UK.gov gears up for IR35 private sector crackdown – say industry folk The UK government is gearing up for a massive tax clampdown on private sector contractors, in an extension of its IR35 regime to hundreds of thousands of freelancers outside the public sector. This according to multiple contractor recruitment heads, with one claiming those plans have already started and will be introduced next …
Which given the current governments ability to balls everything up that they touch AND this clampdown on those they see as scumbags (Contractors) stacking shelves even on a zero hours contract for the next 6-9 months might be a good idea. Keeps your head down and all that.
It won't take long for half a dozen ministers to round up on one P. Hammond and complain that essential projects to their departments are up the khyber because of the Treasury. Another 'U' will no doubt happen.
In my office we have contractors from Australia, Belgium, Britain, Bulgaria, Cyprus, Poland, and Portugal. Even if the British contractors don't emigrate, the foreigners have fewer ties to this country and are far more likely to try their luck elsewhere. They're already moaning enough about the exchange rate.
Not really.
I live in Asia and often have recruiters send me emails about jobs. I add up the costs and factor in the exchange rate (and tax uncertainty) and find that due to the exchange rate the UK doesn't pay very well anymore. Now USA, Australia and most of Europe pay better. Years of little pay rises and a sudden drop in the pound value. It's not a personal gain thing, its a "now you are level with alot of other potential employment locations" .
ie. not competitive.
That basically seems to be it. As with the US this government wants to extract as much tax as possible from the people in the middle, and as little as possible from the people who profit from their work. They rely on the middle class being too individualistic and fragmented to get together and find a way to strike.
ALL governments want to maximise revenue without demotivating people from bothering to work or incentivizing them to leave the country and work somewhere with a more wealth-creation-0friendly environment. That doesn't make them evil, it just means they're trying to do their job.
I've always been permie though I've looked at contracting a couple of times I've some sympathy with anyone who has to do their own tax return, and having your financial chain jerked abuot by forces out of your control must be stressful and tedious.
That said... presumably if this change makes contractors worse off than they would be in permanent roles, they'll all pack it in and go switch to perm. Either employers will have to up contractor rates to compensate, or reconcile themselves to doing without extra heads and delivery stuff more slowly, or just hiring on more permies. (Given the ease with which permanent employees can be fired in the UK I've never really understood what the problem was with permies anyway...)
On the other hand if contractors still save more on tax than they lose in sick and holiday pay (and whatever other benefits there are, I don't know) , then they'll stick as contractors and carry on complaining, even though they're better off than the ppl at the next next on a permanent contract.
In summary market forces ftw.
So if Recruiter A forces almost all of its contractor down the IR35 route but Recruiter B sticks up for them, taking on a test case or two, with support from the PCG (now IPSE, it seems), which Recruiter will most contractors choose to work with / refuse to work through?
I hear a death knell for a few spineless recruiters. Quickly followed by the collapse of IR35. Again.
They haven't thought this through.
Sure, there will be some who just hike their rates to cover the extra tax, and there will be some who head abroad, but I reckon a lot will just go permie and at least have the comfort of sick pay and paid holidays, medical care, pension contributions etc.
Trouble is, permie work pays less, so there's less overall tax for HMRC.
Net result: Lower tax receipts, loss of skilled consultants, huge impact to workforce flexibility - inability for companies to hire on a project (ie revenue) basis - increasing risk all round.
The field I work in, Network Security, is comprised of about 80% freelance, 20% permie. Is that really an area where the government wants to reduce effectiveness?
Depending on how Brexit pans out for foreign workers (I should also mention that it's probably about 10-20% native Brits in my field as well, almost everyone I work with is from another country) we could end up with a perfect storm in which we red-tape ourselves to death :(
@Tom 7 - dear oh dear, such cynicism. All they are doing is making it the perfect world for those whose votes showed they don't want the flexibility or freedom to work where they choose, who are happy to pay into HMRCs coffers without asking any questions about why people who get fewer benefits should actually pay more tax ... what could possibly be wrong with that, as long as they keep buying my newspaper? (c) Editor, Daily Fail
Exactly what happened to me, after being told I would be caught by IR35 for a long term contract I was on I decided to go back to being permie.
Living in the back end of nowhere the combination of travel costs weekly accommodation and then IR35 just made the hassle of the contractor life not worth while.
Net result I finally found a job at home, now have a life and only earn 5K more than I used to pay in tax so quite a loss to the revenue.
"Net result I finally found a job at home, now have a life and only earn 5K more than I used to pay in tax so quite a loss to the revenue."
Tax breaks are used to encourage investment in housing, the film industry, new factories, forestry, private savings etc, according to the projected needs of the next few years.
It is clear that the UK authorities no longer see any value in having a flexible workforce.
"They haven't thought this through"
Too right they haven't.
Even if the anticipated exodus from the public sector doesn't happen, what does the HMRC in its infinite fuckwittery wisdom think will happen? Contractors will put up their hourly rate significantly to compensate for higher taxation. Great, thinks HMRC, lots more lovely tax revenues.
Except that public sector project costs will have gone up significantly as a result, and where does the extra money for this come from? Yes, you've guessed it, the selfsame tax revenues, so the public purse is hardly any better off than it was before...
"Except that public sector project costs will have gone up significantly as a result..."
One would hope having the real costs of being so reliant on contractors and outsourcers would finally force the public sector departments to sort out their employment and hiring practises so they can hire their own techies, but we all know that won't happen.
