HMRC's IR35 tweaks have 90% of UK's IT contractors up in arms Around 90 per cent of UK government IT contractors will rebel against proposals by HMRC to clamp down on self-employed workers not paying the correct employment taxes. The taxman is currently consulting on whether to shift responsibility for compliance with the intermediaries legislation, known as IR35, from the individual …
Taxman says pay your tax.
90% of people affected do not comply.
Taxman changes rules to make you pay your tax.
People affected up in arms, say they will raise prices to compensate.
Er... okay. You do that. But pay your fecking taxes too.
And if you all paid your taxes, the government would be able to afford the increase in wages that their own contractors demand.
(P.S. Yes, I have been a self-employed IT worker in the past too - I paid everything I needed to pay and factored it in as a cost of doing business. That's what you DO.).
"Taxman says pay your tax.
90% of people affected do not comply."
You work for the Daily Mail as a headline writer in your spare time?
Taxes are being paid, according to the law using a valid Ltd company mechanism that allows contractors to be paid via dividends, which incur tax, btw. This is the same benefit a company will enjoy. This allows other companies to benefit from their services. It is cheaper for them to use a contractor in this method, and allows for an excellent flexibility around on demand skills.
By making a contractor effectively be an employed person, without benefits in kind, who actually wins here? No sick, holiday pay, or protections, but hey!
No one would contract, or at least, no one would contract in this country. The amount to gain from IR35 isn't enough to offset the loss in value to all services who benefit from contractors.
TLDR - fair tax is being paid already. HMRC have a warped view of why LTD companies are not valid for longer term contracts.
Taxes are being paid, according to the law using a valid Ltd company mechanism that allows contractors to be paid via dividends
just to be devil's advocate but technically Apple and Amazon et al comply with the law. doesn't mean it's right, just shows that the law is sometimes insufficient
I read the HMRC consultancy document and it's full of "fairness" as being the goal of this, but ignores that contractors are taxed as employees without the benefits, and also ignores double taxation: you pay tax at source, payroll tax as it comes back out and corporation tax on retained profit.
Not saying the current laws are "right" or properly fit for purpose, but what they are proposing is nonsense.
And - again - if the risk is there but the rest is the same then you raise your prices to compensate. Exactly what you're threatening to do is exactly what this is designed to do - get you to pay more tax, thus charge more to cover yourself, which encourages companies to use permanent staff rather than contract staff.
Permanent staff are a) better are clearing the job queues for longer periods, b) easier to tax, c) not subject to third-party, shell-companies and other schemes (not suggesting they are illegal or even immoral) in order to shufty tax around.
The point of this, and the threat of contracted staff "becoming permanent staff" or even moving out of the country? That's the whole idea. Less contracted staff is much easier to tax and manage and audit, which is why the taxman likes it and wants to go that way.
As it is, you yourself have created a shell company and made them jump through hoops. That costs. From your point of view, sure, it's a solution. From the taxman's point of view, you buggering off to another country (anything you try to take with you or send back that might amount to a wage would be taxed) is actually in his favour, and someone will have to hire several permanent staff generating equivalent tax income to replace you.
I've played the game and IR35 was my warning to get the hell out of there. And, yes, at several points I was actually doing exactly what IR35 was designed to stop - disguised employees. When there was a low point and I fell back on long-term customers with long-term demands, it did come down to me, working for them, via a contract, for a year or more. That wasn't to say I wasn't actively seeking other clients, or doing bits here and there, but exactly what the taxman DIDN'T want, that's what happened, and that's why IR35 came in.
I used to calculate my own tax returns. I'm a mathematician, by education. I gave up and - after a while - went permanent. I can't say it hurt my career or my clients at all (in fact, my second employer after that was a client who bought me full-time from another employer because they couldn't do without me and couldn't hire an equivalent).
When the taxman is actively working against what you're doing, it's pretty much a one-way street. You're going to get taxed, sooner or later. This may not be to your direct benefit, but that's what tax basically is anyway.
It's ignorance to assume that tax laws are formed to make your life easy or allow you to live and work exactly how you would like. They are formed to tax you, and to discourage behaviour they don't want you to be doing (even if it's not "illegal"). They don't want you working long-term in full-time positions as a contractor for a pittance of clients. It gives them lots of hassle, and was historically used for tax evasion.
If you can prove that's not you, then you're sorted.
If you can't, then you're going to get taxed.
If that tax is unavoidable because of the way you do business, you need to raise your prices.
If that prices you out of the market, it prices all of your direct competitors too.
If you need to change the way you do business because of that, that's what the tax is DESIGNED to do.
Hate it, by all means. I mean, it's tax. Please do.
But it's doing exactly what it was designed to do: Make you prefer permanent employment or move out of that particular taxation method - both of which mean their lives are simpler and the tax has done its job.
"if the risk is there but the rest is the same then you raise your prices to compensate."
If you're raising rates to compensate but then treating the entire sum as personal income and being taxed accordingly by overcharging your client on rates you're allowing HMRC, via yourself, to fleece them. Most freelancers would find it impossible to get away with that.
@Lee D
"the threat of contracted staff "becoming permanent staff" or even moving out of the country? That's the whole idea. Less contracted staff is much easier to tax and manage and audit"
I disagree, while it might be easier for HMRC to administer that cannot be their end goal, if it is then it is very short sighted. I am a contractor, last year my combined payments to HMRC in various taxes came to around £25-30k, I am a web developer I have 15 years experience and I am sure I would have no issues walking into a new permanent role tomorrow if desired, however my salary as a permie would only be 45-50k (that would mean a combined tax & Ni payment of around 15K a year assuming I dont avoid any taxes by paying into pensions etc)
So HMRC stand to lose £10-15k Just for me if I stop contracting.
I'd also point out that HMRCs involvement in my finances (from an admin point of view is minimal) my accountant does everything elecronically and I pay everything online by debit card or by BACS if the amounts are large enough... So saying they want to make things easier is unlikley to be true.
It is important to note that contractors DONT form limited companies for the sole purpose of avoiding tax, Its called a limited company for a reason - you have limited liability so if my company is sued, or goes bankrupt it does not mean that I am on the street with my wife and kids... Alot of clients and agencies WILL NOT hire a contractor unless they are operating a limited company with the relevant insurance... so we are pretty much forced to take the Ltd route. Dont blame us if that then opens up several different *legal* options to us for how we deal with our remuneration.
Realistically what needs to be done is for there to be a legal entity between a Limited company and a sole trader. Something that gives the legal protections of a Ltd but has a clearer tax structure.
