"many Whitehall departments advised self-employed techies to increase their fees by 20 per cent."
I bet they did. You need to increase fees by more like 35% to make up the difference.
The vast majority of IT contractors believe they should receive employment benefits, such as sick pay and holiday leave, if they are to be classed within the IR35 tax clampdown. Of 1,339 IT contractors surveyed by recruitment firm Qdos Contractor, 89 per cent said they wanted to be offered employment rights when working inside …
> You need to increase fees by more like 35% to make up the difference.
I was a contractor - actually, a consultant since I wore a suit - before and after IR35 was introduced. Prior to IR35 I paid myself, through my company, a sensible monthly wage and took whatever profits there were at the end of the year as a dividend. All perfectly legal and with the requisite taxes paid.
After IR35 kicked in I simply raised my rate to account for the difference between the CT I had been paying and the additional NI/PAYE costs.
I didn't make any more money. The clients paid a higher rate for my services and HMRC got their legitimate slice.
If a contractor is good, then companies will recognise the savings they are getting from their skills and experience. If the contractors don't have any special skills to offer then they probably shouldn't be in that business.
"I was a contractor - actually, a consultant since I wore a suit"
No idea if this is the case in the UK, but 'round these parts a contractor and a consultant are legally distinct.
Both are cases where a person has been employed, but is not an employee.
A contractor is doing a specific task, for a specific fee, without specification of whom will do the task. So you hire Bob the Builder to make you a shed for a hundred bucks, he can send Wendy to do the job and all is well. The contractor is expected to produce the goods legally, according to specifications and reasonable assumptions.
If there is no substitution of labor (ie you hired Bob, and Bob must do the job, not Wendy) then the relationship is employment, not contracting.
A consultant is providing a professional opinion, and while may not do the full work behind it, is expected to be personally responsible for it's accuracy etc. So you hire a lawyer for advice upon a transaction, the lawyer gets their staff to do most of the actual work, but the legal opinion they present is their own.
I don't get what the big deal is - if the client, regardless of whether they are in the public of private sector are pushing you by contractual terms of work practices inside IR35, you hand in your notice and walk away. It really is as simple as that.
Let's not forget that the vast majority of high end contractors are commanding their contract rate because the demand for their level of expertise is proportional to it. Or to put it differently, if your client is making themselves uncompetitive, you go find one that isn't. Seriously guys, we are contractors, we don't do the whole "OMG what if I lose my job" concept because this inevitably happens every 3-18 months. Losing key staff in this way is a risk for the client to deal with.
As for IR35 "employee liable for employer's taxes" nonsense, there are two approaches worth seriously considering:
1) Don't be the only practising director. We have all worked with people with a similar skill set over the years or decades we have been contracting. Maybe we even went to school or university with some of them and kept in touch. So jointly set up a consultancy and never worry about IR35 again, not least because your substitution capability has just moved from merely plausible to extremely actionable.
2) Take a remote working permanent job for a US based I.T. consultancy. An increasing number of them these days look for remote workers at US salaries (which in many areas of I.T. are roughly in line with UK contract rates). Yes, you are somewhat vulnerable to the $/£ exchange rate fluctuations, but even at worst it's still pretty good. You are typically required to make 1-2 trips to US or other part of the world every year for corporate meetings or similar events, but since you're now an employee, the company picks up the tab for all of those travel costs. And the most hilarious thing about this is that when you work for a US company, you pay all the regular employee taxes, but the one thing that IR35 insanely clobbers you for - the employer's NI - is not applicable, because the employer isn't a UK based. So in a tremendous twist of irony, HMRC _still_ don't get those 13.8% they were angling to get their hands on.
I woulda used stronger words along the lines of: "Arr ye fookin daft man?" If I'm being taxed as an employee on either side of the pond, all benefits better be included. Although I can demand eye-watering rates, a ton of down time is normal. My sevices are very specialised. You'll be that desperate.
