UK.gov tells freelance techies to slap 20 per cent on fees as IR35 tax hike looms UK government departments are advising IT contractors to hike their fees by a fifth in order to avert an exodus of self-employed techies that will be hit by a forthcoming tax clampdown, multiple sources have told The Register. Changes by HMRC in April will shift responsibility for compliance with the intermediaries legislation …
It's classic government thinking - they assume that changes to the tax system won't change any behaviour!
The new 7.5% dividend tax is another example. I'm just living on savings and paying directly into my pension instead. Tax bill has dropped by nearly £20k. I didn't mind paying CT before, just unhappy at the sudden hike. They should think more along the lines of boiling a frog.
Classic HMRC would be like this:
1) We want an easy target to hit for more tax.
2) Let's hit IR35 contractors. Add say ... 10%? .. to their bill.
3) Oh wait, we know that 90% will tell us to eff off so lets make it 20%
4) And we'll need a new collections division to chase down the other 90%.
5) Trebles all round!
It gets better - if there's a long chain of agencies, then the Gov't department is going to be paying everyone's margin on the increased cost of funding the contractor's additional tax. So, contractor's day-rate goes up by eg £20 to fund the £20 which the Treasury will get back. 1st agency goes up by £21, 2nd by £22, 3rd by £23 etc. Treasury has to fund the Dep't with an extra £23, paid for out of the £20 extra income + top up from wherever else in the public purse they can find it. (While some of that extra cash stays in the UK economy and hits the Exchequer sooner or later, as pointed out in the article a lot of the bigger players shift their profits offshore out of the UK tax net, so we lose that wedge completely.)
You're probably all right about the numbers - there will be extra due diligence required at every layer as well, just to confirm who should be operating RTI on which payments, which will help to justify the "margins".
More worryingly, I've heard that since the new rules apply to ALL contracts, not just IT, and IR35 can catch any service supply that could have been offered by an employee (ie gardening, cleaning, legal work etc) public sector bodies are thinking about cancelling all their contracts with small business, and routing everything via Capita etc, just to avoid the analysis burden and related risk exposure if they get it wrong. Sure, it'll cost more than paying people direct, but it'll cost less than the risk of getting it wrong and having HMRC on their back for years.
"And who has been lobbying for this? Crapita et al. It is a sicking corruption of the tax system that is supposed to serve the people. F**k it no-one cares anymore, think I'll go back to Ameri..oh wait."
There is a way around this, but it requires people you trust.
If a few contractors banded together and formed a company offering service X that company could bid for work in the same way that Capita, CSC, CGI, Cap all do. Lower overheads so they could probably undercut them by quite a bit.
The trust comes into it when you have 4-5 people all with an equal stake in the company on different rates you would realistically only be able to take as much as the lowest day rate and leave the rest in the company for "Expenses & Entertainment"
Problem with that. First you still have the issue of checking the tax but more important you wont be as cheap as the guy from Bangalore and you won't get the juicy contracts Craptia et al gets because you don't have 20 years experience in f****g up (sorry doing) similar contracts.
After CSC put their markup on offshore work and add their "project management" costs undercutting them is fairly easy.
My next contract was meant to go to CSC but I'm 20k cheaper, based in the same time zone and can be available for face to face meetings. Genuine reasons long the cost benefit analysis that the client did to decide between me and csc.
The problem is that Companies have to be on a preferred supplier list and meet various criteria before they get near to any sort of Government contract.
Many years ago I worked for a large Canadian consultancy in the UK that was excluded from bidding on government contracts as it had not become a preferred supplier. They had to use another consultancy and be sub-contracted to do work on a local government portal.
"The problem is that Companies have to be on a preferred supplier list and meet various criteria before they get near to any sort of Government contract."
Yes, but if a small barrier like that is going to stop you contracting probably isn't for you anyway.
I am a suppler to 3 NHS CCGs and am part of the MoD supply chain too (though the MoD one is through a proxy)
There are barriers to doing it, but they are not impossible (or even particularly hard) to overcome.
If it's not that hard to get on preferred vendor lists in the UK, that's very different than the US (where it is usually very hard to get on private-sector preferred vendor lists and nearly impossible to get on government ones (though state-level is usually easier)).
No, an umbrella is very different from what I proposed.
In an umbrella you are an employee of that company, they pay you a wage and your expenses, they take a cut to make their profits.