"One would hope having the real costs of being so reliant on contractors and outsourcers would finally force the public sector departments to sort out their employment and hiring practises so they can hire their own techies, but we all know that won't happen."
Of course that wont happen because that would be mental, contractors are not employees, contractors are there to fill short term requirements or to provide skills that the company doesn't need to pay for long term (eg if you need a tonne of work done as a one off there's no reason to hire permanent staff knowing full well that when the project comes to an end your not going to need them at the end of the project.
The field I work in, Network Security, is comprised of about 80% freelance, 20% permie
Really, where's that? I've been in security as a perm for ~15 years and I can only think of one contractor I've worked alongside in that time (over five employers) and he was a specialist ISO 27001 expert.
Perhaps this is why I can't afford to run a car when everyone else in infosec seems to be rolling in money... :S
"Really, where's that? I've been in security as a perm for ~15 years and I can only think of one contractor I've worked alongside in that time (over five employers)"
These days I tend to work for large multi-national suppliers who have large multi-national clients (think companies > 10000 employees).
The team I'm currently working with is about 15 strong now (up from 1 about 3 years ago :) ) and only 3 of them are permie. The supplier just can't seem to find enough good people for these consultancy gigs who are permanent workers. To be honest they struggle to get decent contractors as well - especially on the account I work on - it isn't an easy customer :)
They asked me if I would be interested in a permie role about 2 years ago, and when I expressed my starting price I didn't hear anything back. However, they did keep me on for another two years on my day rate (which has gone up several times due to all the extra value I bring). Based on what I originally asked for they would have made an absolute packet out of the client had they taken me on as a permie back then.
"Perhaps this is why I can't afford to run a car when everyone else in infosec seems to be rolling in money... :S"
Too many variables to comment on that, I have no idea what kind of area you work in and for what type of clients, but if I told you that the technical aspect of my job, whilst still challenging on occasion, is only about 25% of what I actually do it might give you some idea of where to focus. If you would class yourself as a 'techie' then you're missing out on a huge market that wants people with a broad range of people/admin/management skills on top of being technical. That's when the rates start to shift up a gear or two.
I might be expensive, but I'm good *value*. ;)
I know it's almost unfathomable to conceive, but it's almost as though we have two different Government departments here working at complete odds with each other. On one one hand we have BERR / DIUS who preach for a mobile, flexible, responsive and highly skilled workforce to power the future economy; and on the other hand we have HMRC who's overall strategy seems to drive anyone who chooses to work in a mobile, flexible and responsive manner - into the terms of inflexible and unresponsive permanent employment.
And if any permies here want to go down the route of "but you pay less tax, or dodge tax, as a contractor", then please, let me know how much you paid overall last year off of the back of your labours, and then I'll tell you what I paid off of the back of mine. I'll pretty much guarantee that you paid less overall than I did.
i pay ~30% of my pre tax wage in taxes.
out of my post tax earnings i have to pay:
travel including car costs, fuel, trains, busses, taxis
lunch, drinks, snacks, entertainment
purchases related to my profession, i.e tech stuff like computers, phones, tablets, internet connection etc.
contractors get to reclaim vat and tax on fuel & get to pay for the above out of pre tax earnings thereby further reducing the taxes paid and making their purchases generally cheaper effectively subsidised by permies who pay full tax.
either pay full tax or pay additional taxes due to benefits in kind gained by purchasing through your business.
if permies and contractors where on an even footing with regards to taxes and expenses no one would begrudge contractors earning more due to short contracts, lack of sick pay, holidays etc.
that £1200 laptop effectively costs me ~£1560 pre tax earnings, the same machine costs a contractor at most £1000 as they can claim vat back and they could also expense the machine against current or future profits, effectively purchased by other tax payers as the cost is offset against less tax paid.
its a fact that contractors pay less in direct and in direct taxes.
What company allows contractors to use their own personal machines to connect to the corporate network and do work?
the people i work for provide us all (permie's and contractors alike) a computer to do work on their environment. They wont buy me stuff for my personal use or stuff that might help me get a job with someone else, even if i use my own personal stuff to help the business i work for.
Well if they had 'no plans' before you can bet they do now. Since Hammond was told to scrap the NIC changes by the Headmistress, even though he had cleared it with her first. He will be desperate to retireve every last penny he can find.
Somehow I can't see the Sun and Daily Mail having front page headlines to Compensate the Contractors.
One of the reasons people work as contractors is there are no full time jobs on offer for these people. Forget the bullshit peddlers of agile and business change etc I'm talking about the skilled experienced tradesmen and women who actually build systems. They have learned the hard way that what the manual says ain't true and you need to do this to get around that problem, It's a construction industry so teams are formed, do the job and split up, that level of itinerant flexibility costs money.
We are constantly told about the skills gap, the lack of a pipeline to deliver new entrants to engineering etc. and they pull stunts like this.
By extending the rules to the private sector, not only would the government raise some much-needed cash, but it could also stem the exodus of contractors to the private sector. In the medium-to-long term, at least.
When it does, freelancers will have nowhere to turn.
Oh yes they do: abroad. They'll join the other exodus from Blighty, namely the people who actually do the work in health care.
Is it just me, or is the long term intention of the UK government to end up with a country that appears to be the landing zone of the B Ark? Freelancers don't follow this strategy as a path to escape the clutches of HMRC, they do it to actually have a moderately decent wage left as taxation has reached frankly ridiculous levels compared to abroad.
