back to article IT contractors raise alarm over HMRC mulling 'one-month' nudge onto payrolls

Freelance IT workers in the UK have expressed concern about claims that the government plans to force contractors onto the payroll of their clients after just one month of service. It was reported over the weekend that Chancellor of the Exchequer George Osborne would crack down on personal service firms during his spending …

  1. eSeM

    I Don't Understand The Logic ....

    I pay the government a lot more tax ( NI, Tax, Corporation Tax and VAT) as a contractor than I would as a permanent employee on a lower salary.


    1. g e

      This does not compute

      Are HMRC saying that no job should take longer than a month and if it does, regardless of business sector and public/private sector, then the person doing that work must become an employee of the entity requiring the work???

      I must have misunderstood because that does not compute in any market and it's obvious that it doesn't, even to someone as stupid as a bureaucrat.

      1. Anonymous Coward
        Anonymous Coward

        Re: This does not compute

        It seems to me that you wouldn't have to join the payroll of the company which engages you, but your own PSC would have to pay you as an employee, rather than allowing you to take a nominal salary plus dividends. This is the same as what happens if you "fail IR35" today.

        From the contractor's point of view, this is the worst of all worlds: the contractor pays the same taxes as an employee, but has none of the benefits (employment rights, holiday pay etc)

        It will become complex if you have multiple contracts, some of which pass the new rules and some don't; you will have to apportion your income and expenses against each contract.

        1. This post has been deleted by its author

        2. CommanderGalaxian

          Re: This does not compute

          No. That's not the case. You could be on the payroll after one month.

          Believe it not, this is actually a concession by the taxman/George Osborne.

          In the previous recent statement on redefing the defintion of self-employment, freelance work and IR35 status, HMRC had proposed, from day one, to ignore contracts, ignore existing case law and ignore existing status tests (mutuality of obligation, substitution, direction and control (that's the how, rather than what and when)) [pass anyone and you are *not* an employee].

          What HMRC proposed (and may still be proposing) was contacting the client and asking them whether or not they thought the contractor was under the employer's direction and control - knowing full well that somebody in the personnel department is not in a position to make this judgment - but would almost invariably reply "Yes" - and would instruct them to add the contractor to the payroll and begin deducting tax and NI as though they were an employee - unless the contractor agreed to have their own PSC payroll supervised by the engaging client - and make tax and NI deductions as though they were an employee of the client.

          The contractor would be free to appeal the decision and if HMRC agree that he/she should be treated as self-employed, then they will refund what's due once he/she has done their annual tax return.

        3. VBF

          Re: This does not compute

          IF that turns out to be the case, the Umbrella Companies will be happy.

    2. Anonymous Coward
      Anonymous Coward

      Re: I Don't Understand The Logic ....

      I know where you're coming from.

      My company generates around 30K of Corporation tax a year - several times what FaceBook currently pays. I also collect roughly the same amount of VAT for them as well.

      On average I pay about 70-75K in tax to the government. if I was a permie I'd pay around 30-35K a year.

      I'm not sure how making me seek a permie role will help with the balance sheet.

      1. g e

        Re: I Don't Understand The Logic ....

        Bloody hell. Just googled and *I* paid more tax than Farcebook last year, too, and I'm by no means minting it.

        1. AndrueC Silver badge

          Re: I Don't Understand The Logic ....

          In addition both of you are probably contributing more toward society and a better world than Facebook ;)

        2. Wayland Sothcott 1

          Re: I Don't Understand The Logic ....

          You would think it would bring more money in to get Farcebook to pay their tax than try and make thousands of contractors pay a bit more. As noted a contractor has a larger tax bill than a permie.

      2. Electron Shepherd

        Re: I Don't Understand The Logic ....

        The "if I was a permie" implies you're a contractor, and generating revenue by selling your services. If you are billing VAT registered companies, the VAT you "collect" is simply claimed back by the company paying your invoice, so the net gain to HMG is nothing.

        So, using your figures, currently HMG gets 30K from you, and if you were permanent, HMG would get 30 - 35K. By my reckoning (in your specific case) they will either get the same or more money from you.

        1. Velv

          Re: I Don't Understand The Logic ....

          "If you are billing VAT registered companies, the VAT you "collect" is simply claimed back by the company paying your invoice, so the net gain to HMG is nothing."

          WRONG - it depends on the business sector and the VAT rules relating to the products sold. Financial Services are VAT exempt, so businesses engaged in selling Financial Services cannot reclaim the VAT they are charged on goods and services supplied to them, so that is a massive gain by HMRC

          1. J P

            Re: I Don't Understand The Logic ....

            Velv is spot on. Irrecoverable VAT is the biggest tax that FS businesses suffer - way more than CT, NI etc. And it's thanks to the UK's contractor population that we have such an enormous FS sector - London is not just the biggest capital market in Europe, it's actually bigger than the whole of the rest of Europe put together.

        2. Wayland Sothcott 1

          Re: I Don't Understand The Logic ....

          You're forgetting that pemies get paid less. So the pay cuts would equate to less tax paid. But then that's more profit for the employer and so they pay more tax. It's not obvious which way it goes for The Revenue.

      3. Anonymous Coward
        Anonymous Coward

        Re: I Don't Understand The Logic ....

        1: that VAT was never your income and as already pointed out, gets claimed back for net zero good to HMRC.

        2: the IR35 affair is about closing a loophole meant to reduce your taxes. If you'd really be paying less to HMRC as an employee you need to go seek professional advice on what you did wrong setting the company up!

        It's hard to be sympathetic to those hurt by loopholes closing around their necks. You had it good, banked the money, now get over it.

    3. JDX Gold badge

      Re: I Don't Understand The Logic ....

      >>I pay the government a lot more tax ( NI, Tax, Corporation Tax and VAT) as a contractor than I would as a permanent employee on a lower salary.

      The proposal isn't that you'd become " a permanent employee on a lower salary." Just that a lot more of what you earn would be taken as tax, and that it would all be very much more complicated.

  2. Your alien overlord - fear me

    Not IT specific but I think that HMRC thinks freelancers might not be so forcoming with salaries, taxes to be paid etc. I'm looking at the building trade, employing lots of 'consultants', probably from abroad, who don't realise tax has to be paid to No. 11. Just my thoughts, not those of any gov't department.

    1. jackharrer

      It may be exactly like in construction. I help few friends with their tax returns (they work in construction). Situation is that although they're self employed (with all the bonuses and drawbacks of it) employer needs to pay their "expected" NI & PAYE taxes. So when they do their tax assessments those usually come with large returns due to expenses they can claim.

      I have a feeling same will happen here - they will ask employer to pay your contributions directly to HMRC and people can claim them back if you provide all the proofs. People are not directly employed (they are still contractors) but are on payroll. System is really simple and already implemented. For PSC, where you're not supposed to muck with dividends and so, it makes sense.

      It will just increase number of Ltd companies, which are more headache to manage. That will also increase workload on HMRC to analyse tax returns from those Ltds thus will be very counter-productive and expensive, IMHO.

  3. Anonymous Coward
    Anonymous Coward

    Long overdue

    This is long overdue and will bring a nice boost to the coffers.

    1. fruitoftheloon

      @Ian 45: Re: Long overdue


      wtf are you smoking?

      Some questions for you matey:

      - Why is it 'long overdue'?

      - How long have you been working for yourself?

      - Are you envious of daily/hourly rates that contractors can get?

      - Do you know WHY clients engage some folk as contractors rather than permies?

      I look forward to your hopefully lucid replies...




      1. Doctor Syntax Silver badge

        Re: @Ian 45: Long overdue

        "I look forward to your hopefully lucid replies..."

        That would be a lot different from his original post. Don't hold your breath.

