- Tuesday, 25 November 2014 21:35
- Written by Andy Vessey
New (non-IR35) world order courtesy of IPSE
The Association of Independent Professionals and the Self-Employed (IPSE), formerly known as the PCG, are trumpeting an idea dreamt up on the fringe of a Labour Party conference.
This is the Freelancer Limited Company (FLC), a business model that would allow contractors to work IR35 free but not totally released from the shackles of employment status.
Features of the FLC would be:
- Only one shareholder, that being the person who generates profits for the business.
- Contractor would be required to join a freelancing register.
- Agreement by the contractor to extract profits by way of a fixed fair salary-dividend split.
- Automatic recognition as a genuine business and therefore exempt from IR35.
- Employment status would still be an issue but less onerous, as tests such as substitution and multiple/concurrent clients would be dispensed with.
- Simplified accounting.
- Ability to register for benefits between contracts.
- Entitlement to tax credits for sickness, maternity, paternity and other leave.
Although the FLC would provide an IR35 free environment, there would still be a need to demonstrate that the freelancer’s contract was one for services, i.e. self-employed, so the issue of employment status would not vanish. The model would therefore remain subject to existing tax legislation, with the exception of IR35 of course, and also employment law.
The IPSE are not suggesting that all contractors should be forced into an FLC but offer the FLC model as an alternative and to compliment the traditional personal service company. Contractors would therefore be able to continue to run their own PSCs and live with IR35 as they have been doing for the last 14 years.
This idea may appeal to the more safe minded or lower paid freelancers but for those skilled professionals who are able to command generous fees, the model would appear to stifle their ability and choice to reward themselves in the most tax efficient manner they desire. Does it therefore have sufficient appeal to the freelancing community or would the opportunity to be free from the shadow of IR35 be reward enough?
The FLC was one of four taxation proposals set out in the IPSE's September manifesto, titled, 'Britain's Secret Weapon', that the next Government must implement. The other three being:
- Harmonisation of income tax and NIC. This would be the most effective way of signalling the end of IR35 but it is a massive and complex undertaking and we may still be some way off seeing this happen.
- Establishment of an independent body of experts to bring about the merger of income tax and NIC. This would be comprised of experts from Government and industry who would set out a framework and timetable for achieving this aim.
- Abolition of the 24 month rule for contractors. The travel expenses rules are cumbersome and unclear and iniquitous as they apply to ordinary employees and independent professionals without recognising that those in the latter category have to be flexible and are running their own businesses.
I am with the IPSE all the way with the above three proposals but not so much with the FLC. It may add another layer of confusion to an already uncertain tax system. Nevertheless it may have an appeal in certain quarters but not for the aspiring contractor who wants to reap the fruits of their hard labour. Contractors would still have to address the issue of employment status and presumably if their contract was deemed to be one 'of service', then they would be forced to take a full salary. At least with IR35, in the same scenario, a flat 5% expense is allowed as a deduction against income.Comments