IR35 reform to be repealed; workers will determine employment status
ftadviser.com
ftadviser.com
All along, IR35's problem has been the difficulty of codifying what is politically determined as a "real" business. Attributes like company size, number of clients/customers, ability to choose your own place of work, the degree to which you're under supervision or direction, the length you've been with a sole customer, your contracted right to walk away or to replace yourselv, and so forth are all indicators toward what may politically seen as "not real", but they are not concrete or absolute. All that is happening is that the onus is shifting back to the Seller and the Buyer's may not longer be on the hook quite so much. But some of it will be baked in now - the changes public sector made might live on despite the repeal, since they continue to work toward the political incentive that brought them in.
Since the government started taxing dividends at significant rates on top of the corporation tax already paid any small owner-run businesses that pay out via salary+dividend arrangements are close to the same total tax level as an employee pays in income tax and NI. You're actually quite a bit worse off financially now if you equate gross revenue for the business with salary for an employee because the business has to cover all its own costs in terms of paid time off, pension contributions and so on. And of course you have none of the job security and other protections that employees have under our system.
The only ones who really win big under the current system seem to be the employers of disguised employees because they can dodge employer NI contributions if they pay via a Ltd company outside IR35. But they solved the problem of getting hit with employer NI under IR35 by forcing contractors to work through umbrella companies and then pay all of the costs for both employee and employer themselves. And since that has widely been done inappropriately through blanket policies and lazy status determinations since the rules that are now to be repealed were introduced the one really big tax anomaly in the whole system is the legitimate contractors (and other independents like freelancers) who have been hit with a far higher tax bill than anyone else.
What's different is the tax rate on dividends from shares, and the tax on employment, and that's the tax loophole that IR35 seeks to close.
Once you factor in things like the contractor's Ltd paying for its own running costs, time off for things like holidays or sickness, and pension contributions it makes very little sense for someone to go the Ltd route instead of being an employee just for tax/financial reasons now. The real advantages are in flexibility and having a real business-to-business relationship with clients, which can break various glass ceilings you might otherwise hit as an employee.
But that hasn't been the situation for quite a few years now so the financial arguments to "justify" IR35 don't really make much sense any more.
Personally I think all tax breaks businesses get should be available to individuals; corporations have long campaigned for the rights of the individual like liable and so on with a fraction of the tax burden, surely it should be available the other way around. Particularly when it comes to paying any tax if you haven’t earned enough to feed and house yourself.
Looking at it another way: companies pay tax on profits, we pay it on revenue.
You set up an umbrella company with yourself as a shareholder
You pay yourself minimum wage, thus paying little income tax and national insurance
You then pay yourself and any other shareholders a dividend based on profits but this is taxed at a much lower rate than employee income and without national insurance
Advanced players set up their umbrella company in another country where the company taxes are even lower
The dividend tax makes up for this
What's different is the dividends escape employers National Insurance contributions
As an aside, I think they should scrap NICs and transparently collect it all through a single, higher income tax, but I guess it's handy to trick basic rate tax payers into paying 45% marginally (income tax, plus employee and employer NICs) by breaking it all into pieces..
The other tax that individuals get hit by, that megacorps get to avoid, is VAT. Sure, megacorps pay VAT on their inputs; but they claim them back on their outputs. Individuals spend most of their residual income, so that gets taxed at whatever (20% now?). So individuals end up paying something like 70% tax.
VAT is a wicked tax.
[Edited] 20%, not 25%.
Most contractors are in a position to claim it back if they're also charging it
I think what the parent is referring to is that individuals get taxed twice - once when they acquire the money (whether NI via employment, or dividend tax via limited-company self-employment) and then a second time when they spend it because most of what they spend it on includes VAT.
The government (doesn't matter which colour, they're the same) make a huge deal about income tax rates, tax-free thresholds and so on. Income tax is a smaller part of my tax outgoings than VAT, by a long chalk. (Well, it was when I was earning; now I'm retired, I don't earn income, and nearly all my taxes are VAT).
E.g. for starters, the 20% VAT can only at most apply to what you haven't already paid in tax, so in the event of your hypothetical 50% effective tax rate including employers NI as a contractor (which means you'd need to be making around 110k GBP, placing you in the top 2% or so), you're at most spending 50% of your income, in which case VAT will at most add up to an additional 10% tax on your gross income.