        1. fruitoftheloon

          @Doctor Syntax: Re: @Ian 45: Long overdue


          well I live in hope...

          Have one on me.



      2. KeithR

        Re: @Ian 45: Long overdue

        " Are you envious of daily/hourly rates that contractors can get?"

        Maybe he just thinks it's about time you paid the right amount of tax on them?

        1. Anonymous Coward
          Anonymous Coward

          @KeithR Re: @Ian 45: Long overdue

          I think you will find that most contractors do pay the right amount of tax on their rates. Or do you mean that they should give the government more than they legally are required to do? If so would/do you?

        2. Anonymous Coward
          Anonymous Coward

          Re: @Ian 45: Long overdue


          "Maybe he just thinks it's about time you paid the right amount of tax on them?"

          Funnily enough the right amount of tax is as little as can be paid within the current laws.

          Which is exactly what contractors pay...

          If you want to be the guy that steps up and says "you know what... I can afford more heres an extra £5k HMRC" then by all means, fill your boots.

          But until you set the example Ill keep paying what I HAVE to and no more (Incidentally what I have to pay is likely significantly more than what you pay)

    2. Velv

      Re: Long overdue

      "bring a nice boost to the coffers"

      Impossible to tell until anything official is announced. Rule changes could result in a substantial reduction in spend by businesses, thus reducing the market and subsequently increasing unemployment.

      Freelance workers are used by business as it is economical from the business perspective, not because they're trying to reduce money flowing into the treasury. If the cost of doing business rises, money into the treasury will fall.

    3. Captain TickTock

      Re: Long overdue

      Do not feed the troll

    4. bailey86

      Re: Long overdue

      How will killing off several entire industry sectors and destroying companies ability to improve their IT systems boost the coffers?

      (And lets get this out of the way first - before you think contractors pay no tax I'd like to point out that most pay plenty of VAT - and HMRC are already going to increase their dividend payment tax take due to dividend tax changes -

      A quick look has shown that the IT outsourcing industry was worth 41 billion GBP in 2011 - probably even larger now. Let alone the support industries like the recruitment agents, accountants, insurance companies (for liability cover), hotels, train companies, car leasing, B&B's, restaurants, service stations, coffee shops etc etc whose staff are all employees.

      The Recruitment Industry alone is worth over 28 billion of which the largest part will be placing contractors (which feels about right to me since the agencies I've seen have very shiny offices in very expensive areas of the city).

      So all that would go to zero.

      To put it simply - currently companies do not pay anywhere near enough wages in London or other big cities to properly cover transport and housing costs. Contractors can claim for costs when working away from home which makes working for London companies feasible.

      So, thrusting companies will want to expand, more staff/turnover (more tax paid) etc and will need to expand their IT (because EVERYTHING runs on IT) - and they won't be able to because all the IT contractors have disappeared and are now claiming benefits due to there being not enough jobs in their home towns.

      Blame the London bubble if you like - but that's the way it is.

      The biggest loss is this - flexibility for industry.

      It's weird that a Conservative chancellor is even thinking of severely damaging the British economy by trying to get us all on to a sort of Marxist, everybody on the payroll, inflexible Communist style industry control.

      If he wants more tax revenue then maybe he should go after the private housing sector. All those landlords living off everybody else's backs while channeling their 'profits' through private companies. Get them into jobs and paying PAYE. Maybe ban people from being landlords if they don't maintain properties properly. Hike the tax landlords pay (and get them to pay the rates again) to discourage people making money from nothing - boost the fair rent systems like they've had to in some cities in the US of Capitalism. Even, say it quietly, rebuild all the council houses and flats which Labour governments built and which the Tories gave away for votes. People might then be able to live AND work in London.

      1. chris 17 Silver badge

        Re: Long overdue

        @ bailey86

        what are you smoking/drinking?

        how will this kill of the IT industry? you can still be a contractor, you can still do work for multiple companies, just the loopholes currently used to minimise the tax paid will be reduced or closed. You won't get away with earning £10K per year and taking £X0(0)k in dividends paying just 20% (or what ever) tax. Maybe you'd have to pay the same rate of tax as permies.

        "All those landlords living off everybody else's backs while channeling their 'profits' through private companies. Get them into jobs and paying PAYE"

        how is what you are doing different to what the landlords are doing? your both earning money and paying the minimum (I'd say correct amount) of tax possible.

        You know your onto a good thing and would be worse off paying the same rates of TAX as a permie and this is why you are a contractor instead of permie, because the money is better as you pay less tax.

        1. bailey86

          Re: Long overdue

          'You know your onto a good thing and would be worse off paying the same rates of TAX as a permie and this is why you are a contractor instead of permie, because the money is better as you pay less tax.'

          I think I need to restate what I said.

          If IT professionals had to be short term permies then working in London would be pretty much unfeasible - earnings can be less than a decent living. I've worked with permies in London and they are so badly paid they have to commute for hours and live in cheap areas - not sustainable long term. Most of them eventually make the jump to contracting (or certainly want to). And these guys are very often experienced guys who are very good at what they do.

          Contracting isn't just about how much tax you pay - it's what you can claim for as expenses.

          There is a London bubble problem.

          Also, companies need flexibility when employing IT staff. Might need someone for only one/two months - part time - for a few days etc. Contractors have to still pay the bills in between contracts - so need to be paid more to build up a buffer.

          Permies often think contractors are raking it in - but how would you cope with effectively losing your job every few months and having to interview/negotiate for a new position whilst still getting bills in. The grass is really just the same shade of green - we're workers too just trying to make ends meet (in our case by providing a flexible service).

          And as mentioned - it's not that contractors pay no tax - don't forget VAT. And before anyone says VAT is zero gain - then why is it implemented? You add value - a company expands - makes more money - pays more VAT. ATW the government received 97.7 billion in VAT in 2014. I'm happy to pay no VAT if people think it is a zero gain tax - but 97.7 billion doesn't sound like zero gain to me.

          (And BTW - closing down VAT carousel fraud by sorting out the rules properly might be another area GO could look into).

          Finally, Landlords. I bet not one landlord works as hard as the average contractor. They contribute nothing to society - just making money from money. As mentioned - getting rid of the bad ones would at least be a step forward. It would release more housing stock which may help the housing situation - and get away from the ridiculous situation we've got now where paying rent can be more expensive than what the 'landlord' is paying for the mortgage.

          1. David Roberts

            Re: Long overdue

            "Finally, Landlords. I bet not one landlord works as hard as the average contractor. They contribute nothing to society - just making money from money. As mentioned - getting rid of the bad ones would at least be a step forward. It would release more housing stock which may help the housing situation - and get away from the ridiculous situation we've got now where paying rent can be more expensive than what the 'landlord' is paying for the mortgage."

            Yet another brain dead rant against landlords, and less factual than most. Have you ever considered that contractors may also be landlords? Property is a good alternative investment to the stock market and/or a pension fund.

            As for making money from money, surely this is what savings accounts, ISAS, pensions and many other things do.

            Finally, releasing more housing stock? From where? If you sell off the rental housing you still have the same number of houses and the same number of people wanting to live in them. Just nowhere for people with short term job security to live, as they can't afford a deposit to buy and they can't qualify for a mortgage. This is one of the key benefits of having a rental market; provision of housing to those who are unable (or don't want) to buy.

            Two points I agree with; police rental properties more vigorously to prevent the vulnerable being exploited and build a new stock of rental properties to replace the Council Houses sold off. The rest is total bollocks.

            1. bailey86

              Re: Long overdue


              Landlords or companies found guilty of not maintaining properties within the regulations are get banned from renting out properties. Sounds fair so far.

              Those houses are then available for purchase - so - due to the law of supply and demand - more houses are available - prices go down - and first time buyers will find it easier to get on the housing ladder.

              What's not to like.