What I proposed was a situation where a small group of contractors all owned shares in the same company, allowing them to use the same tax structure (small salary and dividend) as they currently use.
"allowing them to use the same tax structure (small salary and dividend) as they currently use."
Actually I suspect that this would get you looked at closely, especially if you were to then make payouts based in any way on relative contract earnings - and if such differentials existed over a long term then it would tend to instability.
The real advantage of this sort of business would be the ability to bid as a group for larger projects as a complete package. That would get you work that a solo contractor couldn't and if you're delivering a turnkey project for an overall fee there's no problem with one task being priced at a different rate to another.
@dr s
"especially if you were to then make payouts based in any way on relative contract earnings"
Sorry again, that's not what I meant. I meant they would have to all agree to take the same dividend, even if that meant leaving some of "your" money in the company.
"when you have 4-5 people all with an equal stake in the company on different rates you would realistically only be able to take as much as the lowest day rate"
If you're setting up a company with multiple people you're really going to have to run it on business-like lines. You don't immediately take all the income out as dividends like the cowboys who gave the IR the justification for IR35. You pay salaries to all including sick pay and holidays. You also build up a surplus to cover for one or more of your consultants being out of contract for a while. You then pay dividends based on what's left over. Pretty well what a singleton should be doing if they're running on business-like lines.
BTW, I think you'd need at least 5. IIRC the original IR35 legislation specified a shareholding of >20% although it may have changed since I retired.
@dr s
You're quite right,
That's kind of what I proposed, I didn't mean it to read that they would take everything out.
Rather that when they did declare a dividend it would have to be based on an agreed amount which would have to be based on the income generated by each person.
That said, there's nothing to stop a contractor emptying their company account every month (as long as they leave enough to cover tax etc) doesn't matter if your a one man band or a company owner employing 20 people, you can take what you want as long as it's accounted for an all taxes paid.
It's a daft idea to do that... But there's nothing to stop you doing it if you want to.
@dr s
I've just typed a big response and chrome crashed...
The jist was : you're quite right that's what I was getting at doing, not emptying the account every month, but rather having a clear agreement in place for how dividends would be doled out based on the profits generated by each member.
"And who has been lobbying for this? Crapita et al. "
I have been through and lost the arguments about this when I did contract work for a government department. At that time I had access to Mad Frankie Maude and attempted to persuade him that clamping down on small businesses was a really, really bad idea. The source of the lobbying was obvious (the usual suspects) and the reason transparent.
The big integrators want to stay the only game in town. They were hurt when Cabinet Office decided that their gravy train should end. CO promoted the use of individual contractors and maintaining details of "talent" so that departments could find trusted contractors. The big ones screamed "not fair" and put a lot of money into greasing the wheels ensuring that their concerns were listened to.
I know several of them have been busy signing up lots of independents using FUD and IR35 to persuade people to join them as permies. I've seen the offers. It's usually an offer of a pay cut between 25-50% with an attempt to sell the "benefits" of company car, pension and health insurance. Of course the rate to government rises by about 50% to pay off "overheads" and the integrator makes a neat 100% (or as they say 50%) profit on each body that they rent out.
They can do one as far as I'm concerned. My order book is bursting at the seams and I've enough private work to see me through to retirement. I don't need to work for politicians who think that someone who actually does something is beneath contempt.
In the oil industry.
Before the arse fell out of it probably 50% plus workers were contractors. The companies liked it this way because they could hire and fire at will dependent on workload or whether they actually liked the contractor or not.
When things pick up the oil companies will be wanting contractors back again on 6 to 12 month stints, but of course the goalposts have moved greatly in the past two years.
There's gonna be a crisis because a lot of the contractors were not from Aberdeen originally and have gone home, and the ones that are left will realise the tax system has changed and they can only draw 5k without penalty.
This has been a total screw up and to save a penny the government will lose a hell of a lot more.
>This has been a total screw up and to save a penny the government will lose a hell of a lot more.
A. You assume the government cares
B. You assume this is for the benefit of the government rather than some business buddies who have large companies with costs which *they* can offset against tax and who now find themselves with a little less competition.
/tin foil hat=off
its more like a bunch of numpty labour backing civil servants horrified at the rates contractors earn will now be happy that the contractors pay the same or similar rates of tax as permies, whilst being blissfully unaware the contractors rates have shot up to cover the extra in taxes.
"its more like a bunch of numpty labour backing civil servants horrified at the rates contractors earn will now be happy that the contractors pay the same or similar rates of tax as permies, whilst being blissfully unaware the contractors rates have shot up to cover the extra in taxes."