But in reality, most peoples biggest expensive will be things like mortgage payments or rent, neither of which you pay VAT on, and other major expenses such as a lot of food products, are also VAT exempt.
Last time I did the maths for myself, VAT added up to 4% of my gross salary.
To me dividends escape employers NI in the sense that if they were paid as salary then they'd attract employers NI and contractors can choose whether to take income as salary or dividends
As a contractor I've always disagreed with the argument that "it's unfair that contractors pay employers NI" and think many contractors see their company's income as their personal income when it's not
In the process of trying to "close the loophole" and codify the distinction between "good upstanding capitalist" versus a "dirty little employee" they kind of underscored the fact that economically identical activity is being taxed differently according to your position in the British class hierarchy.
It reminds me a bit of dekulakization - the idiotic Soviet reforms that took the opposite tack and attempted to crack down on "dirty little capitalists" by deporting farmers to siberia because e.g. they owned a sewing machine and two pigs.
Employer NI is 14% on top, it’s a big increase tax wise. It brings the effective tax rate for FAANG/similar salaries to over 58%.
For those unfamiliar, listentothetaxman [1] is a great resource.
I don’t consider this a win for the contractor. The end client should be the one to determine status and shoulder the responsibility if it turns out to be incorrect.
The upside of this liability shift is that your customers will be more willing to negotiate with you. Right now some of them are assuming very defensive positions, like treating all contractors as being inside IRS35, because claiming that you're outside is a risk for them.
I'd say the opposite, the incentives / risk structure are otherwise completely misaligned. If the end client says you're outside IR35 and you should be in, they get whacked for income tax + 2x national insurance (employer and employee contributions). If they say you're inside and you should be outside they only have to pay the employer NI contributions.
That's a recipe for blanket "inside IR35" decisions, which is exactly what happened to the detriment of many genuinely independent contractors.
It gives the larger entity in b2b relationship an effective say how the smaller partner is being taxed. This gives them literally an instrument to wipe their competition. For instance, a big haulage company can't find drivers to do a certain route, but there is a small company in the area happy to subcontract. Big company can now say, alright guys, I can only give you the contract in-scope of IR35. If every big company in the area does that (and they do), then suddenly that small business can no longer operate. Company folds and its workers can either seek employment in the big company or do something else.
Of course they aren't supposed to do that and they are supposed to assess each contract individually and there are supposed to be appeals processes if the IR35 status is then determined incorrectly. However we live in the real world and what is "supposed to" happen means very little.
The market for contractors today is a fraction of the size it used to be before the new rules came in. Typical rates in many parts of the market actually fell since the changes when logically several factors should have been pushing them up if the market was functioning properly. No doubt some part of that was getting rid of disguised employees because those people do exist. However the effect has been far too widespread and affected far too many genuinely independent workers and their clients as well.
That part was completely botched. The HMRC themselves admitted that role based assessments are permitted. Also they have deceived the public what assessment actually means. If the client writes the contract in a way that puts service provider in-scope (to minimise the risk), then there is not much that can be done. The appeal is basically requesting the client to change the contract, which for obvious reasons they won't do, because that would put them at risk. So the client can always walk away when you appeal. From the IR35 perspective, the individual situation of the contractor does not matter.
Tax avoidance is a problem but maybe it's better to skim off a little bit from many people than take a lot from a very few people while scaring the rest away?
If the same party that stands to lose money if they get involved is the one deciding whether to get involved or not, surely that's a conflict of interest and makes the policy pointless?
Sure, I guess you could litigate against the insurer (and still litigate against HMRC), but the whole point of this insurance is to protect against legal costs - if you're going to spend money anyway, what's the point of insurance?
This is absolutely a win for the contractor.
If you're a permalancer, coining a freelance rate whilst paying very little tax (no PAYE), then you _should_ be caught out. You _should_ have the liability.
If you operate a business that provides software development services and want to help a client with their existing software project (who already has full-time employees working on it) you will often need to become embedded within their team which includes participating in regular meetings (including daily standups) and do "employee-ish" things that look risky from an IR35 point of view. Just speccing out a clear scope of work in advance is very difficult as sometimes the scope will vary over time as edge-cases are discovered during development, so the SOW will end up very broad and may look employee-ish. Your best bet is to have mitigating factors such as working for multiple clients, using your own equipment, etc and possibly contract length (I am not sure if it counts, IMO it definitely should) but none of those are bulletproof either.