              BTW - This is what they used to have in Sweden - no ownership of private property unless you lived in it. The result - plenty of high quality housing available at half the cost of what it was in the UK at the time. When I was there it was quite surprising to see beer at fives times the UK prices - houses at half the UK prices.

              Sorry to state the well known obvious - but the more private landlords you have the higher the property prices. All I'm suggesting is to enforce the rules more strongly to get rid of the bad ones - and make all of them pay more tax.

              Remember, it was the landlords who used to pay the council tax (called housing rates) until the landlord's friend Thatcher transferred that bill on to the tenants as the poll tax which is now the council tax. And Thatcher brought in the tenancy agreements which allow landlords to kick people when it suits them (every six months I know but if you've got kids in school six months is nothing). So they've had a good deal over the last 30 years. Time we redressed the balance - and as mentioned - no private landlords - just regulated housing associations and council houses like they had in Sweden would be the best way to provide good quality, affordable housing stock.

          2. chris 17 Silver badge

            Re: Long overdue

            Everyone pays VAT on goods that attract VAT, if your a business that is obliged to charge VAT on your services, your customer pays the VAT & you pass it on to HMRC minus a small percentage.

            How are you paying extra when its your customers paying and your earning from it at the same time?

            If London is too expensive to work in as a permie how come so many permies work & live successfully in London without being contractors. The trains and tubes are not full of contractors commuting to work, they are full of permanent staff commuting from within or London or her suburbs or further afield. many choose not to live in London for many reasons other than they can't afford the rent. So called cheaper areas are not cheap compared to the North but they have other desirable qualities compared to living in London. I know many people who moved to the coast just because they like to be by the sea. Brighton to Central London is not that long to commute by train.

            Lastly i know many contractors that are also landlords as its a good investment on the oodles of cash they've earned and paid less tax on than a permie. Not all landlords are bad, if they where no one would rent. Rent has been higher than a mortgage since at least the late 1990's. Some may not have a deposit big enough to buy or have been put off buying by stories in the press or the ever present danger of a recession and the fear of negative equity. In my opinion its misguided. Buy as soon as possible and lock in the value, after all renting is just paying some contractors mortgage and feeding their retirement plan.

            If your contract pay is so low that you would struggle to live around & work in London maybe look to re-skill in something more lucrative?

        2. Anonymous Coward
          Anonymous Coward

          Re: Long overdue

          Chris, with this "dividends paying just 20% (or what ever) tax."

          You have shown how much thought you have put into this.

          Corporation tax is indeed 20%... But I suspect that was a lucky guess...

          Then of course there's :


          Accountants fees.

          And the lack of:

          Sick pay,

          Holiday pay,

          Job security,

          Redundancy pay.

          Plus we have to pay employees and employers PAYE...

          I think you'll find the % isn't that dissimilar... Even more so next year with the new 7.5% divi tax.

          1. KeithR

            Re: Long overdue

            Rather asinine, isn't it, for a contractor to complain about lack of job security?

            1. Wayland Sothcott 1

              Re: KeithR Re: Long overdue

              "Rather asinine, isn't it, for a contractor to complain about lack of job security?"

              It's not a case of complaining. Job security has a value. Permie get paid less but are in full employment. Depending on the contracting area a contractor may have long or short periods of no work. That has a negative monetary value.

              If the proposals take away some benefits of contracting but don't compensate with the benefits of a permanent job then the complain is it's making you worse off.

        3. CommanderGalaxian
          Thumb Down

          Re: Long overdue

          "how will this kill of the IT industry? you can still be a contractor, you can still do work for multiple companies, just the loopholes currently used to minimise the tax paid will be reduced or closed. You won't get away with earning £10K per year and taking £X0(0)k in dividends paying just 20% (or what ever) tax. Maybe you'd have to pay the same rate of tax as permies."

          First off, the income tax position is relatively neutral regardless of whether you pay by salary or by dividend - what is now being proposed (among other things) is in effect an *additional* tax on people *who work* and earn and pay through dividends - noting that those who do not work but collect dividends will only pay at the normal prevailing rate(s).

          Additionaly, expenses such as travel, B&B, other accommodation etc which are incurred as part of the job, will no longer be tax deductible. This rule will not be applied to large companies - only freelance workers.

          It is certianly going to make it very difficult for anybody to take a contract anywhere other than local.

    5. NotDisguisedEmployee

      Re: Long overdue

      I'm lobbying my local MP to see if he can get a new law passed allowing Permie staff to become contractors. I think it's unfair that us contractors can contract but Permie staff are banned from doing so. Disgraceful, utterly disgraceful that these people have to whine about contractors and they don't get the legal opportunity to take the leap and become contractors.

      1. Intractable Potsherd

        Re: Long overdue

        I've had my time as a contractor, and I don't ever want to go back to it. The endless hassle of book-keeping, saving receipts/invoices, expenses claims for the tax returns every year - no thank you! It felt as if I was doing the same amount of work for the the Inland Revenue (as it was then) as I was for the work I was actually doing (and enjoying).

        Contractors are barmy* to my mind - I'll stick with being an employee and have PAYG for an easier and more enjoyable life!

        *In a good way - you are braver folk than I am, obviously :-)

  4. JeffHome

    From an article about this on The Guardian the other day, I noticed the following mentioned:

    "Some IT workers might work for a company for a short period or they might work for multiple companies at the same time. In that case they would not be seen as an employee."

    So I take a 6 month contract with Company A and every 28 days (preferably on a weekend) I do a short-term contract for my Agent's company lasting 1 day (billing a nominal £1 for "consulting" and not requiring any on-site presence). Because I am working multiple concurrent contracts, my understanding is that it will not be a requirement to go on to the payroll for Company A.

    I think we can all agree that there will always be loopholes.

    1. Roland6 Silver badge

      Re: @JeffHome

      An alternative approach might be to bill in number of A4 sheets of paper with ink applied, delivered each month. Now you're no longer delivering a service but a product!

  5. Trollslayer

    Not about IT?

    Maybe it is to try and deal with all the zero hour contracts that the likes of Sport Direct use?

    If so then some differentiation needs to be made but at the moment many people at the bottom don't get benefits because they have a job and are treated as spare parts by these so called 'employers', called on at any time IF they are wanted and can't take another job.

    1. Velv

      Re: Not about IT?

      From the article I read it is specifically about Personal Service Companies, i.e. where a named "specialist" is employed, not just a body with a set of skills. So its very much about "higher paid" contractors, not zero hours contracts.

      1. Why Not?

        Re: Not about IT?

        Personal Service Companies are a figment of HMRC's imagination. There is no legal definition.

        There is no 'loophole' Contractors act as a limited company because of previous legislation that made it impossible for contractors to act as a self employed person and pay even less tax. The tax most contractors are avoiding is about 10-15%, they do however get no employment benefits so maybe that is a fair trade off?

        This putting contractors into a one size fit all harness keeps failing.

        The result of this will either be

        1. All the contractors become highly paid permies swapping their daily rates for equivalent salaries. They & their employers then hand over oodles of tax to HMRC. Agencies disappear. Watch out for Airborne pigs.

        2.Contractors end up working for agents at same rates or more likely lower rates maybe 10- 20% meaning less tax.

        3. Contractors end up working for contractor agencies which incorporate abroad and or figure out how to avoid tax. Companies get to pay costs abroad so avoiding UK tax.

        4. Companies import ICT workers and pay them minimum wage after deductions so they can claim tax credits = negative tax. IT workers retire or work abroad.

        5. Companies can't find contractors to work for them in London etc because of lack of expenses so they offshore work. We loose skills and any lead we had in IT or similar.

        6. Contractors find a way to work round the legislation and ignore it which was what happened with IR35. As they are fed up of being targeted more people do it.

        every valid option above means lower tax take. This proposal is not the way to fix it. Lets have a point based system that can be applied fairly and identify those disguised employees and the real contractors.

