Idiot, idiot, stupidity

An extra £400m could be raised in tax under a plan by ministers to crack down on a loophole exploited by as many as 100,000 people. Ministers are understood to be examining whether to severely tighten the rules of personal service companies before George Osborne’s autumn statement on 25 November.

Well, maybe, why not in fact?

We could always hope that it applies to LLPs that get annual grants, can’t we?

The government acknowledges that a small number of professionals will still legitimately use personal service companies. Some IT workers might work for a company for a short period or they might work for multiple companies at the same time. In that case they would not be seen as an employee. Builders doing one job on a private house would be exempt.

But there are understood to be examples of professionals such as lawyers working for one company for a short period of two months. Ministers believe that in these circumstances they should be counted as employees and should pay income tax.

Two sodding months is now the definition of an employee?

Idiots.

35 thoughts on “Idiot, idiot, stupidity”

  1. I’d have thought you’d be all in favour of this Tim.

    You’re on record as saying that investment income should be taxed at a lower rate than labour income (can’t remember the reason, but that was the outcome). If you’re a lawyer or IT consultant billing your services at £100s or £1000s per day, then taking a dividend and not paying National Insurance, you’re not paying the full whack due under your logic.

  2. Paying or not paying NI is an irrelevance. Because you get different benefits dependent upon which NI you pay.

  3. Like under IR35 I’ll bet PSC contractors will be only counted as employees for tax purposes.

    Never could understand how the same test used to determine employment status for tax purposes and employee benefits can give two different results.

    They will get all the disadvantages of employment, plus extra employer’s NI due (less a tiny allolwance), with none of the benefits. Never mind stinking rich these contractors.

  4. For three months last year, I was working more or less full time on one project. However, despite billing through the same agency, I was working separately (and being paid separately) by the prime (2 days per week) and their main subcontractor (between one and three days per week.)

    I wonder how they would work that one out.

  5. I have never understood how a builder can work for one client for months, even years and still be considered self employed. I know they are using their own tools etc, but the amount of capital tied up in tools would be less than a high end laptop for an IT consultant. Yet one can only work for one customer for a few weeks, the other can work in one place for years.

    What gives?

  6. @JimLooking at it from a non-tax point of view, the builder isn’t “working for the client”. He’s deploying his abilities & equipment to produce a product. the result of the building work. You might as well say the bloke in the factory making your car is “employed by you”.
    it’s really just a place of work distinction

  7. “I have never understood how a builder can work for one client for months, even years and still be considered self employed.”

    Why not? It’s a contract / project for A to deliver something to B. If the builder (A) worked for a large company, it is obvious then that A is not the employee of the householder (B). The size of the company that A works for (one man band versus mega corp) is irrelevant – it is the “relationship” between A and B that matters.

    And it doesn’t matter how long it takes. For example, if a large firm contracts to build something for a client, and it might take several years, no one would seriously consider that that large firm is akin to an employee of the client.

    A government source said: “This is about fairness in the tax system. It is just not fair to have people in the same company doing the same jobs paying different levels of tax.”

    They are not doing the same job – or it’s likely that the working relationship would be the same, and in which case IR35 would already apply – that’s the point.

    But there are understood to be examples of professionals such as lawyers working for one company for a short period of two months. Ministers believe that in these circumstances they should be counted as employees and should pay income tax.

    Unless these are secondments of some sort, then they are simply delivering a project, whilst working for either their own company or some large law firm. No sane person would consider a partner of a law firm to be an employee of the firm’s client.

    Unless the Guardian is talking its usual bollocks, these ministers really are extraordinarily stupid…

    Ministers have yet to make a final decision on whether to introduce the change. They will want to see how businesses respond to the proposal at next week’s annual conference of the CBI.

    This has got to be joke, right? Do they really not have any idea how “business” is likely to respond to this..:) Steve, give us a jpeg!

  8. “Why not? It’s a contract / project for A to deliver something to B.”