"We recently had contractors on 6x the salary as some of the permanent employees doing the very same job at the same level."
Perhaps if you could explain why they were taken on at 6* the price for the same work we might be able to gain an insight or two. As it stands it sounds like someone made a bad managerial decision.
"As it stands it sounds like someone made a bad managerial decision."
Probably under-resourced the project and had to get someone in quickly.
Being instantly available doesn't come free. The agent's opening gambit "Are you available?" means "Are you currently out of contract?" and an affirmative answer means that the contractor has probably been out of contract for some time as that call only comes in the last week of a contract by occasional chance. That time out of contract is an overhead that gets put on the rate.
It may also be the case that there's nobody available locally. If not it means the contractor is having to commute weekly, live in digs and live out of a suitcase. That's extra costs and a charge for the discomfort of that arrangement.
If none of the above work the rate might have to be high enough to induce someone to break an existing contract - which brings a cost of loss of reputation by the existing client - or buy themselves out of one.
An alternative take on the situation the OP outlines is that the permies are selling themselves well short and that better rates are available, even as employees.
"Why don't they just get a proper job"
Because they were so good at a "proper job" that they can now sell themselves as consultants and earn lots more than you do.
"entertain some degree of professional responsibility"
Depends on the day rate you are offering. Responsibility costs extra.
"and shut up?"
Probably most of the problem is with the contract of engagement - should really involve delivery and support. The two words that seem to scare the crap out of contractors. "Responsible? Me?", "Na mate my contract is done".
Consultant, contractor, vice president: such illustrious job titles given to only the finest members of community.
To those of us outside this thrilling discussion, it just seems like there's one AC with multiple-personality disorder who's let their mental turmoil loose on the keyboard!
Oi Reg, any chance we can identify all the posts from an AC together within on forum thread? AC1 / AC2 etc...
Why am I a contractor?
About 20 years ago I saw a member of our sales and marketing team pull into the office car park in a brand new Ferrari.
"Awesome car!" I proclaimed as he got out of it.
"I know", he replied, "and if you work hard, apply yourself and put in the hours then next year I'll be able to buy another one."
Since that time I've never worked for anyone but myself.
>Yes it's always amusing as a contractor to buy a newer / higher spec model of the exact car that your CIO / CEO drives.<
Except it's still "your" money, not in _addition_ to your earnings. Most of the contractors I know save their money and drive a reliable/comfortable/practical car, which also avoids alienating client staff.
"Most of the contractors I know save their money and drive a reliable/comfortable/practical car,"
I can't say ANY of the ones I know drive anything that fits that description. Mostly high end Audis and BMWs.
"which also avoids alienating client staff."
lol @ who gives a crap?!. By the time they know what you drive they already signed the contract. And likely the person that approves your renewal isn't going to a prole driving a clapped out old EV just to get a free top up at work!
Why am I a contractor?
Because I and my colleagues put up with being treated badly by a large American outsourcer for far too long and I have no intention of being in that position again.
Do I take the piss tax wise? No.
Do I drive a Porsche? No, I've got a very nice mid range KIA SUV
Do I just want to get on with earning a living and be able to retire at a reasonable time? Yes
If HMRC want me to pay them as an employee then I am happy to do so but in return I expect the same protections and benefits
This post has been deleted by its author
"Why don't they just get a proper job, entertain some degree of professional responsibility, and shut up?"
Do we hear envy speak? The sound of a dog barking in a manger?
Let me point something out to you with your proper job. Your employer has a couple of problems. One is that you and your colleagues aren't 100% reliable. Sometimes you go sick, go on holiday, have babies or just sometimes, inconsiderately quit. The other problem is that the work-load isn't 100% reliable either. There's business as usual, project work, migrations, annual peaks and so on. So your employer has to try to balance available staff with demands of work. There are a couple of solutions to fix this problem. One is to cease to be your employer; get rid of the lot of you and outsource it to someone who can share the work out amongst their own employees in a big office in India or wherever. The other is to keep you on, staffing at a reasonable level and get freelancers in to fill the gaps. Which works out best for you?
