At the moment, everything is focused on the off-payroll working reforms (IR35) coming into force in April 2021. I work with various different industries, especially those in healthcare and aviation, that have also been affected by covid-19, so preparing for these tax changes is a big upheaval. I have come across numerous instances of incorrect classification of officeholders.
What do you know now that you wish you’d known at the start of your career?
I wish I had had more confidence in myself. I started my business straight from university, which was a bold move, but it meant that I didn’t have any way of benchmarking myself. Also, not to listen to the trolls.
What new rules are causing a real problem in practice?
There are many questions surrounding the IR35 reforms that remain unanswered. One is how will HMRC, if it reclassifies a contractor to a deemed employee, collect the tax that is due from the client, and how it will offset that against the tax already paid by a limited company. The system is set up for the offset of the self-employed under Demibourne (2005) Sp C 486 (enacted in SI 2003/2682, regs 72E–72G), but not corporation tax or dividends paid by a limited company.
Secondly, there’s the issue of how the rules concerning fee-payers and ‘reasonable care’ will interact. In the private sector reforms, it is the client who makes the determination; but, as long as they have taken reasonable care, it will be the fee-payer who becomes responsible for the tax liability in the event of an incorrect classification.
If you could make one change to tax law or practice, what would it be?
While I was a senior policy adviser at the Office of Tax Simplification, I recommended providing the self-employed with some form of limited liability. This was in response to the research that said that people were incorporating because of the limited liability protection that they could not get as self-employed. Following international research, and specifically having looked at the French system of entreprise individuelle à responsabilité limitée (EIRL), I recommended exploring the introduction of a ‘sole enterprise with protected assets’ (SEPA) model. This would be a form of personal asset protection to business owners, so they could protect the family home. The OTS recommended that this had the potential to be a useful simplification, but it has not, as yet, been taken any further, sadly.
Has a recent tax case caught your eye?
There are two cases that are of particular interest to me, both of which concern employment status and mutuality of obligations. The first is HMRC v Professional Game Match Officials Ltd [2020] UKUT 147 (TCC), where HMRC lost but is appealing the judgment. The issue was whether the football referees are employed or self-employed. What is of interest here is HMRC’s view of mutuality of obligations (which makes sense of its use, or lack of, in its CEST tool), and also the importance given to the wording in the legal and non-legal documents.
The second case is HMRC v Kickabout Productions Ltd [2020] UKUT 216 (TCC), which involves a personal service company. HMRC won this case, having lost in the FTT, and at present there is no appeal planned. This case also concerns mutuality of obligations, and the decision turned on the obligations that were contained in the contract schedule, which again shows the importance of correctly drafting the contracts.
And finally, you might not know this about me but...
I am a very keen road cyclist and I can be seen out in all weathers. I once rode from Sandy Park in Exeter to the first European cup match of the Exeter Chiefs in Castres, France – which involved crossing the Pyrenees and avoiding the floods in Carcassonne. I’ve also been to dinner with Huggy Bear from Starsky & Hutch!
At the moment, everything is focused on the off-payroll working reforms (IR35) coming into force in April 2021. I work with various different industries, especially those in healthcare and aviation, that have also been affected by covid-19, so preparing for these tax changes is a big upheaval. I have come across numerous instances of incorrect classification of officeholders.
What do you know now that you wish you’d known at the start of your career?
I wish I had had more confidence in myself. I started my business straight from university, which was a bold move, but it meant that I didn’t have any way of benchmarking myself. Also, not to listen to the trolls.
What new rules are causing a real problem in practice?
There are many questions surrounding the IR35 reforms that remain unanswered. One is how will HMRC, if it reclassifies a contractor to a deemed employee, collect the tax that is due from the client, and how it will offset that against the tax already paid by a limited company. The system is set up for the offset of the self-employed under Demibourne (2005) Sp C 486 (enacted in SI 2003/2682, regs 72E–72G), but not corporation tax or dividends paid by a limited company.
Secondly, there’s the issue of how the rules concerning fee-payers and ‘reasonable care’ will interact. In the private sector reforms, it is the client who makes the determination; but, as long as they have taken reasonable care, it will be the fee-payer who becomes responsible for the tax liability in the event of an incorrect classification.
If you could make one change to tax law or practice, what would it be?
While I was a senior policy adviser at the Office of Tax Simplification, I recommended providing the self-employed with some form of limited liability. This was in response to the research that said that people were incorporating because of the limited liability protection that they could not get as self-employed. Following international research, and specifically having looked at the French system of entreprise individuelle à responsabilité limitée (EIRL), I recommended exploring the introduction of a ‘sole enterprise with protected assets’ (SEPA) model. This would be a form of personal asset protection to business owners, so they could protect the family home. The OTS recommended that this had the potential to be a useful simplification, but it has not, as yet, been taken any further, sadly.
Has a recent tax case caught your eye?
There are two cases that are of particular interest to me, both of which concern employment status and mutuality of obligations. The first is HMRC v Professional Game Match Officials Ltd [2020] UKUT 147 (TCC), where HMRC lost but is appealing the judgment. The issue was whether the football referees are employed or self-employed. What is of interest here is HMRC’s view of mutuality of obligations (which makes sense of its use, or lack of, in its CEST tool), and also the importance given to the wording in the legal and non-legal documents.
The second case is HMRC v Kickabout Productions Ltd [2020] UKUT 216 (TCC), which involves a personal service company. HMRC won this case, having lost in the FTT, and at present there is no appeal planned. This case also concerns mutuality of obligations, and the decision turned on the obligations that were contained in the contract schedule, which again shows the importance of correctly drafting the contracts.
And finally, you might not know this about me but...
I am a very keen road cyclist and I can be seen out in all weathers. I once rode from Sandy Park in Exeter to the first European cup match of the Exeter Chiefs in Castres, France – which involved crossing the Pyrenees and avoiding the floods in Carcassonne. I’ve also been to dinner with Huggy Bear from Starsky & Hutch!
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