ltd company directors and for tax purposes where tax is going the other way they are also classes as company directors. So basically they are only employees when HMRC want money off them. Which is one of the main arguments against IR35...

      1. Martin-73 Silver badge

        Thank you for that explanation. I am self employed in another field, so it made me wonder what was up. Knowing how IT is, it makes sense that people would set up companies and make themselves their own employee. It seems the IT sector is even more vicious than the electrical contracting sector!

        1. dak

          It's usually not our choice to use a Ltd Co. I no longer know of any recruiters who will deal with sole traders, as HMRC have been pressuring them for many years to only deal with companies.

          So HMRC are the architects of the very problem they are now complaining about.

          1. Addanc

            You are unlikely to get a gig if not working through a Limit Co, since otherwise you would be opening up the client to tax liabilities.

  3. Anonymous Coward
    Anonymous Coward

    Yet again El Reg....

    "The IR35 rules are designed to make contractors who work with directly employed staff pay similar income tax and national insurance contributions"

    No, IR35 is to catch disguised employees. Who I sit next to is irrelevant, as is what I do compared to others. What *IS* relevant is:

    - if I have a boss telling me how and where to do (location, working hours, uniform etc)

    - the company treats me like an employee (holiday pay, training etc)

    - if they keep paying me even when there's nothing to do / move me to another role while its quiet.

    anon PSC / el Reg IR35 article police (it seems, again!)

    1. fwthinks

      Given that this is about "disguised" employees - there is obviously an element of people / companies trying to avoid matching such criteria. I personally would favor a more practical mechanism which would make a decision based on probabilities rather than a few black and white statements. For example if the majority of the following apply, you are likely (but not guaranteed) to be a disguised employee

      - You are required to use a company PC - and not permitted to use your own devices.

      - You are added to the company directory and required to use company email address

      - You are required to attend regular company meetings that are not directly related to your work.

      - You contract does not specify what you need to deliver just a fixed time period.

      - You need to provide regular time sheets to get paid- not a report of deliverables completed.

      - Your fees have no direct relationship to the quality of work - i.e. you are on a fixed rate with no quality review capability to adjust these fees.

      - You are required to comply with the company ways of working and policies - for example travel class restrictions or traveling with specific companies

      - You do not need to provide guarantees on the work you have completed which can be invoked after you leave - i.e. similar to sale of goods legislation.

      1. Dr. Mouse Silver badge

        There is an ever simpler method: Equalise total tax on dividends and salary. However, this isn't going to happen because:

        a) It would show that they are already pretty much equal (taking into account corporation tax and national insurance), and at higher rate dividends are taxed more than salary

        b) It would show that, contrary to what HMRC & UK.gov have been claiming all this time, even "fake" contractors (disguised employees) are not avoiding tax but their clients/"disguised employers" are (in employer's NI)

        c) It would not be as helpful to the government's large backers, like Capita and other body shops, who stand to make a killing out of these reforms (and export all that profit out of the UK, of course).

        1. TheVogon Silver badge

          Both contractors and Ltd companies have a significantly higher level of risk and lower level of guaranteed benefits than employees hence why the relative tax and NI rates reflect this.

          1. Anonymous Coward
            Anonymous Coward

            Well then they have a shit unsustainable business model.

            1. Dr. Mouse Silver badge

              How does anything in what TheVogon said indicate an unsustainable business model? In fact, how does it indicate anything about any business model?

              The only thing it does, really, is say that business owners (contractor or otherwise) have a business model, because they are running a business, while employees don't because they aren't.

          2. LucreLout Silver badge

            Both contractors and Ltd companies have a significantly higher level of risk

            No they don't. When banks make cuts backs we reduce the rate paid to contractors by 10% and cut 10% of the FTEs. The latter is more risky.

            lower level of guaranteed benefits than employees

            On paper they do, but that word "guarantee" doesn't mean what you seem to think it means. Employment rights only matter a jot if you are willing to go to court to enforce them. The problem with doing so is that you are very likely to make yourself unemployable in doing so. I've never worked for a large company that did not have a tick box for "Have you ever sued a previous employer for any reason?". They're not asking so they know to give you a pat on the back.

            the relative tax and NI rates reflect this

            No, they don't.

            Its no good the commentards on El Reg getting their panties wet over public spending cuts to balance the budget, while simultaneously decrying paying a rate of tax that everyone else already pays. Someone has to fund the deficit spending and that someone can't just be PAYE again. Contractors are going to take a sizable hit this time around.

            A contractor bringing in 50k gross and an FTE bringing in 50k gross have such disparate bottom lines, with the FTE paying several magnitudes the tax the contractor pays, which leaves nowhere to hide and little sympathy from most voters. The difference becomes even more marked once you gross over 100k in each employment type.

            To the public, you are Amazon. You're not perceived as paying your fair share. Sorry if that upsets, but that's basically why you're going to get walloped for tax next year.

            1. Dr. Mouse Silver badge

              "A contractor bringing in 50k gross and an FTE bringing in 50k gross have such disparate bottom lines, with the FTE paying several magnitudes the tax the contractor pays"

              I call bull excrement!

              A contractor (including his company, which is relevant to the overall calculations here) pulling in £50k gross taking his earnings as an efficient mix of dividends and salary will pay around £8k in corporation tax, then draw the remaining £42k. He will pay £2k income tax on this, for a total of £10k tax.

              A PAYE employee will take home around £38k, so pay £12k tax.

              How is this even close to "paying several magnitudes the tax the contractor pays"?!?!

              1. Anonymous Coward
                Anonymous Coward

                Oranges to Apples

                Although this isn't a realistic comparison, a permie earning approx £50k pa will probably be able to get around £400 per day as a contractor, meaning he will pay nearer £25k in tax

              2. LucreLout Silver badge

                How is this even close to "paying several magnitudes the tax the contractor pays"?!?!

                Because you've missed an awful lot of things off the calculation and you know you have.

                Where the tax free mileage claims? Wheres the incidentals for lunch? The work equipment? The PluralSight sub etc etc etc. That's before the wife is on the books doubling down on the tax free earnings allowance, the mileage and other expenses. One of my guys even has his son on there as a social media consultant. That's before we even think about getting creative anywhere, such as board meetings in warmer climes.

                You can call it whatever you want, but what the rest of us call it is tax avoidance, and the public call it not paying your fair share. You know there's massive tax advantages in a LTD company and so do I - I do this for a very lucrative living at a very high end bank. Now, I have no moral, ethical, or other problems with tax avoidance - I do it myself - but FFS man up and accept what you're doing instead of trying to play some holier than thou shell game.

                1. Dr. Mouse Silver badge

                  "accept what you're doing"

                  Tax free mileage: I used to claim this, but then so can any employee when travelling to anywhere that is not their main place of work. If their employer doesn't pay the mileage, or pays less than the statutory rate, they can claim it on a SATR. A friend of mine, a permie salesman, does this as his employer refuses to pay for his mileage when visiting clients. Personally, I stopped since I got a company car (before you get arsey, many employees could do this too, whether through negotiations or salary sacrifice).