> just to be devil's advocate but technically Apple and Amazon et al comply with the law. doesn't mean it's right, just shows that the law is sometimes insufficient
Yes, legally, they comply with the law, in a completely legal fashion. They have done nothing illegal, nothing against the rules and therefore nothing wrong. That's my opinion anyway, as someone who abides by the law and therefore does nothing wrong :)
In terms of the criminal law, arresting and jailing people - as happened once with Nissan UK - no Amazon have seemingly not done that sort of wrong. What Amazon has done is perpetrated an ethical wrongdoing, possibly in conjunction with elected governments (and unelected ones like the EU) - and that is what they deserve to have publicised. Some people, at least for a time, boycotted some of these tax-dodging companies.
I agree with the first guy, and don't bring the Daily Mail into it. Everyone should pay their taxes, including wealthy IT contractors. I used to be one and I paid myself a proper salary. Yes, I earned less, but it was the correct and legal thing to do.
There is a place for contractors, and it shouldn't be to employ people full-time without giving them the benefits a normal employee is entitled to. Contractors should earn inflated wages, out of which they should pay corporation tax as well as tax on salaries for any employees (usually just the one). The inflated wages reflect the short-term nature of such engagements: if employers were to go to consultancies or professional services organisations they would pay loads more for the same work. Contractors need to account for time spent not working or having to travel to jobs etc. Prices should reflect this.
The issue here is employers who are using the system to take/keep people off the payroll. A lot of contractors are, frankly, shit, and have narrow/basic skillsets. The good ones suffer because of this, because rates are low as a result, and they're getting worse. I don't find it appealing at all any more, given I can earn more overall as a full-time worker.
I'd rather have a situation where skilled people can set themselves up as a business, deliver value for money at a rate which doesn't cheat the revenue (and hence all of us) and earns them a decent amount of money that makes that rate viable.
As a user of contractors I'd be happy to pay good money for someone who can come in, get up to speed quickly, deliver the service efficiently and effectively, and get out. I'd rather not have to go through several people with inflated CVs to discover that they're shite and time-wasters.
Downvote away if you want. I think the system's broken and needs to properly reflect the role of the contractor rather than putting them into a dodgy tax situation for the benefit of an employer who doesn't want to do his bit.
"Contractors should earn inflated wages, out of which they should pay corporation tax as well as tax on salaries for any employees (usually just the one)."
Taken overall your comment is right but your use of "wages" here is the sort of thing which causes confusion to non-contractors - especially HMRC. There are two entities in play here. One is the company, the other is the worker.
The company outsources work from the client. This is exactly the same arrangement as Capita or any other outsourcer has. For this the company is paid a fee under the contract just as any other outsourcer does (and also collects VAT on behalf of HMRC, a service for which it is entitled to charge HMRC exactly nothing!). From this fee it pay any costs of doing business, including salary but also purchases, accountancy fees, etc. Note that that term "salary" actually covers employers NI payments and is also paid when there are no incoming payments from clients, either between engagements or as holiday or sick pay. The company also handles employee's PAYE tax and NI contributions, as does any other company, again at no cost to the beneficiary, HMRC). What's left is taxable as corporation tax. Some of it can be paid out as dividends but if the company is being run sensibly some of the fees will be retained in the company's bank account against payments for potentially long periods but it still gets taxed as profits until such time as it has to be paid out. This buffering is key to the whole system. An agent's opening gambit on the phone is usually "Are you available?". "Available" means out of contract. In order for a client, direct or via an agent, to have resource instantly available means that at any one time a proportion of the freelance population is on the bench. Staffing a client department with sufficient employees to provide such availability against the risk of a sudden requirement in-house would be an unacceptable expense. It's this transfer of risk from client to freelancer that makes the freelancer a business and thus entitled to be treated in the same way as any other business.
The worker gets paid a salary from which income tax and NI contributions are paid. This is what's commonly referred to as "wages". Calling the gross fees wages is misleading and is what enables HMRC to con those who don't know better that they're being "fair".
"Contractors should earn inflated wages, out of which they should pay corporation tax as well as tax on salaries for any employees (usually just the one)."
I dont believe that you used to a be a contractor. Ill tell you why.
You are suggesting that contractors should receive "inflated wages" technically (and a contractor would know this) we do NOT receive "wages" from our clients. In fact *WE* receive nothing from our clients our company gets paid a day rate and we are paid by our companies (in the form of dividends and a small wage)
You suggest in your post that "I used to be one [contractor] and I paid myself a proper salary. Yes, I earned less, but it was the correct and legal thing to do."
However your logic here is flawed. Contractors DO pay the appropriate LEGAL taxes - thats why HMRC are having the consultation, because they need to find a way to change the amount of tax that contractors are liable for - if the current situation was illegal it wouldn't be a consultation it would be a series of investigations and prosecutions.
The fact that you paid yourself a normal wage when you were a contractor suggests that you in fact were not a proper contractor and were the type of person that IR35 aims to capture. A proper contractor has to plan for times out of work, holidays, luls between contracts, sickness etc this is achieved by leaving money (a "war chest") in the company accounts. Paying more tax than you HAVE to is simply bad planning on your part (I assume that you didnt engage an accountant of IFA as they would have told you the same). *
* PS If you really want to you can phone HMRC and ask them to tax you more, you can do it right now, Tell them that you dont want your 11k personal allowance, they will be more than happy to issue you with a new tax code.
No? You dont want to do that? Well STFU then.
isn't enough to offset the loss in value
So basically it's a system designed to reduce the amount of cash changing hands to reduce the exposure to taxes, for employers as well as contractors? Still failing to have sympathy for the plight of tax loophole users here, undercutting employees but trying to get paid more than them at the same time!
btw my contractor contract gives me holiday and sick rights. Perhaps you lot need to negotiate better?
"btw my contractor contract gives me holiday and sick rights. Perhaps you lot need to negotiate better?"
In other words you're exactly the sort of disguised employee that IR35 was designed to tax. You are not the typical freelancer - although when you fall out of contract you'll realise that things are a bit more complicated than you think. Are you a first-timer?
more complicated as in being unemployed do you mean? Why not look for a new job/contract in that instance?
Otherwise I agree, adverts and articles saying 'go contracting and make it exactly like being an employee' do make cynics like me think that IT contractors are in disguised employment - which I accept is not always the case. I've seen my company contract in expert IT knowledge, but I've also seen them but a bottom in the seat next to me to churn out bog standard .net code from a spec - it was hardly some sort of expert knowledge, it was maybe 18mths experience for a very average programmer. Anyway, if that wasn't disguised employment hiding behind a paper company, dunno what was.
btw my contractor contract gives me holiday and sick rights. Perhaps you lot need to negotiate better?
Well it depends on how you view such 'rights.
My contracts, as do I suspect do those of many contractors, provide an allowance for absence by prior agreement and sickness; however, this is where the substitution clause kicks in. A client can either accept that I will be absent for a period of time and so we work the project plan and activities around my absence or require that I substitute someone to cover my absence...
