Tag Archive | "Dawn Primarola"

IR35 – a fudge of the highest order


It is interesting to note that before an MP takes his or her seat in the House they are required, by a law dating back to 1562, to swear or affirm an oath of allegiance to the Crown. Perhaps surprisingly they do not make any promises to behave but rely on a long tradition of honest and open behaviour instead. Which is perhaps a good thing; MPS are, after all, honourable people…

Our friends in the PCG have been asking questions of HMG again, digging even further into the financial history of IR35. And they now have a breakdown of the cases and income arising for the whole life of the law to date. And it makes for fascinating reading (OK, fascinating if you’re a detail freak like me, I admit).

Nevertheless, the total number of cases to date is 4208. The total income from IR35 is precisely £12,126,572.00. And that means that the average tax gained per case is £2,881.79p. Be still my beating heart, Gordon must be so proud.

This, you may recall, from a tax measure that was intended to bring in around £900m. A year. Every year. So not exactly a resounding success then. And we don’t yet know the cost of collecting that twelve million, but with the average case costing the defending side about ten thousand, we could make a worst case stab at around five thousand for HMRC’s side. This means, even if vaguely accurate, they spent twenty one million to gain that twelve million. Hmm… Not looking good, is it?

The distribution of the cases over the years is also interesting. Sixteen cases the first year, a couple of hundred the next. It peaks in 2004 and then drops away remarkably quickly so that in the last two years there have been just thirty five. That distribution coincides rather neatly with the time that PCG got its act together and started to get the message out that IR35 is largely a voluntary tax, if you know what you’re doing.

Ah yes, “voluntary”. What we don’t know is how many people are paying up under IR35 or working through umbrellas to avoid it, which amounts to the same thing. There must be quite a few, there are lots of people using umbrellas. So we have an unknown amount of taxes being paid for no reason at all other than fear, or at least uncertainty, over how a law of the land actually works.

So what was my first paragraph all about, I hear you ask.

We’ve been asking for the numbers for a long time. Since around 2003, in fact, when we first started to think things weren’t going well for HMRC. And answer came there none. Well, not strictly true, that well known failed tax evader, Ms Primarolo, replied to a written question in 2004 (when there were exactly 771 cases and precisely £1,973,851 in IR35 taxes paid) that it was not possible with any accuracy to isolate data relating solely to this legislation. Furthermore, a year or so later, Kitty Ussher said in response to the same question, “Disclosure of HM Revenue and Customs’ compliance data relating to the legislation would result in a risk of non- compliance with the legislation. Accordingly I am not able to provide the data requested”. Don’t know about you but I see that as a fudge of the highest order.

But, as we have seen, the numbers have been there all along. Perhaps the honourable ladies were so embarrassed by the total disaster they were defending that they chose to evade the question. Dim Prawn is still in Government, and is reduced to only being able to threaten MPs as a Deputy Whip. Ms Ussher was forced to resign over being caught evading – sorry, didn’t mean that, I meant avoiding – paying quite a lot of taxes on the sale of her house.

As I said, honourable members both.

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: IR35 Tax Yield by some dude who wants to be famous

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AWR – everyone ready for the end of the world?


It’s happening on Saturday and no, I don’t mean Scotland beating England by eight points. Although that would be fun for us Welsh…

No, Saturday is the day the eagerly anticipated Agency Workers Regulations come into force. And for such a significant event – and not just significant in our little world of contracting but in its potential impact on the UK economy and businesses – it all seems remarkably low key. And I find that both surprising and just a shade encouraging.

Of course it could be because everyone understands the new world and have prepared accordingly. Well not us Limited Company contractors of course, since we are out of scope so don’t have to do anything. This didn’t stop one poor soul asking questions about how he could persuade his agency that he was actually in scope. God knows why he thought that might be a good idea. Of course, he may simply be winding us all up – very occasionally that seems to happen on the internet, you know – and for his sake I hope that’s the case.