I always like to point out to people like that that my *PERSONAL* tax rate might be way lower than theirs, but I also have alot of other things to pay that they dont.
From my day rate I have to cover Professional Indemnity, Public Liability, Employees Insurance policies. I also have to provide my own hardware and software licences, I then have to pay an accountant (to make sure that HMRC get what they are owed).
Then my entire pension contribution comes out of it, no employer contribution or % matching, its all my money…
Then I pay the 20% Corp tax on whats left before I can take it out – Which incurs a national insurance payment on the salary component and an additional 7.5% on the dividend component
Yes, this STILL leaves me with more available to take home than when I was a permie… but when I was a permie I never worked 50+ hour weeks, I had paid holidays and had the security of being able to take 6 months sick leave at full pay. I also had a matched pension contribution. Contractors get none of that. *
* For reference I left that position because we were being TUPE’d to CSC and CSC wanted to send me out to different clients (Billed at 4-5x my salary) and wouldn’t give me a pay rise, all the fun of contracting with none of the benefits, Its been almost 3 years now and despite the current changes I don’t regret it one bit.
There's an interesting conundrum around that. A few years back, there was a school of thought that you could have an "IR35 proof contract" - just stick in the right clauses round control, substitution etc and off you go. HMRC and the Tribunals disagreed, and the case law is very firm and clear that you have to look at what happens on the ground, not just what was signed 18 months ago. (There's one case where the paperwork stayed the same for several years, but part way through the actual day-to-day practices changed, and so did the IR35 status).
Now square that with the idea that HMRC's new tool will be able to accurately predict *before the contract starts* what your status will be. Hint: you can't. And since payments have to be processed on the RTI system, it's not something you can revisit after starting; you have to get it right up front. It's just another reason why implementation is likely to be 'extremely challenging'.
The tool will present HMRC's interpretation of the rules, which has been shown time and again in tribunals to be wrong. The difference is that the contractor will have to pay the tax from day one, and will have to fight to claim it back, instead of HMRC having to investigate and prove they should have been paying.
It will gain the government no extra income. Contractors will leave or jack up their rates to cover the extra tax. It will actually cost the govt more.
However, it is obvious to all that this is just the first stage. Soon enough, they will force these rules on the private sector. Then all companies and contractors will suffer, and the government might make a bit more tax. The people will be happy, because it'll be presented as "clamping down on tax dodgers", but the whole country will suffer for it (less people contracting, a less flexible workforce, lower productivity, higher prices, etc).
"it's a tax dodge."
I'm not too sure to whom you were replying as you didn't quote. But if it was to d3vy pointing out that Ltd Co vs self-employment was a tax dodge then you're wrong. The Ltd Co approach was forced because of IR* rules about tax defaults by self employed settling on the next link in the chain: the agency** or, in the case of direct contracts, the client. Having the contractor work via their own Ltd Co removed that liability. There seem to be areas where self employment still seems to be the norm but in general most clients are liability-averse.
There's also the point that the contractor is taking on risk. Imagine you're a manager in a large IT dept (or oil or any other area). You have a certain amount of more or less fixed workload for BAU plus a variable workload for projects or even seasonal fluctuations for BAU. How do you staff it? Even trying to budget for the fixed workload is problematic, people take sick leave, parental leave, holidays or sometimes just quit or retire. Add to that the project work & you are really exposed to risk. If you have a staff level set on the basis of hoping for the best you take the risk of being understaffed immediately someone is off or a new project arrives. If you set some higher staff level you take the risk of sometimes paying salaries to people for whom you've currently no work.
Your best solution is to add some freelancers into the mix. That means that if you have a surplus you can get rid of them quickly without redundancy payments and if you need more the recruitment process is usually much faster than recruiting permies, especially if you can keep HR out of the loop. The crux of this is you have transferred the employment risk to the freelancers.
Now the freelancer is carrying some of their clients' employment risk. This is a very different situation to the employees alongside whom they will be working whilst on contract. They are not employees, they are businesses, taking business risks like any other business and this is why, irrespective of whether they're a one-man band or a Crapita-scale giant they should be treated as such.
None of this, it seems, stops permies complaining about tax dodges. But, I ask, why do they say this whilst not jumping on the bandwagon themselves? Are they too high-principled to embark on similar "dodges" or is it possibly that they don't want to take on the risks?