                  Incidentals for lunch: I did this at the very beginning, but stopped because it was such a PITA keeping all the receipts for a few quid savings here and there. However, again AFAIK an employee can declare this on a SATR if he's travelling somewhere other than his main place of work.

                  Work equipment: Yes, too right that's tax deductible. It is for someone's employer too, and AFAIK also for an employee on a SATR. As long as it IS work equipment, if not you're breaking the law.

                  PluralSight Sub: That's a tricky one. I've seen a lot of contradictory info on what a contractor's company is allowed to provide when it comes to training, so I don't do it. Then again, I'm very cautious with what I put through.

                  Wife on the books: If the wife is actually doing a job for the company then why shouldn't she be paid the going rate for this? If she isn't, you're breaking the law.

                  Son on the books: Again, if he's actually doing a job and being paid something commensurate with that job, this is (and should be) acceptable. Many business owners employ their kids when they are old enough, and many parents help their kids to get a job. (However, in this case it sounds like he's pulling a fast one and is probably breaking the law.)

                  Everything you talk of is either legitimate (both legally and morally correct) or illegal. The illegal stuff is not a "tax advantage of being a contractor", it's tax evasion (which has very obvious tax advantages). Much of the legal stuff is available to an employee, too, if they can be arsed to fill in a tax return.

                  1. LucreLout Silver badge

                    Tax free mileage: I used to claim this, but then so can any employee when travelling to anywhere that is not their main place of work.

                    Contractors don't need receipts so most just claim the full allowance (x2 because of the spouse).

                    However, again AFAIK an employee can declare this on a SATR if he's travelling somewhere other than his main place of work.

                    Yes, but you count your place of work as your home even when its actually the desk next to mine. I don't get to do that.

                    Work equipment: Yes, too right that's tax deductible. It is for someone's employer too, and AFAIK also for an employee on a SATR. As long as it IS work equipment, if not you're breaking the law.

                    Nope, because it can be used for purposes other than work, according tot he tax man, even if it isn't. No contractor I know uses their home PC for work, because they don't work for BYOD companies, nor do they need their mobile phone to be on the company.... all of them do so though, including the wifes kit.

                    Wife on the books: If the wife is actually doing a job for the company then why shouldn't she be paid the going rate for this? If she isn't, you're breaking the law.

                    Popping to the shops for stationary is about as much work as most contractor spouses do. The difference is that nets a base rate salary, dividends, expenses for her lunch, mileage, and her gadget bill too.

                    Son on the books: Again, if he's actually doing a job and being paid something commensurate with that job, this is (and should be) acceptable.

                    Yes, but all he's doing is tweeting occasionally and managing the facebook page. Neither are tasks that actually need doing, and even were they required, they can be done in his own time the same way I'd have to were I to have such media profiles.

                    Everything you talk of is either legitimate (both legally and morally correct) or illegal.

                    Its all legally correct but its certainly not morally correcy unless we allow PAYE to average out the Mrs tax code, the kids, and put half their life on the tax man too.

                    The illegal stuff is not a "tax advantage of being a contractor", it's tax evasion

                    Nothing I have described is specifically illegal unless its only done to reduce tax. Otherwise its peachy for a contractor, but none of it works for a PAYE.

                    You're making the Amazon argument all by yourself, yet next time it crops up you'll be there banging the drum for them to pay more too.

                    You and I both know you're talking your book. You & I both know this doesn't even begin to bottom out all the tax advantages of being a contractor, which is why none of you pay yourself enough to get close to my tax bill despite often bringing home another 50% on top. I've been working with and paying for contractors for decades, so you might be doing a good job of convincing yourself (that lefty cognitive dissonance again), but you sure aren't convincing me. Far more importantly you aren't convincing HMRC and you're nowhere close to convincing the general public.

                    1. Dr. Mouse Silver badge

                      "Contractors don't need receipts so most just claim the full allowance (x2 because of the spouse)."

                      =Fraud (you can only legally claim for miles traveled for business purposes)

                      "No contractor I know uses their home PC for work, because they don't work for BYOD companies, nor do they need their mobile phone to be on the company"

                      =Fraud (equipment must be for business use)

                      "Popping to the shops for stationary is about as much work as most contractor spouses do."

                      =Fraud (must actually do a job, and not be paid more than the market rate for that job)

                      "Yes, but all he's doing is tweeting occasionally and managing the facebook page. Neither are tasks that actually need doing"

                      Many companies employ people whose job doesn't actually need doing. What is important is that he's doing it, how much time he spends doing it, and what he is paid to do it. If the pay is now than you could employ someone outside the family to do it...

                      =Fraud

                      "Nothing I have described is specifically illegal unless its only done to reduce tax."

                      Yes, it is, it's tax fraud and, therefore, tax evasion (and you've basically said yourself that those things are done only to reduce tax). If investigated, it's highly unlikely that those would be found to be legitimate.

                      Don't tar us all with the same brush. There are many company owners out there who play fast and loose with the rules to their benefit, but that doesn't mean we all do. Investigate, catch and punish those breaking the law, don't punish those of us who are operating correctly!

                2. Dr. Mouse Silver badge

                  Also, even if what you say on this is correct, it's still not true that the employee "paying several magnitudes the tax the contractor pays". The employee would pay more (if he was earning the same amount), but not "several magnitudes"*.

                  * I assume he meant either "several orders of magnitude", which is so wrong as to be laughable but seems closest to what he said, or "several times". If the latter, I would generally define "several" in integer terms as "more than 2", so 3 or greater. I doubt that any contractor is legitimately (legally) paying a third of the tax a permie would pay on the same gross, assuming the permie is taking advantage of the tax breaks available to him... Especially if you discount the things a contractor is paying for which a permie would have been provided by his employer.

                  1. LucreLout Silver badge

                    Also, even if what you say on this is correct

                    It is and doesn't even scratch the surface. The effective tax rate most of my contractors pay is 23% and that's on a solid six figure sum. For a PAYE on the same comp, even maxing out pension contributions etc you're looking at paying at least 45% - very close to double the taxes.

                    it's still not true that the employee "paying several magnitudes the tax the contractor pays"

                    And yet it is.

                    PAYE on £50k turns over £4,860.00 in NI and £12,358.20 in income taxes. Now, I don't deal with payroll taxes because they're not helpful when you're dealing with £xxxx Bn internationally, its all magicked away with bonds, equities, loans, etc and some globe spanning chicanery. I'll be happy to see what payroll errors I've made as this is literally my first attempt at the calcs.

                    Contractor on £50k:

                    2 x mileage is 0.45 * 20000 = £9k tax free leaving £41k to disburse

                    2 x lunch = £7 * 5 * 48 = £1645 of costs moved onto the company so tax free, leaving £38,355 left.

                    2 x high spec laptop / tablet / phone rotating each year = £7k of cost moved onto the company leaving £31,355 open to tax.