I'd love to be a fly on the wall when gubbermint departments go to the treasury and ask for more money and time to complete projects.
Naturally, the tresaury will ask why the delay.
I'd love to see their faces when they hear,
"Because of your departments attitude towards our contractors they all left and we are having real problems finding people who will work for us."
I'm now wondering exactly how much money HMRC is 'making' out of this situation.
I'm going to guess it's along the lines of what everyone told them when they first proposed this idea and foretold them of the consequences etc. i.e. they are losing money. A bit like the original IR35 legislation did - it cost more to chase people for extra cash than the resultant cash bonus.
Please explain to me why these people are trusted to administer the taxation of an entire country?
"Please explain to me why these people are trusted to administer the taxation of an entire country?"
Sir Humphrey: It has to be an entire country. There's no way they could administer the taxation of part of one.
Note to el Reg. Can we have a portrait of the late lamented Nigel Hawthorne as Sir Humphrey icon?
In fairness, tax efficiency is not the only reason to go contracting. Contractors tend to be on a markedly higher hourly rate than employees anyway, so even if they're taxed as employees rather than a ltd, contracting will generally pay a lot better (though obviously will lack benefits, which at the higher-end are worth a fortune).
but much as I like to poke fun at contractors and their rates (perk of being a permie) the practical differnces are not really so great.
Permies generally COST about 40% more than they are PAID as a rule of thumb which quickly brings things far closer to parity, at least for normal freelancers (as opposed to $$$$'day for big software house guys).
At the risk of getting my own flames from the permanent vs contractor trolls I have some sympathy for the view that they were in effect being paid to take their own risks on holidays, redundancy, sick pay etc. It is also a lot simpler to administer if all I do is authorise a timesheet.
Overall it looked like a great headline change to bash these cash rich contractors but that only works if the market can sustain it, and likely as not the taxman will pay more than the revenue it now has to go to some effort to collect.
Right or Wrong is less relevant than the fact that this is a massive waste of everyone's time and is highly unlikely to have anything like the headline effect, and may indeed create a new source of rising costs instead.
"Training is only an investment if you retain the skills for a minimum amount of time."
Also, training is only an investment if the trainer knows the software better than the people sent on the compulsory training course .... [comment based on 'real world' public sector experience]
"Training is not a cost, it is an investment."
As no beancounter ever said.
Actually, those who do look at it as an investment are likely to be freelance. And the investment doesn't just include the cost of the course. It includes cost of travel and accommodation if you're not based near to where the course is held. It also includes the loss of billable time.
"Permies generally COST about 40% more than they are PAID as a rule of thumb which quickly brings things far closer to parity, at least for normal freelancers (as opposed to $$$$'day for big software house guys)."
Not really relevant from the employee/contractor's point of view, though, is it? I've done both at one time or another, so I'm not trying to cast some envious judgement on how super-overpaid contractors are. But let's just lay it out accurately.
As a sysadmin in Manchester UK, you can get about 35k a year plus benefits (actual figures from actual job sites, right now). This works out around 3 grand a month before tax; about 2k a month in your pocket.
As a contractor, the identical skillset will get you £250 a day, which is 5k a month before tax. That's a 40% higher pay rate for the same work. Tax takes a bigger bite, since you're paying higher-rate on about a quarter of the money, but you're still taking home a lot more money at the end. And this extends a fairly long way down - when I started out in IT on the helpdesk as a contractor, my hourly rate was very nearly 50% more than the permanent staff were getting.
That's meant to be the benefit of contracting. Not 'you can pay less tax than you are actually supposed to on your income level'. Loopholes are a bug in the tax code, not a feature, and if contractors have been relying on the difference to make it worthwhile then they should do what every other business in the world does - shift the additional cost onto the customer, rather than taking it from the exchequer.
