8 ms·

Note that the liability is shifting back to contractors. I don’t consider this a win for the contractor. The end client should be the one to determine status a

by d4rti 4y ago

Note that the liability is shifting back to contractors. I don’t consider this a win for the contractor. The end client should be the one to determine status and shoulder the responsibility if it turns out to be incorrect.

988747 4y ago
If you are contractor then you are a business owner, and you should bear responsibility for your own taxes. The upside of this liability shift is that your customers will be more willing to negotiate with you. Right now some of them are assuming very defensive positions, like treating all contractors as being inside IRS35, because claiming that you're outside is a risk for them.
danparsonson 4y ago
That was ever the case in the past though, and previously dealt with by means of a well written contract and appropriate working arrangements. The alternative (status determination by client/'employer') meant an instant ~15% pay cut for anyone unable to negotiate a rate increase to cover the additonal tax burden.
jsty 4y ago
> The end client should be the one to determine status and shoulder the responsibility if it turns out to be incorrect. I'd say the opposite, the incentives / risk structure are otherwise completely misaligned. If the end client says you're outside IR35 and you should be in, they get whacked for income tax + 2x national insurance (employer and employee contributions). If they say you're inside and you should be outside they only have to pay the employer NI contributions. That's a recipe for blanket "inside IR35" decisions, which is exactly what happened to the detriment of many genuinely independent contractors.
- gpderetta 4y ago
  It would have made sense that if 'employee for tax purpose' also meant 'employee for employment law purpose', so that the declaring someone inside IR35 would have significant consequences for the employer as well.
  - Silhouette 4y ago
    Double standards are a big part of the problems in this area for sure. Another obvious example from recent times was the COVID support schemes. If you were an owner-operated business that paid out through the usual salary+dividend combination then you would have got far less if you needed to use something like the furlough scheme than if you'd been paying everything out as salary or registered as self-employed. IMHO that's fair enough in itself - if you claim to be operating like a business and treating your income as business profits rather than salary normally then you don't magically get to change your mind to claim a different support scheme. But it's pretty hypocritical for the government/HMRC to then come along the next day and try to interpret the income of that business as if it were all salary and tax it as such to their benefit.
varispeed 4y ago
There is a whole host of unintended consequences with that, that negatively affect the market. It gives the larger entity in b2b relationship an effective say how the smaller partner is being taxed. This gives them literally an instrument to wipe their competition. For instance, a big haulage company can't find drivers to do a certain route, but there is a small company in the area happy to subcontract. Big company can now say, alright guys, I can only give you the contract in-scope of IR35. If every big company in the area does that (and they do), then suddenly that small business can no longer operate. Company folds and its workers can either seek employment in the big company or do something else.
Silhouette 4y ago
This shouldn't be a win for genuine contractors but it very obviously is. Since the reforms that are being wound back were introduced there has been a huge chilling effect on the flexible labour market here because a huge proportion of larger clients are highly risk-averse and push all contractors into IR35/umbrella arrangements as a blanket policy. Of course they aren't supposed to do that and they are supposed to assess each contract individually and there are supposed to be appeals processes if the IR35 status is then determined incorrectly. However we live in the real world and what is "supposed to" happen means very little. The market for contractors today is a fraction of the size it used to be before the new rules came in. Typical rates in many parts of the market actually fell since the changes when logically several factors should have been pushing them up if the market was functioning properly. No doubt some part of that was getting rid of disguised employees because those people do exist. However the effect has been far too widespread and affected far too many genuinely independent workers and their clients as well.
- varispeed 4y ago
  > Of course they aren't supposed to do that and they are supposed to assess each contract individually and there are supposed to be appeals processes if the IR35 status is then determined incorrectly. That part was completely botched. The HMRC themselves admitted that role based assessments are permitted. Also they have deceived the public what assessment actually means. If the client writes the contract in a way that puts service provider in-scope (to minimise the risk), then there is not much that can be done. The appeal is basically requesting the client to change the contract, which for obvious reasons they won't do, because that would put them at risk. So the client can always walk away when you appeal. From the IR35 perspective, the individual situation of the contractor does not matter.
- Nextgrid 4y ago
  I wonder whether the net tax revenue even from "disguised employees" (both the taxes they pay directly such as Corp & Dividend tax, as well as indirect taxes such as those they pay when they actually spend their gains) was still more in volume thanks to a healthy, flexible contracting & IT market rather than the sad & deserted wasteland we have now. Tax avoidance is a problem but maybe it's better to skim off a little bit from many people than take a lot from a very few people while scaring the rest away?
petesergeant 4y ago
Many eons ago, when I was a contractor in the UK, insuring against IR35 risk was much, much less expensive than being inside IR35.
- Nextgrid 4y ago
  At least one IR35 insurance policy I've reviewed essentially gave the insurer a way out from litigating the case "if they didn't believe they'd prevail". If the same party that stands to lose money if they get involved is the one deciding whether to get involved or not, surely that's a conflict of interest and makes the policy pointless? Sure, I guess you could litigate against the insurer (and still litigate against HMRC), but the whole point of this insurance is to protect against legal costs - if you're going to spend money anyway, what's the point of insurance?
  - petesergeant 4y ago
    The insurance I had wasn’t just litigation, it also covered paying the penalties and tax.
gadders 4y ago
But the end client won't do this and will just blanket put everyone inside IR35, as happens now. This is absolutely a win for the contractor.
trhoad 4y ago
There is no risk if you're genuinely running a small business. If you're a permalancer, coining a freelance rate whilst paying very little tax (no PAYE), then you _should_ be caught out. You _should_ have the liability.
- darkr 4y ago
  You're still liable for corporation & dividend tax. Though the rates are favourable towards the independent contractor, there isn't a huge amount of difference between a perm. employee these days; when you factor in the additional risk taken on by the independent contractor, it's difficult to say either way which one has the better deal.
- Nextgrid 4y ago
  The problem is that the rules are ambiguous and in some industries (such as software development) it is not possible to effectively separate employees from contractors which means that even legitimate contracting activity can look like disguised employment. If you operate a business that provides software development services and want to help a client with their existing software project (who already has full-time employees working on it) you will often need to become embedded within their team which includes participating in regular meetings (including daily standups) and do "employee-ish" things that look risky from an IR35 point of view. Just speccing out a clear scope of work in advance is very difficult as sometimes the scope will vary over time as edge-cases are discovered during development, so the SOW will end up very broad and may look employee-ish. Your best bet is to have mitigating factors such as working for multiple clients, using your own equipment, etc and possibly contract length (I am not sure if it counts, IMO it definitely should) but none of those are bulletproof either. Contributing to an existing codebase in parallel with a client's in-house development team is risky from an IR35 point of view even if you are doing so in good faith and want to operate a business rather than just be a "permalancer". That's also why with the new rules (that are now being repealed), a lot of companies did a blanket determination of putting everyone "Inside" IR35 because the rules are not only unclear to begin with, but even more difficult to correctly interpret and apply in certain industries.
  - 4y ago
varispeed 4y ago
Liability ultimately was always with contractors, just now when HMRC claims the assessment was wrong and the client gets fined, they pay, but they can claw the money back from the contractor. Usually it is in the contract terms. The PAYE that becomes due is contractor's personal tax and the client could likely use unjust enrichment - the contractor was paid in error if it wasn't defined in the contract. These IR35 changes were really poorly written with only the happy path in mind.