                    2 x phone bill £60 * 12 = £720 moved onto the company and £30,635 left.

                    Utility bills, broadband etc will see that down to about £30k (I'll ignore home office deductions etc).

                    You'll note, however, that I haven't paid a single penny in taxes so far and I've already knocked £20k off any potential bill before doing anything creative or before employing the kids.

                    Employers NI will become due on each employee at about 13.8% but only on earnings over £8424 per employee. A further 12% employee contribution will be required. Personal allowance is £12500 per employee before 20% tax kicks in.

                    2 x PAYE of £8424 = £16848 out with no NI and no IT to pay, leaving £13152 on which tax might be due.

                    Corporate taxes are due at 19% on anything we don't hide or pay out, but that is lower than IT and we have 2x tax free dividends yet to use so.....

                    2x 2000 = £4k with no tax due to employee, and just £760 paid in taxes and only £8392 left potentially taxable.

                    I'm running out of time to complete this calc, so lets keep it simple and dividend the lot.

                    CT = £1594.48

                    Divs = 6797 / 2 employees so £3398.76 each which fits inside their TFE allowance so no further tax is due.

                    What we've got to date is the following:

                    CT: £2354

                    IT: 0

                    NI:0

                    Cash: 27645

                    Food and utilities are part paid, tech is paid, plus you get to make on resale of 3 year old kit.

                    I've not employed the kid, and I still have wriggle room if you want to drop the tech rate and pay a little more tax in order to have more cash.

                    £17218 / £2354 = 7.314 times the taxes. Now, you can munge the numbers around to your hearts content, but you will ALWAYS find that the PAYE taxes due are MULTIPLES of the contractor rate unless you pay the maximum taxes possible. Nobody actually does that. But then you already know this. Pay a little more and get an NI stamp, if you wish, but do note that some contractors implement the above structures and then go on to claim in work welfare benefits, so there's that to consider too.

                    You just don't want to agree because "tax avoider" isn't how you want see yourself. That is how most of society sees you though, no different from Amazon, and that is why you're going to get taxed at a prevailing rate akin to an FTE.

                    Source of rates and deductions (because I'm not at work and don't have access to my usual data/software, plus we don't work on the employee level).

                    https://paulbeare.com/2018/08/14/an-overview-of-uk-payroll-costs/

                    1. LucreLout Silver badge

                      Lets take a moment to look at the low hanging fruit of creativity which we haven't applied so far.

                      Holidays become offsites (One of my contractors is still trying to crack Australia despite annual trips going back a decade). That he happens to hail from there is pure coincidence, as is the fact that his family farm is there.

                      Holidays become training courses - One of my guys takes 3 weeks off every year and goes abroad with the family - he just does one cert a week at each end of the holiday. All employees you see.

                      The first 2 years at an employer mean on top of the mileage claims you can expense your train ticket - one of my mates does this and he comes down to London from the east mids every day. Hell, my ticket costs 350 notes a month and I get nothing for that because HMRC think I might want to go back into London on a night for leisure!!

                      We've not looked at structuring yet, where your onshore company buys services or equipment through an offshore provider, located conveniently in a tax friendly jurisdiction.

                      Club access - golf, social etc are easily obtainable through your company before taxes become due.

                      We're not even getting close to a grey area here - its all legal and firmly so.

                      If we want to go grey we start looking at director loans, corporate financing across a web of companies owned by relatives, etc

                      I've a former colleague with a lovely range of boss suits with his corporate logo embroidered very discreetly on the cuffs, which is a corporate uniform, along with the hermes and churches.

                      Charity donations, when either you benefit from attending the functions, or where you might even run the charitable trust yourself.

                      Then we can look at where you keep you corporate IP (Holland is apparently efficient for tax reasons and might work for You Too).

                      We haven't looked at business development grants, we haven't looked at R&D deductions, or corporate investments or a whole host of things.

                      Up to this point I personally know someone engaging in each of the above, so making out like contractors don't do this is simply not going to wash.

                      Then we can go dark, balls out evasion from there or even straight up fraud, which is not something I'd engage in professionally or personally, but lets not pretend it isn't happening and that the losses to the tax man aren't real. I'll not detail how this is most easily done for reasons which should be obvious.

                      1. Dr. Mouse Silver badge

                        "We're not even getting close to a grey area here"

                        No, you're completely over the line into tax evasion. Most of them involve lying about the purpose of the expense, and that equates to fraud.

                        Tax evasion has very clear tax advantages. Contracting through a limited company, done legally without fraud or tax evasion, has some minor tax advantages.

                        1. LucreLout Silver badge

                          No, you're completely over the line into tax evasion. Most of them involve lying about the purpose of the expense, and that equates to fraud.

                          Nope, none of them involve lying about the purpose of the expense, only making sure that when an expense is incurred it provides maximum enjoyment in addition to the business purpose.

                          If you're going to pretend that no contract does any of the things I've suggested in this thread, when in 25 years every single contractor I've met has done at least one of them at the time I knew them, most of them have been engaged in several of the tax reductions at the same time, then continuing the debate is pointless because you've successfully deceived yourself, but only yourself you understand.

                          1. Dr. Mouse Silver badge

                            "If you're going to pretend that no contract does any of the things I've suggested in this thread"

                            I won't pretend that. I know some do it. However, I also know that the majority of what you have written are fraudulent and would be breaking the law. Some would be completely disallowed, or taxable as Benefits in Kind, if they were ever investigated.

                            "none of them involve lying about the purpose of the expense"

                            Let's break a few of them down, then:

                            - "Holidays become training courses - One of my guys takes 3 weeks off every year and goes abroad with the family - he just does one cert a week at each end of the holiday."

                            The purpose of the expense is, quite clearly, a holiday. Doing a cert "at the beginning and end" doesn't change that. Assuming the certs are taken physically in the location he is visiting, he may be able to get away with the flights there and back, and accommodation for a couple of nights each, but not for a full 3 week holiday for a full family. Any tax inspector worth their salt would laugh in his face, and any accountant or lawyer advising that to be legit should be banned from practising.

                            - "The first 2 years at an employer mean on top of the mileage claims you can expense your train ticket"

                            As mentioned previously, if you are claiming for mileage you didn't do for work purposes, that's fraud. I've also been told that it's risky to put a train/bus season ticket through, a HMRC can and will see it as usable for non-work purposes. Doing the 2 together: You can't both drive to the client site and get the train there at the same time, so this is most definitely fraud.

                            - "Club access - golf, social etc are easily obtainable through your company before taxes become due."

                            Nope. The company could pay for it, but it would be taxable as a benefit in kind. It is not a legitimate or legal business expense.

                            - "I've a former colleague with a lovely range of boss suits with his corporate logo embroidered very discreetly on the cuffs, which is a corporate uniform"

                            Doubt that would pass an inspection, but you are right, this one is a grey area.

                            - "Charity donations, when either you benefit from attending the functions, or where you might even run the charitable trust yourself."