* As it was then, this pre-dates HMRC
** This prompts a thought. If Uber etc are presenting themselves as an agency then maybe this puts them on the hook for defaults by their employees independently contracting drivers.
It'll cost the Goverment more all right, because you can guarantee that some disgruntled contractors will test the reciprocity of this and demand employees rights if they are taxed and treated as employees.
Just as an example, workplace pensions are mandatory in the UK now. Add healthcare to that, and the costs are significant to the employer. Then you have other perks that employees are allowed but contractors are not (E.g. in my current contract I am not permitted to park in the employees car park or use the gym, and am quite happy with that as it is a clear delineation between temp workers and employees)
"The tool will present HMRC's interpretation of the rules, which has been shown time and again in tribunals to be wrong."
Surely this is one of the biggest problems in the whole IR35 setup - the phrase "HMRC's interpretation"?
Where exactly is one hard and fast set of rules, that if you follow to the letter they cannot question, if you can show you have followed the rules - no scope for 'interpretation', or 'in this case', or any per-industry or per-sector "guidelines"? One set of rules, in clean and plain language, with a presumption of innocence on the taxpayers' part if HMRC make a mistake - they get it wrong, their problem, you don't owe them for their mistakes. You get it wrong, according to a set of plain language rules with no scope for "interpretation", your problem. Any changes to rules announced at least one full tax year before they come into effect, any HMRC response to a query is binding on them - they don't get to think about it a second time around.
In other words, stop changing the rules, stop adding scope for creativity, simplify the whole thing. And stop creating more and more work for Crapita !!
</rant>
"HMRC and the Tribunals disagreed"
I always thought that the PCG didn't push hard enough. The case law was based mostly on people trying to get recognition as employees so it related to contracts of service.
Considering the balance of probabilities should have covered the probability of a contract for services by actually looking at such contracts in the real world by bringing in expert opinion from that world.
As an example, at one time the IR having on their website a contract template for provision of services to themselves. It included provision of a named key man clause. If they themselves didn't consider the inclusion of a named key man to be a problem in provision of services to themselves then a good part of the case law becomes irrelevant.
Now square that with the idea that HMRC's new tool will be able to accurately predict *before the contract starts* what your status will be. Hint: you can't. And since payments have to be processed on the RTI system, it's not something you can revisit after starting; you have to get it right up front. It's just another reason why implementation is likely to be 'extremely challenging'.
and this shit isn't just the bread and butter of the legal and tax industries? You can help one big company avoid millions or a hundred thousand little guys avoid 10 grand etc. As long as they get paid they couldn't give a shit. The more the goalposts move the better from their perspective.
Only the liability falls to the agency, it's the end user (Gov/Health/public sector department) that actually decides whether the contractors are actually within IR35, so expect some 'interesting' anomalies due to differing departments policies regarding contractors, and with some policies being blanket applied from several layers above this means some departments that can't afford to lose them will lose their contractors even when the managers of that department can prove their contractors aren't IR35. (think Dilbert and lazy/incompetent managers)
I must have been asleep at the point when contractors stopped being accountable for the correct running of their companies in line with the legislation that affects all companies. I can't think of any other case where someone else makes binding decisions on behalf of someone else's company.
Obviously agencies have a vested interest in this since they have to do nothing other than :
1. Decide that their own contract that they force is bad from an IR3 perspective
2. Watch the contractor hike the prices by 25% or so
3. Watch their own profits go up due to the increased contractor rate.
So would any agency actually want you outside of IR35 since it would adversely affect their own profits
"the correct running of their companies in line with the legislation that affects all companies"
Ah, but the problem is that the legislation doesn't apply equally to all companies.
If a company is to supply a worker to another company or a government agency then the rules should be equal for all companies. IR35 means small companies are penalised for supplying workers where the big companies can supply the same worker without the "employee" tax implications while being in a better position to reduce their corporation tax liabilities.
And who is advising the government? - the big consulting companies!
1. Decide that their own contract that they force is bad from an IR3 perspective
2. Watch the contractor hike the prices by 25% or so
3. Watch their own profits go up due to the increased contractor rate.
One would like to see alternatives such as:
1. Offer genuine IR-proof contracts.
2. Take business from the now 25% more expensive bad contract companies.
3. Watch their profits go up due to the increased volume of business.
"And again, you can't offer a "genuine IR[35]-proof contract". IR35 is a smell test: if it looks like an employee and smells like an employee then, for tax purposes, it is an employee; no matter what bit of paper it signed."