However, I very much doubt you are billing your client for your absences, as getting paid whilst not actually working, is a benefit of employment. So I suspect that either your contract is with an intermediary ie. an agency, who are paying you through a PSC/umbrella company or it falls under the existing provisions of IR35. Perhaps you can enlighten everyone and clarify the structure of your business and contractual arrangements.
"btw my contractor contract gives me holiday and sick rights. Perhaps you lot need to negotiate better?"
Small point, thats not a contractor contract then.
A contractors contract is a business to business contract between the contractors limited company and the client. It is impossible to include Sick pay and holiday rights in a B2B contract because neither of the entities involved is a person.
The fact that you dont know that makes me suspicious about whether you are in fact a contractor - thats basic contracting 101 - EVERY contractor knows that.
"By making a contractor effectively be an employed person, without benefits in kind, who actually wins here? No sick, holiday pay, or protections, but hey!"
Agreed!
As a contractor running my own Ltd, I factor in holiday pay, sick pay, no income between clients into my accounts...
Unlike an employee, I am not earning the same every month, I can go months without any income into my business, but my business still needs to pay me a wage so I can pay my bills!
When you figure out the costs, and the other losses you have by being a contractor, you will see that contractor rates are quite low really, and agencies take pretty hefty cuts!
EDIT
But anyway, since this is only for government contractors by the sound of it, I am not worried myself, I turn down most government contracts as they are usually in horrid locations where I wouldn't risk parking my car...
"Taxes are being paid, according to the law using a valid Ltd company mechanism that allows contractors to be paid via dividends, which incur tax, btw."
...Except that many so-called contractors have for years been really stretching the definitions of dividends and expenses, to the point of being legal only as a technicality.
The 'done thing' when I first started contracting in the city was to pay yourself a 'salary' which was just under the national insurance threshold, and pay yourself the rest of your income as a mixture of dividends and expenses ... except that most people simply made up lots of non-existent expenses.
This never sat well with me, so started out paying a proper living salary from the beginning - as those of us earning decent incomes surely need to contribute _something_ to the national insurance system! And making up expense claims, to me at least, is outright fraud.
It now takes as little time for the Daily Mail to be referred to as it takes for someone to mention Hitler!
I think the point is that it's been decided that the public sector itself will determine whether or no a person it is paying to do work is doing so as an employee or not. Actually I think the difference between an employee and a company is a lot more than whether or not there is a paper company set up for the contractor to work under.
I've read the legal advice given to contractors, and it is pretty obvious they are exploiting a load of legal loopholes, the valid Ltd company you mention is in fact a paper entity setup to exploit loopholes in employment law and taxation.
So, Lee, I take it from your comments that you are an ex-contract service provider 'cos you did not quite understand the basic concept of higher risk and higher reward to cover ya for the less sunny stretches between gigs.
Look, we all have moments when the logic shuts down, so I'll work on the assumption that this has happened to you. Fear not, it passes.
Do you seriously feel it reasonable that a permie should see about the same take-home as a contract worker, in exchange for a considerably higher risk-burden and simply non-existent benefits?
If you were from HMRC (Wait! You're not, are you??) I would understand the reasoning glitch. Please tell me you're from HMRC ....
These rules are so bloody stupid that a colleague and I (actually three of us, but the 3rd is a sanity check direcror appointment) have pooled revenue streams and admin to form a non "personal services company". We manage to stay outside IR35 by active management of our efforts, and through collaborative provision of services etcetera. Well, *WE* stay outside IR35, but that has not stopped HMRC from taking a flyer anyway. Rebuffed, so job done for a while.
What's the result here? Well, we're sodding off to an ex-colony to Do Our Thing. Odd bit is they welcome us and go as far as to provide tax breaks to help things along. Who'd've thought?
I feel much better now. Thanks Lee.
... just a note around a comment from someone on how we service provider/contract wonks should mebbe be negotiating better for sick benefits and holiday. Eh? Say again? Whaaaa...?
Dude (name* escapes me, but it's NOT Lee), seriously, if you are getting benefits of employment factored into your contract, then you are causing the policy and rule wonks at HMRC to have veritable wet dreams. Why? 'cos you are then EXACTLY what they believe all of us to be - in bloody 'disguised employment'. The only difference is that yours is a fixed-term employment engagement with mildly crappier benefits than the perm permies.
So, IMO any external service provider (KPMG, Bob the Builder, Wonks Inc, hell, anyone who is yanked in to do a job then cut loose) ... should provide a service charged at an agreed rate, with agreed mutual responsibilities, and for an agreed timeframe/and/or set of deliverables. No bloody holiday or sick pay or pension or whatever.
If we wanted the security/tedium (pick one) of a perm engagement, we'd bloodywell get perm engagements. Not contract. We take risk. We (ok, some of us) do damned good work. Some of us, of course, do crap work and take the p155. I am, of course, not one of the p155takers (seriously).
I love a good rant in the aftermorning!
*Ah ... 'twas an AC. There. My memory is not as bad as my counsellor said it is. I think. Where was I?
"Do you seriously feel it reasonable that a permie should see about the same take-home as a contract worker, in exchange for a considerably higher risk-burden and simply non-existent benefits?"
Hell, yes.
Nobody FORCED you to become a contractor, and we all know why you did...
Rono,
so presumably you never make use of public roads, hospitals, doctors surgeries, parks, libraries, schools (if you have sprogs, I hope you don't)?
Because you would be either a blathering hypocrite or a leach that is happy to use stuff paid for by OTHER PEOPLES tax, wouldn't you now?
So how successful is your company ooi?
Regards,
Jay
Just shows how stupid you are, money is made of thin air then you don't have to pay, as before taxes roads were built, but you are locked into the religon that is money just like government they need you more than you need them. Carry on keeping the system going. Also read up on money creation might open your eyes, bet you won't as you won't like what you see, and if you choose to ignore it that makes you ignorant.
"P.S. Yes, I have been a self-employed IT worker in the past too - I paid everything I needed to pay and factored it in as a cost of doing business. That's what you DO."
You describe yourself as a former self-employed IT worker. That implies that you were a sole-trader. If so you were in a different category from freelancers employed by their own limited companies and the taxation regulations on the two are not the same. The reason that so many freelancers have to use limited companies is that tax regulations make clients very reluctant to engage them as sole-traders. Given that the use of limited companies is something that has been engendered by HMRC and, before them, the IR, it is to say the least, hypocritical that they do not them recognise the companies as real businesses.
If they don't want to accept the situation they created themselves they should go back to the drawing board and create some other form of taxable entity which they are prepared to accept exists, which gives clients security and also recognises the reality that freelancers are working as businesses, taking the employment risks that would otherwise fall on the clients and, therefore being entitled to make provision for covering those risks and being entitled to reward for taking them.