                            Where you benefit: this can be done by anyone who can afford the typically large amounts needed for a charity to grant benefits. You can do gift aid, and can claim anything beyond basic rate back on your SATR.

                            Where you run the charitable trust, you'd have to be very careful. I doubt many contractors run charitable trusts, though.

                            1. LucreLout Silver badge

                              You can't both drive to the client site and get the train there at the same time, so this is most definitely fraud.

                              No, but you can drive to and from the train station and claim parking, while FTEs have to pay both out of already taxed income - contractors are getting 50% off the price here, rising to 67% if you compare a narrow FTE salary banding.

                              Assuming the certs are taken physically in the location he is visiting, he may be able to get away with the flights there and back, and accommodation for a couple of nights each, but not for a full 3 week holiday for a full family

                              The flights are baked in certainty for the contractor as are the first and last week hotels - all at tax free rates, saving between 50-67% over what it'd cost the FTE. The middle week can be justified if its cheaper than returning flights, so provided he's not staying 5 star then this should be easy to justify.

                              The family going, well, you can either take the board meeting approach, or you can find courses for them too (can be cheap - its not like the wife and kid are actually adding value to the business). Worst case scenario, you need flights for the family, but the mrs will be staying in your room so now you've only junior to house, if you didn't get a suite.

                              Nope. The company could pay for it, but it would be taxable as a benefit in kind. It is not a legitimate or legal business expense.

                              That depends on what you do with it and with whom you do business. Bit like the old corporate box at a stadium - put it in my name and guarantee me use of it, then its a BIK and taxable but if the company could send anyone along and its in the company name, then its an expense for client entertaining.

                              - "I've a former colleague with a lovely range of boss suits with his corporate logo embroidered very discreetly on the cuffs, which is a corporate uniform"

                              Doubt that would pass an inspection, but you are right, this one is a grey area.

                              The guy I know doing it also isn't wholly sure he'd get away with it if audited, but as he rolls the company every 3 years anyway (capital gains disbursement rather than income you see) he's unlikley to have to repay much in the way of taxes on it, but has had about 20 years worth of Boss suits on the tax payer.

                              Where you run the charitable trust, you'd have to be very careful. I doubt many contractors run charitable trusts, though.

                              I only know of 3, however in 2 of those cases their wife runs that organisation rather than the main LTD co, which further separates concerns. Quite how much of the money donated ever actually sees a good cause is debatable, but then since Oxfan etc only actually spend about 1 peen in the pound on what it was raised for and the other 99 running the org itself, the charity sector isn't without precedent here.

                              Contractors not interested in avoiding taxes can simply pay 100% of their income out as PAYE and claim no deductions. They'll have literally nothing to fear from the changing regulations and tax rates. I've never met a single one of those though, and I dare say neither have you. Gives the game away a tad mind.....

                              1. Dr. Mouse Silver badge

                                "you can drive to and from the train station and claim parking, while FTEs have to pay both out of already taxed income"

                                Personally, I would prefer this deduction to be allowed for all as it would make sense: it's wholy and exclusively for work purposes. However, it is different for a contractor, as the client site is not the main, permanent place of work for the contractor. If, for instance, an employee had to work at the office of one of their employer's clients for a few months, they would legitimately be allowed to claim mileage/travel expenses for that (and hotel expenses if needed).

                                "The flights are baked in certainty for the contractor as are the first and last week hotels - all at tax free rates, saving between 50-67% over what it'd cost the FTE. The middle week can be justified if its cheaper than returning flights, so provided he's not staying 5 star then this should be easy to justify."

                                If the first and last week, all week, he is actually doing training which involves him needing to be at that location then that's legit. I have known employers do this, too (and in that base the employer paid for the employee's entire holiday in doing so). A previous employer, before I went contracting, allowed any staff member who went on a business trip abroad to extend their stay, as long as they took the extra as holiday and paid the extra hotel themselves.

                                If it's a couple of days at the start and end, I doubt he'd be able to justify it. The cost of the hotel in between would far outweigh most flights and, even so, a tax inspector would definitely flag it as dodgy.

                                This assumes, of course, that he's actually doing some training. If it's all just a sham, that's fraud.

                                "The family going, well, you can either take the board meeting approach, or you can find courses for them too"

                                I agree that the training would be possible, although it would be a stretch and would likely be flagged by HMRC. The whole "trip abroad for a board meeting" thing should not be allowable for anyone, contractor or otherwise. If it is currently allowed, that loophole should be closed for everyone.

                                "Worst case scenario, you need flights for the family, but the mrs will be staying in your room so now you've only junior to house, if you didn't get a suite."

                                Any tax inspector should flag that up. If he went with the wife and 2 kids, only 25% at most should be deductible. He has gained a benefit in kind of 75% of the room costs.

                                "[Club membership] depends on what you do with it and with whom you do business"

                                No, it doesn't. Golf club and similar membership is classed as a benefit in kind, no matter who you are or what you do (with the possible exception of a golf professional). Claiming it as a business expense is fraud and tax evasion.

                                "if the company could send anyone along and its in the company name, then its an expense for client entertaining"

                                Client entertaining is not deductible for corporation tax purposes. So, even if you could convince a tax inspector that it was legit and not a benefit in kind (very difficult if only you and your family are employed), you'd still have to pay out of post-tax profits.

                                "as he rolls the company every 3 years anyway (capital gains disbursement rather than income you see) he's unlikley to have to repay much in the way of taxes on it, but has had about 20 years worth of Boss suits on the tax payer"

                                The tax man could go back 20 years and demand income tax (and any other relevant taxes) on this, as it reeks of deliberate evasion. It doesn't matter if he "rolls" the company (which, in itself, smacks of dodgy practices).

                                "Contractors not interested in avoiding taxes can simply pay 100% of their income out as PAYE and claim no deductions"

                                A contractor paying 100% PAYE will pay more tax than an FTE on the same gross (as well as not being able to run a business, pay insurances, pay an accountant). It's perfectly legit to structure a company as you wish, but only truly legitimate expenses should be claimed. There's a middle ground, not defrauding the tax man but structuring your company to pay the correct taxes. FTEs could refuse all pension, ISA, childcare etc tax breaks, if they wanted...

                                When it comes to expenses, ask yourself: Would an employer allow this?

                                If I asked an employer to get me a new, high end laptop, because my old one is old and slow and is impeding my work, it would likely be allowed. If I asked them for a new laptop, even though I never needed one because all my work was done at my desk and I had a high end desktop there, the answer would likely be no.

                                If I asked and employer for a 2 week training course which would improve my abilities to do my job, there's a good chance the answer would be yes. If I asked him to send me on two training courses in the Bahamas, each for 2 days, one 3 weeks after the other, and cover the hotel costs in between, the answer would probably be no.

                                If I asked my employer to pay for a meeting room at a hotel for a big client meeting, the answer may be yes. If I asked him to pay for my gym/golf club membership, it would be no.

