back to article IT contractors cry foul over HMRC income splitting law

IT contractors are up in arms about government legalisation that will overhaul income splitting arrangements among individuals following a landmark case that Her Majesty's Revenue and Customs (HMRC) lost. In July last year, Arctic Systems beat the taxman which had pursued the small, family-run IT services firm for what it …


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  1. Colin Millar

    Look - if you're going to avoid taxes

    You need to be in the club - poor people or those who work for a living are not eligible for membership.

  2. Anonymous Coward
    Anonymous Coward

    Flat rate tax

    Eastern europe is switching to flat rate taxes, with considerable success.

    They are easier to calculate, less risky to individuals (who can never be sure what HMRC will try to hit them for, so always have to keep excessive reserves), cheaper to collect, more liked, and avoided less as a result.

    And of course they're lower since they apply to everyone. Poor people gain from social payments, rather than tax refunds.

    Since UK is going to increasingly compete with these countries, perhaps a simpler tax system is the way to go. All this rule means, is that small business will have to keep extra cash in reserve against the risk that they'll be judged to come under this complicated rule. They'll increase the margin of savings they need to put aside to protect their businesses from HMRC attack. But that money could be spent better on their businesses.

  3. Anonymous Coward
    Anonymous Coward

    We're all in this together...

    It's not just freelance contractors that will be hit by this legislation.

    All family businesses from sweetie shops through to widget maufacturers - anyone that seeks to minimise their tax burden by working within the existing tax laws - will be impacted by this ill considered and vindictive legislation.

    The sooner more people wake up to this threat the better chance we have of reminding the Government that tax avoidance is not tax evasion and that they should stop treating hard working families like criminals.

  4. tony trolle

    facebook ?

    thats only PFY's there ?

  5. Eddie Edwards
    Black Helicopters


    If this becomes law, will it apply to income "split" during this financial year?

  6. David Cornes

    Think I need to search out this Facebook group!

    I've worked as a contractor for a fair bit of public sector IT projects (via their outsourced uber-consortiums of course), including HMRC themselves. So much of their own IT systems and projects would be fucked without contractor workforces, given the way they've decimated their permament IT resources, and it does seem somehow unfair they're forever trying to screw us back to the level of the permies we (short-term) replace!

  7. Jonathan Schofield
    Thumb Down

    Don't complain, Darling needs the money.

    With a large and growing proportion of the Governments income going towards Civil Service pensions they need every penny they can get.

  8. Dazed and Confused

    Share holders

    So would the government make it equally illegal to pay dividends to the share holders of all companies?

    If I were to setup a company and were to pay a dividend to the other shareholders why should it make any difference whether they were my spouse?

    This legislation looks like a deliberate attack on families. When I used to work for a large publicly listed company, they used to sell my time. I got a small fraction of that as my salary. The rest went into the company pot. At the end of the year, the company would then pay it's shareholders out of the profit it had made. This is how most business' work. Screw the staff, pay the shareholders. What this law appears to be saying is that that's OK for a big company to do this. However, if a small company doesn't pay all of it's profits to it's employees as a salary and instead decides to pay it's share holders a dividend, then that's not OK.

  9. Rich Silver badge

    Had to happen....

    <-- Icon of blood-sucking Labour MP

    The problem with fighting HMRC is that if they are proved wrong by their own rules, they just (quite literally) change the rules! This is no joke - it has happened time and time again.

    It's an impossible situation, and other than driving more and more small businesses into the ground, and screwing them for a small amount of extra revenue until they finally throw in the towel, serves no purpose.

    As an IT contractor myself, and someone who has run other small businesses, have no idea what the answer is other than give up and leave the country. This government has a single-minded mission to destroy any free enterprise that this country used to be quite famous for. Maybe they'll be happy when we're all working in the salt mines for a bowl of gruel a week.

  10. Rich Silver badge

    Rubbish and Confusion

    Re: "You need to be in the club - poor people or those who work for a living are not eligible for membership."

    Clearly you have NO IDEA what you are talking about! Maybe if you injected a bit of self-motivation and attempted to better yourself and actually try and make a difference by taking some risks and putting some (mostly unpaid and difficult) work in, you would understand how unfair this all is. Then again, you can just sit on the sofa, switch the telly on and complain that someone is better off than you, instead :-)

    Re: "If this becomes law, will it apply to income "split" during this financial year?"

    Well, that's the problem isn't it? All literally depends what HMRC decide to make up on the spot!

  11. Anonymous Coward
    Anonymous Coward

    Why IT?

    Why has IT kicked this all up?

    For decades every small shop owner, every small accountancy firm, every one man band solicitor was doing this, it starts up in IT and suddenly requires government intervention.

    I don't get it.

  12. Anonymous Coward
    Anonymous Coward


    Really are bad losers

    All the way to the House of Lards....and lose

    Yah boo sucks to you we'll just change the rules then.

    now I know where all the sulky kids in the primary school playground went to work.


  13. Anonymous Coward

    Oh the poor contractord have to join the rest of us

    Good fecking job too

    I'm so tired of having 2nd rate contractors standing in for permanant staff, who not only get a considerably higher hourly rate, and don't pay any tax worth mentioning.

    I'm so sorry to see you are down in the gutter with the rest of us

  14. James Pickett

    Bad losers

    Especially of personal information...

  15. Matt Martin



  16. Anonymous Coward
    Jobs Halo

    About time too

    I'm fed up seeing friends who are contracting wriggling out of paying their fair dues in tax.

    Many of my contracting mates have more security than the permanent staff they work with e.g. minimum contract notices of 2 months or more, compared to 1 month or less for the permies.

    Contractors often work in the same offices, for less hours as the permies. Many of the ones I know use receipting / expense ruses to claim back the cost of mileage, car leasing, plane ("business") trips with spouses etc. I'm fed up of my mates asking to keep the receipt when we eat out so they can claim it back as a 'cost' despite the meal having sod all to do with their day job.