        Amusingly enough I now know 8 contractors who started "real businesses" funded originally by generous fees from contracting. They employ staff and pay lots of tax. They would probably not have launched their business as a permie with a none compete & employer owns IP clause in their contracts.

        1. LucreLout

          Re: Not about IT?

          @Why Not?

          You missed an obvious option. Offshore yourself.

          Mega Corp pays Lout Inc (Bahamas) to provide services. Lout Inc (Bahamas) subcontracts Lout UK Ltd for a lower rate to provide those services, and Lout UK Ltd employs me, as a permie, to do the provision as well as my wife to run the company. If the tax man quibbles about the spouse, then Mrs Lout IT Talent Search UK Ltd gets the gig with Meg Corp and pays Lout Inc (Bahamas) with the rest of the geographical shenanigans remaining the same.

          The excess earnings that I was going to save & invest remain offshore and tax free, and I still split my income over two tax bands thus reducing my effective tax rate considerably.

          I am not an accountant and I'm certainly not a lawyer, but a former employer was the trade name in tax arbitrage, so while the implementation details of the above may vary, the principle of how it is operated does not. Stop thinking about one company and one legal jurisdiction and the world is literally yours.

          I predict much sound and fury, signifying nothing, and affecting revenue collection only marginally either side of zero. I'm a permie going contracting for my next gig, so will be more than happy to put my money where my mouth is.

    2. Si 1

      Re: Not about IT?

      Yes, this is more my take on it as well. Employing people as contractors has become an easy way for companies to easily avoid any of the responsibilities of an employer and to be able to get rid of people without having to give any notice or pay redundancy.

      I'm currently working as a contractor for a company who have a hiring freeze on, I would prefer to be an employee but there's just no chance of that.

      1. Wayland Sothcott 1

        Re: Not about IT?

        As a contractor you are far more in control of your working life than as a permie. You're more like a Pirate than a Royal Marine. Companies need both types of people. I expect you were hired by a department within a company who are able to pay other companies to get stuff done. I expect it was corporate HQ who issued the hiring freeze so technically you are not a person but a supplier.

        A company (customer) expect another company (supplier) to look after their own staff and taxes. The customer tells the supplier what they are looking for and the supplier figures out how best to deliver that. As long as the customer is pleased with product or service and the supplier is pleased with the payment then business has been done. As long as no one gets run over by a forklift then the human aspect is OK too.

    3. Anonymous Coward
      Anonymous Coward

      Re: Not about IT?

      Zero hour contracts are here to stay, there's no other way to fudge the employment figures and allow your rich chums to flog the peasants.

      Also zero hour contracts require you to be on the payroll but not get paid, this is about trying to get back tax breaks contractors (in my opinion) rightly deserve. I've had jobs in London & Birmingham and if it wasn't for the tax back on travel and accommodation I wouldn't have been able to do those jobs due to the cost outlay.

    4. PT

      Re: Not about IT?

      Not a chance! This is a Conservative government you're talking about. The idea that they'd do this to help the working poor is completely unbelievable. Besides, the article remarks that IR35 isn't working and the number of PSCs is increasing, so we know perfectly well that "helping" people is the very last thing on their mind. And by the way - since it's a CONSERVATIVE government doing it, it's pretty clear that the wealth floor has increased to the point that they now consider IT contractors to be the working poor.

    5. KeithR

      Re: Not about IT?

      "Maybe it is to try and deal with all the zero hour contracts that the likes of Sport Direct use?"

      It won't be that - not coming from Gideon...

  6. The entire Radio 1 playlist commitee

    Does anyone think that the rules should be fair and everyone who's earning should pay income taxes?

    1. Why Not?

      No HMRC think how much tax you pay should be vague and poorly defined. Even their own staff can't fill in the forms properly but HMRC take the taxpayer to court because they followed HMRC advice.

    2. Anonymous Coward
      Anonymous Coward

      Cant think of one

      Of course they should, this should apply to Google/Facebook/Starbucks etc

      Most IT contractors have to run a limited company with all its associated red tape,

      including accountancy.

      These provide employment for other people, with the associated tax to the government.

      If this announcement has the perceived effect , simples, don't do government contracts.

      1. Anonymous Coward
        Anonymous Coward

        Re: Cant think of one

        It should also apply to Accenture, IBM, HP, Tata, in fact, every outsourcing company. As an example, all of Accenture's employees that do work on this contract: should be made employees of NHS?

        I'm not sure I've ever seen a lead balloon this big.

        Why's there no "laughing so hard that I'm crying" icon?

  7. Naselus

    Um... what?

    I get that the so-called 'flexible workforce' is abused to shit and back by giant mega-corps keeping entry-level staff on 5-year 'short-term' contracts (my own first serious job was a 3-year long 'short term contract' at the princely sum of £6 an hour)... but a 1 month limit on short-term contracts? Who the hell asked for that?

    Frankly, I've no argument with some time limit on short-term contracts before a permanent position must be offered, with the employee having discretion over whether they want to accept it or not. But that limit would need to be at least 6 months to avoid murdering the short-term contract market all together. I contracted as a systems engineer for a good few years about a decade ago, and the average contract I tended to go for would be about 3 months - design and implement a system, and then support for a month or two afterwards. I had no desire to stick around at these places and they didn't need to hire me in in addition to their existing IT staff, they just needed the new stuff rolled out and then someone to keep it online until their internal people had figure out how it works. These jobs simply wouldn't have existed at all if they'd been forced to drag me onto their internal payroll before I'd even had a chance to install the hardware and turn the server on.

    1. Anonymous Coward
      Anonymous Coward

      If HR are involved it might take too long

      "These jobs simply wouldn't have existed at all if they'd been forced to drag me onto their internal payroll before I'd even had a chance to install the hardware and turn the server on."

      And how long will it take to get through all the HR processes and onto a payroll?

      That'll be goodbye to the idea of attending an interview and starting right away, which I have done myself in the past.

  8. Mark 153

    I'm sure I'm missing something but...

    You wouldn't end up being employed by the end client. Your not contracted to them now (mostly), you're contract is with your agent

    So, rather than have a B2B relationship with your agent, you're employed by them. They take a percentage of your rate, now referred to as your "salary", to pay for holiday pay, sick pay, etc. When your contract terminates they takes some of that retained money and give it to you as statutory redundancy. The rest they keep for the end of year party.

    After that they're effectively a payroll company. They charge you tax and NI at source.

    Megacorp(tm) doesn't need to give a crap. You are a resource provided by a third party. That's what you are now to them.

    1. Paul Shirley

      Re: I'm sure I'm missing something but... missed the bit where the contractor is his own agent, hiding behind a company. The whole scheme is about NOT paying wages so nothing would change, said company owning contractor would carry on relabelling his earnings as lower taxed company dividends.

      To work there has to be a new employer-employee relationship somewhere that can be taxed and that has to be your end client as the employer because your agent (youselft) has no reason to pay you more than minimum wage as an employee.

      1. d3vy

        Re: I'm sure I'm missing something but...


        "said company owning contractor would carry on relabelling his earnings as lower taxed company dividends"

        Conveniently skimming over the fact that contractors pay 20% corporation tax before they can take the dividends...

        Then from next year it will be 19% corp tax but 7.5% on dividends.

        So next years tax rate is effectively almost 22% (its early I may be out slightly) remind me what's YOUR basic tax rate?

    2. Doctor Syntax Silver badge

      Re: I'm sure I'm missing something but...

      "Your not contracted to them now (mostly), you're contract is with your agent"

      They'd probably weasel themselves out of the way.

    3. Lotaresco

      Re: I'm sure I'm missing something but...