                                There are a lot of legitimate business expenses which must be allowable for a small business. And that is what contractors are: Small businesses. Some small (and larger) business owners defraud the tax man. Many get away with it. But punishing those of us who operate their businesses legally, morally and ethically, that's wrong!

                                1. LucreLout Silver badge

                                  However, it is different for a contractor, as the client site is not the main, permanent place of work for the contractor.

                                  Yes it is. None of my contractors are paid to work at their home office, they're paid to work at the company office, same as the FTEs. Amazingly, only one is recognised as deductible. There's absolutely no difference. Same goes for expensing lunch and all the rest of it.

                                  Now, if you were doing a day here, a day there at different employers you might have a point, but where you're at the same desk for 2 years you clearly don't. You do know this, of course, you just don't like it.

                                  If the first and last week, all week, he is actually doing training which involves him needing to be at that location then that's legit.

                                  The course could almost always be done from Grimsby as easy as Hawaii. The FTE can make no such claim against tax, and amazingly, most employers don't want to let you choose your own training course in Hawaii and then claim it back against taxes. Its a holiday. You know it. So do I.

                                  This assumes, of course, that he's actually doing some training. If it's all just a sham, that's fraud.

                                  It can both be training and a sham. Lets take a nice easy MCP type cert. Could be done on the train to and from work, but nope, it gets done from sunnydale because its sunny and the tax man is paying half anyway. Again, there's no possibility that you don't already know this.

                                  Client entertaining is not deductible for corporation tax purposes. So, even if you could convince a tax inspector that it was legit and not a benefit in kind (very difficult if only you and your family are employed), you'd still have to pay out of post-tax profits.

                                  Yes, but that'd be the companies post tax profits, which means at 19% deductions its massively cheaper than 42%, 50%, or the top slice 67% deducted before being bought. You already know that too though, right?

                                  The tax man could go back 20 years and demand income tax (and any other relevant taxes) on this, as it reeks of deliberate evasion. It doesn't matter if he "rolls" the company (which, in itself, smacks of dodgy practices).

                                  What do you suppose attracts the greatest number of audits, given the limited HMRC resources, trading companies, or closed companies? Yeah, so the reality is that those old Boss suits are safe as houses, and his real risk is negligible.... even if the rules don't allow it, which is far from clear given the company logo being embroidered on the sleeves.

                                  It's perfectly legit to structure a company as you wish, but only truly legitimate expenses should be claimed. There's a middle ground, not defrauding the tax man but structuring your company to pay the correct taxes. FTEs could refuse all pension, ISA, childcare etc tax breaks, if they wanted...

                                  Everything you've listed is also open to contractors, just with the double dipping of moving half their life onto the corporate ticket, and then minimising their taxes aggressively using perfectly legal avoidance measures. Any you wonder why HMRC want to clamp down?

                                  When it comes to expenses, ask yourself: Would an employer allow this?

                                  See, you're back to the sophistry again. The employer is really the client for most contractors. You know it, I know it, HMRC knows it, and so do the public at large. The odd job man or plumber may well have a decent argument, but the IT contractor almost never does. Sorry.

                                  You've done an admirable job of simply avoiding understanding everything you've wished to avoid understanding in order to preserve your way of thining. Unfortunately, its neither me nor you whose understanding is going to be relevant, it's HMRC and Joe Public, and as you well know, their view now much more closely aligns with mine than yours, and that's why you're getting worried.

                    2. Dr. Mouse Silver badge

                      Ok, anyone doing all that is plainly gaming the system and is acting illegally. No regulations need to change, the tax man just needs to investigate and catch those who are breaking the law

                      If someone is claiming mileage for miles they didn't travel for work purposes, they are breaking the law. If someone is purchasing it equipment which is not solely for work purposes (with incidental personal use), they are breaking the law. If someone is paying their wife, when their wife is not doing and work, or paying an amount which is more than the market rate for what they are doing, they are breaking the law. If someone is billing their company for utility bills which are not for business use, they are breaking the law.

                      A large proportion of what you point out there is tax fraud. If people are committing fraud, investigate them and charge them for it, don't penalise those of us who are operating within the law!

                      1. LucreLout Silver badge

                        Ok, anyone doing all that is plainly gaming the system and is acting illegally

                        Yes, and no. Yes they are gaming the system, but no it isn't illegal. They probably won't ever be audited on it, and were they to be so, provided they never write down "I'm employing the Doris because it'll reduce my tax liability" then they'll sail on through. What the spouse does and what the contractor claims they do are often (almost always) miles apart.

                        If someone is claiming mileage for miles they didn't travel for work purposes, they are breaking the law.

                        But since they only have to provide minimal receipts and no other evidence they won't be caught. Besides, some do legitimately do the mileage, its just that as an FTE they can't claim it back, despite doing the same journey for the same reason to the same place.

                        If someone is purchasing it equipment which is not solely for work purposes (with incidental personal use), they are breaking the law.

                        But since a contractor defines what their role it anything they do online is "work purposes".

                        If someone is paying their wife, when their wife is not doing and work, or paying an amount which is more than the market rate for what they are doing, they are breaking the law.

                        That's the wheeze though isn't it. The things they do are being done, but many would be done anyway - my Mrs for instance often picks up stationary while out, its just that I don't get to pay her to do so out of my pre-tax earnings.

                        If someone is billing their company for utility bills which are not for business use, they are breaking the law.

                        Again, because the contractor decides what is business use, then its all business use. I could legitimately define anything as research - even reading El Reg becomes a "business activity" for keeping up with wider industry information.

                        A large proportion of what you point out there is tax fraud.

                        And yet none of it is.

                        If people are committing fraud, investigate them and charge them for it, don't penalise those of us who are operating within the law!

                        You're using the law as a shield here when specifically they are changing the law because what contractors are doing amounts to abuse of it.

                        I engage in industrial levels of legal sophistry every day as part of my work. Truly you would be horrified. That you prefer not to see that contractors are so engaged and amount to the work equivalent of Amazon or Starbucks is illuminating. Like I said, nobody does cognitive dissonance like the left....

                        1. Dr. Mouse Silver badge

                          OK, IANAL, but most of this I am reasonably certain would be picked up in an investigation.

                          However, if it would be legal and get through an investigation then it is open to abuse by all company owners/directors, not just contractors. If that's the case, changing rules for contractors only may reduce the scale but would leave other business owners able to abuse the the system. This is not making the system fairer, it's making it less fair.

                          On top of that, it penalises those of us who are not abusing the system.

                          A fairer way would be to change the rules to stop the abuse. Specifically prohibit the abuses mentioned. The fact that they don't makes it seem like they are keeping the loopholes open for their mates, while closing them for the little guys who don't have the resources to fight them. One rule for them, another for us.

                          By the way, if the majority of contractors are operating in this manner then I can understand why people consider them tax dodgers. Personally, I doubt they are. Most that I have spoken to operate as I do, putting valid, legitimate expenses through their company (the kind of thing an employer would accept as an expense). They pay similar levels of tax to an employee who pulls a salary similar to what they take from their company. I discuss these matters with most contractors I come across, and find it hard to believe that I would not have come across any who behave as you describe if it is as prevalent as you say.