    Why should contractors who often earn 2-3 times as much as the permanent peers per hour pay 1/4 -1/6 in tax?

    They never seem to get caught out by HMRC, and having seen my own tax rise year on year I don't see why I should pay more towards their healthcare, the education of their kids and the social care of their elderly parents than they do at the expense of being able to provide for my own family.

  17. Cameron Colley

    RE: Why IT?

    My guess is that they see more money coming from IT than small shopkeepers.

    Protection rackets have a long standing history of adding new clauses and increased charges for their victims -- I don't see why the government's version should be any different.

  18. Anonymous Coward
    Thumb Down

    Sour grapes

    The government lost this at the highest court in the land then decided to take their ball home and change the rules of the game.

    The really nasty bit about this proposed legislation is that it is so loose that the tax man can, and predictably will, hit many legit businesses. Take this scenario for example, you have a married couple working alone as joint directors of the company. Both genuinely put 40hrs a week work in with one being the main fee-earner and the other being the behind-the-scenes person doing everything from accounts to phone answering and everything else that keeps a small company running. If they decide to split the profits from the company 50/50, the government can step in and say that the fee-earner should be taxed on the entire amount because he/she is the only reason the company earned any money, effectively removing the entire taxable allowance and lower rate tax benefits from the second party. Pants, isn't it.

    Another slightly different scenario, if that behind-the-scenes person was paid by the company at a market rate and so was the fee-earner then that would be acceptable BUT any extra profit sharing via dividends would be seen as income shifting and all stacked on the fee-earner's tax bill as that would all have come solely from the fee-earner's ability to bring in the cash.

    Leeches, bottom feeders, and so on, I've run out of things to be shocked about with this government.

  19. Colin Millar


    Sorry M'lord (tugs forelock) - I din't mean to go talking about ma betters out of turn but the telly went off and this interwindows thingy mesmerised me - I'll get back to m'sofa now.

  20. Anonymous Coward
    Gates Horns

    Permie grumbles


    If you're that dissatisfied with what contractors get paid, why not become one? Stop whining and take your career in your own hands. The only appraisal you should have is "are you good enough to re-hire for another six months?".

    Contracting isn't that well paid IMHO, what's £35/hour? 37 hours a week, 45 weeks a year for a full years contract (allow for holidays, illness, bank holidays), maybe 40 weeks if you swap jobs twice, allowing some time between contracts to find the next one.. and taking 10% employers NI and admin costs into account

    So that's about 45-50K pa. There's no package with that, like pension, health cover, childcare. If you're not on that as a permie, you're obviously not good enough to go contracting at that rate.

    Rates may be higher in London, but in my experience the sites are like factory farms, jobs unfeasably dull and travel a nightmare.

    I've been an IT contractor for years but now a permie - the role I've found is miles more fun and challenging than any of the contract jobs I've offered.

    Money really isn't everything and I don't begrudge any of the contractors we employ. If they're sh*t, we can sack them - With permies, it (legally) takes a good six months while you point out they're sh*t and work with them on a plan to make them good again, all the while knowing your paying good money for a complete tool.

  21. Anonymous Coward
    Anonymous Coward

    'Stop crippling us, we're not tax dodgers'

    Well actually a fair amount of you are. I know I was when I did it.

    Charging £70 quid an hour and being paid a little over the minimum wage ?

    Making this up ? Phone an accountant or visit an umbrella company website - the first and biggest claim will be about 'minimising your tax exposure' or some such weasel words.

    And you wonder why offshoring is so popular.

    (too f'ing right I'm posting anonymously - I don't need to see a whiny row of developers tomorrow)

  22. Matt

    Fair Tax

    While it probably will eventually whimper away like other proposals, it's stuff like this that helps give the proposed "Fair Tax" in the U.S. some traction.

    Effectively it's a 30% sales tax on just about everything from bread to bonds. The supporters figure it will drop retail prices about 22% (from tax savings on income & payroll taxes by the corporations), so a net increase in prices paid of about 8%. In exchange, no income taxes, no withholding from your paycheck, etc.

    To satisfy concerns over regressive taxes there would be a monthly "prebate" check from the U.S. Treasury that's calculated to be what a household at the poverty level will pay in a month in sales tax -- so effectively they're in the 0% tax bracket.

    From hundreds of millions you get down to just a few million companies and individuals who are responsible to collect and forward the taxes.

    Ok, so that's just the realy 30,000' view and I'm sure some of my details are off, but you get the idea. Consumption is easier to tax and more difficult to scheme around then taxing income.

  23. JamesH


    I think you are the one who has no idea. It's all very well accusing us hammered tax payers and telling us to try and 'better' ourselves, but as soon as we try to, HMRC and the government in general F**KS us up the AR*E until we go back to paye and watch people who can afford devious accountants get richer and richer while we get poorer and poorer.

    I work a solid week, get paid a decent amount, and watch most of it get taken away in tax. Holidays are a no-no - I need to pay the mortage with my money, and spiralling petrol costs (caused by tax) just mean I can hardly afford to get to work. And Why Oh Why on earth should I have to put in a load of extra unpaid hours when I have a family? And why would I take risks when I have all that to protect?

    Rich, Go back to the single and presumably childless rock under which you live, and keep on ignoring the real world.

  24. Simon Brown

    this is going to be a very expensive piece of legislation

    This is going to be a very expensive piece of legislation. Having read the pdf of the consultation document it is obvious that this is going to hit small businesses really hard. It will require a huge increase in the amount of book-keeping and tax calculation and it will lead to incredibly complex (and expensive) self-assessment. Finally we will all end up paying more tax.