In the US, I was a contractor until two years ago. I always found my own contracts through my network of contacts, took only long term gigs, never once relied on an agency. I negotiated the rate they were willing pay for me, and they told me what intermediaries they dealt with. They wouldn't deal directly with a single person corp like mine. I'd tell the intermediary "I've negotiated $125/hr from X, I want you to pay me $115/hr corp to corp". $10/hr for basically passing paperwork through is more than they deserve, but I ended up giving them between $7 and $20 per hour to do this depending on the leverage they had. Better deals when there are multiple intermediaries to choose from, worse deals when there was an exclusive arrangement.
So big corp X I was contracting for paid the intermediary corp who paid my corp which then paid me. I paid myself a salary of $60K a year. I was audited once by the IRS, they asked how I calculated that but the way the laws are here you just have to pay yourself a "reasonable" salary. It doesn't have to be as much as you could possibly get, just a salary that someone doing work similar to yours could conceivably make in a full time job. So paying myself minimum wage is out, but I didn't need to pay myself everything I made, either. The hourly rate I was getting from contracting was approximately 50-100% higher than what I could have got for full time employment doing the same. I know this because I was offered to become permanent more than once. Adding in the long breaks between gigs (mostly by choice) I calculated once that I made about $150K a year on average during the time I contracted.
I paid employment taxes (both sides, 15.2% in the US) on that $60K along with the regular income taxes, and paid regular taxes on the rest that was taken as dividends of the corporation. I quit contracting and went full time two years ago because I got an interesting job offer, and it was becoming more and more difficult to find contracts myself. Too many of the big companies were putting processes in place where no one had any authority to say "I want this guy for this work" so my way in was shut. They now have to forward a list of requirements to their body shops who will find people for them, taking a 30-50% cut off the top themselves of course.
From reading people's posts here, it seems the below is how things work in the UK. Please correct where I'm wrong:
1) before IR35, many/most people were taking 100% of their income as dividends and paying no employment taxes at all
2) companies are paying about the same or not much more to contractors than they pay to permies, so they liked hiring contractors as they could avoid paying for benefits and contractors liked it because they could dodge employment taxes
3) with IR35 in effect you have to take 100% of your income as salary, and have little or no room to take anything as dividends, removing the monetary advantage of being a contractor instead of permie
4) because contractors were willing to work for essentially the same salary as permies before because it saved them a lot of money, companies got used to the rates for contractors and permies being the same, so it is not always easy for contractors to ask for more, thus many are forced to go back to being permies
@Anon
"Please correct where I'm wrong:
1) before IR35, many/most people were taking 100% of their income as dividends and paying no employment taxes at all"
I was about to write a big explanation, but Im going to sum it up as "No, that is not right."
Essentially the thing to remember is that we have to pay Corporation tax (20%) on ALL profits then a further 7.5% on all dividends (Rising to around 30% when we hit the higher rate threshold)
2) companies are paying about the same or not much more to contractors than they pay to permies, so they liked hiring contractors as they could avoid paying for benefits and contractors liked it because they could dodge employment taxes
In a way yes, but in another more important way, no.
Companies like it because they can hire contractors with specific skills to complete a project then bin them off when they are no longer needed. For example, they might hire someone who knows SSRS to create a reporting suite for them, then once its done end the contract. Hiring a permie with the same skills would mean an ongoing cost beyond the end of the project for someone whos skills are no longer needed within the company.
3) with IR35 in effect you have to take 100% of your income as salary, and have little or no room to take anything as dividends, removing the monetary advantage of being a contractor instead of permie.
No, you dont have to take 100% as salary, you do lose a lot of control over how much you can take and when though... One thing I as a contractor do is plan my renumeration to stay under the higher tax band.. I do this by leaving money in my company until I need it...
As an example Im pretty much at the higher rate now so if I take £1000 as a dividend I have to pay £300+ as tax If I can deffer taking that money out of the company until april I will only pay £75 when I take it out...
4) because contractors were willing to work for essentially the same salary as permies before because it saved them a lot of money, companies got used to the rates for contractors and permies being the same, so it is not always easy for contractors to ask for more, thus many are forced to go back to being permies
Thats not really how rates are decided... but your not a million miles off. It is difficult to ask for a higher rate when there is another contractor willing to under cut you (and there always will be :) )
With regards to contractors going back to being permies, even with the additional tax I'd still be better off as a contractor (I'd have to be very careful when planning to account for sick time and time between contracts, but realistically Im not personally considering stopping contracting. I suspect the only people who are will be the ones who are not proper contractors anyway (ie they are just disguised employees)
1. UK has different tax (lower) rates for dividends compared with "earnings" (Salary or wages or emolument).
2 If you take sensible dividends, [say one fifth of total billings] e.g. between paying BOTH company shareholders (self and wife, as wife does the books) a dividend (for risk of running company) and then
3 Pay salaries/wages for employment part as contractor where Salary is 'comparable ' with or above an actual employee, you have no IR35 worries.
4 It is the distortion of 'remuneration' by paying Minimum Legal Hourly Wage to employee part and taking large dividend, that IR35 tries to catch.
5. You also need to demonstrate independence and ability to work without supervision and contract should allow you to provide a substitute, if 'contractor cannot attend' for contracted period; or contract says contractor may work at his own pace and has no need to comply with any time request of customer [ a form of 'direction' that turns you into an employee if you MUST attend at customer's direction].
6 I bill out at 5/2 times a permanent employee's 'salary'. Company would for employee incur 3/2 times stated gross employee salary with taxes, insurance, holiday, social security and pension costs . So I cost a goodly amount more than the advertised amount for my job as a salaried employee; but then the advert does not pull in a capable replacement so I continue in contractual employment.
What, only tax stupid people*?
Should have said- Stop extra-taxing smart people**
*Some might say only stupid people pay tax... usually smart, expensive accountants.
**HMRC seem to make the distinction. A contract plumber, accountant or ball-kicker isn't subject to IR35, but 'Because IT' seems to be a magic 'Pay More' reason. The same Tax-Reduction methods are available to all (Dividends, etc) but only IT workers have to jump though the hoops.
Interesting point re: "because IT"... a quick noodle in Private Eye soon reveals very highly paid people earning money through single person companies by providing various consultancy services to national and local government. Maybe one should describe oneself "merely" as a professional services consultant and only discuss one's IT knowledge in the interview?
It's not just IT - see my post below - but the second leg of the test (is there an intermediary, ie company/partnership which you, broadly, control) is where eg accountants tend to get out of the scope. Either that, or the individuals doing the work under consultancy contracts are employees, so there's no tax to find. There are documented cases where IR35 was potentially in point for non-IT contractors; see eg http://www.taxjournal.com/tj/articles/student-loans-chief-advised-account-tax-under-ir35-40091
Again referring to the HMRC consultancy document, they seem to consider most of IT within the scope of IR35 due to the use of business equipment, whereas a plumber (for example) uses their own.