Contributing to an existing codebase in parallel with a client's in-house development team is risky from an IR35 point of view even if you are doing so in good faith and want to operate a business rather than just be a "permalancer". That's also why with the new rules (that are now being repealed), a lot of companies did a blanket determination of putting everyone "Inside" IR35 because the rules are not only unclear to begin with, but even more difficult to correctly interpret and apply in certain industries.
Personally I'd get very nervous about the kind of contracting where you're expected to integrate with a client's Agile processes that have things like daily meetings and breaking tasks down to very small chunks where sometimes you get them and sometimes a permanent employee does and sometimes they move between you. That starts to look too much like a grey area even if everything else is set up like an independent business.
Maybe there should be some alternative status to support flexible temporary employees that reflects their closer involvement with a client/employer while they're working there but also makes allowances for the added risks and limited employee protections and the extra downtime they will probably have between gigs. It's obviously useful to have this kind of flexible labour force but it doesn't really make much sense to treat it the same as either running a truly independent business like a freelancer or being a full employee with the security and benefits that brings.
Edit: I'm thinking of a model where the rates and allowances work out the same as full-time permanent employment if you do end up working consistently but maybe the important figures get calculated over a whole tax year or can even be carried over across years to compensate for the unpredictability. Then you can probably let the market decide the rest of the pricing in terms of how much extra that flexibility is worth to clients and how much compensation is needed for the added risk to attract enough flexible workers.
The big consultancy gets paid an invoice, they pay their employee some salary and keep the profit. If one man band business does the same thing, there is all sort of fuss about being a disguised employee and if the IR35 is applied, then they get taxed on the entire invoice.
To bring level playing field, these big consultancies should also be taxed on the invoice paid by the client, without being able to keep profit. If their workers were assessed for IR35, they would all be caught by it.
It's such a nonsense.
Honestly, I don’t get this mindset.
When you see someone doing better than you, why is your first thought “I must put him down” instead of “I want to learn this too”.
The problem with IR35 has never been the principle that disguised employees should not escape the normal employee tax rules. It's always been that there were also significant numbers of other people affected who really were working more independently and acting like any other real business, which just happened to be owner-operated in their case. Even if they're doing nothing wrong all of these people now have this IR35-shaped sword hanging over every contract they take and so do their clients.
If nothing else it creates extra admin and more legal and insurance costs for those involved. I've known promising contracts to get sunk at the last minute because one side or the other was concerned about some of the details looking a bit too close to being caught by IR35 and because naturally these tend to be relatively short jobs it's not always worth engaging serious lawyers to resolve things. Basically it means everyone loses and all because the tax rules were ambiguous and created more risk than the contract was worth to either or both parties.
Sick days, no pay. Holidays, no pay. Economic downturn? You will be the first out the door. Contract not renewed? Tough, don't expect any 'severence'. Company makes a huge profit? No bonus for you. Forget billing for company parties/outings, etc. Training? lololol, up to you. Plus, you pay your own pension, social security taxes, etc.
These IR35 changes were really poorly written with only the happy path in mind.
The underlying IR35 rules don't appear to be changing. The announcement today is about winding back some relatively recent reforms about who is responsible for determining whether those rules apply to any given contract.
The responsiblity should be on the person to argue with HMRC that they are a business and for those legitimately operating as such, then its not at all difficult.
I am actually in favour of the IR35 legislation as it removed entire swathes of "permietractors" from the market and allowed people like myself (and you judging off the working practices you described) to operate in a true business fashion.
It is no doubt to me that 95% of "contractors" previously working "outside IR35" at large FTSE companies were indeed employees in disguise. Tenure even matched permanent staff, quite frankly it was a joke.
Lots of laws are like this, for instance the piracy warnings that they used to put at the start of DVD's that only punished lawful users cuz if your pirated it, the warnings would be cut out. Theres many more examples like this.
If the government enforced a higher tax on people who didn't speak with received pronunciation I wouldn't begrudge those who faked it.
I don't doubt that there would an outcry from some corners - both non-earnest and earnest - about the "illegitimate tax dodgers seeking an unfair advantage" who did though.
That seems like the perfect way to kill entrepreneurialism and flexible labour. Right now it costs almost nothing to go through the legal formalities of forming a limited company in the UK. However in terms of personal risk and investing your own savings to get the business started and the opportunity costs it can be a huge gamble for anyone who could otherwise be a well-paid professional employee.