That's the problem, what constitutes the person being an employee?
HMRC dont have a firm set of rules that you can use to determine your status - yet.
Literally all this will do is put rates up and change the way that contractors work to be less like employees. If HMRC firm up the definition enough to say "If you do x, y and z you are an employee" the next day you will have contractors refusing to do x, y and z without a price hike.
Also as others have pointed out.. If they class me as an employee Ill be looking for pension contributions, and will be invoking the working time directive when told I need to work more to get projects in early.
"Also as others have pointed out.. If they class me as an employee Ill be looking for pension contributions, and will be invoking the working time directive when told I need to work more to get projects in early."
I think there's a precedent for this about 10 years or so ago. On the whole the contracting world didn't take kindly to a contractor nuking the client even if they thoroughly deserved it but the thought of having to cough up for employee benefits might concentrate the client's mind when it comes to assuring HMRC that this really is a contract for services.
"if it looks like an employee and smells like an employee then, for tax purposes, it is an employee" and therefore is entitled to employee benefits such as sick pay, paid holiday, pension contributions from "employer".
Before they introduce this latest change of course, HMRC will publish it's plan detailing how they are going to enforce the provision of those things to people they decide are employees ......
"IR35 is a smell test: if it looks like an employee and smells like an employee then, for tax purposes, it is an employee; no matter what bit of paper it signed."
It's a good few years ago now there was a case where the contractor had one contract and the engager another. The contractor was too ill to contest the case properly, the tribunal actually had to be held in his home IIRC. The outcome was that this failed the smell test because the contractor was being bound by the agent's contract. If there had been a real dispute, of course, the agent would have been in breach of contract to one or even both parties*. But by picking a case where they weren't likely to get a proper defence HMRC got an extra test.
It should be possible to test contracts against business to business contract law as well as against employment law.
*Nothing exceptional about this in business terms. In this case the agent was buying one product (i.e. one set of terms from a supplier) and selling another (non-matching set of terms) to his customer. Unless a situation arose where the supplier wanted to invoke one of the terms that wasn't matched it wouldn't be noticed that the agent was selling something he didn't have. It was a commercial risk on his part. The same thing happens every day in other sorts of business. If you order a car from a dealer which isn't part of his stock he'll still give you a contract and take a deposit. He's going to order a car from the maker and is assuming the maker will supply it. In fact the maker could discontinue something in the spec, say the colour, or even the entire model; I've had both of those happen. The dealer is caught in the middle and has to negotiate a compromise or even risk being sued for breach of contract. There's no reason why this couldn't happen to an agent - which cross-examination should have brought out - and if it does there's not rational reason why it would make the supplier an employee of the client.
So would any agency actually want you outside of IR35 since it would adversely affect their own profits
The problem is that it's not the agency who decides. All the big agencies had turned around and said they would work hard to determine the true status of their contractors fairly, then the govt decided that it would be the public sector client who would decide. The agency has no say, it's only role would be to collect the taxes.
"what happens if like me your contract is direct? I have no agency"
It's down to the end client to collect taxes, effectively through PAYE, before paying the contractor.
It is the responsibility of the entity which pays the contractor's Ltd company to collect the tax. This could be the last in the chain of agencies, or the client itself if the contract is direct.
Remember, though, this only applies where the end client is a public sector body (for now).
"It's down to the end client to collect taxes, effectively through PAYE, before paying the contractor."
Well that's f*cking mental.
For a start it's not my money it's my companies money, not mine. I take a small amount for myself and the rest gets spent on expenses such as training, insurance etc, I also use profits from some contracts to subsidise work I do for NPOs and charities..
So are they hitting me with full whack income tax on money that will never be mine?
Which then raises where does that get paid? Me or my company? Are they paying per taxed money into my company?
I should probably go and read up on what they're changing... Or just continue not working in pub sector.
"Well that's f*cking mental."
Yep. Most contractors, businesses, agencies and public sector bodies agree.
"Are they paying per [sic] taxed money into my company?"
Yep again. I don't know exactly how it will work, but I expect that it'll mean that they are paying the company, but the money is yours, not your companies. In other words, it's a clusterfuck!
But again, it doesn't matter coz tax dodging bla bla bla...