This conveniently ignores the fact that in IT it is usually best practice, and in many cases 100% mandatory, to prevent the connection of devices that are not corporately managed to the network. This disctinction should IMO be written into the law as a justifiable exemption to the own equipment rule - you are using corporate equipment to comply with the security policies. That doesn't even factor in the possiblity of bespoke systems and applications that may be required to do the work, regardless of employment status.
If you're worried about having to use engager's kit, Hall v Lorimer (1993 Ct App IIRC) is your friend - as the vision mixer on Have I Got News For You, he was able to successfully rebut* HMRC's argument that using the BBC's 8' wide mixing desk was an indicator that he was an employee. Apparently, in The World According To HMRC(TM) any self respecting self-employed vision mixer owned their own £250k mixing desk and hawked it around the country, from show to show. Thankfully, the Court of Appeal had a slightly closer grasp on reality than HMIT Hall, and we now have a persuasive precedent that actually accords with the world as experienced by normal people. [for anyone who wants to know just _how_ close a grip the senior judiciary keep on reality, the excellent Steve bell cartoon at http://www.belltoons.co.uk/bellworks/index.php/if/1985/1082-0-0-85JUDGESPAYCLAIM should help. nb it's 30 years old now, so the inflation rates are a bit crock)
*I think I've got the right word there, but if it should be refute I apologise. It's late... *checks watch* ... early and I've had a long day. And a glass or two of wine. Sorry; it's the weekend.
@Dr Syntax
"Indeed. In the printing industry they seem not to bat an eyelid about engaging sole-traders because that's how freelance graphic designers work."
There is a difference between a sole trader and a Ltd company. Sole traders generally get paid directly and then declare all earnings (minus some expenses) in a standard tax return.
Ltd contractors have another layer between them and the client.
Although I wouldn't make it illegal not to vote, I think it would be quite interesting for those who don't vote to have a higher tax burden as they are clearly content to be used as milch-cows by whatever government everyone else elects. This would either increase political engagement or tax revenues, so it's basically a plan with no drawbacks.
By shifting the burden of IR35 compliance up the chain, they'll create an environment where the non-application of the anti-avoidance rule has to be documented up front by either the agency or the public sector body. And that'll have to be done for every contract where there might be disguised employment in HMRC's eyes - not just the hiring of specific individuals for specific roles, but also the more generic stuff like typing, gardening, plumbing etc. where it could be done by an employee (but isn't).
And contrary to popular belief (and HMRC's proposals) it doesn't have to be via a company; the law allows for an IR35 charge to hit partnerships or even individuals who subcontract their work. ( http://www.legislation.gov.uk/ukpga/2003/1/part/2/chapter/8 specifically s51, 52, 53. nb changes to s49 re office holders via "view outstanding changes"). And this rule will apply to every GP surgery, every parish council, every police force and every other public body in the country. That's 9,637 parish councils who need to document the IR35 position for their website manager, maintenance contracts, typists and (joy of joys) auditor. (Auditor's a funny one; they're "officers" so de facto caught by IR35 *unless* they can demonstrate there's no "intermediary" within the statutory definition).
The argument about social contribution vs tax paid vs benefits supplied by the state is a valid one, but this is a particularly wasteful way to go about policing it, without in any way addressing the underlying issues.
"And that'll have to be done for every contract where there might be disguised employment in HMRC's eyes - not just the hiring of specific individuals for specific roles, but also the more generic stuff like typing, gardening, plumbing etc. where it could be done by an employee (but isn't)."
That should improve things no end. If there's a clear distinction between contracts for services and contracts of service we'll probably see appropriate contracts offered for a change and none of this non-matching clauses between the client/agent and agent/freelancer contracts nonsense.
Unfortunately the average contractor cant afford the international tax lawyers required to setup a chain of parent shell companies in off shore locations and pay tax experts to use dodgy mechanisms like "loyalty fees" to extricate money tax-free to those off-shore tax havens. like Amazon Starbucks Google IBM et al do.
They are lucky if they can by into a second-hard car reselling business that runs with negative profits.
I find the squawking around IR35 interesting, especially some of the above comments... I would sincerely hope that those protesting they are paying their tax are not the same on here who then turn around lambasting Amazon et al for employing aggressive tax accountants to minimise their tax exposure? After all, they just do what you do, just on an appropriately larger scale. They do after all pay *their* taxes too.
Back when I was in the contracting game (yes, I was, during and after IR35 introduction), there were several organisations catering exclusively to contractors who prided themselves in 'cost recovering up to 95% of your earnings' by using the system in such a way that you effectively dodged paying employer and employee NI and taxes as much as possible (after all, that's the disadvantage of having a Ltd - you get to pay both!). By paying yourself the minimum wage (and paying employer/ee NI and PAYE on that) and taking the rest as a dividend every month (which *is* legal, after all, and possibly having to paying the vastly reduced tax on that), your tax exposure was, well... minimal. Add to that the cost recovery of travel expenses, the per diem, accommodation expenses etc, you truly could recover something like 95% of your high daily fee.
Was it sailing a little close to the wind? Perhaps! But then again, that's why Amazon et al are getting their arses roasted... that too many people find that morally reprehensible.
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That's fair enough. Similar to if you don't vote, you can't complain about what the Govt. / Local Council etc. do.
As a contractor myself, who does end up with periods between work, and pays myself a salary (my Ltd. takes the daily, I as an employee see a fraction of that), I have no qualms about paying NI and Income Tax and also any tax due on Dividends, as well as my Ltd. paying its Corp. Tax.
However, if HMRC wish to change the rules, and further increase taxation upon contractors and their Ltd. companies, then they best be damned sure they chase the Hyper-Global-Mega-Corps to pay their share also, and not let them get away with paltry amounts due to such companies being able to "Lawyer Up".
It just comes across as HMRC going after the easy pickings of going after the little guy because the paymasters do not wish to upset "Big Business".
I believe the term is flat-track bully.
If you are running through a Ltd company in a standard way, you are paying a fair amount of tax - the combination of corporation tax, income tax on dividends certainly adds up to a significant percentage of my income, not ever so far from the proportion I was paying when I was permanent and that is ignoring VAT which is its own thing. I prefer to work this way but it has nothing to do with paying less tax and the same is true of most of the contractors I work alongside.
I think where people really do it for tax avoidance they may be more at the level of chief executives working through consultancy companies and the like. That seems quite common - particularly in the public sector - and it does seem as though there might be reason to mitigate it as possible.
Can't speak for others here, but I'd like to see some policing of 3rd party companies who are advertising such services as 95% take home.
As a LTD Company contractor, my details are on file at Companies House, and spammers/scammers call me on an almost weekly basis offering services that sound too good to be true. Therefore, IMO, are. I don't pay myself a small salary for the avoidance of tax, I do it so that I can keep a steady and guaranteed income even when I am not working, and top that up with dividends when finances allow.
