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Comment by Lio | Hacker News Reader

I notice that Dave is based in the UK, as am I. We have one big problem with day rate billing here and that's IR35.

IR35 is the dreaded tax code that forbids contractors from appearing to be "disguised employees".

There's no published fixed set of rules as to what is and isn't inside or outside IR35 but the guidance I've seen seems to me mostly centred on control and direction of labour.

The advice I've had from my accountants is that it's much easier to demonstrate that you're outside IR35 if you charge for deliverables and rather than time.

If you're just a bum on a seat, doing exactly what you're told, then you're indistinguishable from an employee for tax purposes.

As such you can be liable to be taxed twice retrospectively without receiving any benefits of employment such as sick pay, pension, holiday or expenses. That can happen years down the line even when your accounts were fully signed off and paid up.

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When the tax liability for a "disguised employee" decision fell on the contractor, the clients were unconcerned. Now the tax liability falls on the end-client, they're extremely gun shy. IR35 is vague by design - its intention was to create a climate of uncertainty (IMO).

It's an anti-avoidance measure from when IT contractors benefited from (historically) lower business taxes while taking no actual business risks.

The rules are lengthy because they're trying to be precise. If you read the guidance on gov.uk, I don't think they're not vague at all. There's even a step-by-step "wizard" so you can determine if a particular contract falls inside or outside the rules.

IMO the only people "dreading" the IR35 rules are the people still trying to dodge them.

> IMO the only people "dreading" the IR35 rules are the people still trying to dodge them.

That observation seems vaguely circular. The dread is because someone might be able to avoid the tax but has to do something inconvenient, or because there is a risk of misinterpreting the tax law's provisions. So yes, the people who dread a tax are exactly the people trying to avoid it.

And this is the nature of taxes. The economics of society are largely structured by tax avoidance schemes, people put huge amounts of effort into not quite making a normal income for tax purposes.

Personally, I find the "tax dodger" talk to be unhelpful.

When I was contracting HMRC would not give me a hard list of rules to follow even if I wanted to.

For example if you deliver some piece of code and the customer asks you to provide support for it, is that inside or outside?

The initial software is a deliverable and so within your control.

Support though is usually based on time and issues that the customer brings to you. That could be said to be out of your control.

So is the contract inside or outside? You and your accountant can only guess.

That wizard you mention only gives guidance, it does not provide a legal answer.

Plus HMRC can and do retrospectively change the rules to reopen accounts years after they were originally accepted.

There's no finality there and the longer you run your business the bigger risk.

At the time I couldn't find a suitable insurance service to cover that risk. I believe there are now finally IR35 cover products but it worried me enough that I just closed my contracting business down.

I can only assume that as HMRC were happy with that winding down that I was not a "tax dodger" all along.

The first page of the wizard says "HMRC will stand by the result you get from this tool." You can reference any check you make with, assuming you answer honestly.

I think it's fair to challenge the "tax dodger" brush if a lot of people are suddenly made "tax dodgers" unfairly. But you've got to read the room. Personal Service Companies were a scandal that were legislated against. If you want to carry on doing certain kinds of work and not _think_ about tax, just pay tax as a Sole Trader, forget about the rest of the rules.

If you want to try to hang on to tax advantages (that have been all-but-eroded), feel free but if you want to earn big money and optimise your tax accordingly, yes, you do have to keep up with rule changes, or maybe pay the price later. But I'd say IR35 isn't relevant to the average worker any more.

> Support though is usually based on time and issues that the customer brings to you.

You’ve just identified a risk to your contracting business: Under these (unclear) terms the customer can dictate an infinite amount of support hours for a fixed price. As a business owner you need to protect your profitability by ensuring that there are clear terms putting controls and limits in place.

Yes, there was a legion of "IT Contractors" that were effectively salaried workers in all but a few main factors:

    1. Their self labelling as "Contractors"
    2. Their employment rights
    3. Tax.

And everyone knew this was the case. You'd have people working 2, 3 or more years at a company and people at the company wouldn't even know they were technically contracting.

Of course when there was little or no enforcement, it was rampant.

The act of shifting liability to the client was a work of genius to clear out all these disguised employees.

Big Companies went from incentivised to dis-incentivised to engage in this practice.

You can still contract "inside IR35" too, you just need to pay tax as such. Of course companies would rather engage "outside IR35", but any "barriers" are just clarifications about what a contractor is.

"Why can't I act just as an employer/employee would but not pay employers' NI" is not a reasonable position.

Inside IR35 does not in fact exist.

Every contracting advert which lists inside IR35 actually means "umbrella company". Agencies in my experience do not in fact even understand there is a difference.

This means you cannot use your company, or the accountant you've had for decades, and you must now pay a third party (the umbrella), and you have little choice about the umbrella - the agency will require you to use one of the two or three they present, with whom they have agreements and get a percentage.

It's a rigged game. Everyone is dipping their fingers in the pie, and the person at the end who gets it in the pants is the guy doing the actual work.

Of course "Outside IR35" doesn't really exist either, it's just "contracting", but companies find it useful to have labels to clarify their position.

I agree I wouldn't touch the kind of umbrella arrangements you're describing, but short-term or set-term employment contracts do exist too, although usually come about from circumstances different to advertising for contractors.

That "wizard" is completely bogus. It's a rigged game.

It assumes mutuality of obligation, that the contractor is required to accept further work from the client, and the client is expected to provide that work, a key requirement to prove someone is an employee.

The fact that this is so gives a good sense of how IR35 is being used by the State.

HMRC's guidance maps very imprecisely to legislation and case law.

Eg the CEST tool asks "Will this work take up the majority of your available working time?"

Guidance for that question is here: https://www.gov.uk/hmrc-internal-manuals/employment-status-m...

Can you tell me why they ask it? What light it sheds on the central question of contract-of-service vs contract-for-service?

Why not both? A fixed project rate and all the extra that inevitably and uninvited show up cost by the hour. The reasoning being that 90~95% of the project are easy to complete with the rest often taking up an unknown amount of time and resources

If you know today that 5% of your projects have an “infinite downside” (i.e. an “unknown amount of time and resources”) you need to fix your contract to cap that to a reasonable amount.

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