HMRC emits IR35 tax calculator onto the web for UK contractors UK's taxmen HMRC has unveiled its tax calculator for contractors to determine whether they should cough up more cash in its freelancer tax clampdown next month. A public beta of HMRC's Employment Status Service Tool was released yesterday to determine the IR35 status of public sector contractors. The changes have long been …
well, yes, but it's not really a true / false is it? It's more like "true" or "false for now but we may change our mind later without telling anyone, without asking for a parliamentary vote, and without consulting those who will be affected rather than only consulting politicians, journalists, and lobbyists" ...
There's one huge, gargantuan, omission on this: a statement that says the output of the tool is the outcome, and unless it says "unknown", it is binding on all parties - the worker, the agency/employer, and HMRC itself.
Instead, the rules still give HMRC the ability to have cake, eat cake, demand more cake & claim cake not handed over properly (and at the same time, there is no sanction if details of bakers left on train, or wrong recipe given to worker by an HMRC employee).
re: "There's one huge, gargantuan, omission on this: a statement that says the output of the tool is the outcome"
I think the way to cover yourself will be to append the output from the tool to any contract, so that they become part of the agreed contractual terms. Also ensure that any statements about supply are consistent with the answers given to the tool.
Whilst this doesn't prevent HMRC from changing their minds, it does provide evidence that your legal team can use to challenge HMRC and show you were acting in good faith...
@P.Lee - I agree.
I was disappointed (but perhaps it was to be expected) that the final verdict webpage didn't include the questionnaire and your answers - like the option they give when you submit an annual tax return. Also they could give the option for your run to be saved along with a unique reference identifier, just as they do with VAT returns.
So yes, as things stand, you will really need to take a copy of each question, the answer choices and your selection. This would at least mean you have in your agreement key statements that gave you reason to believe the engagement was outside (or inside) IR35.
re: There's one huge, gargantuan, omission on this...
Instead, the rules still give HMRC the ability to have cake, eat cake, demand more cake & claim cake not handed over properly
Played around with the tool and it would seem that the Pimlico Plumbers idea of 'self-employment' still gets a green light ie. the relevant questions aren't asked. I'm a little surprised given the findings of the court case. [ See for summary https://www.employeebenefits.co.uk/issues/february-online-2017/court-appeal-agrees-worker-status-plumber/ and https://www.judiciary.gov.uk/judgments/pimlico-plumbers-v-gary-smith/ for full legal details. ]
So in some ways it is good that HMRC leave some wiggle room, but I'm sure they could have tightened the criteria so that Ts&Cs that effectively require a self-employed person to be exclusively 'employed' by the client to fail the test..
Filled it our twice, ever-so slightly different inputs each time, and sure enough, duly got both an inside and then an outside result.
And yet. I have had two independent legal bodies do their checks, and both say I'm outside. My agency says I'm outside.
I should feel safe. And yet, seriously, I just KNOW they're going to f**k me. Or at least try.
(Anonymous, because at least they can't immediately jump me.)
Give the tool a poke, it doesn't ask for any sign up and claims to not keep a record of the transaction (if you believe that)
It seems to be fairly easy with normal input to get it to give an answer that it can't determine the tax status of this engagement - so, that will help in clearing up all the confusion then.
I wonder how long it will take until someone pokes the tool to find out what the deciding factors are and large swathes of contracts are updated accordingly..
"I wonder how long it will take until someone pokes the tool to find out what the deciding factors are and large swathes of contracts are updated accordingly.."
I'm pretty sure you can find that out without poking the tool. I'm sure we don't yet live in a world where an online anonymous multiple choice quiz is the only way of finding out which tax rules apply to you.
If that ever happens I'm moving to a world where my tax calculator says I owe "a suffusion of yellow".
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Most government projects require that you use their IT since you can't connect external stuff to their network - that tick box makes a lot of sense then.
I expect that most electricians, plumbers, painters, etc would already own the significant tools they need to do the job, otherwise they are clearly not going to be very good at their job. If there is something specialist, like scaffolding, then they are more likely to hire it than buy it.
Suggested solution to this box - just buy a new laptop / projector / for each contract and write it off at the end. Don't forget to up the rate to cover this loss.
My brain is the equipment in question, I transfer ownership from my PSC back to human me at the end of every contract and back again at the start of the next. I have the paperwork to prove it (or will have very soon, wikis are great).
If you're going down the CE gadget route, I would say a mobile phone is better as they usually are allowed on the guest network of clients, You can use it for official work communications and leave your personal one at home/in back pocket. You don't even have to buy brand new.
Of course you can have a shiny new laptop every contract if you want and this is a good reason to get it approved by the CFO.