I couldn't agree more with the point on small salary, Franco. Someone else mentioned in a post further down about contractors buying 911's etc. and those individuals doing so being idiots. I've known the odd one or two who splurged all their company revenue as income and then shat it when the tax bill arrived.
I've been honouring a private contract / project that, due to *my* own terrible initial time estimate, has meant I have not billed my client for the past 4 months. There is probably another month left before all parties can say “mission accomplished”.
Yes, my friends say I am insane. Yes, I was extremely naive in my re-negotiation when it became glaringly obvious that the initial time estimate was way off the mark. Yes, in terms of cold hard revenue to my company, it has taken one hell of a hit as a result.
However, as you and so many others have pointed out here, there's reserves in the Ltd. company for such times (mainly between contracts rather than non-billable work, granted). Call me old fashioned, but I felt guilty when I realised the magnitude of what was needed to deliver the project, and I felt acutely aware that people would only see the headline figure of the daily and think I was trying to take the piss out of the client.
So, to try and act with a little integrity (or just plain stupidity), rather than just shrug my shoulders and say “them's the breaks Guv', I'll still need you to cough up £X per day until I'm done, and that could be three, four, five months down the line. Who knows!?”, I chose to honour the initial delivery, no extra cost to the client beyond my initial time estimate.
The flip side is, the client is so appreciative (of course they are very happy to date) of me being honest and not being seen to just fleece them, is they wish to get this phase wrapped up pronto also, so we can move forward and into future phases, whereby things will be planned much, *much* more meticulously so (I) don't end up in the same situation of working pro bono for so long, ever again. I've just viewed it as a learning experience, and a bit of volunteer work on my part.
Being a prudent contractor over the years has enabled me to survive.
TLDR: I bodged a time estimate, felt guilty, so am honouring the initial project spec at no extra cost to the client.
I feel your pain.
I had a client who insisted on fixed price quotations for everything. Which was fine for tasks that could be reasonably estimated and relied on no other inputs. Sleepless nights though when trying to include third party integration and longer time scales. After some negotiation a PO would be raised and I'd do the work, get it signed off and submit an invoice. Payment terms I negotiated down to 45 days from their "standard" 90 days - piss takers. All was fine when I underestimated the work and they got my time for free. But when it was the other way around they complained I was ripping them off - remember they had already agreed the scope, time scale and issued a PO!
In the end I gave up and found an hourly paid contract. God help the next mug they try and use as slave labour.
I would sincerely hope that those protesting they are paying their tax are not the same on here who then turn around lambasting Amazon et al for employing aggressive tax accountants to minimise their tax exposure?
Actually I think you'll find there's a negative correlation between these two.
The ones paying the proper tax will also (in general) be the same people who understand that however much we may feel it is in some way "unfair" - what those companies are doing is working within the rules laid down by the various governments.
If people don't like what these companies are doing, then the aggression should be aimed at those responsible for the rules which allow it.
And for the record, I employ a tax avoidance scheme - in fact I have several. And it's all legal, and even promoted by the UK government and HMRC. In fact, most people use tax avoidance schemes - it's now even a legal requirement for employers to provide a scheme and sign people up to it unless they opt out.
And what is a tax avoidance scheme ? It's simply an arrangement, within the rules as laid down by the authorities concerned designed to minimise as far as is permitted by those rules the amount HMRC may shovel from your pocket.
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This is the think that the Daily Wail and Stun readers just don't understand. It is not illegal to arrange your affairs within the rules laid down so as to minimise how much tax you pay.
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For the hard of thinking, the avoidance schemes I refer to are things like pensions, ISAs, and so on.
Isn't it amazing how efficient and overreaching the State is when they want to screw the little guy... Yet they always overlook the big tech boys... I wonder why :p ... Fuck slaving for the State anymore, I'm off to Hong Kong / Dubai. Paying taxes for what? How many will even live long enough to earn a pension back ??? :
http://www.thisismoney.co.uk/money/pensions/article-1679780/New-state-pension-age-retire.html
""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 purposes 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"
There are three bits of case law which say the same thing. They're quoted here https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/396179/gaar-part-abc.pdf in the guidance on the implementation of the General Anti-Abuse Rule which Graeme Aaronson QC developed for the government, specifically to displace that case law precedent. He's gone so far as to openly declare that in public lectures. Subsequent statute trumps case law I'm afraid, even House of Lords.
If you attempt to rely on "the Westminster principle" in front of a UK tax tribunal these days they'll ignore it. (There are some jurisdictions which still operate on that basis, but it's a diminishing proportion. Civil Law codes have never really gone for it at all, generally incorporating some abus de droit principle. Which is why UK VAT avoidance disputes, relying on the European civil code background of VAT, always played to a different set of rules to direct tax avoidance)
>In that case you can write to all your past contracts and demand holiday pay, pension and other rights that you never got.
You'll need a legal ruling first - HMRCs opinion only effects you - the employer will be also liable to fines etc not just your missing pension and chances are they'll have better lawyers than the HMRC. Ultimately you'll lose.
Better to pool resources with other contractors, create an agency, hire in some tax expertise and pay whatever tax you think is reasonable.
The whole tax system is broken and needs to be reset for the modern world. We have some people being taxed into the ground to the point its almost not worth them getting a pay rise because it makes no difference to their bottom line. They just get more stress with little extra wage to compensate. They are stuck in a tax band with nowhere to go.. Then there are people and big companies that can avoid paying any tax at all. After all this the government still doesn't have enough money to pay for the services we need. System is broken.
Here's an idea - if the government doesn't want people working through personal service companies, it doesn't have to introduce new legislation or change tax law, it can just refuse to use that style of contract.
Oh, it wants the benefits of flexibility in staffing without the disadvantages? Cake double-counting ahoy.
@Anon
"if the government doesn't want people working through personal service companies"
I'd like to set you a challenge.... Find a definition for "personal service company" on any HMRC or government source. Part of the problem is that they cannot nail down what they consider a PSC to be.. but at the same time they want to tax PSCs differently.
I assume that you are on payroll somewhere with an 110L Tax code... How would you feel if HMRC suddenly decided that everyone who they class as a "Secure Permanent Employee" would be moved to the BR tax code? Does it affect you? Are you what they class as a Secure Permanent Employee?
Take a few seconds to think about how you would feel if someone turned round to you and said that based on some arbitrary rules that are not actually defined anywhere (So you cannot hope to follow them) that they were going to increase your tax by 20+% how would you feel about that?
While you do the above bear in mind the additional tax and overheads that contractors incur that you dont have to pay, and the benefits that you get from your employer that we dont get...
Contractors will raise their rates to offset the higher taxes; but the public sector will be able to afford those higher rates, because the tax take will be higher. It's just more money cycling through HMRC's hands.
