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Summer Budget 2015 and IR35 Survey

The Summer Budget 2015 brought some unwelcome announcements for contractors along with the release of the IR35 Discussion Document detailing proposed changes to the legislation.

HMRC invited interested parties to comment on the proposals detailed in the document, Contractor Weekly gathered the views and opinions of our readers via a survey and responded to HMRC on their behalf.

To see the views of your fellow contractors please find a summary of our survey results below:

Summer Budget 2015

What does this mean for contractors?

Our friends at Qdos Contractor are hosting IR35 & Budget Clinics in London to discuss these controversial changes and the impact this will have on contractors.

Clinics will be held on 8th October- click below for more information and to book your ticket.

Summary of comments

Do you think the changes to dividend tax are fair?

“It’s double taxation, that income has already been taxed”

“There was no clear explanation or justification for the changes….
It doesn’t support small businesses and the effort and risk taken by those building these”

“No. On one hand the government continues to declare the importance of small businesses yet now alienates a particular sector by hitting them with restriction after restriction. As a contractor operating with a limited company I struggle to see why the government is so keen to destroy small businesses which play an important role in industry”

“How can you justify tax by stealth? How can one justify double taxation that was not reasonable in the past but it is now? It will kill the entrepreneurship”

“It’s made it even harder to work out exactly what tax is owed by introducing yet another rate”

“It’s yet another loophole. For my particular circumstances, I am now able to get 5k more income tax free that I was previously unable to do, so I should be delighted, but I HATE THE TAX SYSTEM GETTING EVER MORE COMPLEX!”

Do the changes to dividend tax make you question whether to continue to operate via a limited company?

“I don’t see the need to continue working in the UK when I can travel to another country and set up a company there. My skill is within the IT sector which is seeing more and more demand in the UK, but if HMRC insist on not allowing small business to answer this demand then I don’t see why we should continue to pay tax in this country”

“The chancellor wants me to just go and get a job”

“What is the alternative? Umbrella companies are worse. Self-employment without the protection of limited liability is stupid. One day the government will realise that not everybody is motivated by greed; contracting is a mode of work, not a tax break”

“They may make it more marginal whether it is advantageous financially, but that is not the sole reason I operate that way”

“I run a limited company because I run a business that requires it. A change in taxation doesn’t mean I can just drop this responsibility, cancel contracts and close the business”

Do you think control is a more important employment status test than right of substitution?

“Substitution is a very clear indicator that I’m not a disguised employee. However, for most PSCs, substitution is never used (it’s just not cost-effective), so we need a test that actually distinguishes better between the bulk of PSCs and disguised employees”

“I believe the HMRC focus on “control” is because it is more subjective and they believe they would be more successful in proving control. Control could be judged in many different ways, and how much control needs to be proved to force their case? The right of substitution can be covered by a clause in contract, whereas control is based almost wholly on actual practices and can probably be twisted whichever way HMRC want to – i.e. always in their favour”

“Having seen the proposed definitions they are far too wide and general to prove anything reliably”

“It’s all bananas anyway, all these decisions are subjective. The continual deliberate decision by HMRC to make no clear cut way to determine status is obnoxious and should itself be against the law. It should be a requirement that tax law cannot be subjective”

Do you think it would be easier for you to determine your IR35 status if it was solely based on control?

“Anything that make the definition of being either inside or outside of IR35 has to be a good thing. Get rid of vagueness and subjective interpretations”

“I think they should look at a wider range of issues than just one or two indicators”

“I think virtually all IT contractors would be determined as within IR35 using the currently proposed definitions of control”

“The IR35 system is fundamentally flawed. The HMRC, encouraged by parliament, regard all contractors as evading tax and every test which is brought in to determine IR35 status is abused by HMRC in order to persecute contractors. It is irrelevant what tests are brought in – it is the way they are used and the attitude of HMRC which are the problem”

“That is yet another subjective judgement, so no easier than the current morass”

“Let’s be honest, my ir35 status will always be whatever HMRC wants it to be”

“Control” is a very ambiguous terms and it could be argue that all customers have a degree of control over the companies they engage. For example, when you hire a builder to do some work for you, you set the hours he is allowed to work on your property, discuss how he does the work and when it should be finished”

Do you think the end client should have some responsibility in determining employment status?