by d4rti 4y ago

988747 4y ago

If you are contractor then you are a business owner, and you should bear responsibility for your own taxes. The upside of this liability shift is that your customers will be more willing to negotiate with you. Right now some of them are assuming very defensive positions, like treating all contractors as being inside IRS35, because claiming that you're outside is a risk for them.

danparsonson 4y ago

That was ever the case in the past though, and previously dealt with by means of a well written contract and appropriate working arrangements. The alternative (status determination by client/'employer') meant an instant ~15% pay cut for anyone unable to negotiate a rate increase to cover the additonal tax burden.

jsty 4y ago

> The end client should be the one to determine status and shoulder the responsibility if it turns out to be incorrect. I'd say the opposite, the incentives / risk structure are otherwise completely misaligned. If the end client says you're outside IR35 and you should be in, they get whacked for income tax + 2x national insurance (employer and employee contributions). If they say you're inside and you should be outside they only have to pay the employer NI contributions. That's a recipe for blanket "inside IR35" decisions, which is exactly what happened to the detriment of many genuinely independent contractors.

gpderetta 4y ago
It would have made sense that if 'employee for tax purpose' also meant 'employee for employment law purpose', so that the declaring someone inside IR35 would have significant consequences for the employer as well.
- Silhouette 4y ago
  Double standards are a big part of the problems in this area for sure. Another obvious example from recent times was the COVID support schemes. If you were an owner-operated business that paid out through the usual salary+dividend combination then you would have got far less if you needed to use something like the furlough scheme than if you'd been paying everything out as salary or registered as self-employed. IMHO that's fair enough in itself - if you claim to be operating like a business and treating your income as business profits rather than salary normally then you don't magically get to change your mind to claim a different support scheme. But it's pretty hypocritical for the government/HMRC to then come along the next day and try to interpret the income of that business as if it were all salary and tax it as such to their benefit.

varispeed 4y ago

There is a whole host of unintended consequences with that, that negatively affect the market. It gives the larger entity in b2b relationship an effective say how the smaller partner is being taxed. This gives them literally an instrument to wipe their competition. For instance, a big haulage company can't find drivers to do a certain route, but there is a small company in the area happy to subcontract. Big company can now say, alright guys, I can only give you the contract in-scope of IR35. If every big company in the area does that (and they do), then suddenly that small business can no longer operate. Company folds and its workers can either seek employment in the big company or do something else.