If you ran your own limited company there used to be a rule that you could not get benefits like Jobseekers etc.
Ok, it was a long time ago. but is this still the case?
If HMRC regard you are a pukka employee then they can't at the same time deny you all the benefits that other worker drones are entitled to.
I used to contract and paid myself well over the minimum wage as well as paying Tax + NI. I worked for 6 months a year and took the rest off. I wonder how HMRC will view that now? Before, they were ok as they got Tax and NI from me even though I wasn't actually employed. It suited me pefectly at the time. Then along came children so I went permie.
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"If you're not paying Class 1 NICs (i.e. are not an employee)" then as you've just said, you are not an employee and should not reasonably be expected to pay tax as such. When you get the benefits due to an employee (such as sick pay and holiday pay), then that should change.
Actually, why am i bothering: they can't even be bothered to provide a tool that provides contractors with a definitive and binding answer, this isn't about fairness or treating the different types of employment in the twenty first century in a way that is appropriate for each (not just contractors, but also zero hours, or jobs that allow unfair expenses, etc), this is a plain old copy of that Two Ronnies sketch above. Grab as much money as they can, starting with one of the easy targets - people in the public sector but not in twentieth century employment contracts ....
Funny how they haven't bothered going after tax-dodging newspaper owners over the years ;-)
"If Capita start arming their goons then the safest place to be is right in front of them."
Recently came back from a biz trip Africa and concluded no one in a G4S (let alone Crapita) uniform should be allowed to carry an assault rifle. On more than one occasion, I found myself asking "Would you be kind enough to point that at someone else?"
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But for the heck of it I put in answers that apply to me on my contracts here at home. After playing 20 questions, it said I was covered under it, so I guess I'd have to pay more. What is it exactly that you're being made to pay - the equivalent of FICA in the US (for those who know both tax systems well enough) or something else?
I pay myself a salary that falls a bit short of the maximum FICA level so I save maybe $5000 or so, taking the rest (larger than what I pay myself in salary) as a distribution from my S corp. I was audited over something else by the IRS about six or seven years ago and they asked about that arrangement but didn't have a problem with it at the salary level I was paying myself.
It sounds like those not subject to IR35 would effectively be paying themselves a salary of $0 and taking the whole wad as a distribution - which would save me a further $13,000 or so were that permitted here - but I guess it is all or nothing there so you can't do a halfway thing like me to pay part as a salary and take the rest as "owner's income".
I assume that if I diddled around I could figure out what I would need to change in my contracts to insure I fell outside it. So assuming I could get clients to agree to those terms, it wouldn't amount to much. But having never sought a contract in the UK, that might be more difficult than it appears.
one of the issues is that this rule change is being brought in for people on existing contracts, with no co-ordination with the "employers". People could well be on a contract that does not necessarily have any mechanism for a rate review, yet the rules are being changed under them after they have agreed a rate. That would be one thing - but on top of that some "employers" are applying these rules across the board, even if they don't apply to specific contractors, and terminating people who ask questions (or who want to wait for the detailed rules). This is being done in (at least on case) purely based on a combination of feaer and a lack of info from HMRC - something handled so badly it can only be deliberate.
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Unfortunately no matter what the HMRC IR35 tool says to you the contractor, the end user can always find some way of spinning their responses so that it places you inside of IR35.
My recent experience of this was around the substitution clause - my end user insists on putting in our contracts a substitution clause however when it comes to IR35 suddenly they don't like their own clause and have stated that I would not be able to substitute (even though they insist on it being in the contract) as in practice I have not substituted and if I was to try (because it's in my contract) then they would deny the substitution on the grounds that they are not vetted by them as the end user - without even considering who I would substitute myself with and whether this person would have already passed the vetting!
So are you saying that your end user/client has decided your engagement now falls within IR35 and so have volunteered to pay NI and PAYE on the amounts you (or your agent) are invoicing them for?
The real issue with substitution clauses for the typical IT contractor, ie. one-man company, is that in many of the exceptional situations where you would wish to invoke the substitution clause and so complete delivery of the contract, you will be indisposed to organise such substitutions. Obviously, contracting through an agency/intermediary puts the real onus on fulfilling the substitution clause on the agency...
The intermediaries legislation does not apply to this engagement
But then again I knew that before I filled it out. Those who do 'proper' contracting should have no issues with this, those who are just avoiding employment will have an issue.
We all know those contractors who have been there year on end, part and parcel of the furniture, heck even used to be a permie there previously....Sorry, but this really shouldn't come as a surprise. It is fair and reasonable.
Naturally I would have entered a totally different response if I got a different outcome :P hehehehe
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