    Now what will happen when we pay more tax? The government hopes we'll all just pay up and be done with it but that's not what will happen. Take example A where a company charges £60 / hour for the 1,000 hours of work it does during the year. Due to the change in tax laws tax liabilities go from (effectively) £7,000 to £14,000 (I don't know, I'm plucking figures out of the air).

    In order to cover this increase, business A increase their prices from £60/hour to £70/hour. Multiply that across all the small businesses in Britain, subtract the number that go to the wall because of this law, factor in the cost of those bankruptcies and debt write-offs and the resulting loss of confidence people have in British business and we have a disastrous piece of legislation.

  25. Mark

    Income splitting

    Well, the problem is that people ARE using this to avoid taxes. When the wife is getting half your salary, what's it for? Sex? Food & lodgings?

    Even if you're an SME, if your wife is the secretary, why are you paying her the same salary as the boss, if it's not a tax dodge? You'd not advertise that job at that salary for anyone else, would you (else I'll brush up on my typing, I used to get 90wpm, down at less than 60wpm now...)? So it must be so you pay less tax.

    HMRC *are* complete and utter arseholse who, if you DO manage to get your way (which is only possible if you're wealthy) will change the law toot sweet. Then again, tax avoidance is damn selfish. If it were cheaper to get because people weren't dodging it, the rate would come down, though more expensive for the ones actually able to dodge.

    As another poster said, flat tax, unavoidable and simple to calculate. No rebates and just have a reasonable minimum wage that is tax free.

    And if you're not paying tax here, you get no protection here. So if your patent profits go to Ireland, you get no tax protection in the UK. If you're a foreign resident, staying abroad 7 months to avoid taxes, you look after your own property (no police protection, hire a guard).

  26. Anonymous Coward
    Anonymous Coward

    Government getting their own back

    Someone from HMRC has probably been reading the Reg and seen all the things people have been saying about their incompetence with the missing CDs so decided to get their own back

  27. Rich Silver badge

    Witch Hunt

    Ok, for the non-contractors and non-business people out there that seem to like bashing us scummy blood-sucking leaches (contractors), a couple of home truths...

    * We all pay tax. I pay a lot of tax, and I don't know any contractors that don't pay a lot of tax. The only way you can NOT pay a lot of tax is to (a) fiddle the books or (b) not earn much. Stories of paying 20 quid a year in tax are simply fanciful. As for stories of paying "1/4 or 1/6", well, 1/4 or 1/6 of what? If it's a 1/4 or 1/6 of gross income then that's still a lot of tax!

    * Most permies have no idea how much work their employers have to do just to employ them. They are unpaid tax collectors (they have no choice), they have to keep you safe and warm, they usually feel obliged to sort out a pension for you, they have to supply you with a canteen if they employ enough of you, they have to pay other people lots of money just to keep the business infrastructure running. And that's BEFORE they actually do any real work that might make some profit! A small business has a smaller list of liabilities, but not by much.

    * This is NOT just about IT contractors. I used to run (until very recently) a small retail business (nothing to do with IT). I worked on that business for 2 hard years before it could even open! I worked several hours almost every day on getting it up and running, in-between holding down my (IT) day job! I didn't get paid for it. Nobody gave me a bonus or even a slap on the back. I'm not complaining because I didn't expect one. The point is that running a small business is not the piece of piss that many people seem to think it is. These are, of course, usually the same people that moan and complain but don't actually DO anything.

    ...and why do some permie people moan their arses off about contract staff earning more than them and doing half the work, and getting free go-go girls at lunchtime, etc etc etc? It's a tired old answer, but why don't YOU try it then? If it is SO easy. If it is SO unfair then why don't YOU do it? Answers usually range from "ah, well, errr...." to "that's not the point!". The more honest will say something like "well, I don't fancy the insecurity" or "I don;t fancy working away from home". Well, that's the point isn't it? It's not all roses :-)

  28. Tony Bryer


    "Take this scenario for example, you have a married couple working alone as joint directors of the company. Both genuinely put 40hrs a week work in with one being the main fee-earner and the other being the behind-the-scenes person doing everything from accounts to phone answering and everything else that keeps a small company running"

    There are lots of businesses like this - plumbers, vets etc - where there is a signficant input from both parties, and it would be hard on them if their respective contributions were not recognised. And if there was no partner the person concerned would have to employ someone as a receptionist/admin/bookkeeper for a significant number of hours for the business to operate.

    But there are plenty more where one (usually he) is working on a contract basis for weeks or months at a time and the input from the other party is minimal. Their income splitting may be legal, but it puts two fingers up to the revenue, people like the ones you cited and those on PAYE who (school headteachers for example) probably get just the same input from their spouses, but unpaid.I suspect that on this subject those who make the most noise will be those least deserving of sympathy.

  29. Anonymous Coward
    Thumb Up

    In the US ...

    Married couples can share their tax burden, regardless of who earns what. Its about the only sane thing I like about the overly-complicated US tax system. Returning to the UK was such a pain, having to put stuff in my wife's name and all the usual tricks.

    IMO the government should allow income splitting for all couples, that would be fair, just, equitable and stop people having to do all this daft hoop-jumping. Since that's never going to happen the HMRC's action seems consistent to me...

  30. Anonymous Coward

    Not working

    IT Contractors, and especially the idiots who fought this case, have poisoned the well for everybody else. Paying yourself £5/month salary and then taking all the profit as dividends - splitting it 50/50 with your non-working wife so as to avoid as much tax as possible has quite rightly pissed off our tax-collecting overlords.

    Sadly, their cure is bad not just for the cheaters, but for many small businesses as well. This change comes on the back of other recent changes by HMRC that are slowly eroding the advantage of being a Limited company and making it questionable if it's really worth taking the risks of starting a new business. Welcome to France.

    After 7-years of running small businesses, I am so unhappy with HMRC, I will now spend £10 on tax avoidance advice if it will save me £10.01.

    (Hence the Anon posting...)

  31. Anonymous Coward
    Paris Hilton

    no wonder...

