Webinar.

I'm joined today by Luise Rainer, CEO of number Mill is going to talk through.

Well, thanks.

Current mess.

The public sector in in preparation touted.

Roll out to the private sector.

So without any further ado I give to you hand over two weeks, he's going to start us off.

With where on earth have 35.

Okay.

Well, thank you.

So I just have a briefing on the hood of number.

Mill Consulting are We are a firm of chartered accountants.

We specialize in taxation for contractors, particularly on Guy R 35 were also partnered with a legal provider called Account Tax on Dhe.

Since January 2017 we've done we've worked with some 80 organizations, uh, with regard to our 35 so consulting for them undertaking, um, technical reviews, working practice reviews, that type of thing.

And since January this year, we've done over 1100 working practice reviews of predominantly in the public sector.

So we've got quite a lot of evidence and case study information which might be of interest to die.

So let's have a little think about where I 35 came from will have a pole.

Now, are you ready for that?

Who It should be opinion screens.

Now.

You can see before we get into the history of where I are 35 came from and incredulous 1999 press release in which it was announced on.

We'd like to know.

Have you engaged in i r 35 specialists yet?

So that's yes.

No.

And I intend to.

So we'll give you a few more seconds.

I can see about 2/3 of you voted already.

So have you engaged on I r 35 Specialist?

Yes.

No.

Or I intend to can see most of you voted now.

So I will share the results on your screen.

So that Louise is that only about 70 75% of the audience haven't engaged in our 34 specialist.

About 20% half, 10% into this kind of what you expected.

Um, yes, because it's early days in the private sector.

I'm I think it needs to be more on the intend Thio.

Definitely, but yes.

People attending to leave it to the last minute potentially because they think it's not going to happen.

Based on my experience.

This will happen.

1999 I 35 was introduced and the reason why I hate you Marty introduced It was predominantly because they were looking for our force, a disguised employees.

They believe that some contractors were getting some tax relief that they shouldn't have been getting.

I think what HMRC have forgotten is that contractors are the lifeblood of the flexible workforce.

Andi actually having a small tax break and it is a very small tax break.

Actually, these days on, the level of dividend isn't isn't particularly great anymore than the level of expenses that can be claimed again is restricted to whole holy just business purposes.

So actually, the tax break isn't particularly fantastic anyway.

So, yes, it's about understanding what drives the flexible workforce and makes him entrepreneurial ship in the U.

K.

Which is really important to the UK Tick s o.

I think it was quite quite disappointed on I think I'm The reality is Philip Hammond has taken an easy break there by the success of the I 35 cases wasn't particularly good.

There's some only since 1999 about 30 cases for 5 35 So the tax collection system.

Morning it.

I wasn't particularly good.

So Philip Hammond it's quite clever in introducing an extension to the reforms.

It's not changed.

It's just an extension to the reforms.

Moving the liability up the chain to thievy payer making the feed Pam reliable on what that does is is that means the collection system has put the onus on the liability up the supply chain on.

That's where the nervous is come from on.

And the reason why I said that I believe it will happen in the private sector is it's been particularly effective on the tax collection system.

They thought it would collect about 500 million, and so far they've collected over 700 million.

So it's been very, very successful in the public sector.

Everybody agrees that it's easier to control in the public sector.

However, the appetite will be there to push it through.

So just to remind ourselves what's the difference?

What was the legislation done actually hasn't done anything.

The law in the case law surrounding I are 35 has not changed at all it has done is it's extended it up the supply chain, making the feet pay liable Andi, the person who makes the decision with regard to the I 35 at the end.

Higher up position.

They have a responsibility of due care to make that decision.

So the case law itself hasn't actually changed.

What's interesting as well is that the SS told hate Marcie are have been using for the last couple of years has indeed found to be flawed.

It does.

It doesn't focus on many of the tests.

The actual case Lord tests on dhe.

When we run, uh, cases through it, we find it to be flawed, so it's not sophisticated enough as it is.

I I'm more actively working with HMRC to improve the tool on.

I was with them only last week on there, you know?

So the fact that there talking about adding a mutuality of obligation, for example, it is basically admitting that that part of the testing isn't in there enough degree.

So the sex tool itself is found to be flawed.

So let's go back to the I.

R.

35.

Legislation itself is based on three pieces of case law substitution personal service.

Does the individual have to provide the service themselves, organs I send somebody else in their place.

The second area of case no testing is to do with control on the manner in which somebody is control.

Are they told what to do on how to do it?

What do they use their own skill and professionalism in undertaking that work on the third test is something called mutuality of obligation.

Do you have to give me the work on?

Do I have to take that work?

So, for example, if a contractor is asked to work on Christmas Eve when he wants to work, go to the pantomime with his family, he can quite happily say No.

I don't want to work on Christmas Eve or as if he was an employee on he was rostered to work on Christmas Eve.

Many would have to work on Christmas Eve a fundamental difference.

So three fundamental case lord tests on in the case of Montgomery and Johnson Underwood that focuses on whether the secretary, in the particular case was an employee on the judge deemed that in order to be an employee, all three tests needed to be met.

So if I only one of the three test is met mutuality of obligation control of substitution.

Then I are 35 is passed on.

The contractor isn't an employee, so this is what we need to remember.

Only one of the tests need to be passed.

So on that basis, mutuality of obligation, flexible workers in most cases will pass that test and therefore cannot be deemed to be an employee.

