Is IR35 Going The Same Way As The Boston Tea Party?
No taxation without representation ...
Taxation without representation was one of the key elements of the American War of Independence in the 1700s. America was being taxed by Britain, but it had no electoral say ...
The Boston Tea Party was caused by a lack of representation. Is IR35 going the same way?
copyright: igorgolovniov / 123rf stock photo (licensee)
Nobody in America could vote, or otherwise influence things, and we are getting to a similar point with regard to HMRC's rules on IR35 here in the UK. Or, to use its more official, but boring, title: 'Off-Payroll Working in the Public Sector'.
The issue with HMRC's rules is that, if you are caught out by them, you have all of the taxation of being an employee, that is you are taxed as if you were an employee and both income tax and national insurance are deducted on payments to your business.
But you have none of the protections and nice bits of being an employee. In fact, HMRC's rules explicitly state that you have none of the protections of being an employee, no holiday pay, no sick pay, no employee rights at all.
"To my mind this is just
If HMRC is going to demand that you are treated as an employee for taxation purposes, then you should also be an employee for the protections it brings. You should not just have the nasty bit (the taxation) and not the nice bits of the holiday pay, etc.
However, it gets worse than that. It is normal that anyone who is caught by the Off-Payroll Working rules is actually running a small limited company. So they need to deal with VAT, bookkeeping, pensions, annual accounts, carry indemnity insurance, etc.
All of which incur hassle and costs that the Off-Payroll Working rules ignore ... and the practical impact of this is that the company has no money from which to pay these costs.
Why am I talking about this now, six months after the rules changed in April 2017? Well, it is about now that the rules are starting to bite and people up and down the UK are beginning to see what is going on.
Here are my top 4 tips, if you are caught by the Off-Payroll Working rules:
If you are in extremis over this consider changing contracts! In fact, early indications are that a significant number of subcontractors did just that and left the public sector.
The first thing you should do to check your situation is to ask for a copy of the detailed decision pertaining to your individual circumstances. Your end client, the public sector department you work for, must have carried out a review and come to a decision about the individual status of your business and what you do for them. They might have got this wrong! So find out what they said ... and challenge it if necessary.
If you are caught by the rules, but don't want to change contracts, then is your limited company needed anymore? Well, actually yes! Just because you are being paid as if you were an employee doesn't make you an employee. Changing to be an ordinary employee might not be available or available on the same terms.
The cashflow impact of the new rules can be dramatic and you end up taking home far less money. All of which makes contract negotiations more important and you should consider asking for considerably more money to make up for the shortfall.
If you would like to find out more about how the Off-Payroll Working rules and IR35 affects you and what you can do about it, do call me on 0333 335 0422 or click here to ping me an email and let's see how I can help you.
Until next time ...
I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.
My eclectic interests in growing and developing business span a number of areas … and can be summarised as strategic business advice and tax saving advice.
I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.
I relax by reading fiction and by getting away from the office in a campervan.