We need some people to take those risks and make those investments. Some of those businesses will succeed and then they'll create new jobs and wealth and pay more tax. Of course that also includes employing people in the vast majority who don't want to take those risks and prefer the stability of regular employment.
If there's no reward for taking those risks and making those investments or (as with IR35 umbrella arrangements today) if you're actively penalised for working in a way that's economically useful then obviously it's going to deter most people from doing it. In the long term that doesn't help any of us.
I'm a permanent employee of a one-man startup that I own. Most of the income at the moment comes form consulting. I pay the exact same tax that I would for any other employee, or that an employer would pay if they employed me. Would you elaborate on how that is dodging tax?
You say you’re a startup, that would assume you’re trying to create and offer a product or service from your company for the market, that’s a business. You say your income is currently from consulting, I would assume that means you’re offering a service to one or more clients, I don’t know the details but if you’re offering that consulting service like a business then you’re not a disguised employee.
If however you are working for a company, using their equipment, in their workplace, on their timetable, taking holidays when they say so, where you cannot substitute yourself with someone else and you don’t have any other clients and it’s essentially a permanent arrangement, then yeah, it’s possible you are falling foul of the IR35 law and you should speak to an expert on the subject.
I left UK when it only covered govt agencies so not sure what the mitigations were for private sector but I'm sure many found a way around.
As an employee you can just as well have many short employments and work for multiple employers.
So you could run one contract Inside IR35 at the same time as another is Outside IR35.
HMRC refuse to fully disclose exactly how they deem a contract to be Inside or Outside but I always go with how much control I get and if I'm billed solely on time or deliverables. Even then there's no certainty, you just have to submit the accounts and hope for the best.
This creates an environment of great uncertainty for freelancers, but also one where HMRC can never be sure themselves, if they're properly pursuing those accused of being in breach.
They seem to regularly lose many of these cases on appeal when a (presumably) fair minded judge is asked to look at the facts.
Yes, they tenure may be just as long, but there are many other factors to take into consideration (just off the top of my head):
1. Contractors don't have a "career path" inside the organization, not even the ones that think they do.
2. They can be let go within weeks notice and no severance package.
3. They don't (really) participate in company politics.
4. They are also much easier to convince to jump ship and go next door, where the grass is greener.
5. They are responsible for managing themselves, ie. education, marketing, sales...
And there are others, like no paid holidays, etc., but everyone knows about those.
I would argue that contractors are somewhere halfway between employees and business owners. Maybe it would be the fairest to tax them so, by creating a special tax bracket for them.
It's like regulating e-rollers and e-bikes. What are they? Not bicycles really, but also not motorbikes or cars. Somewhere in between really.
When you frame the monthly cost like this, the customer feels almost like it's an insurance policy rather than paying for your time they aren't using.
Assuming there is still an economy in the UK in 2023 :)
£500/day contracting? Easy. As an employee? Not a chance.
It's really advantageous if you work on a startup or side-project that requires capital; in this case your company accumulates the money and can spend it without incurring any tax (not to mention claiming back VAT), where as buying that same equipment as an employee means not only did you already pay tax on that money, but you can't even claim back VAT.
If you're just looking for an equivalent to a long-term permanent job but as a contractor (even with a legitimately Outside IR35 contract with no tax-avoidance shenanigans), it's not worth it. A conservative calculation on a 500/day rate assuming 44 weeks worked in a year, 11k/year salary (with the rest as dividends), 6k/year pension contributions and 2k/year expenses suggests that it's equivalent to ~110k permanent salary. In practice, you might actually get a bit less due to downtime in between contracts.
"Outside" could mean one of two things, the company you're contracting for doesn't qualify to determine your status (and the tax burden if investigated is on you, if you deem yourself "outside") or they have provided a statement outlining why the role is truly considered outside IR35 (https://www.gov.uk/guidance/check-employment-status-for-tax). For the latter, any incorrect determination is on them.
In reality, the actual difference is marginal, and in return contractors forfeit every protection taken for granted by permanent employees. Paid leave, sick pay, redundancy pay, protection from indiscriminate firing, (often generous) pension contributions etc.
These folk express is quite well
Only thing that matters from the IR35 perspective is whether the service needs to be performed by a specific person in the business. All the rest is irrelevant. If the work is personal, then it is in scope.