If HMRC was really intent on collecting taxes they'd go after the people who have made evasion into an art and companies who sell services here but don't pay any tax on them but I guess that's too much like hard work. Robbing the peasants is easier.
There will also be a third group of people who don't want to put themselves and their families through a total economic collapse and choose to find a less small-minded place to live. Britain, and in particular England, is going to be an increasingly rubbish place to live over the next couple of decades. But the people have spoken etc etc.
taxation has reached frankly ridiculous levels compared to abroad.
*COUGH* COUGH*
Actually... I think you'll find that's not /entirely/ true.
This list has (frmo a quick copy & paste & grep & wc ) 84 countries with higher basic rates than the UK. In the UK you don;'t pay a penny below £11k, above that it's 20%. In the land of free enterprise and entrepreneurship it's 35%.
https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates
That may be true but there is still the matter of the 11 % NI contribution that is payable on salary, by the employee. This affects most middle income workers, the very well paid can treat it as a smaller hit since it stops being applied at around 45k.
To most people it changes the basic rate to 31% for a goodly chunk of their income. Contractors basically save 'tax' by saving on NI contributions.
Which seems fair since they get no sick pay, including statutory; no Maternity leave, no Paternity leave and so on. Until the pension changes were made, they also did not pay into the 'system' and so got nothing in return from that system.
Contractors can earn a lot of money when all is going well, and this is why many do it. It is, however, not always an easy gig, involving travel, living away form home for long periods etc. Often the actual work is the scut work, with permie staff getting (quite correctly) the design and architect elements of the project etc.
I have also noticed that contract rates have not risen a great deal of late where permie salaries do have appeared to.
Everyone gets a choice though, if you think contracting is easy and well paid, become one, if you think permies get a cushy deal, become one - our industry is pretty flexible and opportunities allow most to choose which to be.
I for one think it is time to stop and live on less, the tax rate changes made to dividends not that long ago basically pushed me to early retirement.
Anyone who has kept up with the recent cases ie Various~V~Uber, Maggie Dewhurst~V~City-Sprint and Gary Smith~V~Pimlico Plumbers should have seen this coming and forget next year it is already here.
The Gary Smith~V~Pimlico Plumbers case makes good reading on this as if irc My Smith was operating as a Ltd company that also employed his wife.
12 months ago any case from contractors before an Employment Tribunal failed. Now it seems every case is being won.
It would seem to me that there has been a big shift in policy and I have to wonder if this is a handed down policy from Central Government. In my (completely Amateur laymens) opinion this may be due to a loss of Tax/NI revenue in the coffers with so many people now being self-employed.
re: Gary Smith vs Pimlico Plumbers
"In this case, the Tribunal found that the Claimant was not an employee, but because the company maintained some control over the way in which the Claimant worked, he was considered to have been a worker."
I have no idea what the difference between a 'worker' and an 'employee' actually is :/
edit: https://www.gov.uk/employment-status/overview
It seems to me that "worker" is an attempt to a) give rights to self employed people working for companies in the same way as employees or b) muddy the water between employee and self employed depending on your viewpoint.
But in the case itself Mr. Smith was self-employed, not running a one-man company, at least according to this.
Maybe the government thinks this 'worker' definition can be used against employees of one-man companies (contractors)?
Pimlico Plumbers and Mr Smith – latest judgment: self employed contractor entitled to holiday leave
(gcache because the website is currently down)
Employee - where a contract of employment exists. This gives the full range of employment rights including protection from unfair dismissal, right to a redundancy payment, annual leave and pay, sick pay.
Worker - where a contract for service to do work personally exists ( or an employment contract as above).This gives a more limited range of working rights, including to annual leave and pay; to be paid at least the National Minimum Wage level and no unlawful deductions from wages.
Self employed - where neither of the above types of contract exists. This attracts a very limited range of working rights eg health and safety, working time and (with qualifications) discrimination protections.
It can be difficult to determine which category (and therefore which set of working rights ) applies to individuals apparently contracted with businesses as self employed contractors and who are self employed for tax purposes.
12 months ago any case from contractors before an Employment Tribunal failed. Now it seems every case is being won.
It would seem to me that there has been a big shift in policy and I have to wonder if this is a handed down policy from Central Government
That's not how the legal system works.
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The UK Tax system is no longer fit for purpose. It needs wholesale replacement to handle the changes in the world of employment opportunities and earning potential.
Permanent, Contract, Gig, Zero hours, etc. All are valid and none of them fit fairly in the current system. Stop wrapping the gerbil in Duct Tape, its done.
One simple income tax on all personal earnings no matter the source, then everyone pays on a level scale.
Completely agree.
The politicos love to fiddle with the tax system, either to conceal the fact that they're raising taxes, or with the more laudable aim of trying to steer economic behaviour. The result over years is a comically convoluted tax code. It's well past time to ask whether the benefit, in terms of steering the economy, is worth the cost, in terms of collection/enforcement effort and accountants' fees.
For starters we could get rid of NI and roll it into income tax. And tax dividends the same as other income. At a stroke that would end this IR35 debate.
What about VAT? How much money is spent by companies on dealing with VAT, and by the revenue on collection and tackling VAT fraud? Get rid of it. Tax income instead.
Inheritance tax? Treat inheritances as income and forget about taxing the estate itself.