    "I'm so tired of having 2nd rate contractors standing in for permanant staff, who not only get a considerably higher hourly rate, and don't pay any tax worth mentioning."

    idiot... 2nd rate contractors are simply exploiting lazy management, and topping up crap permanent staff who sit on their fat behinds surfing the web. I assume you're not responsible for hiring, but get your boss to stop hiring 2nd rate contractors if you're so bothered. Hey, you could even increase your own work-rate and then maybe your organisation wouldn't need to hire 2nd rate contractors.

    I'm afraid it says more about your own ability, the very fact you need 2nd rate contractors!

  32. Anonymous Coward

    I run my own small business...

    It's tough. It really is hard work to make it grow into something you are proud of. Then as soon as you have you start looking at how much cash you have to sit on "just in case."

    I feel that the goverment wants you to be stupid, ignorant, ill informed and to work for someone else. If you do that all the help in the world is offered to you.

    If for a second you actually try and better yourself you instantly get slammed from everyside by rules, regulations and taxes.

    Still I'd rather be my own boss and earn £40k a year than make £200k for someone else while they pay me £50k

  33. Anonymous Coward
    Anonymous Coward

    It'll come out elsewhere

    With self assessment, more people working outside PAYE and large numbers of independent financial advisers, it's just that anyone with a modicum of sense has started to consider what they could legitimately do to reduce their tax bill and with a larger pool of people around, good tax knowledge is no longer the preserve of advisers to the super rich.

    What will happen is that this will probably lead to people making more complex arrangements such as multiple companies and cross-charging to step around the rules making the tax even more complex to collect.

    And it's going to get worse with the internet helping to make cross-border working and service delivery extremely easy, for anyone remotely alert to the possibilities monies and services can be routed through different countries. They're pushing people to look even more carefully at the alternative possibilities which won't make life easier for them.

  34. Mrkandid

    @RICH and all who care to read

    Bit schizophrenic there with those two posts.

    Like your first post, but think you are about to fall off your high horse with the second.

    Maybe you should have directed it at the other anonymous coward "About Time too" going on about his taxes and paying for other peoples family. Obviously this loser hasn't got the wherewithal to grasp that the IT contractor, even with his evil tax ways, is paying way more than he is in tax. Any guesses as to whom is supporting whom?

    Maybe our good friend could grow a pair, and as you said RICH [inject a bit of self-motivation and attempt to better himself and actually try and make a difference by taking some risks and putting some (mostly unpaid and difficult) work in].

    At the end of the day there is one SIMPLE point to keep in mind when talking about tax issues; AT any given time, at any given station in society, THE RULES ARE roughly the SAME FOR ALL. (Pedants needn’t bother getting too worked up here)

    If you are jealous of your contractor mate, driving the nice car, exercising his right under the law, grow a Pair and follow RICH's advice previously posted. Take a risk, and build your business within the legal confines of the existing tax law.

    The Internal Revenue is unchecked in its arbitrary and abusive wielding of power. I wonder if there is ANY ONE person working in the Internal revenue that every created a job, or provided an opportunity to anyone or took any real risk in life, or created anything else worthwhile in society; probably not. Probably too busy with their SAD government job pole climbing activities using whomever in the society they can to make their name and the next pay grade.

    Happy 2008. Maybe Labour needs a little rest from all this government stuff.

    One anonymous coward to another.

  35. Anonymous Coward

    @About time too

    You're a right self-righteous, sanctimonious, jealous pratt aren't you! You're not a contractor/small-business owner are you. You have no knowledge of any of this!

    EVERY big corporation in the country plays games with taxes without any worries (look at the Philip Greenes of this World).

    The point here is that the government doesn't bother with them - only the small one man show/family/small business.

    I've been contracting since 1999.

    Contractors take big risks in deciding to go it alone:

    Very few contractos have get 2-months notice [never seen them myself] - long-term contractors get 1 month. Short term contractors are lucky if they get 1 week!

    If a contractor isn't working (holiday/sick/out-of-work/whatever), they don't get paid.

    Contractors have to pay for all their own training - and while away on training they don't get paid, either (see above).

    Contractors have to sort out all their own taxes and other accounting - which gets more complicated every damned year (IR-35 to now).

    They are usually the first to get dumped in the event of a recession/budget re-arrangement (unless they are from a big corporation like your EDS/Accenture's of this world) with zero severence package of any kind.

    Contractors don't get anything like what your average consultancy charges for the same - usually half their rates.

    So yes, contractors may get a larger upfront rate than you but that is to compensate them for the huge risks that they take.

    Are you jealous that contractors are smart enough to find ways to pay the minimum amount of tax instead of being a sucker like the rest? NONE OF US ARE BREAKING THE LAW - so what is your problem?!

    Our risks are big enough already - we try to minimize the rest of our risks (including tax) as best we can - just like the rest of the big corporations and any other sensible business!

    If you had any initiative, entrepenuerial spirit and decent skills, you might try it too, instead of complaining.

    Since I'm contracting in the Netherlands ATM, I'm not even affected by this travesty of a law; but it is the priniciple.

  36. Turbojerry

    Time to go offshore

    I'm sure this will spur many to look at offshore tax havens and arrange their affairs away from this government, for those that don't I expect they will put up fees and cause inflation to rise, BoE rates to stay high to counter the inflation and it will help kill off the UK housing market, perhaps helping turn a recession into a depression, well done Mr Brown!

  37. Jeff Dray

    Good socialist principles

    Maybe the Government should take all our money and issue us with ration books and blue uniforms. We could all live in barrack blocks and learn the party song:

    Darling, Darling We love you,

    Gordon is our hero.

    We the proles will work for you,

    and live a live of service.

    remember: To each according to his needs, from each according to his abilities.

    If you can add a verse go ahead.