                          1. LucreLout Silver badge

                            However, if it would be legal and get through an investigation then it is open to abuse by all company owners/directors, not just contractors. If that's the case, changing rules for contractors only may reduce the scale but would leave other business owners able to abuse the the system. This is not making the system fairer, it's making it less fair.

                            Your problem here is that most FTE butchers, bakers, and candlestick makers aren't paying volumes of the taxes that their self employed counterparts are for sitting at the same desk... IT FTEs are, and IT contractors stand out like a sore thumb in the self employed stakes.

                            Fair isn't a useful term to define anything - your definition of fair and mine and everyone reading this will be different, and life is rarely fair anyway.

                            On top of that, it penalises those of us who are not abusing the system.

                            Low speed limits penalise those of us who really are good drivers and safe at far higher speeds. That, unfortunately, is just how life is.

                            A fairer way would be to change the rules to stop the abuse. Specifically prohibit the abuses mentioned. The fact that they don't makes it seem like they are keeping the loopholes open for their mates, while closing them for the little guys who don't have the resources to fight them. One rule for them, another for us.

                            Taking home 6 figures does not a little guy make. Sorry.

                            They've tried to close the loopholes, these changes are just the latest step in that. Contractors keep finding new ways to avoid them, so this change brings in what amounts to a general anti avoidance principle. By putting the risk on the large employers, they stop having so many freelancers and recruit FTEs who pay taxes instead.

                            My northern ex-finance mate used to work with someone who had contracted for the same company for 18 years. He'd been there longer than the longest serving FTE by some distance. Those that genuinely move by choice every 6 months or so may get caught up because of people like that, but the alternative is massive eye watering spending cuts - higher rate PAYE has topped out and the only way to get more revenue from it is to recognise those avoiding it via structuring, AKA contractors.

                            They pay similar levels of tax to an employee who pulls a salary similar to what they take from their company. I discuss these matters with most contractors I come across, and find it hard to believe that I would not have come across any who behave as you describe if it is as prevalent as you say.

                            The same can be said of the kind of contractor you meet. I'll feel fairly secure stating I've employed a lot more contractors than you have over the past 25 years, and I've worked with hundreds maybe even 1000 of them. I've never met a one that was paying as much tax as the FTE next to them, and that on a 50% uplift in gross.

                            1. Dr. Mouse Silver badge

                              "I've never met a one that was paying as much tax as the FTE next to them, and that on a 50% uplift in gross."

                              OK, here's my rough figures. They vary from year to year, as business incomes will (much more than an FTE would have to face). The FTE figures are fairly realistic based on discussions I've had with clients.

                              Were I an FTE, I would be bringing in around £50k. With the standard 5% contribution to a pension and salary sacrifice for a company electric car, I'd take home around £30k and pay just over £11k in taxes. I would also be provided with a high spec company laptop (as well as training and other employee benefits, which most of the places I contract for provide their employees).

                              As a contractor, I pull in around £80k after accounting for holidays, sickness, and time between contracts. This varies from contract to contract.

                              Around £2k goes on accountants and insurances. Mobile phone £120 (I need this for keeping in touch with clients and agents, as well as often for connectivity to do my job out and about, used only for business as I keep personal and business separate, mainly for my sanity). Laptop is around £3k every few years (needed because I regularly work with clients who require me to provide my own equipment), let's be generous and say £1k/year and it's worthless at the end (which it isn't). New phone, £600 every few years, let's be generous and say £200/year and worthless at the end. Electric company car £8k/year ish. £3k in pension contributions (£2k equivalent of what I would pay as an employee, plus £1k which the employer would pay). Let's add a few odds and ends and make it £15k in expenses, leaving £65k.

                              From this, I take £9k ish salary, which is not taxed, leaving £56k profits. CT at 19% is about £11k already.

                              This leaves £45k profits after tax. I keep some in the business to cover unexpected circumstances (I've had periods of up to a year without a contract in the past), drawing around £37k in dividends. That is taxed at 7.5% after £2k allowance, which gives £2.5k tax.

                              I'm left with £44.5k in my pocket after tax, having paid £13.5k in tax. I've paid more than I would have as an employee with no additional benefits. I'd have £8k extra profit retained in the company for to cover unexpected circumstances, which is not much in the grand scheme of things.

                              If you look, instead, at someone taking home the same as I do, they'd be on £62k and be paying £17.5k in tax. They would be paying around £4k more tax than I do, but they would also have better benefits than I do. They would not have to spend time keeping accounts up to date outside work. They would not have to make filings to HMRC regularly. They would not have to continuously search for new work, or plan for periods without.

                              I would be happy to pay an extra few grand in tax, if implemented in a fair manner which applied to all business owners instead of just contractors. However, I am not happy with the government coming along and basically making my company illegal to operate. I don't want to be a FTE, not because of tax but because of the working practices, but it is not viable to work as I do without operating as a company.

                              1. LucreLout Silver badge

                                Were I an FTE, I would be bringing in around £50k. With the standard 5% contribution to a pension and salary sacrifice for a company electric car, I'd take home around £30k and pay just over £11k in taxes. I would also be provided with a high spec company laptop (as well as training and other employee benefits, which most of the places I contract for provide their employees).

                                And another almost 5k in NI, but that new electric car ain't gonna exist in the real world, not on 50k gross anyway.

                                Let's add a few odds and ends and make it £15k in expenses, leaving £65k.

                                Ok, so you've moved the first 15k of your life costs onto the company. As an FTE I too need a phone, laptop, and car for the reasons you give, but mine aren't deductible. They come out of already taxed income, so yours are 42% cheaper at that gross rate. That's over £6k in tax saved right there.

                                From this, I take £9k ish salary

                                And thus we come to the crux of the problem. This right here is why contractors won't get to make the decision as to their tax situation and why large employers are dumping them enmasse. You're paying less income tax than you've already avoided just on your gadgetry.

                                I would be happy to pay an extra few grand in tax, if implemented in a fair manner which applied to all business owners instead of just contractors.

                                Yeah, see, its not a few grand though is it - it's tens of thousands of pounds each and every year. It is literally multiples of the money you're actually paying. On your figures, given a desk next to an FTE as most contractors enjoy, you're basically stiffing the NHS of a nurse all on your own.

                                However, I am not happy with the government coming along and basically making my company illegal to operate. I don't want to be a FTE, not because of tax but because of the working practices, but it is not viable to work as I do without operating as a company.

                                If your business model isn't viable paying a "fair" and for that read equivalent level of tax, then it isn't viable. Sorry.

                                1. Dr. Mouse Silver badge

                                  "And another almost 5k in NI"

                                  11k in total tax and NI. I would not pay any more tax or NI on that as an FTE on 50k making a 5% pension contribution and an 8k salary sacrifice for an electric car.