“Absolutely. Regardless of how they employ, they should be made to state how the employment status has been determined”

“End clients should stand side by side with Freelancers during IR35 enquiries to make it clear to HMRC that the freelancer is NOT the same as a permanent employee. After all, if they wanted a permanent employee they could easily hire one in lieu of a freelancer. They need to share in the responsibility for choosing to go down that path”

“The end client has no understanding of what they are saying and no interest in the outcome of the discussion. It is very dangerous to allow uninformed people to answer questions put to them by HMRC who are not interested in the reality of whether somebody is a true contractor but is only interested in obtaining a particular outcome. If they are to be interviewed the contractor and their representatives should have the right to attend the meeting so they can challenge the statements of the employer if they are incorrect or misleading.”

“At the moment, they can push contract workers to play by their rules with no comeback, loading the risk on to the contractor”

“If the client wants a no strings attached contractor they should be willing to accommodate their legal status. If they want a tightly controlled temporary worker more akin to staff then they should say so”

Do you think that if your engager has the ability to determine that you are operating within IR35, and does so, that you should then be entitled to employee-like benefits?

“Of course, if the engager wishes to place you within IR35 then by definition they are stating that you are a “disguised employee” and should therefore fulfil their legal responsibilities to you”

“This would be a disincentive for my clients to use my services – something I was willing to ‘swallow’ but which will be very difficult once the new dividend tax kicks-in”

“Yes, this is a human right act issue, one cannot be told and legally so that one is an employee but have access to employee rights denied”

“That’ll scare them off!”

“If you are operating under IR35 and as such being entirely treated as an employee why shouldn’t you receive all of the benefits? Nobody can have their cake and eat it – the client either wants an employee, which includes all the benefits that come it that, or not. They should not be able to decide the tax status of the contractor, but then negate their employee benefits that have been thrust onto them”

“That would be silly, if you want benefits you should be an employee”

Do you anticipate that the proposed changes regarding claiming travel and subsistence expenses will drastically affect your business?

“I spend typically £15k-£20k pa on travel and subsistence!”

“This will cause me a savage tax rise”

“Quite a few of my contracts are far from home: Most employees I know live relatively close to their work place. I don’t see how claiming travelling, accommodation costs can be seen as a “tax dodge”. If the Tories want a flexible workforce then they should recognise that these are legitimate expenses”

“Subsistence I can live with, but travel will only do damage to commuting contractors, those with £5K+ annual season tickets to London. I have spoken to London based freelancers and most not bothered about the changes. Commuting to London for work is looking like less of an option now”

“It will discourage accepting contracts that demand substantial commuting. This has an adverse affect on mobility of labour, a well regarded factor in an efficient economy”

“Why and how would I bring the money from void of my pocket to run my business? Clearly, it is impossible. Better I will not do the business”

Do you think these proposed changes to travel and subsistence are fair?

“As with most tax changes, it’s not really a question of fairness but simplicity. It should be a simple matter to determine how much tax is due, but changes like this continue to complicate the tax system. A permanent employee, a Ltd company with a single employee/director, and a large company with multiple employees should all pay the same tax on travel… though that is unlikely in anything similar to the current system”

“I voted for the conservative government as I thought they had my interests as a businessman at heart. I was wrong. These changes are likely to- limit my radius of action”

“Making a comparison between a contractor and a permanent employee in this way is utterly preposterous”

“These are a genuine cost of doing business. Will they stop my decorator claiming for his travel costs just because I control what colour he paints my walls and the order he does the rooms in?”

“As a contractor on 2 weeks notice it would be ridiculous to expect me to move house and family every 6 months when any day I could be told to leave. This is impractical and as usual the government only look on contracting as a tax dodge and not at the fact it is a mode of work”

“It’s just a tax grab, without clear thought about whether it will adversely affect businesses. Just because it doesn’t affect mine doesn’t make me aware of how it will reduce mobility or have costs for other businesses”

“Absolutely not. This seems to be about creating 2 types of limited company – one for small businesses that can be absolutely abused and rinsed for taxes, and another for any larger company that the government doesn’t wish to push and for them to remain unaffected”