  38. Mike Powers

    "Business" trips with your girlfriend are even on TV now

    I've seen TV commercials for some airline or other, where some office denizen volunteers for every possible piece of business travel. He's hardly ever in the office, in fact. The last scene in the commercial, right before the corporate logo, is him smirking at the camera while he and his bit o'stuff board an airplane...

  39. Iain Purdie

    Screw 'em

    I've been travelling and working outside the UK for 2 years now. Currently I'm employed by a UK company within Europe so I'm paying tax. Well. I would be, but I'm earning close to minimum wage, the rest of my pay packet being made up with rent, utilities, lift pass, snowboard hire etc.

    Next stage is to *earn* some cash and settle somewhere. And right now, many countries are looking favourable compared to the UK. Tax is just one reason - you work hard enough to earn over a certain amount and they take so much back off you it's just not worth it any more. Why bother? All I need to do is find a spotty 16 year-old spouse, get her pregnant every 9 months and sit back to enjoy the free rent, free Sky and so forth.

    Oh. Only I've got some self-respect. I'll put the effort in, earn the wedge and give a reasonable percentage to a government I feel *deserves* my money. Mr Brown's corrupt mob don't come anywhere near that category.

  40. Anonymous Coward

    I'm with Colin and A.Coward

    Screw you Rich; contractors make a canny profit (a LOT of it tax dodges) in my experience, whilst deluding it's all part of the fun because they take "risks" and have no permant post. That's bollocks, and you know it. Sure these dodges might be within the framework, but it doesn't make it fair, and kicking up a stink now because it's threatening your cushy little world isn't going to win me over.

    And this nonsense about "taking some risks and putting some (mostly unpaid and difficult) work in". HOW THE F**K IS IT UNPAID?! If you want to be self employed but can't turn a satisfactory hourly rate, then that's your choice. Don't expect me to subsidise you. Charge more, but pay taxes on what you do pull in.


  41. Cameron Colley

    RE: About time too

    I think, perhaps, your jealousy is clouding the issue for you. I suggest you remove the chip from your shoulder and check the comments regarding sweet shops and couples in business together.

    There's an old phrase that I think applies to (or, applied to) you -- "If you can't beat 'em -- join em.". Or, to be rather less confrontational, have you ever wondered why you choose _not_ to contract?

  42. Anonymous Coward
    Anonymous Coward

    Taxing Issues

    Some people on here clearly don't understand that contractors don't save a fortune in doing things like this and they are NOT breaking any law. HMRC have continually moved the goal posts over the years to screw every penny they can out of the 'self employed'.

    IT contractors (and other 'contractors' for that matter) are in the uneviable position of being forced to run a limited company rather than be a sole trader, be a director etc but are not allowed any perks of having a company according to HMRC (paying dividends and the like). If and when they become unemployed they are not entitled to benefits as they were not employed but self-employed, clearly contradictory as their company has employed them and paid PAYE etc.

    It seems HMRC wants their cake and to eat it.

    In many other trades you can be just that self employed and many as we know take cash in hand for jobs and pay no tax (a perk?).

    Its well known If you are very rich you can avoid tax all together.

    As for not paying any real tax, you must be joking, the only actual saving from paying dividends instead of taking salary is the 10% National insurance all the other taxes still apply. And if you take the piss too much with a small salary you run the chance of being investigated and they can go back six years.

    Splitting the income with a partner is what every small business has done for eons without any proof of who contributes what. Again IT contractors are for some reason singled out by HMRC.

    Permanent staff also forget that contractors often have big expenses to cover, such as commuting hundreds of miles each weekend, lodgings not to mention secondary fuel bills, council tax, tv licences etc etc. Living away from home is no bundle of fun either so just think what sort of life it is before critising too much. The lucky ones (mainly round London) just do a regular comute and get paid the same as a contractor coming from the other end of the country. I know, I've done it and tried to get my expenses covered but never managed it, so you end up earning a lot less in reality.

    As I always used to say to such people if you think its such a bed of roses then give up your permanent job and go contracting. After all, its easy, you get paid many times more, do bugger all for it, pay no tax and have a flash car. Funny how very few ever did when faced with the choice.

    There are good contractors and bad ones, I've seen both, and the same applies to permanent staff too.

  43. Anonymous Coward
    Anonymous Coward

    Shop Em

    "I'm fed up seeing friends who are contracting wriggling out of paying their fair dues in tax."

    Do something about it then!

    "Many of my contracting mates have more security than the permanent staff they work with e.g. minimum contract notices of 2 months or more, compared to 1 month or less for the permies."

    I've Never seen a contracting contract with more than a months notice clause on the part of the employer/agency, and a contractor normally has no get out clause/notice period. They also get no redundancy pay or any other such benefits.

    "Contractors often work in the same offices, for less hours as the permies."

    Usually because they are contractually only allowed to work set hours. Over time is not paid or had to be signed off and permanent staff are given priority. Not a lot of point working for free as there is no possible future gain for it (promotion etc).

    "Many of the ones I know use receipting / expense ruses to claim back the cost of mileage, car leasing, plane ("business") trips with spouses etc. I'm fed up of my mates asking to keep the receipt when we eat out so they can claim it back as a 'cost' despite the meal having sod all to do with their day job."

    Mileage and leasing are not illegal as long as the normal benefit in kind is paid just as if it where a permanent employee with a company car. If they are making false mileage claims on a personal car or flights that are not relevant that is just fraud. The same on the meals in most cases it is fraud and should be treated as such.

    "Why should contractors who often earn 2-3 times as much as the permanent peers per hour pay 1/4 -1/6 in tax?"

    If they are then they must clearly be breaking the rules. Have you any actual figures to back this up as in 10 years of being a contractor I never managed anything like this but then I was honest and reasonable.

    "They never seem to get caught out by HMRC, and having seen my own tax rise year on year I don't see why I should pay more towards their healthcare, the education of their kids and the social care of their elderly parents than they do at the expense of being able to provide for my own family."

