Categorized | alan's blog, ir35 rules

So what about Son of IR35?

So what about Son of IR35?

Now the excitement of the promise actually to consider IR35 for a serious reappraisal has died down a little, I’ve been giving some thought to what that might actually mean. What can we expect Son-of-IR35 to look like?

For one thing, I think there will still be something there that looks like IR35. Let us not forget that the original justification was to prevent the Friday-to-Monday syndrome, where a worker would switch from permanent employment to freelance contract doing exactly the same job. Either the worker did this to take advantage of the tax breaks available to a Ltd Co owner or, more often than people would admit, it was the employer divesting himself of assorted legal obligations, not to mention having to pay Employers NICs.

Of course IR35 stops this, by making the cost benefit of doing this unattractive. Snag is, it also gets in the way of the worker who genuinely wants to go freelance. So my suggestion is that IR35 (or whatever the new version is called) should only apply where the freelance’s client is the same as the immediately previous employer for a period of one year.

However, if we assume that some form of IR35 is still out there post review, the best we can hope for is that there are clear rules about when it applies. Most contractors are angrier about the lack of clarity and resultant uncertainty than about paying the taxes, after all. This is here the original “in business” test comes in – you know, the one that Red Dawn prattled on about while simultaneously refusing to accept that any freelance could possibly be in business on their own account.

But how do you demonstrate you’re in business? That’s the question…

One option is if you are VAT registered. There’s no way you can do that as an employee; even if you did, there would be precisely zero things you could legally claim the VAT back from anyway. You could add in the existence of Your Co to make the test a bit firmer, although that might impact the Schedule D Self-Employed workers. Although the Schedule D self-employed worker can’t really be hit by IR35 since there isn’t an intermediary company in the chain anyway.

Another option is to waive your rights to things like employee benefits, JSA, maternity or paternity leave and the rest of the panoply of employee benefits. The logic is that since you are not paying employee-level taxes, why should you expect to get employee-like benefits?

You could be a bit more imaginative and scrap S44-47 ITEPA 2003 (which replaced S134c) which is the one that makes the intermediary liable for unpaid taxes and is why agencies won’t deal with unincorporated (or non-umbrella) contractors in the first place. Which – whisper it quietly – is why we then got IR35…

Or, of course, you simply delete IR35 altogether – with the sole exception I mentioned above to stop the Friday-to-Monday trick. If there’s no law, there can be no uncertainty. Freelances can choose to work through an entirely legal UK Limited Company and operate it just like every other one. A bit like I do right now.

Or is that too simple…?

Anyway, end of contract today so I’m off for two weeks in the sun. Since I refuse point blank to take my laptop on to the beach – and she who must be obeyed would flay me alive if I tried – the next blog will probably be on June 25th. Let’s hope there’ll be something to write about!

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