IR35 – let me tell you where I am. Chris Bryce, PCG Chairman

24 Mar

 

Chris Bryce, PCG Chairman

 

So why did the Chancellor and his team feel that they have to keep IR35 in place in some form?

As many members of the OTS consultative committee pointed out, some more vociferously than others, simply removing IR35 might lead to a flood of very highly paid ‘permies’ simply doing a deal with their employers to become “consultants” and thus reducing their tax bills substantially – Friday-to-Monday on a substantial financial scale.

It was argued that before IR35 was introduced then sure, some people abused incorporation but now the tax mitigation of incorporation so very well signposted loads of very well paid people might have a go at it.

In other words how do you take away the gate to a massive attraction that prior to building the gate, hardly anyone knew about or abused? Gordon built a Frankenstein’s monster.

Now, the downside of this is that genuine contractors and freelancers get caught in the net – like dolphins in a tuna net. Since we generally don’t have high-powered and clever tax accountants and specialist tax lawyers to defend us*, ordinary contractors are soft targets for HMRC inspectors, who are after all only human and are overworked and under-resourced.

My personal feeling is that HMG, a majority of MPs and the Coalition Treasury team in particular recognise that “catching” most dolphin-like contractors in their tuna nets is inherently wrong. I also think that there are those in HMRC who believe this too. I do feel that they are genuine in this and have effectively turned to PCG to ask how this can be sorted. How can the tuna nets be shaped to catch only tuna and not dolphin?

The old saw “He who sups with the Devil should have a long spoon” clearly applies. We must tread extremely carefully and be prepared to walk away if boundaries are crossed or our position ignored. That the Minister involved has taken a great interest in this is reassuring and it chimes exactly with what he and his colleagues said to PCG whilst in opposition.

After 12 years we’re pretty much at the top table now. We have a place on the OTS, we meet regularly with HMT Ministers and high-level officials, we’ve been invited to take a place on the putative IR35 Forum**.

So, do we accept this opportunity to directly influence the way contractors are dealt with, or do we simply shrug our shoulders and walk away with a bitter and cynical backward look and simply leave those who hold power to their own devices?

I know what I think PCG should do. Promote freelancing, defend contractors. By any useful means.

Chris Bryce, PCG Chairman

*Unless you’re a PCG member, of course

**The fine details of governance, membership, terms of reference &etc are still to be determined and PCG can contribute to that too

Read PCG’s full press statement on the Budget here

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7 Responses to “IR35 – let me tell you where I am. Chris Bryce, PCG Chairman”

  1. Ade Manic March 24, 2011 at 4:18 pm #

    Chris,

    I absolutely agree with you that PCG should promote freelancing and defend contractors by any useful means, and so should be an active member of the IR35 Forum at least at it’s inception.

    But don’t be afraid to stand by your (our) principles and be prepared to walk away if required. Hopefully not! Hopefully this gives us the opportunity to make the best of current situation [I wonder, if we were not going through though economic times, of the coalition would have choosen a different approach?]

  2. James March 24, 2011 at 8:00 pm #

    I also wonder whether Osborne has realised that the shrewd position is to keep the legislation in place, knowing that HMRC does not have the resources to do anything but reduce the number of investigations it performs. From HMRCs perspective, knowing that the legislation is being replaced will result in a natural reluctance to prosecute too many cases. So our position as individuals might be stronger as a result. I wouldn’t expect PCG or HmRC to confirm or deny this position, but it would be interesting to see how many IR35 cases are started this year.