Risk averse companies can declare contract in scope by simply fettering substitution clauses or not having them at all.
It doesn't matter if business providing service is legitimate or not.
Those weren't small agencies either. They were some of the biggest names in the business. And they would do other questionable things as well, like not sending the real legal documents until the last minute so any challenge would risk losing the contract, or having their agents and sometimes even their lawyers just straight-up lie about what the terms meant or what the implications were. And of course they would often claim they've used the same contract many times before and mysteriously no-one has ever challenged terms that would spook any contractor who'd ever taken real legal advice in this area.
It's as if they think introducing an obviously-never-going-to-be-used substitution clause is a get-out-of-jail-free card for IR35. Meanwhile some of these "outside IR35" roles require hybrid working where the contractor's time and place of work are controlled, pay based on time and use a rolling contract, have no fixed scope or detailed specification of services to be provided, etc.
There seems to have been much more of that since the reforms that are now being wound back and I've never really understood why. Maybe a lot of contractors were OK with risking it if it meant they could avoid the umbrella trap or something. Seems like a good thing if those not-really-outside roles will now get more resistance because contractors who will be on the hook for IR35 again or the insurance companies they use to protect themselves won't accept those kinds of conditions any more.
If you read HMRC guidances, ultimately if they want someone get done for IR35 (as in committed for years long court saga and bankrupted), then they can always claim the contract clauses for substitution, no control etc were specifically to avoid paying tax.
They have so many rules about substitution, it almost impossible to adhere. For instance, let's say you have a 3 months contract and you never had to use substitute - for them it's a sign, that it was a personal service. If you used a substitute - they can claim you used it to legitimise tax avoidance. Let's say that argument fails - they'll ask if substitute was doing exactly the same work - if you did some coding, got ill and sent a substitute and you were back to work before they could get up to speed, it does not count as legitimate.
Another card up HMRC sleeve is that they can ask if the client could hire the substitute directly, e.g. if you used your colleague how was a contractor and available at the time. If the client could get that person themselves while you were ill, then it does not count.
If you sent a contractor that previously worked with the client, this in the eyes of HMRC also does not count.
There is many many more rules like this and this is designed to exhaust the contractor accused of avoidance.
To be nailed for control is also easy. If you work at the client's 9 to 5 because these are also your business hours and it is convenient to be at client's office, but you didn't have it written in the contract, the HMRC may claim a "hypothetical contract" where in fact you were controlled. Or if you worked I don't know 10 to 6 at your home or office. The HMRC can claim that you arranged it that way to try to avoid paying tax.
You can't win if they put a mark on you.
It's not that "you can't win" because of course many people have beaten HMRC in IR35 cases once their case was finally properly decided. The big three criteria that are famously used to suggest a contract is outside IR35 (substitution, SDC and mutuality of obligation) don't come from the legislation but from early cases that HMRC lost. But it might be a rather Pyrrhic victory if you've still spent years of your life stressing about the case before it gets to that point.
To have truly outside IR35 contract, things to look for are: - can you provide a substitute? (for instance if you get ill, can you send someone else to do the work - and you pay them, not the client) (no personal service)
You should be able to send someone else, that way the service is not personal. So the contract should be with your company, not with yourself.
- can client decide how, where and what time you do the work? (control)
You should be able to decide your own working hours, where you work and how. That of course does not mean you can't decide to work at client's office during their working hours.
- are you obliged to accept the work and is client obliged to provide work? (mutuality of obligation)
This is also important - you should be able to refuse to take on the work. Ideally that should be reflected in notice periods - good outside IR35 contract would have zero notice on both sides. You should be able to walk away from the job without consequences.
The IR35 law was supposed to stop them losing tax revenue, and to be honest i even agree with the overall law, they just executed it incorrectly. They put the responsiblity on the company offering the contract, when it should be on the person applying for the contract that has the responsibility to show they're a business and not a disguised employee.
The better way to do it in my opinion is to empower HMRC with more resources to question contractors and show that they are actual businesses and not tax dodging employees.
If you're acting as a contractor then you are specifically not an employee and you shouldn't let anyone at your client refer to you as such or try to control how you work except via the terms of your contract.
That means for example, you ask to take leave. You tell them that you are not available on certain days. It a subtle but very important difference.