You could debate whether "sin taxes" should be retained - booze, fags, fuel duty and so on. They're relatively cheap to administer and collect, so does the social policy benefit justify that cost? Quite possibly, yes. But that should be the question we're asking about every tax or allowance or exemption.
This has been mooted a few times now and the tax systems of various other countries have been held up as examples. In essence, the consensus was that a simple tax allowance and a flat rate of tax benefited the lower paid 90% and actually brought in enough from the top 10% who currently pay lawyers to avoid tax (remember children avoid is legal, evade is not) that the Revenue would get the same into their coffers and a tax return would be 2 minutes work.
The main casualties in that would be tax lawyers who would have to get a real job and amazingly this seems to be a major stumbling block, how odd.
Why do you say it is regressive unless of course you are confusing flat rate (% of income) with flat sum (specific value regardless of income)?
The studies indicated that the rate would be lower than at present but the removal of loopholes means that the higher earners actually pay more than at present. Since they would be paying the same percentage as the lower earners that makes it fair on everyone.
Our current system is actually regressive as the people at the top pay less as a percentage than those at the bottom through helpful tax lawyers working the system. I don't care that Lord Soap pays a million in tax as it is almost certainly less than 20% of his income. The numbers they pay sound big but it is a lower actual rate than Joe Soap the road sweeper.
I don't think there's a strong argument for flat-rate tax. It's also politically difficult in a real democracy. It always favours the highest earners, so you'd only expect to see where there's an effective oligarchy.
A full flat rate is certainly very simple, all income can be taxed immediately at source, but it hurts everyone bar the high earners, and the poorer you are, the more it hurts. If you go for a flat rate plus a tax free allowance, then you can set that to benefit the lowest earners, but then the middle classes bear the brunt, and having 2 tiered bands is not really any simpler than our current 4.
What I would like to see is a big increase in the tax-free allowance, like double the current £11k. That would take a lot of low earners out of tax entirely, and even better, would enable the abolition of the complex and costly system of working tax credits. That does mean those with middle incomes need to pay more to take up the slack, but at least you can use tiered rates to ensure the top earners take their share of the increase too.
"One simple income tax on all personal earnings no matter the source, then everyone pays on a level scale."
Its not that simple. If I have the same tax rate as a permie Ill be taxed twice as for liability reasons I have to operate through a limited company which if we all had the same income tax applied would mean I'd be taxed twice.
What I think you are missing out is that we DO have the same tax rates applied at the moment, anything I take from my company as salary is taxed at the same rate as the salary that you have.. what is different is that I can take some income in the form of dividends which are taxed at a lower rate, thing is once you take into account the expenses of running a limited company the rates average out fairly evenly.
Yes its still in the contractors favour or no one would do it - I suggest that if you think its so awesome and easy that you give it a try - I can give you the number of a reasonably priced accountant and recruiter... fancy it?
I've little sympathy for freelancers - in all my years in IT I've never met a single poor contractor. Frankly we all know exactly how many of them are paying themselves minimum wage and doing everything they can to minimise their tax bill. It's not cricket, lads.
However this is lipstick on a pig. Freelance, umbrella, "self employed", zero hours, they're all equally screwed. Government needs to dial back the attack on the individuals doing the work and focus on updating the income tax and NICs regimes to better reflect the modern world.
"Government needs to dial back the attack on the individuals doing the work and focus on updating the income tax and NICs regimes to better reflect the modern world."
Absolutely - governments should stop the attack on individuals who do the work and focus on updating the income tax, NIC and pension regimes to reflect the modern world - and view those as a package: final salary pensions for some groups of public sector workers have a value that is not available to other employees either (most of whom are on defined contribution schemes), and should be factored in, as should the value of holiday pay, sick pay, training, and all/any other benefits. When you have some public sector employees who are on final salary pensions (with contributions not just matched but matched four times over) complaining about contractors being paid a lot, yet using contractor rates as an argument for their own pay rises because it's unfair contractors are paid more, something is wrong - that is a direct, "real world" example, by the way
Put the value of those benefits on top of base pay, and use that gross as the salary when making the total income calculations - then just set a tiered but simple tax system, no exemptions, no-one can claim expenses or receive benefits that others don't get unless it's calculated in, with no way to use dividends as income unless everyone can do it, and absolutely no scope for lawyers to game the system. Almost as important, do it as an all in one exercise - either they do all of it, or they stop tinkering with things as they are until they've come up with a coherent and simple system that is fair to all, balancing rates and rights, risks and rewards.
"Put the value of those benefits on top of base pay, and use that gross as the salary when making the total income calculations..."
Er, no. The point is we *want* people to have good pensions and to have paid sick leave and to contribute into national insurance. That's kind of the underlying point of this. Contractors pay way, way less tax than anyone else doing equivalent work. They aren't spending the difference on sickness insurance or extra pension contributions or voluntary NICs, now, are they?
(FYI, next time you're on site, ask some of the civil servants how their final salary pension is doing. I'd recommend having a swift exit route planned.)
"Contractors pay way, way less tax than anyone else doing equivalent work."
Get fucked you numpty, what do you know about it?
A permie doing my job would pay about £24k/year in tax. I pay over £30k/year (that's including the benefit of paying myself a basic salary to lower my NIC).
If I go permie, HMRC loses £6k+ a year in tax receipts - how does that calculate as an increase in any way, shape or form?