  3. Jon March 24, 2011 at 10:55 pm #

    So far IMO, PCG’s IR35 initiative has failed, with no abolishment by HMG. Moreover, having been fully appraised about IR35 (and the dividend mitigation strategy), not least by PCG, HMG now proposes that NI and income tax be merged, presumably rendering the dividend approach redundant? Does this mean (the final turn of the knife) that PCG members will ultimately be forced back into IR35 and will have to pay NI twice again (i.e. as employer and employee)/tax equivalent? This is far more tax than PAYE employees pay, and we have no employee rights.
    I absolutely don’t blame PCG- you really tried, and what else could you do? But being frank, HMG have so far shafted you and your members. Please convey this sentiment to the ‘forum’ and, crucially, give a clear deadline by which you expect firm action from HMG, or you withdraw from the process. On a related point, I find the payment by small businesses of a year’s personal tax in advance (as well as the usual previous year) quite repugnant, and have been wiped out financially by this recently. HMG should be reminded that freelancers, by their nature, can easily move around and out of the country, and I’m seriously considering working in Australia (whose currency incidentally has appreciated 20% against the pound to 1.6 to the pound!).
    A ‘budget for growth’? What a sick joke. Growth for the big corporates certainly, but not for small business (the vast majority of the economy, hence why the budget fails).

    • insidepcg March 24, 2011 at 11:10 pm #

      Jon, thanks for your comments, appreciate your frustrations. On the NICs Income Tax merger, in the budget report it states that the Government will consult on changes to integrate the operation of the income tax system with NICs, so as to remove distortions. This is not a full-scale merger. There will be no NICs on pensioners‟ earnings, or on pension income and the Budget documents state that dividends will remain free of NICs. We are consulting with the members via the forums on the next stage.

  4. Jon March 25, 2011 at 2:06 am #

    Thanks insidepcg. Your responsiveness, and work generally, is greatly appreciated and please never forget that 🙂

    When I started freelancing, I was wrongly advised to go into IR35, and paid 20% more tax (meaning absolute+20 over PAYE total tax rate), that is a massive overall tax rate of 60-70% or so. This is why I went down the dividend route, after advice from my superb new accountant, and not because I’m an evil tax avoider (as HMG would lie, as they do about so many things). My contracts have been checked by a tax specialist who confirmed ex-IR35, I have dividend paperwork/minutes in place, and have taken out appropriate insurance. I cannot do more against the HMRC gestapo.

    The PCG aim to scrap IR35 is great, as it is an unfair high tax on small businesses (often one person!) who don’t have accounts departments or offshore capability a la banks. However, I fear HMG will introduce a NIC/tax combo that will be little different, so strategically this may come to nothing.

    So if HMG can only offer this, then let’s keep IR35 and dividend tax (mainly NI) avoidance, please. It works.. Sadly, when dealing with the slimy political class, a decent, fair, commonsense outcome seems rather elusive. Finally, I’m sure they are terribly convincing and verbally generous, and probably jolly entertaining to be around, in marvellous Whitehall surroundings, but please don’t be fooled or seduced by their ulterior two-faced context. Setting up a ‘forum’ is a mere distraction if no action comes SOON. Bottomline, what are our sanction options? A tax strike? Now the latter would be fun! It would double my income so would be readily funded… Heck, I’d move to Oz quite readily.

  5. Simon McVicker March 25, 2011 at 11:17 am #

    Jon, there will be no nics on dividends, and other tax changes actually make freelancers better off, look at Anne Redston’s conclusion in our budget analysis.

    On the relationship with HMRC it is still early days but we would aim to have a set of clear measureables to judge their performance. Plus PCG would regularly review the process and walk away if it became only a talking shop. No political party now supports ending IR35 in the near future. We are where we are and we must do what is best for members’ interests.

    Simon McVicker
    Head of Public Affairs, PCG

    • Craig April 13, 2011 at 4:44 am #

      Simon,

      How is the relationship with HMRC in its early days? Is the new forum the relationship with HMRC? Has the slate been wiped clean? I believe that PCG and its members have actually endured a long and painful relationship with HMRC and joining a forum with them is nothing but a sideshow.

      It may be a negative perspective, but from the outside it does seem that the entire OTS review of small business tax & IR35, with its “roadshows” etc, has been a blatant fact finding mission to discover contractor behaviours on the part of HM Treasury. HMRC are now using this knowledge to its advantage. For instance, having learned that something like 70% of contractors don’t bother to review contracts “take reasonable care?”, HMRC are massively increasing small business / IR35 compliance checks in 2011 and will look to exploit its regime of high penalties.

      Quite simply, PCG’s valiant lobbying activities have come to nothing. The time for talking is over. To retain its membership, PCG must now call for robust action. The notion of a tax strike is something that the PCG should explore..

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