      This may come as a shock to you and Mr Osborne, but as a consultant I don't have an agent. My company contracts directly with the clients. This would not save me from this ludicrous proposal.

  9. Anonymous Coward
    Anonymous Coward

    This is what happens when.....

    the government runs out of Other Peoples Money.

    Like a drowning animal, government will climb on the backs of ANY business to stay afloat, not caring if those desperate actions sink "the boat", simultaneously killing the source of tax money.

    If El Reg's motto is "Biting the hand that deeds IT", then governments motto is "Rabidly devouring businesses to feed MP's wishlists".

    Realistically there should be some kind of limit on the time you can be considered temporary help but contract employees should not have to suffer for that.

    It should be the hiring company that pays any additional tax for the convenience of using contractors.

    1. Swarthy Silver badge

      Re: This is what happens when.....

      Like a drowning animal, government will climb on the backs of ANY business to stay afloat, not caring if those desperate actions sink "the boat", simultaneously killing the source of tax money.
      "You can shear a sheep many times, but you can only skin it once."

  10. Anonymous Coward
    Anonymous Coward

    How long does it take to get somebody onto the payroll?

    I don't think this will happen - it can't right?

    But one thing that has not been mentioned is the length of time it takes to get somebody onto the payroll (and go through all the lovely HR and payroll processes - not to mention permanent ID passes, blah-blah). In some companies that process takes a lot longer than 1 month (or even much longer). So in order to meet this rule the process would have to start early (practically from day one). If you employed somebody for a 1 month contract (not normal) but with an option of extension, then you would have to start the HR processes on the first day just to make sure you didn't fall fowl of the law 30 days later, but of course you are then paying a contractor a nice hourly rate to complete your HR forms, payroll, get photos taken, do corporate inductions, etc rather than doing the work you want them to do - Madness I tell you.

    even if this is true, there will be loopholes (as mentioned above) to make it totally ineffective anyway.

    1. g e

      This is all beginning to remind me of dealing with CSS

      Other peoples' badly-written CSS, that is...

      You end up writing ever more fiddly, stupid and idiotic clauses & conditions to catch ever more niche cases and the entire thing becomes an utterly farcical and unworkable pile of unfit-for-purpose shit.

      All because someone doesn't wan't to sit down and re-draft the lot sensibly.

      This is now how I think of HMRC.

  11. David 135

    It fails to recognise why the current arrangements exist

    There are reasons to force someone to be an employee - splitting income with a partner, for example. Businesses have legal, IT and other requirements which do not require a full-time member of staff. They need to be able to get skilled staff to complete those tasks.

    Also, large companies often have projects which have a budget for 3 months, 6 months or a year. The managers of these projects simply don't have the authority to hire someone permanent with the limited timescale. If they can't hire a temporary worker, then yes, some will hire someone 'permanent'. However, some projects will be scrapped, and those 'permanent' workers will find they do not actually have job security as they get made redundant when the project funding gets pulled. Only they didn't charge a premium for the uncertainty, so they're then desperately trying to find another job before their rent payment bounces.

    It creates a dishonesty by making roles which are definitely temporary look permanent. It hurts businesses, but it particularly hurts employees, who find they don't know if the role they're taking is genuinely permanent or not. My thoughts are that those who are hurt most by the change aren't necessarily even the people it's aiming to crack down on, it's those wanting to be able to progress their career through safe, stable jobs finding that their job security is eroded by this.

  12. A Non e-mouse Silver badge

    Another angle

    We've only got rumours here so far. Another possible thought, is that anyone working for the government has to be a permie after 28 day? Maybe it's George's way to reduce spending on consultants & contractors?

    1. g e

      Re: Another angle

      Or just have everyone leave for a private sector salary instead...

  13. Andy 73


    The justification for all this of course is 'loopholes', but the effect could be disastrous as it is likely to reduce the mobility of the workforce - which at the moment is key to global competitiveness. Contractors telling tales of woe are unlikely to gather much sympathy (particularly when they exaggerate their claims), but this sort of change will affect employers and permanent employees as well, as it's encouraging a further shift in the relationship between business and staff.

    On a lighter note, I gather that a lot of the BBC staff work on contracts that would normally look a lot like employment. Maybe they'll be encouraged to take a critical look at the proposals.

    1. Anonymous Coward
      Anonymous Coward

      Re: BBC

      It will most definitly hurt employees if the job market is suddenly filled with ex contractors looking for permenant roles... Contractors who spent years doing YOUR job for many clients gaining experience of every aspect of the technology that you get to use 70% of... Yeah that's going to end brilliantly for all of the permies looking to change jobs.

      Why hire someone who has been a permie for 10 years with thee companies when you can hire an ex contractor who has had 20 clients in that time 20 companies who interviewed and took them on, 20 companies whose best practices and special areas of skill were picked up by the contractor...

      Like I said, it will go swimmingly.

  14. Jungleland

    It was reported over the weekend

    Reported where?

    1. graham_

      Re: It was reported over the weekend

      In the Daily Mail.

      1. g e

        Re: It was reported over the weekend


        1. Anonymous Coward
          Anonymous Coward

          Re: It was reported over the weekend

          Also on The Guardian.

  15. AndyFl

    Pick up your laptop and walk

    Shortly after IR35 came out I looked at the possible consequences and decided to move elsewhere. I've never regretted the decision. Have worked in Europe and the Middle East, met interesting people etc.

    In my experience most places[1] just let you get on with work, life and let you and your client decide how to organise things. The UK is just about the only place I know where they try to get you on the payroll of the client to the advantage of neither.

    So grab some clothing, your laptop and stick two fingers up at the Inland RobbingU. It is a big old world out there.


    [1] Apart from Greece, but that is another story :-)

  16. Mutton Jeff

    I foresee a boom in the company formation biz...

    "Up your's Osborne Jan2016 Ltd"

    "Up your's Osborne Feb2016 Ltd"


    Repeat until ....

    What is this "Personal Service Company" ? Is it some legal entity that I've not heard of?

  17. F2F

    The cynic in me might think that the 1 month rule coincides with the new 1 month/0 day IT contracts being implemented by the big banks - or just a coincidence?

  18. the other tim

    re I Don't Understand The Logic ....

    No-one is saying you become a perm on a lower salary.

    They are saying you have to be pay-rolled through the company at your contracting "salary".

    Now, I not saying that I think it will work, but if it does you will definitely pay more tax than routing it through a Ltd with all the allowable deductions, salary sacrifice for pension payments etc etc.

    Of course, for most gigs, the company who will be pay-rolling you will be the agency, not the client. Not that that makes it any less draconian.

  19. Doctor Syntax Silver badge

    The problem is that HMRC is staffed by salaried people with secure employment contracts. They've designed an income tax system for salaried people with secure employment contracts because that's what they understand. I have a slight variation on this which might help here. Firstly everyone pays income tax on receipts which is what HMRC want and understand. We then treat security of employment as a benefit in kind and tax that. BIK is also something HMRC understand so they shouldn't have a problem with that. Because part of the tax is being collected as BIK the tax on income can be at a much lower than at present. It works out reasonable equitably. Zero hours contracts have no security at all so they have no benefit. A contractor on a 3-month gig with an easy termination rate will have some security so they pay more tax than the zero-rate.

    It shouldn't raise political problems. MPs should like it, they have a 5-year fixed term contract with no guarantee of renewal so their benefit is also limited. Ministerial appointments such as the Chancellor's are essentially at the whim of the PM but usually there aren't more than one reshuffle a year so this can be taken as a 1-year rolling contract so the cabinet would approve.

    Really secure jobs provide the largest benefit so they have to pay more tax and, for this to be tax neutral, the overall tax paid by those holding such jobs would end up more than is paid at present. The unfortunate side effect of this is that HMRC staff would end up paying much more than they currently do. However, as this is the consequence of a fairer tax system I'm sure they wouldn't mind.

