Tag Archive | "genuinely in business"

IR35 – 12 years on and still nobody knows if they’re in or out


In the aftermath of the Lester affair, I have managed to get involved in a bit of a debate has sprung up about what actually is a freelancer. This might seem a fairly trivial and straightforward question, but as you dig deeper into the reasons why IR35 was brought in, it all gets just a little complicated.

As the 12th birthday of IR35 rapidly approaches, it’s worth reflecting on why it was introduced. After all there is a whole generation of freelancers out there who have never known life without its Damoclean presence. And who may not know its gestation

Originally it was promoted as a way to recover taxes from people who left their permanent positions, had a nice weekend off, and then returned as a fully-fledged contract worker doing exactly the same role for exactly the same people. Nothing to do with freelance work, everything to do with them getting more take home by taking advantage of corporate taxation rates and their erstwhile employer not having to worry about little things like Employers NICs and holiday pay any more.

And you have to accept that is actually not a totally stupid idea. Certainly HMG accepted it as a rationale and after a couple of false starts, brought in the IR35 we know and love.

Snag is this was the Tony Blair government we’re talking about here. It may just be coincidence but IR35 was drafted so poorly that nobody knew who was actually in its scope; the Friday-to-Monday brigade clearly was, but so was every other one man band out there. And that’s when the fur started to fly and the PCG came into being.

It’s also worth noting the shift in emphasis by HMG themselves. They were clear that “genuine businesses have nothing to fear from IR35”, which they probably wouldn’t have if anyone could define a genuine business. In 2002, in the House, the then Postmaster General expanded on her concept of IR35: apparently it was now meant to apply to people who used a Limited Company to avoid paying the correct taxes. Which is fine apart from there still being no way to distinguish my company from Richard Branson’s without taking it to court. But the point is that the original intent seems somehow to have gone walkies and IR35 is now being presented as a general taxation measure to which all sorts of people are liable.

Scroll forward ten years and we have Osborne saying that he has to keep IR35 to protect a taxation revenue stream, from which we can assume that he was still sold on the original idea of IR35 as a preventative measure and not as a tax gathering one. Shame nobody told HMRC that, really…

So after all this time we are still in this idiot position of trying to prove we are genuinely in business should HMRC suddenly present us with a £90,000 tax bill. And as we have seen, that is a path fraught with peril and pitfalls. To my simple mind the fact I don’t have a constant income stream, I have to pay for all sorts of things that employees don’t, I am always at risk of not being paid at all and I have multiple clients a year would seem to say I am a business, but sadly that doesn’t count for much in the eyes of the law. After all, where’s my factory, my employees and my pile of manufactured widgets? Which is about as far as HMRC’s understanding of a business stretches

For IR35 to be applied as per its original intention – if we allow that the original intention is the only one that counts – is actually really obvious. If your client now is the same as your previous employer, it’s up to you to prove that IR35 doesn’t apply by using existing case law. If you’ve never worked for your client before, IR35 can’t possibly apply. How hard is that?

Clearly, very hard. 12 years on and still nobody knows if they’re in or out.

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

© 2012 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: I don’t know by cowbite

Posted in alan's blog, ir35 rulesComments (0)

Hey, look at what we just did. We killed off IR35!


I thought it worth returning to the Agency Workers Regulations again, if only because I was ever so slightly amused by the reactions of certain agencies to them. With their industry’s usual instant and carefully controlled grasp of the subject, this week contractors started getting emails and letters from some agencies about how to manage the AWR. After the act had taken effect and therefore after the point at which you should react to it for an existing engagement. Genius, isn’t it?

Anyway, as is the way of such things, the letters are asking unanswerable questions.

The first one is “Do you work through a Limited Company or an Umbrella?”. Excuse me, but why do you have to ask? You have the contract in your filing system, along with the payment terms and the pointless fourteen pieces of ID. Don’t you know who you are dealing with? Please don’t tell me you weren’t even faintly interested in the company with whom you signed the contract. Silly old me thought you were dealing with MyCo when clearly you are only interested in dealing with me personally. OK, so that explains a lot, doesn’t it? Dropped the mask ever so slightly there, Mr Agent.

Secondly, “Do you consider yourself to be in business?”. Cue raucous laughter. I have signed a contract with you in my capacity as the Director of a UK Limited Company. A contract in which there are several clauses establishing that there is no employee-like relationship intended, which directs you to pay money into a business bank account and which charges you VAT. Does that not give you a slight hint that I’m trying very hard to be a business and not a temp from Office Angels?

Finally, “Do you consider you are operating inside or outside of IR35?”. Now you really are taking the Michael. We’re using your contract. You set up the deal with the end client, you know the requirement, you know what’s in your contract with them, and you understand how the client views the relationship between me and them. So why ask me? If I am inside IR35, it’s because you put me there, not the other way round.