    Bloody simple, stop moaning and grass them up if it really pisses you off. Just like benefit fraud, fraud is fraud and they are breaking the law. If you are so sure of your facts and so annoyed by it do something about it.

    If you must know as a contractor I was pissed off when other contractors did this and I played it straight and paid all the taxes, what pissed me off even more was when they then complained when they got caught. Even after fines they were better off than me.

    If you want to know who is really ripping the country off, check out mps, last time I looked they got double the mileage allowance of any other person in the UK for 'business' miles and are allowed £20k in living away expenses (£0 for contractors).

  44. Anonymous Coward

    income vs control

    remember a flat tax just gets income for government - Income taxes as in England and the US give control over peoples actions to government and income to lawyers, accountants and others who would have to work fo a living instead of just complicate your lives. Think about how many exceptions to the tax codes exist for special causes - politico's friends - one of thr reforms promised here in the state was no more tax changes affection 10 or fewer people.

    The eastern european model would put many many pigs off the trough

  45. Anonymous Coward

    To all the gloaters!

    All the posters gloating over the plight of contractors should really grow up. Anyone who has actually worked for themselves will know the work you have to put in and the risks you take. You would not gloat.

    Sadly what you are missing is the simple fact that up to now any of you could set up and try to achieve for yourselves, make something. This legisation is based on sour grapes (like your posts) and seeks to removes a big incentive to achieve in the UK.

    It is a sad day and you should be angry about this, after all if they can go after family businesses so fast, what makes you think you could not be next?

  46. Anonymous Coward
    IT Angle

    In case you didn't know

    Something that some of the moaners on this thread might like to take into account is that in taking the case to the House of Lords HMRC p'd half a million pounds of taxpayers money against the wall, to try and recover what would have been less than £10,000:

    Now, before you get all cynical about the rights and wrongs of this case ask yourself a simple question - are you REALLY in favour of seeing your hard earned cash being wasted chasing small tax debts? Because I doubt that just because HMRC change the rules these cases won't be pushed through the legal system. Who is to say that at some point in the future a small business owner won't take his case to the EU courts? Whilst I don't necessarily support all the malarky that goes on in contractor land (every profession has its cowboys), I for one will be supporting the little guy against the state every single time. But after some of the comments here I may not be quite so prepared to support permie workers who speak thru their arse about a subject which they known SFA about.

    And to those dumbarse permies who think that contractors have got it cushy, I will respect your view when you have got off your comfy sofa and tried to run your own small business when faced with a mighty opposition supported by a bottomless money pit (which is your tax...).

  47. Anonymous Coward
    Anonymous Coward

    What a bunch of whingers

    The Moron that attacked Artic is obviously talking out of his orifice. If HMRC had won they would have hit every husband and wife business for 6 years of back taxes.

    The revenue lost because what they were trying to do was illegal and they wasted over half a million of taxpayers money trying to do it. Geoff & Diana saved family businesses billions, why did HMRobbinU choose an IT contractor not a more traditional business who do similar things, maybe they aren't as cuddly as Architects or Plumbers?

    Obviously all the frustrated permies out there need to try the dark side, apparently all contractors drive porsches etc, they don't spend weeks / months out of contract or take 10 -> 20% pay cuts when times are tight. If its so rosy go for it.

    I tried both sides, Permie taxes I pay for .75 nurses, my Employer pays for half a nurse. Contractor taxes my company paid for half a nurse and I paid .75 nurses, my client paid nothing in taxes or pension contributions, healthcare etc (My Company covered those out of the hourly rate).

    Permie I get up to two months training a year. Contractor I paid for a few weeks training and didn't earn while on them.

    Permie I get 5 weeks holiday and its highly likely my salary will still be there when I get back. Contractor holidays were rare and taken between contracts, normally I had no contract to go to when I got back.

    Permie I'm pretty sure I will get paid every month. Contractor I lived in fear of the contract ending early (which happened when the clients contractor decided to can the whole project and the 24 contractors involved), so I paid myself a low wage and built up 12 months of mortgage payments in the company. My wife who did the accounts, dealt with the agents etc while I was out earning shared some of the pot at the year end, she also lived on baked beans while I was out of contract and took the risk of being a bankrupt.

    Anyone claiming expenses fraudulently, permie or contractor is comitting fraud. Try ringing the fraud hotline!

  48. Anonymous Coward
    Anonymous Coward

    Affects all "mom and pop" businesses

    This change will affect every "mom and pop" businesses in the country, including newsagents, market stall traders, gardeners, builders, plumbers etc.

    Under the current legislation they both "own" the business equally. So they both take the same (low) basic salary, pay all their bills, then take whatever is left over as equal dividends. When times are hard, they take no dividends and exist on basic salary alone.

    HMRC is trying to say that the person going out and earning the money must be paid more than the person who does the admin.

    So if you're a mom+pop plumber company with the man doing the plumbing work and his wife fielding the calls from the customers and doing the admin, the new rules say the man should be paid a lot more basic salary than the wife, and by extension pay a hefty chunk more tax.

    The problem here is that both mom and pop own the business equally and both sit on the board of directors. Therefore it's reasonable they'd agree to pay themselves the same basic salary and take what's left over as dividends. After all, a company is free to pay their employees whatever they like for whatever work they do (so long as it's above the minimum wage). That's what capitalism is all about.

    I believe HMRC's intention is to catch those companies where one person does all the work and all the admin, but signs on his/her partner as an equal owner of the business to dodge some tax. The problem then becomes this: How do you tell the difference between this case and the previous one?

  49. Mark SPLINTER

    how's that UK thing working out for ya?

    I no longer pay for your depleted uranium clusterfuck bombs because I left the freaking country. I highly recommend the rest of you do the same and stop moaning about it. The UK isn't even a very nice place to live, why stay? Beer costs a pound or less in almost evey other country in the world. kthxbye.