    1. chris 17 Silver badge

      @ Doctor Syntax

      what happens when the massive secure multi national i work for (lets say RBS) decides it needs to divest it self of non core assets and i go with it? how secure is my job then? i'd pay loads of tax & then find my job is less secure than someone in a UK only business employing just 2 people that contracts out to 10 companies for ad hoc work.

  20. Anonymous Coward
    Anonymous Coward

    "Shiny New workplace pensions?"

    I think you'll find that will not be an issue for the vast majority of workplaces now.

  21. Anonymous Coward
    Anonymous Coward

    Re: Pick up your laptop and walk

    Any recommendations on the best countries to work in as a Freelancer based on your experience?

    1. PT

      Re: Pick up your laptop and walk

      In spite of some reverses lately, America is still a free country - though not as profitable for contractors as it formerly was, since the large influx of H1B Visa holders has had the intended effect of depressing salaries and contract rates.

      I've never regretted leaving Britain, aside from the lack of Marmite and newspapers with actual news over here.

    2. AndyFl

      Re: Pick up your laptop and walk

      Arabian gulf is best at the moment, companies are always looking for good people.

      Qatar, UAE (AbuDhabi and Dubai) are always good choices. You pay no income tax but remember that in general expats cannot own land/property so you have to rent and the prices can be very high.

      My favourite place is Oman but the country is suffering big time from the low oil price and it is hard to get work there at the moment, I will be moving from Muscat to Dubai in a couple of weeks.

      Remember though, you cannot retire there and they will not give you a pension so make sure you save your money for retirement. I'm buying UK property for renting out. That will be my pension.


  22. Paul Crawford Silver badge

    Just add in the planned Snooper's Charter and there is an even bigger reason to quit the UK and go elsewhere for work :(

    An article on possible destinations and how they are for freelance work would be very welcome!

  23. Anonymous Coward
    Anonymous Coward

    Clueless statists

    It seems like this clueless tax revenue boosting idea will ironically cause economic damage and reduce tax 'revenue'. It is bad enough being an employee having to deal with all the company bureaucracy around payroll, both for employee and employer staff, especially for restrictive employment contracts and tax related stuff, this can take many months to properly resolve! Some employers' standard employment contracts contain clauses which an otherwise contractor must refuse because they will unfairly usurp their property and restrict their choice of future work!!!

    I've seen suggestion of the rise of employment models which could further strengthen the contractor business model, like fluidly forming and separating virtual business matrices, these will probably be a nasty headache to track and tax!

    A contractor may chose to multiplex enough other "employer" work in and this Inland Revenue nonsense will fail. It maybe that financial protection vehicles like offshore trusts will be setup as protection to block most, if not /all/, taxation by the Inland Revenue!

  24. This post has been deleted by its author

  25. Franco Silver badge

    I'll reserve judgement until I see the final proposals, but I don't see how the goverment and HMRC can possibly do this. Quite apart from destroying the "flexible work force" that they are always going on about, the increases to public sector employment will negate any savings as NHS trusts, councils, defence contractors etc are amongst the highest employers of contractors in the country.

  26. Disgruntled of TW

    Disgusted with the Conservatives

    We need to wait and see what ridiculous proposition Osborne will propose in the statement.

    HOWEVER, in one of my little Ltd companies I spend between £10K and £15K per year on IT equipment and services to build proof of concept infrastructure and educate myself. My clients reap the benefit of this, and pay for it in my day rate/fees. Would this be possible in the new world? Who knows.

    Penalising my Ltd company by compelling it to pay PAYE and NI contributions on my client rate makes my investment in my knowledge unaffordable.

    If Osborne's intention is to stop small companies from this kind of exercise, the rumours just need to be partially correct. But let's wait and see. There will be time to lobby and scream afterwards. I can't see myself voting Conservative after the debacle with the Snoopers Charter and now this. That means an abstention at the next election as there is nothing worth voting for. I'm a senior Security Consultant and Enterprise Architect. None of my engagements are below 6 months when changing the culture and approach of an organisation. Once changed, I hand the reigns to the guys who keep the lights on. My role changes the lights, once, hopefully.

    I have already written to my MP (Greg Clark) warning of the decimation of the IT contracting industry if even some of the rumours are correct.

    1. cantankerous swineherd

      Re: Disgusted with the Conservatives

      omg I might have to pay tax and ni! stop whining and contribute like the rest of us.

      1. d3vy

        Re: Disgusted with the Conservatives

        @cantankerous swineherd

        No problem but first you start paying :

        Corporation Tax,

        Accountants Fees,

        Professional Indemnity insurance

        Public liability insurance

        Then why don't you tell your employer that you are happy with a 1-2 week notice period, that they don't need to worry about paying you redundancy if they get rid of you...

        While your at it tell them that youll be working every public holiday except xmas and new year and that you don't need them to pay you sick pay any more...

        Oh, and they can stop their contributions into your pension.

        THEN, Ill pay a few extra % NI (Because despite what you read in the mail - we do already pay tax and some of us even contribute some NI payments too)


        With regards to your "contribute like the rest of us" Im paying "£20k corporation tax this year and about £6k VAT... Im fairly sure Ive contributed more to HMRC this year than you.

        Finally if you're so against tax avoidance I trust that you don't have an ISA, pay your pension from your NET income and paid your student loans off by direct debit rather than salary sacrifice? If not - stop whining and contribute like the rest of us.

    2. KeithR

      Re: Disgusted with the Conservatives

      "Disgusted with the Conservatives"?

      I've been disgusted with the fuckers (and especially their selfish, self-serving, sociopathic supporters) for nearly forty years.

  27. Anonymous Coward
    Anonymous Coward

    Two groups of people will no doubt remain totally unaffected by all this - lawyers and journalists; IIRC they were explicitly exempted from previous IR35 shenanigans.

    If HMRC were really concerned about their tax take they'd start by clamping down on Public Limited Partnerships - the sheer number of these backups up reports that they are the major vehicle for tax evasion and money laundering.

  28. Marcus Fil

    According to my accountants

    in my company's annual return "98% of business was with foreign clients". So this year lets go for 100%. I don't really know how this proposed change of rules helps the UK - most of my business is in R&D - obviously not happening around here. And the reported downloads of my past papers - well 5 out of 6 are in China. Dear UK government if you want to pick on an industry that has seriously fucked the country over try banking and not kill off one the last industries that UK is halfway good at.

  29. cantankerous swineherd

    all good dodges must come to an end.

    people who need work doing + people capable of doing work isn't going to come to an end, consequently money will flow in much the same way as usual.

  30. Bota

    Anywhere in the Emirates

    You'll get tax free decent wages, great standard of living and none of the shit weather. I am vacating the UK in 6 months with visa etc set up and ready to go. I believed the UK was going to the dogs years ago, this just re- enforces in my mind what a great decision I've made.

  31. Anonymous Coward
    Anonymous Coward

    Huge backfire

    Well I am actually looking forward to this. Government themselves heavily rely on independent contractors and consultants. Bring on that gold plated last earned income civil service pension. Core hours between 10-15 seems like bliss as well. Oh and don't forget paid time off to prepare your cv for the next job and interviews.

    Oh yes this will be wonderful :)

    1. KeithR

      Re: Huge backfire

      "Bring on that gold plated last earned income civil service pension."

      Which doesn't fucking exist.


      1. Santa from Exeter

        Re: Huge backfire

        Core hours between 10-15 seems like bollocks as well.

        Oh and don't forget non existent paid time off to prepare your cv for the next job and interviews.

        Fucking retarded Daily Mail reader more like!