Let's have a look at mutuality of obligation in a bit of a great greater degree.

In the case of Carmichael, Bi national power mutuality of obligation was tested.

This was a group of tour guides on In this instance, the particular court tour guide didn't turn up a number of times on.

It was said that clearly this was not an employee relationship, as there was no obligation to provide.

Service is much similar to the case that I mentioned with regard to turning up on Christmas Eve.

Substitution is one of the heavily relied on tests that their hate Marcie says to looks at, and in the case of expressing echo substitution was tested.

The contractor was a delivery driver who drove a company van on war uniforms.

However, it explicitly stated in the contract, if he's unable to do the work.

He must sup supply someone else instead to do it.

It was specifically stated in the contract, even though the chap war a uniform and had a company van, it was found that he was able to provide a substitute.

Now, one area of testing, which is very important, is the matter of control.

And in the case of ready mixed contra concrete, the matter of control was considered in great depth.

Control is to be considered with all all aspects to be sufficient to Thio design.

Where the one party is the master on one party is the servant is if this is clearly defined in the contract.

No need to look no further than the contract is key.

In this case, this was a group of hauliers who are engaged on they had a company logo on their vehicles war.

The company uniform on the vehicle could only be used by this particular company.

So everybody would say the's individuals were caught by our 35.

However, they they were in control of how much mileage that they did.

They're in control of how they managed their whole on the efficiency over that a piece of work that they did.

They were seen to be using their own skill and professionalism on.

Furthermore, the contract itself was very clear that this was a contract for service.

I know our contract off service.

There was no master servant relationship on, therefore, no employment relationship.

They were deemed to be small businessmen.

So, as you can see, there were three tests.

Substitution control, mutuality of obligation.

And only one of these tests needs to be prison in order to not be caught by our 35.

It's complex in 2012 on, um, the end.

I'm moving.

You introduced something Try on dhe make the effect is effective in the survive 35.

Even greater on they introduce something called the business entity.

Tests on this is very similar, I think to the Sistol in that it was ah Siri's of tests that were weighted on, looked at particular areas off business relationship, looked at risks and rewards.

It looked her employment rights.

It looked at pensions, holiday pay, longevity of service, client risk repair, own expense billing, having accountants, business planning.

Did they have their own premises?

Did they have their own equipment?

Did they have business cards?

Were they able to provide substitutes so similar, though not based on case law in 2015 these indicators were deemed to be confusing on were removed very, very similar to the sex situation that we have today.

However, back in 2012 we were told that no such testing would be introduced.

Yeah, so we recently had a case with Lorraine Kelly.

She won her are 35 case to the tune of £1.2 million.

This was a very high profile case for the Inland revenue.

I'm one that particularly focused on control.

I had a look at the document itself is about 45 pages.

I'm is quite interesting.

Um, the rain.

One of the particular points that they focused on the hatred Monty focused on was the fact that she had her own dresses had stylists on.

They suggested to her that the stylist told her what to where, she replied, very clearly, they don't tell me what just where they suggest what might be fashionable or stylish for me to wear what's on trend.

I decide what to wear.

They suggested to her that she had researchers and the researchers told her what she should present, she said.

Indeed, I take advice from the researchers.

I use their information, but I do not.

They do not tell me what to present.

Ultimately, the case was one on the fact that the rancor he was not deemed to be controlled on the level the evidence of control was far less than Hmrc had implied.

This has definitely been a great success case for those at my 35 contractors.

So let's remind ourselves, I 35 focusing on the life blood off the flexible workforce introduced in 1999.

But the case law has not changed.

It's merely been extended contractors.

They're not tax evaders, and I think, to go into the exercise that contractors are tax evaders.

In local cases, they do pay for taxation.

They use accountants.

The invoice eso it be pretty difficult for them to be tax evaders.

It seems the wrong approach to take and think about it.

What does it do to somebody who's on £200 a day?

The actual take home pay difference potentially depends on what type of model that they put on, but when compared to something like Umbrella or P A Y E.

Take home pay on an annual basis could be reduced by about £8000 on somebody on £300 a day.

The impact on them would be circuit £10,000 so these are significant sums of money.

So when assessing your workforce is to whether they do meet the requirements of our 35 or no, it's pretty important that you understand the impact is gonna have on their take home pay.

Or indeed, if you use an agency in the supply tae the in the supply chain, the impact is goingto have on the invoicing that they undertake on the charge rates to you.

So let's have a look at the contractual chain, the typical contractual chain.

So the public sector.

Or if it's the private sector coming in April 2020 the inclined took the top of the chain typically may have an agency in the middle, the personal service company and then the worker.

Let's remind ourselves of where the liability sick.

So since 1999 the liability is always sat with a worker, and it continues to to die.

So if Hmrc wish to address that worker on asked him why in which they have a limited company and they're getting the benefits of dividend or taking their salary at the tax free, fresh hold.

Then he needs to be able to explain that he's happy that he meets the requirements of I 35 that's been the same since 1999.

As I said, the legislation has been extended on.

The liability has been extended up the chain to the fee pair on the fee paying, maybe the agency in the middle, or it may be the public sector or, in April 2020 the private sector end client.

So the responsibility on the liability for if taxes are collected in the right way will shit with the feet pair ultimately higher up the chain.

Potentially, if an agency is involved, it's higher up the changes.