(Yeah, I know that's not really gonig to happen in practice.)
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Final note first:
I think the general individual doesn't want a contractor to increase their day rate - the truth is I suspect people don't like the fact that intelligent professional consultants with expertise charge a lot of money and can out-do them technically, which is the reason we are sourced in the first place to help expedite projects!
_____________
Contracting through a Limited Company structure is NOT 'self-employed'. Self-employed is an unlimited liability company and is entirely different from a taxation point of view.
Less than 1% of contractors using a Limited Company structure did the following in the past:
*Earn a day rate from client(s)
*Maximise expenses for staying away from home
*Pay themselves a small wage for NI purposes
*Send money offshore and receive 95% back as a loan from a dodgy company
All the above are legitimate except the last one! There is now a dividend tax to ensure contractors pay more tax - if you hold dividend-paying shares then you will also be paying this dividend tax if it is above £5000 per tax year.
Your average Joe Contractor is not dodgy and will have the Limited Company they are a director of paying their own pension, health insurance, holidays and everything else a permanent employee accepts as part of a remuneration package.
99% of contractors are not dodgy and are simply providing services through the only viable existing method which accounts for the ability to have the same benefits as a permanent employee but - importantly - *PAID FOR BY THEMSELVES* (in the form of money brought into said Limited Company).
If you can't understand and are annoyed that someone has bought a brand new Porsche911 as a contractor then remember this: some contractors are idiots with no future plan, no savings and no understanding of the tax system. Much like your average permanent human in the UK, they spend beyond their means.
If someone chooses to spend all their cash now then you can safely be assured - regardless of employment status or style - their risk of trouble in the future is heightened. Don't for one second think contracting is a 'get rich scheme' with people avoiding tax. I can assure you it absolutely is not.
Thing thing to target to get more revenue for HMRC is offshore shifting of monies - it's still happening on a massive scale and accounts for billions missing in the exchequer. In a sense it is not entirely legal.
I'm an experienced consultant and my average income post-tax for the past decade is the equivalent of £65,000. I can earn more in a permanent job but enjoy running my own business, working on programmes requiring a lot of expertise and new technology and managing my own personal development. If I work away from home I do claim most things - but as a permanent employee working from home you also have your accommodation and what-not paid for, so what's the complaint?
To punish those who function through these structures and are not using offshore schemes seems an easy way to increase costs to clients; either by said clients using large professional services (Deloitte, PWC, Accenture, etc) or an increase in day-rates from £500/day to £700/day to compensate.
"intelligent professional consultants with expertise charge a lot of money and can out-do them technically, which is the reason we are sourced in the first place to help expedite projects!"
At the top end, maybe. Another factor is the manager who finds that he needs somebody RIGHT NOW. Possibly because he's just get a new urgent requirement dumped on him, a deadline brought forward, someone has left/fallen ill/gone on holiday or maybe just downright bad planning. Even if it's not a hugely immediate requirement there may still be a need to match fluctuating workload with a static allowed permanent head-count.
That floating population of workers allows the permies to have their more or less secure jobs, benefits, pension schemes etc because the alternative would be to make all jobs casual. The means by which the contract market can fill jobs on an ad hoc basis is by having a proportion of the on the bench at any one time. It's part of the T&Cs that the market offers, it costs money to provide which thus goes into the charging structure and is the reason why freelancers should be treated as bona fide businesses.
As professional services are one of the UK's largest exports and we can expect large tariffs on them post-Brexit, I imagine the pool of local contractors will increase, driving rates down, by the time this IR35 iteration is implemented.
Let's clear up one thing.
Contractors are paid a gross sum from which the Limited Company is expected to provide ALL the benefits for the "employee" - salary, holiday pay, sick pay, pension, health care, critical illness, jury cover, car, gym membership, etc, etc, etc. If you as Director choose to only provide a small salary as a benefit that's your choice, but you have been paid by the engaging company to provide all the benefits, that's why it's usually at a higher rate.
But why would you, unless you were doing the same job an employee does? You should be consulting/contracting primarily to do the roles a permanent employee *can't* compete with - Helpdesk shifts and such-like is a good example of (in my opinion) being well inside IR35.
Looking XYZ expertise and then tendering out to agencies/consulting firms essentially means it's a b2b endeavour.
I don't want employee-permanent style pigeon-holed job, which is why IR35 doesn't apply to moi - I have no interest in taking such limited roles. Each to their own! I'm not fraudulent, I really do take outside IR35 rules, but all Public Sector roles are soon to be considered within IR35. I can assure you the actuality is that they are NOT all inside IR35 as the Public Sector need consultants as much as the private sector.
"But every stupid contractor I talk to won't take the time or trouble to figure this out."
What's probably happening is that the contractors who understand it perfectly well, know you're wrong but can't be bothered to argue with stupid.
To me this goes against what seems to be the future of employment. Who can even think that 'permanent employment' still exists? Whats the usual turnover for the typical employee? 4 Years?
Personally I'm all done for the corporaty lure of a 'culture' and associated bullshit. I've seem so many times every time I now see an executive haranguing his 'family' I want to vomit.
What I want is to be able to do as I want, I particularly enjoy playing the mercenary as a contractor, I embrace the fact I can hop on a project, have an impact, and then leave. That doesn't mean that some projects can't be longer than a couple of years, the spirit stays the same, I'll still go when it finishes.
The cruel bit is, as an employee, I was the exact same over-competent guy, and more often than not my opinion was completely ignored as I was drowned in the corporate politics. Now as a contractor, I'm paid so much people actually pay attention! People try not to waste my time with idiocy, people think twice about inviting me to meetings, and take notes when I make recommendation.
I don't want to have to be rolled back into a corporation. I'm happy to pay my taxes, but my taxes must reflect that I don't get any of the perps permies do. On the other hand, yes, I'd like to be able to have a way to differentiate myself from the typical contractor-typist who's been at the same desk for 10 years; the worst bit is, it's his agency who's making the money!
Explain to me why you don't get the perks of a permie? You presumably earned a higher rate than the permies but spent it all rather than keeping some back in your limited company so you could pay yourself holiday pay, sick pay and contribute to a (tax deductible) pension plan. Plus you got perks such as travel expenses that a permie never got. Sounds like whoever actually employs you and pays your salary, NI and PAYE is taking you for a ride. But that would be yourself though wouldn't it?
What you bill your customer isn't "income" it's "revenue" into your limited company and any contractor who doesn't get this fundamental difference deserves to be shafted by IR35.
"people think twice about inviting me to meetings"
I like to "jokingly" tell people that their meeting just cost the company £x00 as I leave.
There was one *quick* half hour meeting which was held by a permie PM and a small team of contract developers (some of whom were quite specialist) we worked out the company was paying approx £10-15 a minute for us to be in there.