    2. Corinne

      Re: Huge backfire

      Last earned income pension sounds great - until you realise what that "last earned" salary actually is and how it compares with real world salaries (hint: I increased my salary by 50% by moving to a private company years ago to do an almost identical job).

      Core hours != hours worked. Flexi time works by you still having to work your 37.5 hours a week, just that it doesn't absolutely HAVE to be 9 - 5:30 each day. Core hours means you HAVE to start by 10:00am, and you CAN'T finish before 15:00pm. If you start every day at 10:00am you have to work until 18:30pm; if you want to leave by 15:00 every day then you need to start at 06:30am - assuming your building is open at that time which most aren't. And the availability of flexi working depends very much on what department you work for, the type of job, grade, and management discretion. Once you get to a half decent level of pay the expectation is the same now as in private industry, you work silly long hours for no extra.

      I'm at a loss where you get the idea that civil servants get any paid time off apart from annual leave/bank holidays, compassionate leave when someone dies (discretionary, pray you have a decent manager if a close relative passes away), or sick leave.

  32. Anonymous Coward
    Anonymous Coward

    I think I'll pay myself market rate for what I do, pay my tax and NI, take no dividends and bank the excess so that I can continue to pay my salary during fallow periods. They can take me to court.

  33. NotDisguisedEmployee

    Temps disguised as Contractors ruining it

    The Temps have ruined contracting and have brought this on the rest of us, the proper contractors.

    These Temps pretend to be contractors when all they are, are disguised permie employees avoiding tax.

    Some of them leave their permie jobs on a Friday and come back to do the exact same job on a Monday as a contractor. All to reduce their tax bill.

    Others fill in interim roles, replacing permies during sickness, maternity/paternity leave or just TEMPorarily whilst a permie is sought to fill a role. Again they screw the system and avoid the tax, pretending to be contractors when they're really just Temps.

    Then there's those who do admin roles, support roles and other roles which have no defined work/project, they have no specialist skill which their 'employer' doesn't have in-house and more importantly their role is just ongoing. They know as long as they do a good job and keep their nose clean, they will keep being extended.

    They do all the same team stuff as their permie team mates, they do the same tasks (except for appraisals) but unlike their permie team mates who may get a bonus at the end of the year, they get a bonus every day in reduced tax and little or no National Insurance payments.

    Whilst I provide specialist skills which are honed to help clients solve problems, be it migrations, usability problems to redesign . I only work on projects, clearly defined in my contract, with clear deliverables for a clearly defined period. Yes, the project may overrun and get extended but not all things go to plan.

    So if contractors worked like I do, we'd be a small minority, we'd be under the radar, we'd not be worth chasing, but when you have Temps, not only disguised IT Contractors but Nurses, Doctors, Lawyers, all doing Temp jobs and pretending to be contractors, it's no longer a blip in the ocean.

    Temps should go through the agency payroll, proper contractors should be allowed to go Limited.

    1. Anonymous Coward
      Anonymous Coward

      Re: Temps disguised as Contractors ruining it

      Quit whining. I know plenty of "proper contractors" who pay minimum salary and the rest in divis. Blame them.

      1. This post has been deleted by its author

      2. d3vy

        Re: Temps disguised as Contractors ruining it

        "Quit whining. I know plenty of "proper contractors" who pay minimum salary and the rest in divis. Blame them."

        And there's the problem... A lot of people dont realise that this is a perfectly legitamate and legal way of paying yourself as a business owner AND there is a misconception that dividends are tax free..

        Dividends come from profit AFTER 20% corporation tax - so my dividends have ALREADY been taxed at 20% before they hit may personal account... then they get taxed again if I go into the higher tax band.

        Remind me what are the tax % for Permies again? Ill give you a clue - your basic rate is the same as my corporation tax... funny that!

        Also if you are an employee how do you think the guy that owns your company pays himself? You think he is PAYE?

    2. d3vy

      Re: Temps disguised as Contractors ruining it

      "Some of them leave their permie jobs on a Friday and come back to do the exact same job on a Monday as a contractor"

      Those people would be caught by IR35 and will (Should) be paying the appropriate tax.

      I do however agree with most of what you wrote.

  34. Lotaresco

    Yet again a politician tries to ruin Britain's economy for ideological reasons

    I'm guessing that the real reason for this is part of the continuing assault on the use of contract staff in government departments. Government cannot attract skilled staff and cannot retain the few permanent staff who have or attain skills that match the level available in the contract market. This proposal would lead, inevitably, to lots of former contractors on the dole or escaping to other countries.

    The government can't increase its headcount and commercial clients will not want to increase their payroll hence both will attempt to muddle through as best they can. The medium to long term result will be a loss of skills and the UK will become uncompetetive in the IT sector and some other specialist areas, such as some aspects of civil engineering, where particular skills are needed for periods of less than a year but longer than a month.

    For both government departments and companies there is no point to employing someone on a permanent basis for short term work. I suspect also that the unscrupulous companies will increase their exploitation of permanent staff. I'm aware that some companies offer "permanent" work and then terminate the employees with one week's notice during the two year probationary period.

    1. d3vy

      Re: Yet again a politician tries to ruin Britain's economy for ideological reasons

      "This proposal would lead, inevitably, to lots of former contractors on the dole"

      Well thats part of the argument for why we should be able to make the savings on NI that we do... We cant go "On the dole" unless some fairly strict rules have been met - IE have to have been through an umbrella company (in which case you would have paid Tax and NI anyway) or I think you can fold your company... but thats a drawn out process with its own set of taxes to be paid.

  35. Grubby

    The government are claiming they could claim an additional 400 million from 4 million contractors is the UK. The maths doesn't work for starters, as soon as they are made perm they will have to take a huge pay cut and will likely pay less tax than they already do (as the figures seem to focus purely on PAYE and ignore corp and VAT which will stop as soon as the person becomes an employee of another company).

    But let's say it does work and they make 400 million by screwing over 4 million people in the UK. They could claim that from Google alone, who have avoided billions in taxes, or Stabucks, Facebook, Microsoft. There is literally hundreds of billions that could be claimed in tax if they took on just a few of the bigger companies. Ohhh, but the ministers lined up to join the boards of these huge companies the day after they leave office... Can't go pissing off a future employer.

    Why not bring in a law that prevents ministers from being directors at private companies while in office and make all records of interactions between them and private companies, while in office, public to highlight any deals that may be done to gift jobs when they've left office?

  36. rocknec

    Write to your MP today - easy to do with link below

    This is likely to affect majority of consultants and their clients where assignments are longer than one month. Write to your MP this week before the Autumn Statement is concluded.

  37. This post has been deleted by its author

  38. Anonymous Coward
    Anonymous Coward

    There are alot of people on here complaining about contractors not paying the same tax as permenant workers...

    So I thought I'd give a bit of a rough break down to highlight how little difference there is between permenant and contract staff...

    I know this wont be the same for everyone, its an approximation based on my experiences, Im ignoring VAT for simplicity.

    So lets start with a basic rate of £7k a month (Its a round number)

    Out of that I pay 20% Corporation tax. (£1400)

    Leaving the company with £5600

    Then theres the expenses (that that the business incurrs without me doing any travel or even being in a contract)

    Accountant £110

    Insurances £50

    SW Licences/Services £100

    So thats £260 off leaving 5340 in the company

    Now for expenses that benefit me:

    £400 pension (about the same as Id get as a permie with a personal and employers contribution)

    £800 Salary (Tax Efficient)

    So that leaves £4140 in the company and £800 in my personal account.

    Now, I might get told at the end of the day that Im not needed next week because funding for the project has been pulled so I save 30% a month in the business for that

    Save : £1242

    Leaving me with £2898 in the company to take as a dividend.