Once Mad May has turned the UK into a corporation tax haven to smite the EU and attact foreign companies, you just set up an Irish company, rent an office in your house and tell HMRC to swivel. Can't be that easy surely? Mind you I gave up the whole IT thing a couple of years ago when a certain gov dept tried to make me "volunteer" extra tax payments to which my response was to tell them to "do one" so I probably know nothing.
Of all the dumb things Gordon Brown did PFI, Banking Regulation, Gold Sales to name but three. IR35 must be the one that has raised the least extra revenue whilst spawning a huge amount of effort and accountancy "talent" to minimise it's impact.
Presumably, now he is working freelance, he is fully compliant except for the fees that get directed to his foundation less valid expenses of course.
That might cover some of the increased tax, it wont make up for the loss of travel and accommodation expenses. Currently, anyone working outside IR35 can claim travel and accommodation via their company as a legitimate business expense. Once the changes go through you will lose that.
I recently finished a 12 month gig with a Gvt agency at the opposite end of the country that meant Mon-Fri commuting and staying away from home. Without being able to put travel and accommodation through the business it would have been a much less viable contract and probably one I would have passed on for something closer to home. The longer term effect will be to reduce the flexibility of the freelance workforce by limiting our ability to travel for contracts in the public sector.
Without being able to put travel and accommodation through the business it would have been a much less viable contract and probably one I would have passed on for something closer to home. The longer term effect will be to reduce the flexibility of the freelance workforce by limiting our ability to travel for contracts
That's what the govt/HMRC seem to miss: The country benefits massively from the flexibility of the contractor market.
I'm based in Leeds. As long as it's worth it, I'm happy to take a position anywhere in the country. Make it less attractive, and I'll stay near home, spend more time with friends and family, and enjoy the short breaks between contracts. Businesses loose (access to the labour they need when they need it), the govt looses (tax revenue from the contractor and company), and the country looses (attracting businesses, tax revenue, and more).
But it's OK, because we're all tax dodgers and must be punished.
"Would they be entitled to expenses, travel etc?"
Yes, up to a period of two years (unless things have changed since I last had to look at it). The built-in assumption is that if a secondment lasts longer than that it's a permanent move and it would be up to the worker* to relocate their household. The same 2 year rule applies to contractors as well so a contract running for longer than 2 years becomes more expensive to operate as the tax allowance is lost. For a direct employee, of course, the employer would expect relocation costs to be paid, at least that's what happened to me is-it-really-25? years ago.
* This is a general rule, not just for Civil Servants.
"Yes, up to a period of two years"
Not quite accurate, but near as damnit.
However, this no longer applies to contractors caught by IR35, and doesn't apply at all to umbrella company contractors. No subsistence for either group.
Another point to note: normally there's a 5%(?) allowance for business expenses if you are caught by IR35. This won't apply any more in the public sector under the new rules, because "the client is determining your IR35 status, so you don't have to". Of course, this doesn't take into account the costs of doing business (e.g. accountancy, insurance etc), but as we're all just tax dodgers, it's fine.
"That might cover some of the increased tax, it wont make up for the loss of travel and accommodation expenses."
This.
I remember what a large chunk travel and expenses used to take out of my contracting income.
And there's a kind of assumption here that contractors will be allowed to raise their rates. I can't see that happening across the board.
IT contractor working in the public sector here. I gave my notice last week and I'm back to a private sector client at the end of February.
The worse thing of this story is that nobody has any clue of what's happening; there's no online tool available, and even when available it will just tell HMRC (likely if not certainly biased) opinion on your contract. Agencies (the good ones) and small consultancies are forced to hire consultants and lawyers to understand the impact of the reform, since HMRC guidance is limited to general advices and guidelines.
A big mess.
IR35 is a joke anyway, "disguised employee" rubbish - They only have to ask 4 questions to see you are not disguised employee
1) Do you receive sick pay when you are ill? ---- NO
2) Do you receive holiday pay when you take time off --- NO
3) Do you have to pay for your own training, resource material to keep up with industry skills? - Yes
4) Do you pay for Personal Indemnity insurance just in case you muck up at client site? --- Yes
I don't remember doing this when permie..... also, accountancy fees, website hosting, business cards/stationary, business meetings with agencies so they can pump you for information about previous clients so they can try and get other contractors on site etc etc.
I'm a permie, but I would answer NO to all four of those questions, so think again.
As others have stated, if you are in the UK your employer is breaking the law.