"how does that calculate as an increase in any way, shape or form?"
"Because the permie's pre-tax income is a fraction of the contractor's, even accounting for employer-borne costs."
You're going to have to run that one past me again mate, because your response doesn't make sense.
I'm saying that if I'm 'encouraged' to go permie, then HMRC loses out to the tune of over £6k/year, and you say that's an increase to HMRC because the permie job pays less?
You're an idiot.
Cost of permie = Salary + Employer contributions (NI, Pension) + Cover costs (Holiday, sickness)
Cost of freelance = Invoice
Normally those two numbers are roughly equivalent. If they are roughly equivalent, the taxman should be getting an equivalent cut.
PS: Reading some of these comments you would think that every company is heaving with freelancers. I think I've worked with 1 in 14 years working in City of London. Some companies just don't hire freelancers, some do. If you are a freelancer, you will be mainly working with the companies that do.
"I'm saying that if I'm 'encouraged' to go permie, then HMRC loses out to the tune of over £6k/year, and you say that's an increase to HMRC because the permie job pays less?"
Hmm,so there are 2 options.
1) Stay as a freelancer and pay, say, 30k tax
2) Go permie and pay, say, 24k Tax
But you are forgetting option 3 which is what the government are seeking
3) Stay as a freelancer and pay, say, 45k tax or the equivalent ot the amount of tax a permie earning the same amount of taxable income. The freelancer still earns more overall and this covers them for holidays, sickness etc.
This is the thinking, however much it may not be appreciated, by the govmint.
BTW, I'm not saying that freelancers aren't paying their right share of tax, but just using an argument of I pay more tax overall than someone else therefore I shouldn't pay any more, doesn't wash it. Otherwise everyone regardless of wealth or income would just look to pay a fix tax amount per year, hardly progressive, is it?
"I'm saying that if I'm 'encouraged' to go permie, then HMRC loses out to the tune of over £6k/year, and you say that's an increase to HMRC because the permie job pays less?"
No, that's what you're saying. You're not being encouraged to go permie. You (and I mean the collective "you" of the world of freelance contractors) are being encouraged to not structure your compensation as if you're not a typical employee when you're otherwise very much a typical employee.
The same laws that guarantee Uber drivers and Deliveroo's bike slaves basic employment protections are the same laws that mean someone spending huge portions of their working time doing regular 9-5 work as an integrated part of a team, reporting into a corporate structure and with little or no say over what they're actually doing each day must be compensated as if they're an employee.
Now, I know freelancers get touchy about this (having been one, having worked with many), and they'll trot out all the usual lines about "more risk" and "no sick pay" and "we pay more net tax" but that is _not_ the point. The fact is a huge number of freelance contractors, particularly in IT, behave as direct employees in every respect except in the way they're compensated. It's the last sector where this is routine practise, and it is _solely_ done to lower tax bills.
If you are using your personal limited company (and remember, you are _not_ self employed) solely to limit liability and as a vehicle for your various professional indemnities then more power to you. However I know, you know and we all know that you can get those same protections and freedoms as a freelancer through an agency or through an umbrella. Why don't IT contractors use those mechanisms? Because owning your own employer means you get to dodge NICs.
You don't get to be righteous about this. You get to be angry, certainly, because you're staring down the barrel of a 20% pay cut, but let's not try and pretend this is the government coming for the poor, downtrodden working man when he's taking £700 a day plus expenses, paying himself £12k a year and banking the rest in dividends. If they don't get you with IR35 they'll get you with the employment regs. No sick pay or paid holidays for your full time employee, you say? Well Mr Company Director, step this way.
Ok, I get that HMRC will get additional revenue from employer contributions for a permie, they might even add up to the difference in tax receipts from the freelancer, but what about all that lovely VAT we collect for the government?
If I were on £400/day (5 days a week, 48 weeks in the year) then the government gets a tidy little sum of over £16k/year in VAT receipts. That would all go if I went permie. It's a lose-lose situation.
"Because the permie's pre-tax income is a fraction of the contractor's, even accounting for employer-borne costs."
"Employer-borne costs" are far more than salary plus employer's NIC.
Think infrastructure to support the employees and long term liabilities.
A reasonable rule of thumb is to use a figure of twice the employee's salary.
Now do your sums again.
@AC
If you are so jealous - why don't you try your hand at being a contractor?
Now the water is getting warmer ... near boling temperature.
See how 'easy' it is?.
It isn't a rocket science to be a contractor, but requires certain degree of ability to tolerate risk, understanding that there might not be tomorrow, etc.
I used to be a permie, never looked with envy to the contractors.
Left a long term permanent gig and started a 'real' IT company.
Although the IR35 is irrelevant to me I still can't help but feel the government wants to big up Crapita and co at the expense of the small guy.
@DavCrav
There is a very significant difference between evasion/avoidance.
Since using so loosely the terms you sound like not knowing the difference.
It is US site, however it stands true everywhere English is the official language:
https://www.thebalance.com/tax-avoidance-vs-evasion-397671
Evasion is what Al Capone got jailed for, avoidance is choosing to do careful tax planning.
HMRC choose to interpret the law as it suits them, often retrospectively.
If they apply the law to 100% of all tax payers, large international corporations and the like, then it is fair game.
However it is easy to squeeze Joe/Joanna Average until (s)he pops and give the lawyered-up Evil Big Corp a miss.