Silhouette 4y ago

This shouldn't be a win for genuine contractors but it very obviously is. Since the reforms that are being wound back were introduced there has been a huge chilling effect on the flexible labour market here because a huge proportion of larger clients are highly risk-averse and push all contractors into IR35/umbrella arrangements as a blanket policy. Of course they aren't supposed to do that and they are supposed to assess each contract individually and there are supposed to be appeals processes if the IR35 status is then determined incorrectly. However we live in the real world and what is "supposed to" happen means very little. The market for contractors today is a fraction of the size it used to be before the new rules came in. Typical rates in many parts of the market actually fell since the changes when logically several factors should have been pushing them up if the market was functioning properly. No doubt some part of that was getting rid of disguised employees because those people do exist. However the effect has been far too widespread and affected far too many genuinely independent workers and their clients as well.

varispeed 4y ago
> Of course they aren't supposed to do that and they are supposed to assess each contract individually and there are supposed to be appeals processes if the IR35 status is then determined incorrectly. That part was completely botched. The HMRC themselves admitted that role based assessments are permitted. Also they have deceived the public what assessment actually means. If the client writes the contract in a way that puts service provider in-scope (to minimise the risk), then there is not much that can be done. The appeal is basically requesting the client to change the contract, which for obvious reasons they won't do, because that would put them at risk. So the client can always walk away when you appeal. From the IR35 perspective, the individual situation of the contractor does not matter.
Nextgrid 4y ago
I wonder whether the net tax revenue even from "disguised employees" (both the taxes they pay directly such as Corp & Dividend tax, as well as indirect taxes such as those they pay when they actually spend their gains) was still more in volume thanks to a healthy, flexible contracting & IT market rather than the sad & deserted wasteland we have now. Tax avoidance is a problem but maybe it's better to skim off a little bit from many people than take a lot from a very few people while scaring the rest away?

petesergeant 4y ago

Many eons ago, when I was a contractor in the UK, insuring against IR35 risk was much, much less expensive than being inside IR35.

Nextgrid 4y ago
At least one IR35 insurance policy I've reviewed essentially gave the insurer a way out from litigating the case "if they didn't believe they'd prevail". If the same party that stands to lose money if they get involved is the one deciding whether to get involved or not, surely that's a conflict of interest and makes the policy pointless? Sure, I guess you could litigate against the insurer (and still litigate against HMRC), but the whole point of this insurance is to protect against legal costs - if you're going to spend money anyway, what's the point of insurance?
- petesergeant 4y ago
  The insurance I had wasn’t just litigation, it also covered paying the penalties and tax.

gadders 4y ago

But the end client won't do this and will just blanket put everyone inside IR35, as happens now. This is absolutely a win for the contractor.

trhoad 4y ago

There is no risk if you're genuinely running a small business. If you're a permalancer, coining a freelance rate whilst paying very little tax (no PAYE), then you _should_ be caught out. You _should_ have the liability.

darkr 4y ago
You're still liable for corporation & dividend tax. Though the rates are favourable towards the independent contractor, there isn't a huge amount of difference between a perm. employee these days; when you factor in the additional risk taken on by the independent contractor, it's difficult to say either way which one has the better deal.
Nextgrid 4y ago
The problem is that the rules are ambiguous and in some industries (such as software development) it is not possible to effectively separate employees from contractors which means that even legitimate contracting activity can look like disguised employment. If you operate a business that provides software development services and want to help a client with their existing software project (who already has full-time employees working on it) you will often need to become embedded within their team which includes participating in regular meetings (including daily standups) and do "employee-ish" things that look risky from an IR35 point of view. Just speccing out a clear scope of work in advance is very difficult as sometimes the scope will vary over time as edge-cases are discovered during development, so the SOW will end up very broad and may look employee-ish. Your best bet is to have mitigating factors such as working for multiple clients, using your own equipment, etc and possibly contract length (I am not sure if it counts, IMO it definitely should) but none of those are bulletproof either. Contributing to an existing codebase in parallel with a client's in-house development team is risky from an IR35 point of view even if you are doing so in good faith and want to operate a business rather than just be a "permalancer". That's also why with the new rules (that are now being repealed), a lot of companies did a blanket determination of putting everyone "Inside" IR35 because the rules are not only unclear to begin with, but even more difficult to correctly interpret and apply in certain industries.
- 4y ago

varispeed 4y ago

Liability ultimately was always with contractors, just now when HMRC claims the assessment was wrong and the client gets fined, they pay, but they can claw the money back from the contractor. Usually it is in the contract terms. The PAYE that becomes due is contractor's personal tax and the client could likely use unjust enrichment - the contractor was paid in error if it wasn't defined in the contract. These IR35 changes were really poorly written with only the happy path in mind.