That's not true. If you pay yourself from your company whether it is dividends or salary, you pay tax as everyone else. Sure if you decide to retain some money in your company, you only pay corporation tax, but as soon as you decide to pay the remainder yourself you will pay personal tax anyway. That's how any business works!
It's completely pointless to do anything about this. Big consulting corporations do exactly the same thing, but are not being hounded by HMR.
> whether it is dividends or salary
Dividends won't incur NI thus significantly reducing the tax impact.
Then there's all the other expenses of running a business such as accountancy fees, public liability and on going indemnity insurance premiums and business banking fees that an employee won't have to pay on their salary.
What dividends escape is Employers NI and that's where contractors make a gain
Coupled with the ability to have a spouse as a director or shareholder and so income split with them
This had a dramatic impact on low paid workers - being self employed meant that they no longer received any benefits that would have come to a proper employee (e.g. sick pay, paid time off).
Unfortunately the legislation also impacted highly paid contractors and consultants.
Disguised employment is a big issue and a large number of people are being exploited. It's a shame that our governments have been unable or unwilling to legislate effectively.
It meant a suppression of wages in the IT sector (because employers don’t need to compete with contract rates) and reduced the ability of businesses to quickly spin up a team for a project because of the extra risk and process involved in hiring perm employees.
At some point the Tory leadership had to notice that there are now vast numbers of voters who work as independents or have a second part-time independent gig on the side. I won't cite specific figures here because I don't know the methodology behind the ones I've seen but apparently we're talking about several million people now so that's a significant proportion of the entire working age population. Given that the age profile in this country means they're going to lose much of their reliable support from older "Tory all my life" voters over the next 10-20 years they urgently need to find other large demographics who might vote for them instead.
Appealing to either group is an exercise in optics. The Average Fantasists will still vote conservative despite being much more closely aligned to Labour policy (think NHS, rail nationalisation, police funding etc) because of non-issues such as immigration, the EU, the Royal Family, other Nationalism etc. The Ideological Donors on the other hand have a strong belief in free market economics and finance as the main economic driver, both of which are harmful to an economy in the medium to long term (and often the short term too.)
Current IR35 rules were just bad optics to both groups. I’m personally super happy about the reversion back to the old rules. But I’ll never vote Tory, they’re a blight.
How exactly is free market economics harmful to the economy?
In the US, corporate profits get taxed. You pay a dividend (for the sake of argument; in reality it's a share buyback these days). You then have to pay tax on that dividend. That's dumb and unnecessary.
In the UK as a contractor you pay yourself a low wsage (IIRC ~32K GBP) then a certain amount in dividends because of preferential tax treatment and then you'd try and deduct a bunch of stuff (eg car leases). You might retain profits and then dispose of your business at a preferential tax rate after a few years.
Australia on the other hand is one of the few countries in the world with a simple system of dividend imputation. Say the corporate tax rate is 30% (it was; not sure if it still is). Say you make $1000 in profits and pay 4300 in corporate tax and decide to distribute the remaining $700 as a dividend.
That $700 is what's called fully-franked meaning it comes with $300 in franking credits. When you file your taxes, you get credit for paying $300 in taxes. If your overall tax rate is lower you'll get a refund (essentially). If it's higher, you'll have to pay a little more.
But this way there's almost no difference between paying yourself ordinary income and paying a dividend so a lot of problems just do not exist. There are some differences (eg the Medicare levy and superannuation requirements).
I truly do not understand why the US cannot do this and why the UK spent 20+ years trying to enforce stupid legislation like IR35 rather than simply fixing the dividend system. It's mind-blowing. The solution is so simple.
IR35 enforcement was such a huge waste of money that simply could've been avoided by not caring if someone gets a tax deduction for a car lease.
Because politicians work for rich people, and rich people do not like to pay taxes. Rich people mostly get dividends, and so the dividend tax rate remains low.
The entire legal system is warped around the desires of wealth. Look at the LLC regime in the US. LLCs actually provide very little protection for individuals or small groups running their own businesses, since it can always be argued that active owners should be held personally liable, or even that the business is undercapitalized because the owners have to be directly involved instead of just paying employees. To actually get the big print liability shield, you must only supplying dumb money while hiring patsies to do all the actual work. The regime that LLCs grew out of, Limited Partnerships, openly make this distinction between general partners who actually do work and can be held fully liable, and limited partners who invested money and thus must be held harmless.