You never know, one day the big HMRC honchos might even work for Evil Big Corp, so don't bite the hand ...
"There is a very significant difference between evasion/avoidance [sic].
Since using so loosely the terms [sic] you sound like not knowing [sic] the difference."
Actually, you sound like you don't know the difference between tax avoidance and aggressive tax avoidance, which is an offence in the UK, just as evasion is.
Pro tip: when trying to correct someone, make sure you are right.
"If you are so jealous - why don't you try your hand at being a contractor?"
Because I'm in the lucky position of earning more by working for a boutique consultancy instead. We provide vendor-equivalent services so we get to bill out at 2k per day rather than the 6-800 i used to get a few years back wringing HMRC for everything they were worth. Can't play in that world as a freelancer.
I mean, sure, it means I don't get to spend 9 months of the year on a cushy contract doing next to no work 9-5 for a client who doesn't know any better, but that gets boring after a couple of years anyway.
"Although the IR35 is irrelevant to me I still can't help but feel the government wants to big up Crapita and co at the expense of the small guy."
"Because I'm in the lucky position of earning more by working for a boutique consultancy instead. We provide vendor-equivalent services so we get to bill out at 2k per day rather than the 6-800 i used to get"
This, to me, is exactly where IR35 breaks down. I believe contractors operating through a Ltd have a fairly easy time on the tax front (though one can argue the balance of risk vs reward), but why should a single contractor pay more tax than a 'boutique' or large or whatever consultancy doing the exact same thing they are! It will cost the end-client more to bring in a 'consultancy', and HMRC will probably end up with less tax at the end of it. Having worked with both consultancy firms and individual contractors, they are usually treated the same, with the client having a big say in how they operate. So the contractor may be considered in IR35, but the consultancy wouldn't be.
Perhaps one of the answers will be for contractors to frankenstein themselves together into small bogus consultancies. But why should they have to do that? Surely there has to be some tax middle ground...
And why have Final Salary and other Private Sector pensions gone down the pan? Because greedy companies, bosses and shareholders did everything they could to avoid paying into them when times were good. Cries of the pension funds have huge surpluses so the company (not the employees mind) stopped paying in. This despite that fact that even the most dull witted could see that the pension liabilities were going to increase as the population aged. This was totally predictable and facilitated by Bliar/Brown. The real beneficiaries of the deceit are long gone with their piles of shareholder dividends stolen from the ordinary workers.They then made the situation even worse by raiding all the pension schemes as an easy source of tax to through on the fire. No the more recent governments have made any efforts to reverse that insane tax.
... hard, but must be done!
I scarcely think we would expect to find an economically "poor" fella* in the IT sector. That said, it is fair to argue that a successful contract resource is likely to have a few more pennies to toss about than a middle-of-the-road permie ... in most cases.
All this notwithstanding, I detect a sniff of your basic green-eyed monster in your comments (first para.). Please be advised that we are ALL entitled to pay the very least in tax as allowed by the law. It is not yet illegal to correctly apply tax laws so as to minimise your tax burden. Yes, it is quite true that there is greater scope for the self-employed than for the formally employed ... along with the risks, no vacation pay, no sick leave - need I go on? A moment's thought would raise many of the reasons why this has been so. You are as capable as any to work some of these out ...
Many other commentators have listed the risk factor in self-employment ... it is all very real. Very good contractors DO make a (relative) fortune .. and rightly so. So-so ones make a fair amount, and the crap ones, well, they go under sooner or later (or ... eek! ... go perm to escape the long droughts between gigs).
All I'd suggest is that until you have had the courage to go it alone, pack the green guy back in his or her box, and stop comparing apples with gherkins.
Until HMRC (or whatever tax entities apply to readers in diff'rnt locations) pull their jealous heads out of their bottoms and treat individual contractors as similarly as possible to the Capitas and their ilk out there, this will remain a silly argument between permies and contractors (and wilfully ignorant legislators).
Argh.
* in fairness, on a perm salary of 60K in London, I defy anyone to not see themselves as relatively poor. In saying that, the reality for many on contracts is that they are little better off financially than the poor sod on 60K if trying to hack it in the Big Smoke.
I've met so many that get paid a fairly reasonable wage for just turning up and sitting at a desk.
As a contractor, more often than not brought in to do they work they either should have done, or have loused up so badly it needs redoing, I'm paid only because the work gets done.
"It's not cricket, lads."
Ask yourself this, if it's such an easy life, what's stopping you becoming an over-paid contractor yourself?
As a contractor, more often than not brought in to do they work they either should have done, or have loused up so badly it needs redoing, I'm paid only because the work gets done.
You know the opposite is also true right? We had a contractor come in to work on an Alfresco deployment for us, as we had no-one with Java experience. He produced virtually nothing in 3 months, at which point he was ditched and we head hunted someone who could actually do it as a permie.
"He produced virtually nothing in 3 months, at which point he was ditched and we head hunted someone who could actually do it as a permie."
We've had a very similar scenario. Contractors I've used generally have no care for the company and the motivation for success and so the work is done to the minimum they can get away with.
Permanent staff have a real motivation to to the best job and see their projects flourish and grow. As they'll be looking after them they make sure the coding is good, well documented and far fewer 'fudges' than the contractor work.