  50. Anonymous Coward
    Anonymous Coward

    Tax avoidance versus tax evasion

    There is a growing tendency - assiduously encouraged by this government - to blur the distinction between tax avoidance and tax evasion. Tax evasion means breaking the law, whereas tax avoidance means carefully planning your business to minimize tax without breaking the law. As Lord Clyde, Lord Justice General at the time, famously put it in 1929:

    "No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow - and quite rightly - to take every advantage which is open to it under the taxing statutes for the purpose of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue".

    All the talk about unfairness and cynicism misses this simple point. If a government wishes to make certain behaviour illegal, it can do so by passing suitable laws. But it should not then complain when citizens scrupulously obey the laws, with results other than those envisaged by the government. That simply shows that the government is unimaginative, or bad at drafting laws, or both.

    To say - as Gordon Brown and HMRC have done - that citizens should comply with the government's intentions, rather than the letter of the law, is to revert all the way back to the Tudors and Stuarts, when the King's will was law and Parliament merely rubber-stamped it. A lot of people died to overthrow that arbitrary kind of power, and to bring about the rule of law under which all must be treated equally. We should not allow New Labour, or anyone else, to set our constitution back 500 years.

  51. Anonymous Coward
    Anonymous Coward

    Professional Contractors Group

    Professional tax dodgers _still_ whingeing, will it ever stop?

  52. Richard


    I wonder who this will affect the BOFH and all his contracting businesses??

  53. Anonymous Coward
    Jobs Horns

    About bloody time, too


    Do they ever stop whinging?

    I worked as a "slave trader" for many years in the IT contracting sector. I, however, was am "'umble" wage-slave myself: basic plus commision and a company banger. I paid PAYE and extra tax for the priviledge of chauffering contractors around, to and from interviews, picking them up for lunches etc etc.

    All they (contractors) ever talked about was money! How to get a better hourly rate, how to get more back on their expenses, how to funnel more of their "wages" through spouses and non-working/tax-paying members of their families and so on... ad bloody nauseum.

    Most contractors then (as now?) got their work through agencies (slave traders) and whinged about the agency's margins... though they expected to be paid by the agency every week, when the agency would get paid 90 days net. And they had the fscking cheek to call themselves business people. ROFL

    It's about time they got collared for what some of them are... tax evading twats! :D


    My coat's the leather one, the one covered in chains, with the spiked shoulderpads. And now, I'm out of 'ere, like the proverbial bat diving into a shit storm.

  54. Anonymous Coward
    Anonymous Coward

    Company expansion investment.

    Well I for one am glad that the HMRC have recognised that a purely commercial relationship can exist between husband and wife.

    "The legislation does not consider any

    situations where an arrangement has been made on a commercial or arm’s length basis."

    My wife has invested 10K in the form of an interest free loan in my business due to a cashflow problems created by the purchace of a 72 inch display evice needed for company presentations. In return for this investment she required a 50 % share in my company which means that i know longer have the final say in issues like: "individual one is party to, or has power over the relevant arrangements";

    Don't think they will win without a fight.

  55. Anonymous Coward

    @Colin Millar

    "You need to be in the club - poor people or those who work for a living are not eligible for membership."

    A lot of contractors work stupid hours to get jobs done for their clients, and get no overtime for it either. The days of the hourly rate contract are long gone.

    @Good fecking job too

    "I'm so tired of having 2nd rate contractors standing in for permanant staff, who not only get a considerably higher hourly rate, and don't pay any tax worth mentioning."

    Don't pay any tax? Thats a completely ignorant and insulting statement.

    Not only do contractors have to spend their own time every month collecting and accounting for VAT on behalf of HMRC (for free) but also pay corporation tax and higher rate tax, accountants fees, insurance for this that and everything else, not to mention all the other minor bills associated with running a business ...

    ... and thats before you take into account that you get none of the staff benefits that the perm employees of your clients get, so you have to pay for those yourself.

    Statutory holiday? Sick pay? Forget it. You're not at work you don't get paid, and Colin Millar seems to reckon contractors don't work for a living.

    @About Time Too

    "Why should contractors who often earn 2-3 times as much as the permanent peers per hour pay 1/4 -1/6 in tax?"

    Where do you people get these ridiculous numbers. See above.

    I've just taken a permanent job having contracted for quite a number of years. I'm getting in the hand only slightly less that I was able to pay myself as a contractor for basically the same job, and now I get 30 days paid holiday, health care and subsidised child care, and several other benefits which I never had before.

    It all adds up - there isn't that much inequality between perm and contract workers - just a significant apparent jealousy on the part of perm guys, seemingly over the perceived freedom that contract workers enjoy. If you like what you see, grow some balls and go do it (then you'll find out the reality of working for yourself!), don't bitch and complain that someone seems to have it so much better that you - it didn't just land in their lap, they went out and made it happen.

    There are a lot of people out there who run scams to pay f-all tax, particularly despatch riders (I was one once, and got out because it was so dubious) and equally there are a lot of companies who term their workers 'self employed' to avoid paying employers PAYE and NIC contributions.

  56. Anonymous Coward
    Anonymous Coward

    forgive the dyslexia

    Note to self "Always proof read" *know<=>no.

  57. Rich Silver badge

    In my defence

    Getting a bit tired of this now, but I'm happy to defend myself so....

    Re: JamesH

    "I think you are the one who has no idea...."

    I TOTALLY agree with you - I don't know why you would think I wouldn't. Well, apart from the bit about having no idea and crawling back under my stone. And by the way, I'm not childless :-) And I'd LOVE to ignore the real world, but unfortunately it has a nasty habit of reminding me it's there.

    Oh, and as for the "devious accountants" thing - well, I don't know any devious accountants and I don't know anyone else who knows one either, so it looks like you're another one who doesn't actually know what he's talking about.