1) All employees are entitled to Statutory Sick Pay for illnesses of 4 or more days at £88.45/week [https://www.gov.uk/statutory-sick-pay/overview]
2) All employees are entitled to 5.6 weeks paid holiday (28 days for a normal 5-day week) [https://www.gov.uk/holiday-entitlement-rights/entitlement]
Simply do what all other companies these days seem to be doing and just quote your prices without VAT.
Then when you send them the invoice, just say, "oh yeah well you've got to pay VAT, that's just the rules, nothing we can do about it".
I once saw this done on a 20k development project. But you know, what's 4 grand between friends? They were fuming.
"I'm talking about companies doing it in B2C situations. It happens. A lot of car garages and trades people have been doing it for a good few years"
Literally no one else is discussing this. The article is about contractors, we are talking about B2B contracts.
If your friend accepted a 20k quote for development work as you stated and got stung it's partly due to their negligence in not checking first. (Though if it was a b2c situation I'd probably make the vat situation clear in the quote)
I have never quoted a vat inc price for work...
For a start VAT can change..
Being charged vat doesn't really matter to a business, we just claim it back.. so crying over a 4k vat bill on a contract is a bit ridiculous, unless of course they were not a busines... In which case a bit of diligence up front on their part would have paid off.
"Being charged vat doesn't really matter to a business, we just claim it back"
It depends on the business. Exempt businesses can't charge VAT, can't register and can't claim it back. They should know this, of course and expect it.
A small business which hasn't registered because of being under the VAT limit also wouldn't be able to claim it back. I'd guess this might be the situation Andy quoted - someone setting up a small B2C business but too naive to research the ins and outs properly, otherwise someone would have told them to at least consider the trade off between being able to sell VAT-free and not being able to claim VAT on purchases.
I'd actually forgotten about this change as I've been private sector for the last two years.
Im meant to be interviewing with a council in Scotland next week for a position requiring skills in a fairly uncommon tool set. The rate on offer is already way under what I'd want... its going to have to go up even more now.
@Cuddles
I take it that you're a permie. Why? Don't your principles allow you to become what you perceive as a tax dodger? Or is it that you're not prepared to take the risk of acting like a business in return for being taxed as a business?
The whole sorry, long-running saga turns on the fact that businesses take risks, businesses are taxed differently to individuals, in part because of this, but that Civil Servants in the IR, and HMRC as it became, can't comprehend that an individual can work as a business.
I can really see that working... can't for the life if me imagine the tight fisted employers just getting their labour from abroad, or someone else just undercutting me so I get no work, no, not really. Here goes then, straight on with 20%.
Guess it might work for those in finance (where the employers will already not consider anyone not a banker) or defence where you have to have a security clearance that you cant get unless you get the job that requires you already have one..
Besides I have a couple of really large objections. First my tax rate as a small business is WAY above that paid by Microsoft, Starbucks, Tesco etc etc etc etc This just seems a way of picking on the weak to avoid confronting the strong
Second is that my contracts are not nearly as secure as those of an MP. MPs can claim travel, accommodation, girlfriends, tv, internet access, dinner, first class travel to any exotic location they please and of course for the repairs to their duckponds without incurring tax on any of it.
"MPs can claim travel, accommodation, girlfriends, tv, internet access, dinner, first class travel to any exotic location they please and of course for the repairs to their duckponds without incurring tax on any of it."
Good news - HMRC has decided that as this is grossly unfair, everyone else can claim the same stuff as MPs. They're also going to 'beta test' all new tax legislation on all senior civil servants first and then on outsourcers with > £50m pa in government contracts.
Anyone seen my pills?
"Second is that my contracts are not nearly as secure as those of an MP."
On the other hand the MP's contract isn't as secure as a tax inspector's job. So here's a proposition which MPs should be able to support and which HMRC can't possibly object to as it incorporates one of their existing tools, taxation on benefit in kind.
1. We have a standard tax schedule for everyone.
2. We look at the security of each job e.g a 3 month contract with provision for early termination rate a little less secure than a fixed 3 month contract. That in turn is less secure than an MP's 5 year fixed term which in turn is a good deal less secure than a Civil Servant's appointment in HMRC.
3. We assign a value to the benefit security at the various levels.
4. We tax that security as a benefit in kind.
5. We use the tax from the benefit in kind to cut the tax levels on the standard tax levels substantially compared to their present levels.
MPs should be able to support that as it takes account of their relative insecurity. (Ministers' jobs are somewhat less secure than their jobs as MPs so this would also be allowed for). HMRC staff can't possibly object to their benefit in kind being taxed as it's something they routinely do to others.