Let's make all MPs and their private offices into small companies, subject to all of the same rules as contractors. Pay them a reasonable daily rate for days they work, and make them subject to their employers' (constituents) view on how they perform, with a month by month review, and subject to immediate termination if external factors change? And if they breach the terms of their contract (the manifesto on which they were elected), then they're out. There's a news story today about them employing relatives in their private office - this gets rid of that problem too, they are free to do so if those people are the right person for the job, and all of those costs (and all of the cost of their offices, their travel, housing etc) would all be covered by exactly the same rules as limited company contractors.
Alternatively, make them all permanent employees - with one "normal" place of work either in constituency or in Parliament, no expenses while they are there or to travel there, but they can claim cheapest travel option to the other with an overnight allowance of £30 plus accommodation either from their own pocket or at a budget hotel within reasonable distance. No private office (normal employees don't have one) but a shared resource pool, no second home as an expense, no bonus at the end of a contract, and certainly no final salary pension.
After all, if contractors get the same benefits as others (which we don't) and should pay the same tax, or alternatively if the employee tax system is entirely fair and reasonable, then MPs couldn't possibly be so hypocritical as to give themselves benefits others dont get, and at the same time oversee a clampdown on others, could they?
To be fair this is absolutely fine. I don't think anyone would have a problem with contractors marketing themselves 20-30% higher to account for paying 25-30% tax instead of 10-15%. This just means companies are paying the genuine market-defined rate rather than being effectively subsidised by the government.
Sounds like a whinging permie that didn't have the balls to go contract to me.
I pay my share of Tax and NI that I am due to pay according to the current rules set by HMRC. If the rules change, then I will pay a different amount.
If my 30 years in the industry and 21 years as a contractor have taught me anything, it is that the more a permie moans about contractors not paying their fair share, the more times they have got less of a raise than they think they deserved.
You are confusing contractors (individual people) with outsourcing companies (E.g. Capita, Accenture) and are forgetting that those same large outsourcing companies are the only ones benefitting from this.
The mass exodus of contractors from public sector projects will be picked up by these same companies as they will be the only people willing to do it, and they will provide less qualified people being paid less than the original contractors but will charge more.
Public sector contractors are already invariably contracted by crapita or someone equivalent anyway. Just being your own limited company is not enough assurance for government departments. Capita win whatever happens. More contractors? More 10% cuts for them. More outsourcing? Well look who just happens to have 100 skilled and experienced recently unemployed contractors to hand.
It seems to me the fundamental government policy is this:
* Large consulting companies (e.g. Crapita, Accenture) = good
* Individual consultants working for themselves = bad
So, could the answer be for consultants to work together? How many would you need? Would just two count as a genuine consulting business, and if not, what's the threshold?
It would certainly cause complications dividing the profits in relation to hours worked, but accountancy and legal firms with "partners" seem to be able to handle this.
Mind you, that's because the partners are happy to share the profits generated by all the smaller workers. Much like Crapita and Accenture in fact.
So in the end, maybe what the government really wants you to do is:
* Set up your consulting business
* Take in work
* Farm it off to sweatshops in India
* Cream off the profits
Result!
"So, could the answer be for consultants to work together?"
I've actually given this some serious thought.
It's a bit of a logistical nightmare unless you know and trust each other well, and if you know each other too well, you should be in business together ;)
There's a plus side to all this. It will remove the risk of an unplanned, massive tax bill if you are unlucky enough to have the revenue peering into your tax returns for the last four years.
IR35 is a complete lottery as to who gets investigated. I reckon 90% of private sector contractors would be 'caught' by IR35 if the revenue had the resources to pursue investigations.
"I reckon 90% of private sector contractors would be 'caught' by IR35 if the revenue had the resources to pursue investigations."
You may well be right under HMRC's interpretation of IR35, however most of the time when it is tested in the courts HMRC are often found to be in the wrong. One thing is for sure, IR35 insurance and review providers are rubbing their hands with glee.
Taxes. If anything the SIs make more use of the freelancers than the people buying the services in the first place. It's common for a team from a supplier to be augmented by a handful of subcontracted freelancers.
This has become way more common in the last 12 months in the UK public sector as the government has demanded that departments verify the employment status and tax arrangements of their freelance contractors. Effectively they've gone and hidden within the big boys, in return for their taking a 10% cut off the top.
This is the government saying now the big boys have to do the same verification as well.
Of course all the freelancers' tax affairs are entirely above board so they've got nothing to worry about.
For how this will turn out.
Yet our politicos serenely avoid the issues.
I imagine all government systems will now work like our hospitals. Both extremely expensive and crap. Due to a massive mismatch of supply and demand, which turns into a structural poverty of supply. FTW.
A bit like RBS and indeed Lloyds, for a more directly IT angle. Continuously and repeatedly ripped off by consultants from top to bottom, demotivated permies getting fired or off-shored, and criminally poor performance.
I certainly won't be contracting again till all this sorts itself out.
Am I missing something here?
How is it fair to compare a contractor to a permanent job the same way and charge the same taxes? Not that simple, where are contractors rights then?
Permanent workers get on average 6 WEEKS paid leave as holiday.
Permanent workers get sick pay!
Permanent workers get nice pensions.
Permanent workers get job security!
Permanent workers get continued gapless employment.
Permanent workers get free training!
Permanent workers get employment dismissal legal protection and rights.
You don't measure both jobs the same way. So for this daft government and those dimwits on cushy permanent jobs who think we are 'dodging tax' ...no actually you lot are paying extra tax for your extra privileges!