And, needless to say, there have been questions about does it really, really apply because of the ominous “genuinely in business” caveat the BIS or DBERR or whoever they are decided to add in for the fun of it. To which the answer is who knows, until it goes to court. Which I suspect it won’t, but you never know.

That reminds me of one of the better ideas I heard over the weekend. A group of us were pondering the work of the OTS (remember them? They’re still going you know) and how they could better focus their efforts. OK, so perhaps some of us should get out more, or perhaps drink less, but we found it worthy of discussion. The suggestion was made that the OTS could very usefully start with the various tax laws that have required a court case or two in order to figure out just what the hell the real rules are. Still, I digress…

So clearly the umbrellas and the agencies are well prepared, to the extent that I’ve heard of one agency that was trying to get its contractors to move to the right vehicle – PAYE through an agency, umbrella or limited Company – depending on their rates. Which is slightly deranged in one way but you can see the logic of it. So well done all.

But it does beg an interesting question. Why?

I mean, why is everyone so well prepared? Previous changes of similar magnitude – stopping MSCs, killing off some of the more imaginative offshore schemes, the Arctic Systems case, even IR35 itself – sort of burst upon a world that wasn’t really ready for them. That doesn’t seem to happen any more.

And that’s down to the wonderful Law of Unintended Consequences. In 1999, when the well-known failed tax-evader Ms Primarola introduced IR35, the aim was to punish us uppity freelancers by smacking us in the pocket. After all, given the recently released Freedom of Information answer that showed how pitifully ineffective IR35 has been financially, it clearly wasn’t done for the money. Or very well, come to that. But what it did do was galvanise a bunch of us uppity freelancers to fight back. And now, ten years on, HMG is not only listening to what we say, they are asking us what we think before they do it. Doesn’t mean they have the brains to listen, mind – else why do we have the AWR in its current foggy form – but at least we get the chance to publicise and explain things well ahead of their implementation. Which has to be a good thing.

So hopefully the AWR will do what it’s meant to do and protect the vulnerable and leave those who don’t need that level of care well alone. And we won’t get any more nasty surprises.

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Family Circus Redemption Project #31 by cutup

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So when is a business not a business?


That is a question that’s been exercising me and a few like-minded souls over the last week. And this existential philosophising has been prompted by the planned creation of the IR35 Forum, which aims to establish who is liable for consideration as IR35 fodder and who isn’t. So first a quick history lesson may be in order.

The idea of IR35 as a way to recover NICs avoided by use of dividends has been around for quite a while. It was certainly floated to the Thatcher/Major governements and was firmly rebuffed as being both ineffective and unnecessary. Still, treasury officials are nothing if not doggedly persistent (or doggedly bloody-minded, if you prefer) and it came up again when we switched to New Labour. And found an ally in the Paymaster General, the fragrant Miss Primarola.

However, Primarola – herself, let it be remembered, a failed tax evader (which takes a degree of ineptitude all by itself, having had a tax bill she didn’t agree with paid for by a supporter with perhaps more money than sense) – was adamant that IR35 was only aimed at people cheating the system,. Those “genuinely in business” need have nothing to fear.

Yeah, right…

So wind on ten years and we have a new government and IR35 cases are still being prosecuted almost at random; a recent case is against someone who has been providing services to multiple concurrent clients for several years. Like I said, the usual dogged persistence by HMRC. Or something canine anyway (or should that be lupine…?)

Anyway, now it turns out that we get to keep IR35 because it will stop people leaping from employment to freelance doing the same job to avoid paying the taxes they now owe since their offshore EBT money boxes have been slammed shut. This is almost as skinny an excuse as the original Dim Prawn explanation, but we can live with it, as long as IR35 is only aimed at these cowboy Friday-to-Monday converts and not us real businesses.