In general people, except for MPs who benefit, should be paying about the same as now but the reasons for this are more transparent and permies who want to pay less can opt to forgo the security and the tax which goes with it.
So, a quick question for Mr. HMRC, why am I charging VAT in "wages"... plus if you RTI my "wages" then there will be no Corporation Tax, none at all, in fact my company will then be making a loss so I'd expect to claim some Corporation tax back...
I'd suggest you haven't really thought this through, go away, come back when you have.
It's no big deal, when all the contractors walk out and take time off / go private, we fortunately have this great resource available to plug the gaps in employment while new permies are hired for much less - we'll just go and get some temporary workers to do those jobs. Oh wait.
Contractors are the last resort when you have staffing issues, kinda like crippling the fire brigade while they're half way through stopping your house burning down, and just walk out. Dial 999 ... oh wait, they *were* 999.
...to turn the tax code into something like
Allowance: £15k
All Subsequent Earnings: 25%
Exceptions: None
(the figures may vary - but you get the gist)
Easier for us to understand, for HMRC to implement and calculate, thus saving a huge amount in costs associated with tax lawyers, accountants, et al...
"...to turn the tax code into something like" etc
This is more or less what I suggested but you omitted one thing. There are a set of benefits to being a permanent employee. There are slightly less benefits being on a fixed time engagement such as an MP (5 years, no guarantee of renewal) and none with being a freelancer at risk. Those benefits have value over and above earnings and should be taxed as such so the permie gets to pay that tax as well.
BTW, how do you tax someone who has no earnings but makes a living by buying and selling at a profit?
As a permanent employee in the private sector who regularly employs contractors / freelancers and also has friends as such - it never ceases to amaze me the fiddles you guys run.
My effective tax rate with income tax + national insurance is approaching near 50%, for a salary which in the London/South East tech industry is not huge, especially after commuting costs (not tax deductible) or accommodation.
Whereas my dear friends regularly claim to be getting their effective tax rate into the 15-25% range.
I challenge the moaners on here to go to https://listentotaxman.com and see how much they would be paying under PAYE, and then justify the additional employee benefits and state protection of perm is worth the difference.
For example, have you seen the statutory redundancy law recently - under 2 years service and you have zero employment rights. A freelance contract provides more protection and certainty, given the average employment churn of 2 years in London, than being perm.
People should be free to work how that want to, but I would appreciate some semblance of equality when paying for our overgrown state... maybe we could all have a tax break / reduction.
You're quite right, contracting is a piece of piss, we skip merrily from contract to contract while money rains down from the heavens and falls at our feet.
Which begs the question, why are you still a permie? Seriously, it sounds shit the way you paint it, c'mon, I'll put you in touch with some good recruiters and an accountant.
You KNOW it's not as easy as you make out, you yourself have probably served a contractor their notice and asked them to leave (in reality we get no notice period), or canceled a contract a few days before it was due to start..
Some other things to consider: finish your contract in November? Well, put your feet up because no one is hiring until mid January now.
Not been paid on time? Have fun with THAT, there was a period this year where I didn't get paid for four months because of an issue with the clients finance department, contractor payments were not a priority to resolve. What comeback did I have? Put a few % tax on as a late fee? Court and ensure the end of my contract and loose any repeat work from that client? Nope I fell back on the money I had to wait. Now Mr permie, what would you do if your pay was two days late? I'll bet you'd be in to your payroll department and it would be resolved pretty quick.
The guys claiming to be getting an effective vat rate in the range that you quoted are the ones that are not making provisions for down time, taking all profits out of the company and then panicking at the end of their contract.
I'd also point out, it's not a fiddle to follow the law and pay the minimum amount of tax.
In fact I'd go as far as to say if you have any pre-tax benefits from your employer, including pensions, student loan payments or childcare vouchers you are a hipocrite as you are also employing legal "fiddles" to reduce your tax bill.
Just laughing. Come to the US, then you guys can evade tax because your country doesn't enforce it (we fired the IRS employees to prove it, and that was Obama).
"Self" employeed? Seriously, have you so much disrespect for your "self", if, indeed, it ever existed.
For those of you who want to learn, CA (tr: California, not the more sensible guys) has been trying for years to enforce this through various similar (copied by you maybe?) legislation. It's a hard uphill battle in the US, but I think it is a downhill bobsled in the UK.
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