The whole meeting should have been an email with a project plan attached.
maybe even it up a bit and allow permie IT staff some of the perks like being able to offset stuff against taxes like travel, cars, equipment, training, lunch. No, thought not. There are lots of permies who for one reason or another only last a year or 2, the same as some contractors. Maybe the answer is to tax contractors like permies and pay the rest back to them once they've moved on to a different company. That way everyone wins, or doesn't.
> maybe even it up a bit and allow permie IT staff some of the perks like being able to offset stuff against taxes like travel, cars, equipment, training, lunch. No, thought not.
You mean the free training, travel costs to go off-site, pension, sick pay, redundancy pay, maternity leave, subsidised canteen etc. your company provides aren't enough?
If you'd rather pay for those and offset them so you end up paying 80% of their cost, that's absolutely fine by me. Just be sure to do the training in your own time.
"maybe even it up a bit and allow permie IT staff some of the perks like being able to offset stuff against taxes like travel, cars, equipment, training, lunch. No, thought not"
How about this.. I'll stop claiming expenses when you start paying for insurance, payroll, accountancy fees then give up your employers pension contributions... And tell your employer that you no longer require them to honour any redundancy pay or give you notice.
"maybe even it up a bit and allow permie IT staff some of the perks like being able to offset stuff against taxes like travel, cars, equipment, training, lunch."
How about an alternative? Tax everyone the same on income but treat permanent jobs as a benefit in kind to be taxed appropriately. The extra tax from the b-i-k part can be used to reduce existing PAYE/NI rates. That's fair, isn't it?
The difference with amazon, google, etc. is that me, a lowly contractor, paid more tax than some of them last year (or was it the year before). That year when they paid 0. Remember that?
The clusterf**k that are these messages shows that many people don't understand how contracting works and get jealous and think they're ripping the country off or something.
Most peeps have a nice job and a family and 2 kids and a permie job and they get a bit annoyed thinking about how joe contractor is ripping everyone off. I say, give him a bit of extra money, then fire him on the spot with no redundancy pension etc. and ask him to find another job whilst continuing to pay his mortgage and feeding his family. Things won't seem so unfair.
Then say just kidding we're taking the extra money back... oh but you don't get your job back, and your redundancy, and your sick pay, etc. We're keeping those. Enjoy your new life as a contractor earning the same as before but jobless and peniless.
Cos that's what they're trying to do with this legislation.
Just an idea.. But rather than piss around with this SDC nonsense, why not just set a six month rule. More than six months ** per tax year ** with the same end client (regardless of intermediary or desk location) and IR35 applies (after six months). Less than six months and it does not. Obviously projects run longer than this, but what better way to demonstrate substitutability than by substitution. If someone is so indispensable that they cannot be substituted at this time, then pay them more so they do not lose out when IR35 is applied, or make them a permie offer they cannot refuse. This would remove all the FUD, promote and reward a genuinely flexible workforce and weed out the true disguised employees who want to stay with one end client for ever whilst paying less tax than other people doing the exact same job on a daily basis. Of course, the law of unintended consequences no doubt applies..
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To be clear.. if you do a seven month gig then IR35 applies only to the final month. If the gig crosses a tax year you could do up to 12 contiguous months without paying IR35. You could do one month off, one month on for the entire year. You could do six months with one client, six months with another then go back to the first six months later. Or 2.5 days a week with two clients indefinitely. All of these are flexible working behaviours but clearly not employment in any sensible sense.
Im sure to someone who doesnt understand the contract market that this sounds like a brilliant idea.
Ill tell you what, Im not going to point out all of the ridiculous flaws in your plan... how about you just go off and figure out who bears the cost of training the replacement and let me know.
Under regular substitution clauses this would be the contractors LTD company as it would be their decision to invoke the clause and it would be to their benefit, however they will not be likely to want to bear this cost and neither will the client.
So what you are proposing is that the the client allows the contractor to bring in a substitute and spend a few weeks* training them during which time presumably the client is still being billed but the contractor is only spending a fraction of their time working as they have to hand over. You are also asking that the client is either billed twice for the same time/work or that the contractor bears the cost themselves...
I'd be very interested to hear what problem exactly it is that you are trying to resolve here?
Is it that you think that contractors dont pay enough tax? Because I assure you, we pay substantially more than you may have been lead to believe.
We could spend hours listing the pros and cons of contracting V's the pros and cons of being a permie... but thats been done, Instead Ill point out to you that while contractors have a few legal ways to avoid taxes such as paying dividends rather than just salary... permies have a significantly larger number of options available to avoid taxes, a quick google found me these PRE TAX benefits which allow you to avoid paying full whack PAYE (these are often given to employees who are close to crossing into the higher (45% tax band) to keep their tax contributions in the lower rate:
Pensions contributions (Matched by your employer)
Private health care (for you and your family)
Private dental insurance (for you and your family)
Critical illness insurance
Life insurance
Interest free travel loans
Car Allowance
Share Schemes (Bonus they might match your purchase) - Double bonus you become a shareholder and get dividends with tax paid at the same rate that contractors get theirs.
Childcare vouchers
Free eye tests (And a % towards your glasses or contacts if you need them)
Student loan payments.
Work Phones
Discount cards for shops and restaurants
My previous employer also offered a scheme where you could buy supermarket vouchers out of your pre tax pay basically making your weekly shop reduce your PAYE bill.
Then we get onto the obvious:
Training,
Travel expenses (Your employer will pay you to travel to different sites and pay your accommodation and meals while you are away).
Holiday pay
Sick Pay,
Payment for public holidays
Notice period of at least four weeks
Redundancy pay
This list goes on...
Not to mention the strong employment laws that you have on your side should an employer decide to be a dick, have a look at the contractorUK forum for examples of contractors being told that their project has been canceled less than a week into a gig, or better a few weeks ago the guy that got the phone call as he pulled into the clients car park on day one telling him they no longer needed him...
Finally and this in my opinion is one of the biggies... Pay, you as a permanent member of staff are guaranteed to receive your salary on a set date each month, it might vary a bit and there might be occasional issues where you dont get paid on time, but these will be few and far between.
Compare that with my recent experience where an issue with supplier payments meant that over the course of 6 months I only had two invoices paid... not that bad until you factor in that I bill WEEKLY How would a permie deal with only receiving 10% of their pay for six months with very little come back?
Ive said it before to others and Im sure Ill have to say it again.. if you honestly believe that contractors have it so good, give it a go, Ill be happy to give advice on what you need to do to get started, Ill point you in the direction of a few good agencies and recruiters and you too can join this massive tax scam that you seem to think we are all in on.
so basically any tax paid by the contractor is a refund on what the taxpayer pays them. It really doesn't matter how you figure out the intermediate numbers the only thing is the take home pay of the contractor comes from the taxpayer. If this forces the contractors to raise rates to maintain their take home pay then the whole thing is for nothing.
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