Freelancer Limited Company Idea
IPSE, (ex PCG), the freelancers group, have come up with the freelancer limited company idea. This is a separate type of limited company just for freelancers. They came up with it before and it got a lot of criticism. They pulled back from it but now they have re-introduced it.
They want the Government to agree to set up this new type of legal entity. Their idea is that freelancers who are not caught by IR35 would take up this new limited company entity and contractors would live happily ever after leaving IR35 behind them in the past.
The Government would bash those contractors who were caught by IR35 and leave those in the new freelancer limited companies alone allowing them to claim all sorts of things against tax.
We believe this to be naive.
We have criticised IPSE / PCG initiatives in the past and been proved right.
Firstly there was the time when the PCG / IPSE excitedly rushed out a press release just before the 2010 election stating that they had got a promise from the Conservatives that they would look at IR35 again if they got elected.
We pointed out to them that this was no definite promise. All they promised was that they would ‘look at’ IR 35 again.
Looked At IR35 Again
They were as good as their word and they ‘looked at’ IR35 again and decided to keep it. They said that if they abolished IR35 lots of contractors would leave their umbrella companies and go back to limited companies.
Of course they would have!
As the Government takes an average of Â£10,000 a year in tax from umbrella company contractors than limited company contractors this was a no-brainer for them.
How the PCG / IPSE ever though that they would hand bakc to tens of thousands of contractors, earning an average of Â£400 a day, Â£10,000 a year in tax each was incredible at a time when there was a major budget deficit.
Indeed, Chancellor Osborne said he was going to STRENGTHEN IR35 and hired a team of 36 compliance officers to police it when tens of thosands of HMRC workers were being laid off.
How that must have come as a suprise to those who rushed out the pre-election press release.
The Conservatives are now a lot worse than Labour for bashing contractors.
IR35 Panel and IR35 Test
Another time that the PCG / IPSE was naive was when they were on the IR35 Panel and came up with the idea of an IR35 Test.
The Government and HMRC agreed with this and between them they came up aith a load of questions that would show contractors whether they were inside or outside IR35.
There was a points system. However, it was HMRC and the Government who decided, by themselves, without the PCG, how many points took contractors outside and inside IR35.
It was very difficult to be outside IR35 for contractors who took the test.
It wasn’t even legal, only advisory and an opinion – yet some public sector departments started using it as if it was.
The PCG / IPSE complained furiously but it was they that gave HMRC and the Government a loaded gun and were naively surprised when it was used to ‘take out’ contractors.
Freelancer Limited Companies
Now they are at it again.
The freelancer limited company idea from IPSE has been come up with so that contractors can go about their business unworried about IR35. They will be in the promised land leaving IR35 behind.
However, it puts all freelancers together in the one type of company. It will be like shooting fish in a barrel for the Government and HMRC.
It will make it easier for them to just hit one-man-band freelancers without impacting those who they saw as operating genuine limited company businesses.
It would be like manna from heaven for the Government.
Budgets and Autumn Statements
Each Budget or Autumn Statement would see a fresh attach on freelancer limited company contractors. All the expenses that they can claim against tax would be gradually eroded till they were paying much the same as permanent employees.
The government wouldn’t have the problem of trying not to hit what they see as genuine small businesses using limited companies while targetting those one-man-band freelancer limited companies.
This would be perfect for them. All their targets would be in one type of limited company together, i.e. all their fish would be in one barrel.
Then the shooting would begin.
IPSE’s Freelancer Limited Company idea should be consigned to the dustbin.