    So why is an IT specialist who is contracted to deliver A (a software update/system build/whatever) to B not able to work for the same client for years then? Is it because you can’t stub your toe on a website, or a database?

  9. Unless the Guardian is talking its usual bollocks, these ministers really are extraordinarily stupid…

    It’s certainly possible that the Guardian is talking bollocks, and the ministers are extraordinarly stupid.

  10. Jim

    Actually, they can. Lawyers and accountants (obviously) do lots of “repeat” type work (or different projects) for clients, and I personally know IT people that also do that and who are very clearly not employees of their clients.

    It’s about the “working relationship”, not the length of contract, nor the number of contracts, although those two (eg long contract / one client) may often in reality lead towards a “working relationship” that as more akin to an employee. But not necessarily.

  11. @Jim
    Again, froma no-tax point of view:
    A builder is, in no way, integrated with what the commissioner does for a living. If the client’s a lawyer, the builder isn’t subbing his law work for him.
    If you’re an IT contractor, you’re interfacing with the commissioner’s IT systems. The commissioner could directly employ someone to do the same work.
    Going back to the building example; If the work was full time, exclusive, as required, maintenance on the law offices, then the builder’s probably an employee. He’s part of the law business.

  12. @PF: Thats all fair enough. But have you ever heard of a builder who was told he was an employee? They seem to get a free pass to work exactly as they like and HMRC don’t seem to bother them at all the way they are on anyone who work for a client in an office. To be honest, the same goes for self employed contractors in the farming industry – a huge number would (IMO) should be PAYE employees, yet HMRC never seems to bother them. To my eye it seems if you work in an office you have HMRC on your back, if you work outdoors they ignore you.

  13. Jim

    “But have you ever heard of a builder who was told he was an employee?”

    Yes. And exactly the example BniS just gave. He does repair work on a number of a company’s buildings – PAYE and all that. They want him to be, he wants to be (an employee). He has a guaranteed weekly wage; they keep him busy, when and where they want, even if he is quite proactive himself.

    BniS

    The integration by itself (IT systems) wouldn’t necessarily matter? For example, outsourcing IT (or just elements of IT) doesn’t make the IT outsourcer an employee. ie, the fact that you “could” employ someone doesn’t affect the relationship (B2B vs employee) with the supplier you have in fact contracted to deliver something.

  14. What might be quite amusing about this, if they do try something like this, is the example they have given – “lawyers working for one company for a short period of two months”.

    If that came to any serious fisticuffs, the sensible money would have to be on the legal profession..:) Calling Julia…

  15. Here we go again. The courts have struggled for years with this one. Slowly, over the years, a framework of tests is drawn up. Not perfect but it works. For some people the safety of employment is preferred, for others the flexibility of self-employment.

    Now along comes some government meddler who sees ‘lots of tax’ just waiting to be collected and all he needs to do is write a few rules with his big thick easy to hold crayon and the cash will just roll in.

    Just like it did with IR35.

    Twats

  16. “these ministers really are extraordinarily stupid…”

    It has been known. They’re at least surprisingly ignorant about heir own brief. Pension ministers never seem to understand how pensions work, specifically the refunding of tax paid to gross up a payment into a private pension that was originally made net of tax is “a subsidy by the taxpayer” that “costs” the Treasury money. In a way, it’s not surprising about any tax issue, including this one and pensions, because Ministers, like MPs, are not subject to those rules themselves. They really do have quite a nice time now and when they retire, entirely at the taxpayer’s expense, and ring-fence (or even increase) wasteful budgets like DfID, but somehow it’s always someone else’s fault there isn’t enough money.

  17. What about the sort of staff hired (via their own companies) for short duration stuff such as cover for maternity leave? Are they to be treated as employees, even though they have a contract for only a few months?

  18. Bloke in North Dorset

    “It’s certainly possible that the Guardian is talking bollocks, and the ministers are extraordinarly stupid.”