                                  "so you've moved the first 15k of your life costs onto the company. As an FTE I too need a phone, laptop, and car for the reasons you give, but mine aren't deductible"

                                  If you need a phone or laptop for work, your employer should be providing them. If you allow them to get away with making you provide your own equipment for work use, more fool you. Phone is not used for personal, I have another for that. I do not need a laptop for personal use, and use my desktop and tablet for that which I bought personally (even though I could legitimately use my business laptop for incidental personal use). None of these are my life costs, they are my business costs, all required for me to be able to do my job and used only for doing my job.

                                  The car can be had in salary sacrifice, as I listed above. Several clients I've spoken to have said they'd be fine with that for an FTE.

                                  "You're paying less income tax than you've already avoided just on your gadgetry."

                                  I have avoided nothing on "gadgetry", I've paid legitimate business expenses and bought equipment for business use. Exactly the kind of thing I wouldn't have to pay for anyway as an FTE because my employer would provide it if I needed it for work.

                                  "Yeah, see, its not a few grand though is it - it's tens of thousands of pounds each and every year. It is literally multiples of the money you're actually paying."

                                  No, it isn't. I'm paying more tax than I'd pay as an FTE, and only a few grand less than I'd pay to take home the same amount as I currently do. I've shown the figures.

                                  "If your business model isn't viable paying a "fair" and for that read equivalent level of tax, then it isn't viable"

                                  I do pay an equivalent level of tax. I've just shown you the blooming figures!!

                                  Unless you are going to insist that businesses shouldn't be allowed to provide any equipment to their workers or for their business use... No computers, no servers, no offices, no fork lift trucks, no manufacturing machinery. If you are not arguing that, then why are you arguing that equipment I use for work (which would be provided by my employer were I an FTE, which I would not have to pay for at all) cannot be provided to me by my business?!

                        2. Dr. Mouse Silver badge

                          They probably won't ever be audited on it, and were they to be so, provided they never write down "I'm employing the Doris because it'll reduce my tax liability" then they'll sail on through.

                          So, it's illegal but they are unlikely to be caught... I'm unlikely to be caught if I exceed the speed limit, but it's still illegal. I'm unlikely to be caught shop lifting, but it's still illegal. I'm unlikely to be caught if I break into a house and steal the TV, so long as I'm careful about it, but it's still illegal.

                          If I claim my wife is working for my company when she isn't, that's fraud. Likelihood of getting caught doesn't change that.

                          some do legitimately do the mileage, its just that as an FTE they can't claim it back, despite doing the same journey for the same reason to the same place

                          Because a contractor is not doing the same job or operating the same way. I realise this one will be contentious as, to an FTE, it seems they are doing the same job. However (assuming the person is not actually a disguised employee, which some are) it is more akin to a builder coming on site for 3 months. Noone would argue that they were not entitled to claim mileage for that job.

                          since a contractor defines what their role it anything they do online is "work purposes"

                          That would never fly in court. Saying "I am on Facebook chatting with my friends for work purposes" clearly fraudulent and would be laughed out of court. It is a balls-out lie.

                          A contractor can say whatever they want in defining their role, but if that does not match reality then it's fraudulent. I could say that part of my job was sampling the beers at the local pub and discussing current events with my friends, but it wouldn't be true and I couldn't put my nights out through my company as an expense legally.

                          my Mrs for instance often picks up stationary while out, its just that I don't get to pay her to do so out of my pre-tax earnings

                          If she is out only to pick up that stationary which is only for company use, and is paid only for that time and at a commensurate rate, it's legitimate to do so. If she's out shopping, buying stationary for household use which the company occasionally uses some of, and being paid way over the odds for that work and time, it isn't and would be counted as fraud.

                          Let's say your wife does 1 trip a week to buy stationary, 48 weeks a year. Let's be generous an say it takes her 2 hours to do so, and that is all she ever does for the company. All that stationary is for company use, never used by the household. You could legitimately get someone on minimum wage to do this for you, so you could legitimately pay her about £840/yr to do so, plus possibly mileage payments. This is negligible and would barely be worth going, but it would be legitimate. If you are paying her more than that, you are probably committing fraud.

                          If people are getting their wives to do this for them for work purposes, and their work are not paying her for it... Well, that's not very smart, is it? Their employer should be providing them with the resources they need to work, and paying someone to source them.

                          And yet none of it is [tax fraud]

                          Yes, it is. You, and any contractor doing this, is specifically lying in order to reduce their tax bill. It is fraud. Whether they are likely to get caught doesn't change that.

                          You're using the law as a shield here when specifically they are changing the law because what contractors are doing amounts to abuse of it

                          What some contractors are doing is abuse of it (and is already illegal). What most contractors I have met are doing is running a business, which the new regulations are effectively banning (by placing a massive administrative burden and financial risk on our clients, even though we are operating clearly outside IR35). It also doesn't stop other business owners from doing the very things you say it is trying to stop.

                          1. LucreLout Silver badge

                            So, it's illegal but they are unlikely to be caught...

                            No its legal, its just legal tax avoidance.

                            If I claim my wife is working for my company when she isn't, that's fraud. Likelihood of getting caught doesn't change that.

                            Paying your wife to do a job for the company that is a job she'd never get at a real company is legal but is still legal tax avoidance.

                            Because a contractor is not doing the same job or operating the same way. I realise this one will be contentious as, to an FTE, it seems they are doing the same job.

                            Nope, they literally are the same job - I'm not just the FTE remember, I'm the guy doing the hiring.

                            That would never fly in court. Saying "I am on Facebook chatting with my friends for work purposes" clearly fraudulent and would be laughed out of court. It is a balls-out lie.

                            Is it? Are none of your friends work contacts?

                            If she is out only to pick up that stationary which is only for company use, and is paid only for that time and at a commensurate rate, it's legitimate to do so.

                            And yet not so when an FTEs spouse does the same.

                            Yes, it is. You, and any contractor doing this, is specifically lying in order to reduce their tax bill. It is fraud. Whether they are likely to get caught doesn't change that.

                            Reducing the tax bill may be the primary driver but it can't be proven. It could just as easy be the reasons they give instead.

                            What most contractors I have met are doing is running a business, which the new regulations are effectively banning

                            What most contractors are doing is wholesale tax avoidance and most contractors know very well that it is. The running a business meme is directly akin tot he legitimate businessman thing the mob used to do.

                            If you can't run your business without the massive tax subsidy it has enjoyed up to this part then it is a business that society will not miss. You can't cry foul when Amazon do this and then do it yourself. Well you can, and you do, but that's where the credibility gap comes in, isn't it?

                            1. Dr. Mouse Silver badge

                              "No its legal, its just legal tax avoidance."

                              No, at least 90% of what you've listed is fraud. Done may be difficult to prove, but that doesn't make it legal. If I drive at 120mph on a public road with no cops or cameras, that would be illegal whether anyone could prove it or not.

