Issue 17; 9 September 1999

Revenue Holds Meetings On IR 35 | PCG Membership - What Does it Mean?? | Engineerjob.com - The Future

Revenue hold meetings on IR 35
On Saturday one of our members picked up from Yahoo News that Dawn Primarolo is "keen to look at alternatives". in relation to IR 35.

If Dawn Primarolo is "keen to look at alternatives" why did she not invite the PCG and the Federation of Small Business (FSB) to a meeting held in her office recently. After all, if she was "keen to look at alternatives" you would have thought she would want to talk to those businesses she was threatening with closure. As we do not know what was discussed let us look at some of the options that may have been presented to the Paymaster General by her officials. I should make clear that these are my opinions and do not represent an official PCG position, but having had the dubious pleasure of being involved in this issue for the last 6 months, I feel able to speculate with some degree of accuracy.
Firstly look at the options considered before IR 35 was issued.

Problem:
The situation with the cost of employment rising plus cunning accountancy wheezes such as Umbrella companies means we are increasingly losing revenue. Doing nothing is not an option.

Option 1. Combine Tax and NI - Honest, but do you want to tell Tony that the tax rate has gone up 10 per cent when our manifesto says otherwise
Option 2. Cut taxes and the cost of employment so there is no incentive to set up a Ltd Co to avoid tax - We might be New Labour, but we are not that New!
Option 3. Modify the 1981 plan to ban Ltd Companies working through Agents - This time make it so unattractive they decide to close rather than us having to do it. Issue a press release and unlike 1981, hope no one notices.
The result was option 3 and a press release called IR 35

Looking at IR 35 there would appear to be six options.

Option A: Original proposal as outlined in the 7 page letter.
Main problem is the simple test of Supervison, Direction and Control. It changes the definition of self employment and is unworkable.

Option B: Use the existing tests of self employment.
Solves some problems, but creates a whole raft of new ones. Knowledge based workers may not meet the existing tests, but consider themselves genuine businesses not tax avoiders, do you want to lose their support? The tests are incredibly complex and will put up the cost of compliance. Each and every contract will need to be checked, sometimes daily, against these tests to make sure Companies are not in breach of them. It is why the Revenue have been recommending that self employed people form Ltd. Companies in the first place; to ensure they have certainty.

Option C: Agree some Salary/Dividend split.
Put forward by some of the Contractor's Accountants. Who would be affected? If they are considered employed under the above tests why should they get a tax break? If they are self employed why should they be taxed unfairly. Displays confused thinking which has had the advantage it has confused some of the Contractors who have failed so far to mobilise in really significant numbers.

Option D: Agree to a delay for a year.
Creates uncertainty. Looks as if you cannot make a decision.

Option E: Change the definition of self employment.
Too late for this and will create major compliance costs if not carefully done. Worth looking at in the long term as it ties in with the New Labour pledge of focusing on the Knowledge based economy.

Option F: Target Friday to Monday using regulation.
Umbrella companies and Colonial cousins absconding without paying a penny are more difficult. Play hard ball with all the representative bodies and give them a year to make this problem go away or you will bring in regulation under the Henry VIII powers awarded by a compliant House of Commons. Ignore the John Birts, like the previous Paymaster General they can always pay an adviser to avoid having to pay too much tax. Set up a working group to monitor progress. Make sure you have all the genuine representative bodies inside the tent (to paraphrase Lynden Johnson) and announce a victory for a consultative process that has worked. Should make it in time for Conference.

If you were in Dawn Primarolo shoes, which would you go for? The decision, on what is a highly technical and complex issue, will determine in the years to come whether we live in a knowledge based economy or move back to a skill based economy. Unlike the Shipbuilders and Coal Miners, whose skills are no longer required our knowledge is in demand in a Global economy that allows competition in everything, including tax rates. Having supplied over 6 million pages of information I would be confident that whatever decision the Government takes it was fully aware of the consequences of their actions.

PCG membership. What does it mean.
We asked members for their comments, here are a few of the highlights.

"Although we're not regular contributors to the PCG web-site or to the discussion forums there (more through lack of time than lack of inclination), we make sure that we regularly check for new information. We get the latest news about IR35 straight from the horse's mouth (or, at least, from someone who has actually spoken to the horse), rather than having to get by on agency's and accountant's second-guesses, fictions and suppositions. We get the opportunity to put our views forward, through the medium of the PCG, to the Government and the Inland Revenue. We get ideas and information to support us in our own lobbying of our local MP and we get access to legal and accounting advice relating to IR35 (and other aspects of business). We even get to know what's happening in the Press - if someone, somewhere has written something relating to IR35, you can just about guarantee that at least one PCG member will have seen it and will post a message letting everyone know about what was said and where. As far as we're concerned, all this is worth far more than 100 quid. If necessary, we'll pay some more to keep this campaign alive and to get our company recognised by the Government and the IR as a legitimate business, subject to the same rules and regulations as anyone else." - Adrian Waterworth

"Then you look at the lobbying. I was unlucky my MP didn't give a damm so that's the end of it. Thankfully not other PCG members, who had MP's who were interested, who asked questions. You name a Minster and there was a PCG member who lived in his constituency and could see him. Members have used every contact they could think of and made our voice heard. Then you could see all the responses, standard replies are quickly identified, inconsistencies quickly unearthed. Members help each other with info and content. I have also gained an enormous insight into the workings of government and the civil service." - Jane Ashkar

"Nobody has paid me or encouraged me to write this. I did it because I no longer feel like a loner in the cold world outside permanent employment. I'd like to encourage other contractors, especially engineers in the oil industry, to join up and stop deluding yourselves that "IR35 won't affect me". I'm now a part of something unique, what may become the most successful Internet lobbying campaign ever in the UK, and I hope that the PCG will continue in some form after we win the IR35 battle. It's an individual choice of course, but if you don't get up and do something positive about IR35 then you can't complain when Mr. Brown and "that nice Mr. Blair" come and dip their hands even deeper into your pockets. Fifty quid after tax! Sheesh! You can hardly take the family to MacDonalds for that!" - Steve Cox

engineerjob.com. The future
As many of you know I have been working as Chairman of the PCG and at the same time trying to keep engineerjob.com up to date. I only expected to be working part time as Chairman, but in fact I underestimated the amount of work and have been working full time. As such I no longer have the time to update engineerjob.com with analysis or news links. I am unwilling to do a less than good job and I must prioritise my time and that must be to the 3000 members of the PCG. As members will know the discussion forums are far more effective than conventional web pages for keeping up to date with news. In addition detailed analysis of any new proposals will be available on the members site. I will continue with these newsletters for the moment, as they also serve PCG members and hopefully will act as an encouragement to the other 7000 Contractors on this email list to join up.

Kind regards
Andy White
Chairman of Professional Contractors Group
Patron: Lord Weatherill
http://www.ir35update.co.uk
[email protected]