    Until demonstrated otherwise that should always be the default assumption for any given story.

  19. IR35 never made any money and is unworkable. It needs to be scrapped. Contractors take more risk, and deserve more money as a result.If an “employee test” says pay more NI and tax, then the client must also pay up other employee benefits. Can’t have one without the other. This is simply yet another classic ministerial cockup demonstrating how little they understand the UK economy and how freelancers and small companies operate and CONTRIBUTE to the economy.

  20. DoTW – correct. And with the extra tax on dividends comign from Paril, the supposed potential gain from IR35 will be even less – and that would be assuming the courts stopped their odd habit of judging a contract by what is actually written in it, rather than whatever is in HMRC’s imagination.

  21. As a former contractor myself I always found it ridiculous that I have to have a “grown up” I.e. employer, do my tax. Why shouldn’t a citizen be responsible for his own tax affairs? Why do I have to go through the whole rigmarole of forming a limited company simply to sell my labour under terms agreeable to me?

  22. @Roue le Jour

    You don’t: you can be a self-employed sole trader under Schedule D. There are advantages of the limited company, including: limited liability, company tax assessed and paid after the end of the tax year (schedule D by contrast has a payment in advance), and your income as dividends (after company tax).

    The use of an intermediate limited company is, however, often forced on contractors by UK companies that contract for service.

  23. @Roue

    “you have to have a ltd company to take a contract”

    That seems to be a choice imposed by the company or organisation contracting the service, not something fundamental in law. I assume it gives them more insulation against a claim that you’re actually an employee. Even so, I’ve had many contracts for service, even with UK companies, as a self-employed consultant taxed under schedule D, without having a limited company.

  24. Oh FFS – contracting through a service company avoids NI, not income tax (and, of course, income tax delayed by holding corporation taxed profits within the company is eventually paid when the service company owner extracts those profits through dividends). If the NI and income tax regimes were melded, this whole (tax) issue would go away (together with a whole raft of civil servants)

  25. CHF, I’m pretty sure the revenue won’t let you work for a year at a client’s site, under their direction, without being classed as their employee.

    Umbongo, quite. Three income taxes is two too many. Also, a company requires an accountant, so there goes any saving you might have made on ni.

  26. What the hell are they going to do about consultants? If I work for the client for more than 2 months, I automatically become their employee — when I’m already a full-time PAYE employee of my consultancy?

    Obviously, that won’t happen, which just goes to show there’s no actual principle involved here.

    Umbongo,

    > If the NI and income tax regimes were melded, this whole (tax) issue would go away (together with a whole raft of civil servants)

    Yes, but it’ll never happen, as our lords & masters would then have to report the real headline income tax figure.

  27. @ Roue le Jour
    What CHF said. I’ve been working on contract for over twenty years, with periods when all my contracts were for one company (different ones at different times). There was one contract for three months (with accommodation provided in a communist tower block). Another period I was simultaneously working part-time as an employee for one of my clients and working as a self-employed sub-contractor for them.
    You seem to have been subjected to the public sector prejudice against the self-employed.

  28. I should say I was a contractor during the 80’s which was a long time ago, (although it seems like only yesterday…)

  29. Lots of people trying to make sense of the situation. Unfortunately, any attempt to do so is doomed to fail because taxation is ultimately arbitrary. Witness the pasty tax.

    The true absurdist nature of the taxation system is only shielded from view by a thin veneer of officialdom and legalese.

    The Govt. wants your money; they find ways of getting it.

    If you want to pay less tax, you need to vote for your interests, rather than for any of the established parties. The Conservative party is almost indistinguishable from New Labour (and that turned out well?).

    Actually, that’s not true. If this report is true then the Conservative party is distinguishable from New Labour in that it is more hostile to the middle classes (if that were possible).

    Being part of the EU is not conducive to the option of having a low taxation environment either.

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