"(as opposed to $$$$'day for big software house guys)"
And far from all those $$$$s go to the grunts doing the work. There will be several layers of management plus the sales suits plus all the wining and dining of the client management to come out of it. Then, of course, the shareholders get their cut.
My introduction to IT was working for one of those not quite so big software houses. One day those of us on the contract got to comparing the company's take with our own...
My father just retired early from the government as a contractor when he was informed he was liable for IR35.
So that is at least 1 project that lost its program manger over this bit of epic stupidity.
No way cud the possible increased tax returns make up for the staff turnover leave out the loss of specialised skills.
Of course we do pay our taxes including the ones permies do not pay as well as VAT & company returns accountancy fees etc. I choose to contract mainly not to go through the motions of annual appraisals and what not permies seem to waste their productive time for. Not interested in a career path within the company nor I am after promotion. I like what I am doing and what I am best at and just would like to be paid for it without the merry dance permies seem to enjoy.
"Yep did that. Even had a pension but still got clobbered by IR35. Paying yourself the national average wage is in their eyes cheating the system."
Possibly because you're in an industry where the national average wage, about £15/hour, would be ludicrous and they decided you were therefore aggressively avoiding tax?
Here's a good rule of thumb: would you, or someone similar to you, work in that role for that money, under other circumstances, where you aren't also the boss of the company? If not, then you are cheating the system, if not legally then morally. If your company gets paid over and above the market rate for permanent staff because you are great, then that extra is your profit, that shouldn't be as wage. That should also be soaking up sick leave, holiday, pension contributions, etc.
It's much better definition of cheating the system than IR35, but harder in practice because it's difficult to decide on a market rate.
This post has been deleted by its author
" If not, then you are cheating the system, if not legally then morally."
Morally? Taxation is the work of HMRC and, before them the IR. A thoroughly amoral organisation if ever I came across one.
Item 1. A cousin in law took very early retirement from the IR on account of stress brought on, he tells me, due to all the stuff he was required to do that he thought was wrong.
Item 2. About 3 years into contracting they decided to investigate me. Because they go back 6 years that went back into the last years of permie. For a fee my accountant handled all that. The contracting years/ Clean as a whistle. The permie years? It turned out I'd been screwed over. It was a pity they didn't go back further. I was due huge rebates. If you think taxation is moral you should stop and wonder if you, too, are being screwed.
When I was contacting, many moons ago, one of my mental exercises was working out when I would actually be getting some of my fee and not to the Government,, Wednesday afternoon was the point when I had paid
NI employer (permies dont pay this)
VAT (permies dont pay this)
Corporation Tax (permies dont pay this)
Then of course
Insurance (permies dont pay this)
Accountancy, a legal requirement (permies dont pay this)
This was outside IR35.
We have a lazy tax system which fails to treat closed companies the same as the bigboys, as a Director Companies Act applied to me.
Now run along sonny and look into the realities of being a consultant.
Good point, we do pay, in our time to account for the VAT, fill in the VAT returns, make payment of said VAT, usually when we get home in our 'non client' time after a day's graft when we should be relaxing.
Oh and dont forget all the other documentation we have to fill in/file etc for the government.
Permies don't do this.
They do, in simple terms, they pay corporation tax (20% on turnover) and are taxed on all dividends over £5000 (7.5% minimum). They also charge and pay VAT at 20%.
They don't get sick pay, holiday pay, paternity/maternity pay or any of the other benefits that come with being an employee. They are also at the whim of organisations dropping projects and leaving them suddenly out of work. The risk vs reward means they need to charge a substantial day rate.
But don't let that ruin the idea in your head that somehow they are avoiding paying tax.
Message from the rest of us:
Pay your fucking taxes, you cheapskate bastards.
You are completely missing the point.
Contractors handle their taxes differently because they are running a small business. They don't avoid paying tax, they follow the tax rules and pay what they owe*.
