IR35 and the Law of Unintended Consequences (Blog)

[UKFF Mod]

Have you ever wondered why there has been such a huge rise in the number of people using tax avoidance schemes in recent years? Well, a lot of this is directly attributable to the introduction of IR35 back in 2001.

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If you have any comments to make about this blog post feel free to start the debate below!

[ShortStraw]

It is interesting when you begin to wonder when tax avoidance ends and tax evasion begins.

Does anyone know an exact definition of the difference? I doubt it and that's part of the problem.

[Bel]

Originally Posted by ShortStraw

It is interesting when you begin to wonder when tax avoidance ends and tax evasion begins.

Does anyone know an exact definition of the difference? I doubt it and that's part of the problem.

A good lawyer, some might jest. One of Gene Hackman's lines in the film 'The Firm'

Tax avoidance: are exploitable loopholes that lawyers can successfully defend; or tax savings schemes, e.g. ISAs. It's apparent that the government need to approve schemes too or feel unable or unwilling to tackle them. When they change their policy, you will be clobbered.

Tax evasion: deliberate and illegal actions that disguise what would otherwise be taxable income e.g, money laundering, not declaring income. Or careless actions, resulting an clear lack of duty of care, that result in a failure to declare taxable income to the authorities. E.g, not keeping proper accounts, therefore you shouldn't run a business.

Mistakes, resulting in an underpayment of tax, don't fit into either category - but penalties and interest will still be charged, if it's your fault.

[Greasy Chip Butty]

That's the textbook definition, but I'm sure the real world is less black and white....

[Bel]

Originally Posted by Greasy Chip Butty

That's the textbook definition, but I'm sure the real world is less black and white....

That's why I said 'a good lawyer.'

[dodgy_Dave]

FYI - nowadays as agents, we are often torn between the contractor taking home a decent return and the MSC legislation. If they work through an Umbrella, whilst it may be the "safe" thing to do, they receive less money and probably give you (the agent) grief on a Friday. If only I had a pound every time a contractor asked me why they were paying Employer's National Insurance!

If a contractor opts for an alternative solution to either PAYE or an Umbrella Company, they may well take home much more = less grief on a Friday but we (the agents) in contrast spend much more time with the in-house compliance team making sure they're not working through an MSC - you literally can't win...

Call me silly, but I went into recruitment to place candidates, not mess around with this bullsh1t!

[Malvolio]

Call me silly, but I went into recruitment to place candidates, not mess around with this bullsh1t!

Then don't.

Issue purchase orders with a list of deliverables, a time frame, a total price for the work and a payment schedule. End of.

It's the agencies got us into this compliacated mess by selling temporary employees and then trying to work out how to stop them being temporary employees legally. If you were selling small businesses offering specific skills for given parcels of work, you wouldn't have any of the problems. After all, how many IR35-friendly clauses are their in your contract with the courier company or the guy who services your photocopier?

Snag is, none of you are brave enough to try it.

[dodgy_Dave]

Originally Posted by Malvolio

Then don't.

Issue purchase orders with a list of deliverables, a time frame, a total price for the work and a payment schedule. End of.

It's the agencies got us into this compliacated mess by selling temporary employees and then trying to work out how to stop them being temporary employees legally. If you were selling small businesses offering specific skills for given parcels of work, you wouldn't have any of the problems. After all, how many IR35-friendly clauses are their in your contract with the courier company or the guy who services your photocopier?

Snag is, none of you are brave enough to try it.

Don't shoot the messenger Malvolio! I'm an agent, pure and simple. The powers that be are the ones you should be talking to. All i'm saying is that working in recruitment isn't what it used to be. Nowadays, instead of placing a candidate, I spend most of my time worrying about legislation and red tape. It's soooo hard keeping abreast with all this stuff and frankly i'm kind of bored with it.

[Bel]

Originally Posted by dodgy_Dave

The powers that be are the ones you should be talking to.

I agree that the genesis of the problem comes from hirers, not recruiters, but recruiters certainly don't help, owing to ignorance or plain dishonesty. But nor do some contractors help themselves as much as they could, Mainly, I believe, it's because they've been led a wild goose chase by poor communication resulting in inconsistent messages on IR35. The government aren't entirely to blame for this (except for introducing IR35 in the first place and not making the rules clear enough).

[I tackle all of this stuff in my guidebook].

[Malvolio]

The rule about IR35 is absolutely clear cut: if you are in business on your own account, it cannot apply. Dawn said so.

The problem is proving you are IBOYA. Starting with a contract that is a variation of a basic contract of employment is probably not a good idea. Dealing though Human Remains and all that implies is also not a good idea. Sadly, since both clients and agencies isnsist on usng both, rather than procurement and simple B2B contracts for set deliverables, we have the problems we do. What I want is a contract for the supply of services. What I get is a contract for service with some blurry amendments that probably don't align to what the agent has sold the client.

As a result, the only real answer is to kill off IR35 and start again, possibly based around the criteria that will emerge from the AWD debate.

May we live in interestting times...