Ok, so the poor dears are only trying to keep their masters happy and, as usual, de-risk everything as far as they can. Since you can’t actually opt out of the AWR anyway it’s all rather pointless, but if it makes them happy. Although there may be a different slant on this.

If the agencies, on behalf of their clients – who, we must remember, are actually those stout and highly aware souls in the Human Remains department – are concerned about the people they supply being in the scope of the AWR and so able to claim all these interesting extra benefits like holidays, there is a very simple way to prevent it. If you’re in business, you’re out of scope. It says so in the AWR itself.

So, Mr Agent, let’s make sure I am genuinely in business, as best we can, so the AWR can be ignored. This means that firstly you stop the pretence that you have this vast pool of experts at your disposal and you just send a couple of the most relevant over for the client to look at. Secondly that the client will exercise no direction and control over how the work is to be performed, beyond that minimum necessary that all workers will need to follow. And finally we drop all this pseudo-employee-with-multiple-exclusions contractual nonsense and start using simple business-to-business contracts. You know, something along the lines of “YourCo will supply these skills for this period to deliver this thing for which we will pay you this amount of money, conveniently broken down into weekly payments. The End”. It really could be that simple.

Hey, look at what we just did. We killed off IR35 as well. Gosh…

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: Consensus Kills by miss_rogue

Posted in alan's blogComments (0)

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

Posted in alan's blogComments (0)

AWR – instead of clarity we get muddle and greyness


Regular readers – both of them – will have learned by now that if someone ever sets up an Appreciation Society for the benefit of Saint Vince of Cable I am unlikely to be in the queue for tickets. His tenure as Business Secretary has been littered with decisions that seem almost deliberately intended to make the contractor’s life even more difficult than it already is. I doubt he does it on purpose, so we have to conclude that he simply doesn’t think things through properly. Or perhaps he doesn’t pay attention to the outcomes. Well, hey, he is a politician, I suppose.

Consider the Agency Workers Regulations, which are looming ever larger on the horizon. The intent of the original EU-derived ruling was to ensure that low level temporary workers – people who aren’t really in the best place to fight their own corner – are protected from being denied basic rights that are taken for granted by permanent employees; little things like holidays and sick leave and access to the canteen. It has to be said, that is an entirely reasonable and even laudable aim.

As is the way of such legislation, the EU sets the objective and leaves it to the member countries to enact as best they can. So guess what happens when St Vince’s department get hold of it?

Firstly there is a consultation period. They produce a straw man proposal and invite interested parties to comment on it, note ambiguities and errors and suggest any obvious improvements. They consider the responses, redraft the straw man into a final document and that become the legislation.

Except for one minor point. They kind of missed the ever-so-slightly critical point about the scope of the legislation.

Like I said, it’s meant to protect vulnerable workers. Now I am many things but I don’t for one minute consider myself to be vulnerable to being downtrodden. Apart from She Who Must Be Obeyed of course, but I volunteered for that one. So why the hell am I potentially in the scope of the AWR?

It seems that DBERR have been gold-plating the requirement. Specifically, rather than draft something aimed at “agency workers” they allowed it to cover any independent worker, including freelance contractors who, as a breed, are probably the least vulnerable workforce in the country.

And what makes me angry (and No 10, who tried to see if it could be redrafted at the eleventh hour) was that very point was made, clearly and explicitly, in the original consultation. They were told the scope is wrong, it’s not meant to apply to this group but only to that one. But when the final draft hits the presses the only exemption is the somewhat mealy-mouthed exclusion of “those genuinely in business” which, as we know all too well, is not a clearly defined anything. They may as well have said “Those who are either taller, or shorter, than six feet. Without shoes”.

So apart from now facing the risk that our contracts are going to get even more tangled as HR and the agencies try to get around the legislation, we lost the chance for a clear chance to define exactly what is meant as a freelance contractor, as opposed to an agency worker. Given the average itinerant fruit picker is unlikely to own his own company, there is at least one simple and very clear separator. This would have greatly aided various other arguments such as who is caught by IR35. But it is not to be; instead of clarity we get muddle and greyness. A bit like St Vince, in fact. Which is something of a pity.

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: Back Yard On New Year’s Day 2011 by Kerry Niemann

Posted in alan's blogComments (0)


  • Switch Accountants for FREE

    Switch Accountants for FREEAt K&B Accountancy Group we have introduced a simple and straightforward approach to changing accountants. We’re offering contractors, consultants and freelancers the opportunity to switch to K&B Accountancy Group for FREE without the need to pay for any ‘catch up’ or retrospective accountancy fees for the previous year’s accounts and corporation tax return* *T&Cs apply

our top 5 twitter posts

twitter

contractor accountants

contractoraccts



twitter Join the conversation
Free Telephone Advice