This chancellor Hammond is a complete simpleton - Tory's are finished.
The underlying legal point is that you _are_ a permanent employee and worker, of the company that you own. You (the employee) could have all of those things, but you (the owner) choose not to grant them, usually for tax reasons. That choice is probably illegal, but it's easier to stick you with IR35 than breach of employment regs.
As my company's sole employee, I get unlimited leave, paid sickness, technically gapless employment (for the days/weeks I don't work I still get a wage), my company pays for my training and will supply me with security for the next 90 days (standard for anyone working for a large company). The only thing I don't get is a pension paid for me.
But then again, I don't tend to stay in any one place for a long term, the majority of my work is weeks in length not years. I (and others) are not doing anything illegal.
"Permanent workers get job security!"
I'm going to have to disagree with you on this one. Overall I've had more job security as a consultant that I ever had as a permie. Coupled with the problem that as a permie I *thought* I had job security - when the hammer falls with little notice you aren't prepared for it.
Now, as a contractor, I have 6 months money in the bank and I am always trying to improve my skill base (not just technical) to ensure I remain competitive (which was harder to do in a permanent position as it's easy to forget you're living on a knife edge).
The worst type risks are the ones you haven't accounted for. Once you know the risks, and account for them, then I find contracting a lot more secure (yes, partly because I have to work harder to make sure I am - but that's what helps me keep my edge).
An agency contacted me asking if I was willing to work in Southend for HMRC in Dev Ops, for £600 a day. Problem is that...
* it''d mean working for HMRC
* it'd be inside IR35, so travel and subsistence not deductable
* it'd mean working for HMRC
I quickly said no, and suggested that they would have a hard time finding someone decent for that rate, who wouldn't leave as soon as something better came along. The agent said he'd already had two people say yes and then change their mind!
"For double plus fun you'd actually be working for the little publicised private subsidiary of HMRC."
Care to share?
While looking for that, this came up:
For Hill and several other cleaners – nearly all women in their 50s born and bred in Liverpool – there was an additional sting in the tail. Single people on low pay who work at least 30 hours a week qualify for the government’s working tax credits to supplement their wages. Ironically, these credits are paid out by HMRC, which is also the government department responsible for enforcing the NLW.When ISS lopped two hours from their working week, the cleaners fell below the threshold and have, as a result, lost between £40 and £50 a week in tax credit payments each. Several of the women have visited Citizens Advice bureaux (CAB) or the council’s One Stop Shop for advice in recent weeks and have been told they would be better off not working and receiving full benefits.
HMRC formed Revenue And Customs Digital Technology Services to hold staff TUPEd back from the Aspire contract.
https://beta.companieshouse.gov.uk/company/09679225/officers
It is now very rare for anyone involved in actual technology delivery (rather than e.g. policy/architecture) to work for HMRC directly, as it gives HMRC a measure of flexibility and opacity in pay, benefit and particularly pension arrangements.
https://beta.companieshouse.gov.uk/company/09679225/officers
Ta.
Strange that some of the directors' addresses are given as "Rcdtss Limited". Where does the extra 's' come from?
"it gives HMRC a measure of flexibility and opacity in pay, benefit and particularly pension arrangements."
The sort of thing that they would withhold from contractors.
The idea that contractors will have "nowhere to turn" is absurd and sounds like wishful thinking from someone on a salary. What is clearly not going to happen is that freelancers are going to stop working nor are their employers going to stop needing them. The contracting culture developed precisely because both companies and employees alike had nowhere to turn when there was a short term urgent need for skilled workers. The fundamentals driving contracting will not disappear.
If the tax laws change then one place contractors can turn to is using the umbrella company, paying PAYE and then campaigning for all the employment benefits that salaried staff enjoy and that employers prefer to avoid providing where possible. That's also a big *if*. There's a big gap between what HMRC wants and what is politically acceptable.
Assuming as the article suggests there's "nowhere to turn" and salaried staff gleefully witness their contractor colleagues sucking up the changed tax laws en masse, then people who are essentially the most well paid and most in demand IT professionals are going to find their net pay is less. So naturally they will demand and get higher earnings, move out of the industry altogether , retire , or move abroad. What they are not going to do is just suck up a reduction in earnings. The truth is that freelancers are a resourceful bunch who have an eviable ability. That being precisely the ability to find somewhere to turn to when others lack their vision.
Employers who are highly dependent on IT contractors such as the big banks are perfectly capable of lifting up entire operations lock stock and barrel and moving them abroad. So whatever the government says about IR35 there is always somewhere to turn.
Ultimately and inevitably any increased tax burden must fall on the end user of contractor's services which is why there is a huge gulf between claims that everything is going to be much "fairer" and the political reality. What will never happen, whatever the tax regime is, is that those on salaries will find that life will suddenly become fairer to their eyes. The best and most talented people's net pay will never become the same as that of their less talented colleagues. The market always finds a way to swerve around that happening.
Putting my tongue in my cheek a little, the real scandal is that agencies take a third of contractors wages before they are taxed and this is a tax that salaried staff avoid through the ruse they have cooked up of using 'undisguised employment' ?
This made me chuckle: https://www.computerweekly.com/feature/Tories-will-scrap-IR35 - anon because, well, you know..... I'm planning to retire from contracting before 2020. Cash in hand jobbing gardener maybe, to see me an Mrs Anonymous into the twilight of our lives guzzling the vin rouge.
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