                              "they literally are the same job - I'm not just the FTE remember, I'm the guy doing the hiring"

                              If you are getting contractors in to do exactly the same job as an FTE, with exactly the same working practices and conditions, then those contractors should be employees. That doesn't mean we all are, though, and it sounds more like dodgy recruitment practices on your part than the contractors.

                              "And yet not so when an FTEs spouse does the same."

                              If you need stationery for work purposes as an FTE, your employer should be providing it. It shouldn't be up to your wife to go to the shops and buy it for them.

                              "Reducing the tax bill may be the primary driver but it can't be proven."

                              Just because something cannot be proven didn't make it legal, see above. Even so, I think the majority could be proven beyond reasonable doubt.

                              "If you can't run your business without the massive tax subsidy it has enjoyed up to this part then it is a business that society will not miss"

                              It's not about a massive tax subsidy, it's about being able to run as a business. There are very few businesses which would survive if they had to have PAYE tax paid as if salary to the owner on all sales, without a thought to the expenses required to make those sales.

      2. Velv Silver badge
        FAIL

        "make a decision based on probabilities rather than a few black and white statements"

        NO, NO, NO, NO, NO, NO!

        This is EXACTLY the problem with IR35, it is subjective. Law MUST be objective, it must be black and white, or you get ambiguities based on the people making decisions.

        Two people being assessed by two different HMRC auditors get different determinations, that is not fair. The same rules should be tested against the same criteria and you achieve a consistent result.

        1. Dr. Mouse Silver badge

          Exactly, this one of the worst points about IR35 as things stand: It's far too difficult to make a status determination, and 2 people can reach completely different conclusions on the same set of circumstances*. Introducing an even more "flexible" system like this would make things even worse!

          What is needed (assuming IR35 is to continue in some form or another, which I would argue it shouldn't but will) is a simple, effective legal definition. At most, a few simple, unambiguous yes/no questions. Ideally, this should be directly connected to employment law such that someone found "inside IR35" became an employee of the client.

          * Of those 2 people, one would probably be a legal expert and one a HMRC investigator, as HMRC strongly disagree with those who understand tax laws. Legal experts (including judges in tribunals) normally agree on status, and normally agree that status is "outside", whereas HMRC disagree and thing everyone is "inside"...

        2. Addanc

          I prefer a flat rate tax system; slim down the tax codes to a couple of pages of A4 (I will still contract); the country can then save loads of dosh by sacking HMRC public sector idiots; will not happen because HMRC/Gov like complexity and ambiguity in the belief that it increases revenue.

        3. DavCrav Silver badge

          "Law MUST be objective, it must be black and white, or you get ambiguities based on the people making decisions."

          I know this is old, but I'm going to leave this here.

          Look through the law and count the number of instances of 'reasonable person' being used. It's many. Even the Coronavirus Act has 'reasonable excuse' in it as a reason for breaking lockdown.

          The law is subjective, on many fronts.

    2. diodesign (Written by Reg staff) Silver badge

      Wording

      Thanks - we've tweaked the wording of the article to make it clearer and added a fact box we'll use in future articles.

      Don't forget to email corrections@theregister.co.uk if you spot anything wrong so we can fix up issues immediately.

      C.

  4. Anonymous Coward
    Anonymous Coward

    That's not reality...

    Whilst poor wording from El Reg, your definition of what it is supposed to be is equally incorrect in reality - one could wish it were so simple. More accurate would be: HMRC - are you a contractor? Yes; well you're inside IR35. Cue extended fight, and if you can afford to take it all the way to court you'll probably win and be outside (but HMRC will still not believe it).

  5. Dr. Mouse Silver badge

    "The reforms are set to make medium and large-sized businesses responsible for determining the employment status of contractors, rather than the contractors themselves."

    I am constantly surprised that el'Reg, a techie publication with a large contractor readership, keeps making mistakes like this.

    IR35 has nothing to do with employment status, and therefore the reforms have no effect on who has responsibility for determining the employment status of contractors.

    What it does is move the responsibility to determine employment status *for tax purposes*. While this sounds similar, it is a very different thing. If it was about determining their employment status, one found inside IR35 would become, effectively, an employee of the company, with all the rights and benefits that entails. Instead, this basically just nullifies the existence of the contractor's company and taxes the entire fee that the company is being paid as if it were the salary of the contractor. It is for tax purposes only, not employment purposes, and ensures that an inside-IR35 contractor pays more tax than an equivalent employee while receiving none of their benefits (from the "deemed employer" or the government).

    1. diodesign (Written by Reg staff) Silver badge

      "I am constantly surprised"

      We've cleared up a few things in the article, and added a fact box we'll use in future pieces.

      Don't forget to email corrections@theregister.co.uk if you spot anything wrong so we can fix up issues immediately.

      C.

  6. Pascal Monett Silver badge

    A right pig's breakfast

    Slop all around and nobody wants to mop it up.

    Somebody remind me why we have government already ?

    1. DJV Silver badge

      Re: Somebody remind me why we have government already?

      They are there to claim expenses and to bolster their own income in any way they can, legal or non-legal - and if the latter, then the law apparently doesn't apply to them or, if it is found to do so, then a sympathetic judge (otherwise known as brother-in-law or similar) will dismiss any cases against them.

      Corrupt? No, I definitely didn't say that (whistle, whistle).

  7. hoola Bronze badge

    Benefits

    As a PAYE employee I still am unclear why there is such a issue with this. If the current pay/tax/NI arrangements a contractor has as so much better than IR35 then clearly, for those people IR35 is bad. One then has to question why the benefits of being outside IR35 are so much better.

    We have had contractors who have worked 6 months to 2 years and bluntly, they should not have been contractors. They took part in all the stuff that the standard employees did other than having paid holiday or sick pay. Whilst I understand that a contractor (however they organise their business) needs to cover all the things that being PAYE employed provides, the tax benefits appear disproportionate in their favour. If IR35 sorts out this abuse then it is good.

    I used to do contracting but chose to move to a permanent position as I got fed up with all the work involved running the business. On paper it may have paid less but overall, the work-life balance made up for any shortfall.

    Life is not all about money and in this profession we tend to be well about the median on disposable income either way.

    1. Dr. Mouse Silver badge

      Re: Benefits

      "Life is not all about money"

      True, and this is the case for myself with IR35, too.

      I don't care much about the extra tax. However, I run a business and being declared inside IR35 would stop me from being able to run that business. The business would no longer be able to pay for an accountant, the required insurances, or anything else. The business would no longer be able to budget for the inevitable periods where it had no (or reduced) income, or for jobs taking longer than expected. The business would no longer be able to provide me with holiday or sick pay. In short, the business would no longer be able to function.

      I would be perfectly happy with the government increasing the combination of dividend tax plus corp tax to be the same as income tax plus NI (although that would require them to reduce higher rate dividend tax). This would leave contractors paying the same, overall, as an employee drawing the same salary as the contractor takes as a salary/dividend mix, but would allow the business to continue to function as a business.

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