Another blow for IR35

[JonRB]

Good news, it seems.

Article said:

Ansell IR35 win - why this is great news for the typical contractor The recent case was supported by the PCG. Dave Smith of Accountax explains why this is an important case for contractors: The judgement runs to 20 pages. The facts are simple and affect many similar contractors. Mike Ansell was an IT specialist working on defence projects. Although his work was on a project by project basis they tended to get renewed and he had been at Marconi/Bae for some years. Two contracts were under appeal. The first had a relatively weak sub clause which was beefed up a bit in the second. Our arguments centred as usual on the fundamentals of sub, moo and control. Mike had relatively few "in business" factors and didn't have PII for example. The Special Commissioner sets out the facts from the evidence and even though the agency/end user contract was not available he had no real difficulty in formulating the hypothetical contract. He gave 5 main reasons for concluding IR35 did not apply: 1. The end user had no obligation to keep Mr Ansell in work throughout the length of the contracts entered into. 2. Mike Ansell had no obligation to put in any particular amount of work per day/week 3. Mike had the ability to take time off at his own choosing without seeking permission. 4. Mike has the ability to "suggest a substitute individual". This ability was accepted as genuine even though "it was very unlikely that the situation would in fact arise". 5. The practical day to day differences between Mike the contractor and permies ie no pension, sick pay etc. Rather than saying any one of these factors were knock out blows in themselves the Special Commissioner said he "reached the clear conclusion on all the evidence". I am not surprised to see the reasons 1 and 2 (effectively a lack of MOO) but was particularly pleased to see the importance of 3 and 5 elevated. He took a practical approach and concentrated on the differences between contractors and permies. One should also note that the ability to suggest a sub was not given low priority. It was accepted as genuine even thought he sub clause itself was weak in the Marconi contract. The Revenue continually say contractors don't get employee benefits because such benefits merely flow from the correct status and are not determinants. The Special Commissioner effectively disagrees. He says that these factors are all part of the negotiating process that the parties commercially discuss and consider and cannot be simply dismissed. They are important factors if not absolutely conclusive. This is very helpful. Finally the Special Commissioner accepted that my submissions on MOO "had considerable force". He also said that it was sometimes difficult to see precisely what elements make up MOO. Because he had found in favour of Ansell on the rest of the evidence he did not feel it necessary to explore the question further. He also dismissed the Revenue's "you do not show the typical 'in business' factors therefore you are caught" argument by saying that the in business test has to be seen in the specific context of the person concerned and someone doing secret work on a defence project would not be expected to act in the same way as typical entrepreneurs. All very helpful. So? A great result for Mike and other similar Bae/Marconi contractors with a very useful summary of what was regarded as important including elevating freedom to take time off and the contractor/employee differences into very important factors. This decision can only help thousands of contractors. Dave Smith, Accountax

[Source: ContractorUK]

>>> Edited by JonRB on Wednesday 4th August 14:37

[Eric Mc]

Interesting - thank's for that.

If "secrecy" is going to be taken as a factor, then there is no reason why "commercial secrecy" could not be invoked - [particularly for someone doing work for (say) a large financial institution such as a bank. Why should their commercials secrets be any less important to them than the secrets of a large defence contractor?

[jconsta6]

It does make intresting reading.

I certainly read this as good news, I think most contractors who were chased could now take it to court with a bit more confidence.

Certainly having a case already won will help no end.

There is of course that other thing they've introduced but we'll have to see how that plays out.

I don't think we are out of the woods just yet, but I'd say Grandma's fangs ain't looking so big right now!

JC

[JonRB]

jconsta6 said:

There is of course that other thing they've introduced but we'll have to see how that plays out.

Are you referring to Section 660a, which is certainly worrying but simply a new interpretation of an old law, or the so-called IR591?

I must admit I was VERY concerned leading up to the last budget that IR591 was going to be a killer, but I think we got off pretty lightly really. All we really lost was the allowance on the first £10k of Corporation Tax.

Now tax on dividends, which is what "IR591" was rumoured to be, would have been bad, especially if they had made it "brother of IR35" rather than "son of IR35" (ie. not abolished IR35)

[jconsta6]

JonRB said:

jconsta6 said: There is of course that other thing they've introduced but we'll have to see how that plays out. Are you referring to Section 660a, which is certainly worrying but simply a new interpretation of an old law, or the so-called IR591? I must admit I was VERY concerned leading up to the last budget that IR591 was going to be a killer, but I think we got off pretty lightly really. All we really lost was the allowance on the first £10k of Corporation Tax. Now tax on dividends, which is what "IR591" was rumoured to be, would have been bad, especially if they had made it "brother of IR35" rather than "son of IR35" (ie. not abolished IR35)

That was it... I've just had so much on my mind I couldn;t remember. It's all come back to me now.

Yes, I think the potential really was there to try and "have another go"....Fortunately as you say, they didn;t really. It's still a bummer, but not unliveable.

Just need to get another contract now!:-)

JC

[Eric Mc]

There IS tax on dividends - only it is not calculated until your general income levels put you into the higher rate band - and then the tax on the dividends is calculated at 32.5%.

The real worry was that Gordon might try to levy National Insurance contributions on dividends from small, owner managed companies. However, that was so much of a minefield that he shied away from that - thank goodness. Of course, what he should have done was revert to the pre-budget 2002 position where there was no Zero rate band of Corporartion Tax. But no, he added another layer of complexity on to Corporation Tax calculations.The computation of CT on company profits is now a labyrinthine mess.

[JonRB]

Eric Mc said:

There IS tax on dividends - only it is not calculated until your general income levels put you into the higher rate band - and then the tax on the dividends is calculated at 32.5%.

Sorry, yes. What I meant was a general tax on dividends eg. levying National Insurance on dividends like you mention, in order to make it a less attractive way for directors of PSCs (like myself) from getting money out of our companies in preference to PAYE / NI salary. Or at least to give him bigger piece of the pie anyway.

Eric Mc said:

The real worry was that Gordon might try to levy National Insurance contributions on dividends from small, owner managed companies. However, that was so much of a minefield that he shied away from that - thank goodness. Of course, what he should have done was revert to the pre-budget 2002 position where there was no Zero rate band of Corporartion Tax. But no, he added another layer of complexity on to Corporation Tax calculations. The computation of CT on company profits is now a labyrinthine mess.

Indeed. But that would have been too sensible and would also have violated the law of bureaucratic entropy.

>> Edited by JonRB on Thursday 5th August 11:40