    So I can take £2898 dividend added to the £800 salary brings my take home to : £3698

    A quick look up on the salary calculator required salary shows that I have the same take home as a permie on 44.5k... Thats almost the salary I was on as a permie when I started contracting....

    Of course the main benefit from the above is that if I can stay in continuous contracts for a decent time that I build up a decent bit of "Backup money" which permies cant do (well their employer gets the benefit) but considering the sacrafices in employment benefits I think this is a fair trade off - at the end of the day there is nothing stopping permies doing the same.

    So please bear in mind when you start contractor bashing that the day rate is a lot like your annual salary - sounds like a lot but we don't actually get to take it all home with us!

  39. Anonymous Coward
    Anonymous Coward

    Not about IT

    I know this is the old "I am a friend inside" type of post.....

    The word from the people making the decisions is that this is being brought about because of clinical staff contractors in the NHS fleecing the government and is not aimed at IT workers.

    1. Franco Silver badge

      Re: Not about IT

      It may not be about IT but we'll all get hit with it - IR35 was brought in to stop the Friday employee to Monday contractor loophole but has never really been enforced that way when it has been enforced at all.

      TBH the 1 month rule is only one of the ludicrous proposals coming out of HMRC. The Supervision, Direction and Control ideas where EVERYONE is considered under control and therefore under IR35 if they are hired through a recruitment company (which the vast majority are) makes about as much sense as the pastry tax.

    2. GreatBlah

      Re: Not about IT

      The people who make the money from the NHS contracts are actually the agencies. The doctors, nurses and other staff used as contractors earn slightly more but then they do not have the other benefits e.g. sick pay that permanent NHS staff have. Some quote high figures but when you find out what actual permanent staff at their level really earn, then find out about pensions etc you realise they aren't earning that much more. ( I actually am related to and know locum workers in these fields. )

      In regards to attacking contractors,while this is an IT site, be aware that lots of engineers work as contractors so when the nuclear power stations the Chinese are funding aren't built due to "lack of skills" and we have electricity shortages you know why.

      Unlike IT the majority of IT contracts, nuclear power sites are in remote locations and take years to build. You want the same specialists involved in the project for years at a time not months. As engineers are even the few female ones there are, are very internationally mobile then they will not be coming to the UK if the government brings in this legislation. They will stay in countries where living in the back-end of no where is better than living in the UK because in their free time they can actually do interesting things.

      This Chancellor has showed he is an idiot and can't plan long term with the Caravan tax, the pasty tax and with tax credits. He has now shown he clearly doesn't understand that all government departments and the industries he relies on to live comfortably in 21st Century Britain use contractors, and planned the consequences of what will happen when this law is put through.

  40. Anonymous Coward
    Anonymous Coward

    Beg pardon?

    Off on a tangent -

    "The flexible labour market is at stake here. That same flexible labour market has helped us keep unemployment at record lows."

    Huh? When I was 18, the Conservatives were moaning that 'Labour wasn't working' - and plastering posters to that effect all across the country - because unemployment had reached a million. So far as I'm concerned, the UK economy hasn't left the depression it plunged into when I was a child, and NONE of the parties that have been in power since have done anything much about it. Although it could be argued that if a million unemployed was Labour not working, that 1.8 million unemployed is the Conservatives not working twice as hard. Seems a fair comment, to me.

  41. Anonymous Coward
    Anonymous Coward

    I have no worries with thus one. I do not believe that HMRC can field enough trained staff to deal with this. Their consistent strategy of late has been to streamline their operations and this has taken the form of cleaning the interface with its "clients". This then works against that strategy. Ultimately, it will balloon the number of HMRC/DWP Whitehall ciphers overseeing the collection and redistribution of our salaries. It won't happen.

  42. Anonymous Coward
    Anonymous Coward

    Letter or email to MP

    This is my version of the I P S E boiler plate letter.

    Home address MUST be quoted or letter / email will be ignored.

    MP can be found based on post code here:

    Email addresses are given usually, but not always; a parliament address and a "private" address.

    Edit paragraph 2 to match your circumstances.

    Add your home address here.

    Name of MP here MP

    House of Commons

    London SW1A 0AA

    22 November 2015

    Dear Sir,

    I am very concerned by articles in the Guardian and the Daily Mail on an expected “crackdown” (read witch hunt) on some of the smallest business in the UK – limited company “contractors”. According to the reports are proposed a one month time limit on engagements will be introduced, after which independent professionals like me, running their own properly regulated limited company, being essentially self employed with limited liability (as designed by parliament to encourage business risk taking) , will be forced onto the p.a.y.e. payroll of the client. This would completely undermine commercial relationships and would jeopardise the survival of mine and thousands of other similar businesses. In fact it would put us all out of business. Many would face bankruptcy owing to the sudden massive halt in expected business performance.

    My company supplies through me specialist project management, risk and issue management, project delivery skills to clients across a range of industries including banking, HMRC, commerce and always world class enterprises. You will note the irony of HMRC in my list, if they do this, they will risk losing the ability to operate because of the vast number of workers like myself upon whom they rely in order to function. I suspect they have not thought of this, one hand not knowing what the other is doing.

    If reports of a one month limit are true it will make running my business impossible as, overwhelmingly, the projects I work on last considerably longer than this. Clients will not want to put me on their payroll and I do not want to be there. I am an external specialist, working for my self within my legally UK registered limited company. It makes no sense to treat me like an employee of the client when neither they, me or any matching agencies want it. It is very well and long known that the independent mentality of the truly self-employed renders them essentially “unemployable” after very little time in charge of their own destiny. HMRC cannot force human nature to be something it is not and our country’s commercial foundation rests on the small business community of which we form part.

    It would also raise the issue of employment rights. I do not want entitlements such as holiday pay, sick pay, auto-enrolment for pension contributions and the right to bring a claim for unfair dismissal. As a director of my own company, I have chosen to sacrifice those rights in return for the potential of managing my own destiny. However, if I am to be taxed like an employee then I will expect employee benefits which will make engaging my business unattractive to clients. This measure would completely wipe out the flexible advantage that freelance specialists like me offer to the likes of HMRC (ironically), the financial services industry (e.g. The City, London), the banks and other world class enterprise businesses that engage the likes of myself.

    I run an entirely legitimate UK registered company as defined in UK law, which fully meets all its obligations including taxes. I strongly resent the continued implication from this Government that small businesses like mine are avoiding tax (itself a word only recently turned on its head), which is essentially based on the falsity that in truth we are “disguised employees”. We are not. Decades ago HMRC had a perfectly effective set of case law well placed and used to separate out those who were in truth employees on Friday and claiming by the following Monday to be self-employed. I refer of course to the traditional “status enquiry”, which law still exists and works, but is no longer used, in preference to complex draconian rules made up to try to circumvent HMRC’s own case law.

    HMRC has sought to make life easy for itself, is obsessed with “disguised employment” and in turn wreaks inestimable damage to its reputation and the desire of anyone to co-operate with it because it keeps trying to change the rules it already has and had to suit itself. Witness the start of it all decades ago when HMRC forced all such as myself to engage the use of limited companies. We were perfectly happy to defend our status as “self-employed” and accepted the outcomes in those days. This is no longer the case and it has become a political football founded in the HMRC obsession to the detriment of everyone, the country in particular.

    In the UK we are entitled to a certain business environment and not to have to fear what is coming next in every Autumn statement. Enough is enough. We are not the enemy and stop treating us as if we are, please.

    I urge you to inform the Chancellor ahead of the Autumn Statement and to confirm whether these reports are accurate and, if they are, ask that you reverse course on this extensively damaging proposal.

    Yours faithfully,

    Your name here

    A concerned constituent

POST COMMENT House rules

Not a member of The Register? Create a new account here.

  • Enter your comment

  • Add an icon

Anonymous cowards cannot choose their icon

Other stories you might like