    Re: A. Coward "I'm with Colin and A.Coward "...

    I class working and not getting paid for it as "unpaid". Sorry - is it me? And you can't really charge more when there's nobody to actually invoice can you? That's what happens when you work for yourself.

  58. Anonymous Coward

    re: Oh the poor contractord have to join the rest of us

    Has it ever occured to you that if all the contractors you work with are second rate compared to yourself, and they're all earning more than you, you could just become a contractor?

    Or maybe you've worked at the same company for a couple of years and you like the fact you don't need to deal with something completely different every 6 months.

    Or maybe you've got a mortgage/family/whatever commitments, and you like the fact you have a guaranteed income from month to month.

    Or maybe you just like whining about things.

  59. Anonymous Coward
    Anonymous Coward

    Interesting difference in attitudes...

    AC wrote:

    "So if you're a mom+pop plumber company with the man doing the plumbing work and his wife fielding the calls from the customers and doing the admin, the new rules say the man should be paid a lot more basic salary than the wife, and by extension pay a hefty chunk more tax".

    Hmmmm, funny that. How is this scenario different from a huge corporation in which lots of poor people with degrees, PhDs and long experience work hard earning the money, while a handful of rich people in pin-striped suits sit back at headquarters "doing the admin". Somehow, in the big company, those who stay at home and do the admin earn ten or more times as much as the workers who actually earn the revenue.

    The key point is that a limited company is, by definition, owned by its shareholders. They have the power to decide whom to employ (including themselves, if they so wish); how much salary to pay their employees; and how much to take in dividends, and when. Now if the present government wants to prevent married couples from setting up companies, they should pass laws to make that illegal. But once a company exists, it should be allowed to conduct its business like any other company.

  60. Dave Eade

    The tax I pay...

    My company invoices about £80,000 per year, of which I pay about £20k in various taxes to the state.

    I take home about £60, but have to cover all my travelling expenses, time out, pensions and all the other expenses involved.

    The money I have at the end of the month is equivilent to earning £40k as a permie - yet if I had a permie job for £40k I'd only pay about £10k in taxes.

    Therefore my family pay twice as much tax as a permie - and now the govenment want to take more - thats whats unfair.

  61. Anonymous Coward
    Anonymous Coward

    The neverending struggle

    Tax payers and accountants are always trying to think up new ways to maximise their income and minimise tax payments, so it's no surprise that the HMRC is always trying to find new ways to grind taxes out of people - otherwise the tax haul would decline year on year (unless the government just puts tax rates up, which would be unfair on salaried staff who've less opportunity for tax avoidance schemes). This is the way it's always been, and it's part of the game. If you don't like the constant struggle, get a job for someone else and pay the standard tax rate.

    As for people advocating flat tax. So everybody gets a prebate every month depending on their situation? Just like the current tax credit system? That's working so well. Or maybe the people advocating the flat tax are IT consultants who're hoping to get work setting up the prebate system and then fixing it when it falls apart.

  62. Anonymous Coward
    Anonymous Coward

    Re: The tax I pay....

    >My company invoices about £80,000 per year, of which I pay about £20k in

    >various taxes to the state.

    Normal income tax would be 27,126.40.

    >have to cover all my travelling expenses

    That's deductible, permies have to travel to work as well, that travel is not deductible.

    What fantastical pension funds do you think perm jobs provide?

  63. Anonymous Coward
    Anonymous Coward

    Me permie

    Used to contract/freelance - but to be honest I hated having to be my own boss and administrator, seemed to spend almost as much time doing the paperwork, getting people to actually decide what it is that they want (difficult to spec otherwise) and pissing about chasing payment (and so on), as I did doing the job that I actually enjoy.

    Now I'm on 37.5 hours a week (paid - don't get overtime but do a bit unpaid when required) and spending nearly all of it doing the job I actually enjoy... don't get paid as much as I could contracting, but I actually enjoy most of my working life now and have more free time. Oh, and I know how much I've got coming in each month.

    Work - life balance and all that.

    That's my tuppence worth on the whole permie vs contractor debate. The only real difference on this whole "tax avoidance" issue is that the permie has a boss who's job it is to work out how to minimise the tax they pay, the contractor has to do it themselves =)

  64. Anonymous Coward
    Anonymous Coward

    @Everyone who thinks consultants pay no tax

    I was sad enough to compute the tax contributions of my company over the past 12 years. £2 000 000

    If you can find any permies here that have generated that level of tax for our illustrious government bring em on.

    It might actually be considerably higher - as I don't believe I included the VAT generated - my consultancy works primarily for financial institutions - so actually generates VAT rather than just shifting it around.

    The worse thing about this legislation is the lack of a clear tax position and of course the broad nature of the change which HMRC deny - but will be applied everywhere. The consultation document is worded in the most sloppy of manners and should in reality never pass the statute books.

    Also - to the whingeing perms - who do you think employs you ? Do you think your Directors are tax cheating scumbags too ?

    Also instead of getting worked up about contractors/consultants - why don't you get worked up about the goverment wasting your tax dollars on barmy schemes like ID cards - or £512m on a prison IT system that will never work, or £7bn and rising on an NHS system that nobody wants ?

    The irony of much of this legislation is that our "Labour Masters", trotsky's all of them are quite happy for "Fat Cats" to enjoy these very tax breaks but not for those who actually work for a living.

  65. Anonymous Coward

    Stop f'ing whining !

    If you're a permie and you're fed up with the wonderful lifestyle and riches of contracting .. become one.

    If you're a contractor and you're fed up with the nasty nasty government stealing all your hard earned lucre - become a permie.

    All in all, if anyone knows anyone who works as a nurse - or a self employed building worker then you know we are a pretty spoiled sector of industry known largely for our decent salaries and continual whining.

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