Osborne took the key OTS suggestion and has determined that the administration of IR35 needs to be vastly improved. Setting up the IR35 Forum for that very purpose is happening now. It is something of a shame that he didn’t take the extra step and set up something vastly to improve the administration of HMRC itself, but let’s be grateful for small mercies

So the IR35 Forum’s most knotty problem will be working out the common factors between Mr Patel at the corner shop, the guy with a successful SME business, the average jobbing contractor and the traditional self-employed and separating them from someone who genuinely has incorporated just to save paying some taxes. Perhaps they should look for the crossed fingers?

It ought to be as simple as saying your client today isn’t the same as your employer two days ago, you’re VAT registered and have a company bank account, but the more you look into it the harder it gets. This is one debate that I suspect is going to run and run. And one that whatever the outcome. A lot of people aren’t going to be happy with it.

If only we could wave a magic wand, bin IR35 and start from a clean sheet of paper. If only…

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited<

Image: magnifying glass by Tall Chris

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“The hardest thing in the world…


… to understand is the income tax”. So said no less a person than Albert Einstein. Meanwhile the Coalition, in the shape of Treasury Minister Danny Alexander, have been talking about ways to increase the amount of tax flowing into the Government’s coffers.

I think most thinking people agree we need to close the gap between UK income and UK expenditure and you can only go so far in cutting down what you spend. Unless you’re a bank of course, but that’s another subject.

The only snag is, Mr Alexander was using the same old rhetoric we were really tired of hearing from the last lot: His speech was littered with references to “avoidance and evasion”. He also went on a little bit too much about “fairness” – and we all know what that means! OK he was talking at the Lib Dem conference so we might forgive a degree of tub-thumping overstatement, but his words carry a hint of his true intent.

Personally I find this very worrying. Firstly there is a very clear difference between avoidance and evasion: one is legal and one isn’t. If you want to stop avoidance, the answer is very simple; you cancel that concession or you pass a law saying that you can’t do things that way. If, for example, it is avoidance to take advantage of the tax free allowance we all get – which it is, of course – then you cancel the tax free allowance. How hard is that?

Of course there is the slight problem that an already complicated tax regime, after years of Brown-induced fiddling, is now so labyrinthine that nobody really knows what taxes they owe. Including HMRC themselves, if the various stories of under- and over-payments and the odd billion pounds of uncollected taxes are to be believed.

Secondly, if someone can define “fairness” when applied to taxation, then I would be very surprised. Danny boy’s concept – like a certain Miss Primarola’s – is basically to ensure everyone whose gross income is £50,000 pays £10,000 in taxes. Simple enough idea, but is it fair? I don’t think so. A freelancer’s gross has to cover a host of things that an employee’s doesn’t. A company owner’s gross has to cover off building the business and quite possibly tying money up for years to do so. Fairness is a good word, but it’s not one that you can apply to taxation.

You can of course arrange things so that while you may pay differing amounts against your £50,000 you at least know in advance how much it is going to be and why. What we need is someone to look long and hard at simplifying the tax system. An Office of Tax Simplification, if you like. Oh, hang on a minute…

Nevertheless, HMG need all the income they can find, and even an old cynic like me can see that if you live in the UK, work in the UK and get paid in the UK, you should be paying taxes at UK levels. Are you listening Mr Green? Just because your company pays lots of taxes against its profits doesn’t exempt you from paying taxes on the money you take out if it for your own use. Sorry, for your wife’s use.

Still, getting back to the point, HMG doesn’t need to tackle evasion, it’s already illegal. All they need to do is apply the law consistently. If they want to tackle avoidance, all they have to do is define what it is and which practices they consider to be unacceptable. The various avoidance schemes that are their real target all exist by virtue of ambiguity in the wording of the tax laws. It’s down to HMG to remove that ambiguity so those schemes become unworkable or unprofitable..

That, to my mind, is what the fairness argument should be about.

Alan Watts can found at LinkedIn.
© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Scattered puzzle pieces next to solved fragment by Horia Varlan

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