IR35 is legislation to stop "disguised employment". This is where a contractor is behaving like an employee, not an independent consultant.
However, this is where the point is normally missed. It is normally the client (company engaging the contractor) who is doing something wrong. They need an employee (permanent or temporary), but take on a contractor instead and treat them as an employee. It is often cheaper for them to do so, and they avoid all the time-consuming paperwork and inconvenient employee rights involved.
There should be no such thing as an "inside IR35 contract". Having them legitimises disguised employment. It should be an outside IR35 contract, where the contractor is truely independent, takes on some risk etc, or an employee with all the associated rights and privileges. You shouldn't be able to choose to be a "disguised employee".
HMRC are obviously only focused on the tax implications, but the wider scope needs addressing. There needs to be a real definition of the difference between a contractor and an employee in employment law to stop abuse by either side of the engagement.
* Of course, not all, but those who don't are breaking the law and will, in most cases, be caught out eventually.
"You are completely missing the point."
I rather think everyone is, since this thread has (maybe inevitably) descended into a contractor vs employee pissing contest.
The point here is that, due to various unintended tax loopholes caused by wildly different taxation regimes, contractors are underpriced.
A contractor ought to be something of a last resort, used for very short-term outsourced work. You shouldn't be hiring in a contractor for 9-5 work for over a year. The benefits of contractors from the employer's point of view should be that you can just drop them in and let them hit the ground running, and then get rid of them the moment the job is done with no messy entanglements. This ought to come at a slight premium over permanent employees, so that for long-term work a permie is preferred.
Unfortunately, the way the tax code has shaken out, this is not how the market pricing works. Despite the healthy premium that contractors can enjoy in take-home pay, from the employers point of view it is often cheaper to take in contractors for long-term work they ought not to be doing. I've worked in IT deepartments where literally everyone aside from management was a contractor, from the helpdesk on up. Those kids weren't doing it for the tax benefits, and weren't setting up ltds to get paid through - they were just contractors so that the employer didn't have to offer them the benefits that they ought to have.
Contractors should do exactly what any other business does when an expense like this crops up. Pass it on to your clients. They've been employing you at some 20% or so less than they should have been, because tax loopholes allowed the contractor market to compete more aggressively than it should.
To be honest, I think that this should really be more up to the contractor, so that if he only works for one client, who he works for for over 35 hours a week, for a period of over a year, he can elect to make the business start paying the employer share of NI. I suspect that the number of contractors would drop by about 40% overnight if that were permitted, since a lot of them aren't the high-paid consultant types, but rather kids who can't get a permanent job due to dubious employer practices.
This is exactly where the conversation needs to be.
You say: "You shouldn't be hiring in a contractor for 9-5 work for over a year"
They say: "Why not?"
If a company wants to resource mainly with contractors to deal with huge business uncertainties, they should be able to *at a cost*.
The two legitimate ways of hiring human resources need to be recognised, accepted and supported.
However, if people are being forced to contract when they want a permie role, at low rates just so the employer can avoid their tax and other responsibilities, then this is where the law needs tightening.
It's about time HMRC did their job properly and worried about the engager, not the engagee.
Putting the employer NI liability back onto the engager is really the only way this will be resolved.
The question then becomes about how should this be applied in practice.
"IR35 is legislation to stop "disguised employment". This is where a contractor is behaving like an employee, not an independent consultant"
That's easily spotted: do they get holiday pay, sick pay, pension contribution, a sensible notice period, the various things grouped under "employment rights" etc? If yes, they're an employee & should be taxed as such; if they don't get all of the things the law classes as "employment rights", then they are not an employee. Alternatively: if you can be an employee without getting any of those things, there's a significant short-term saving for the government, just take those things away from all employees at HMRC, the Treasury and sitting around the Cabinet table.
The thing, IMO this has a strong bearing on the Brexit argument. Democracy is a far more delicate flower than many in the West now appreciate (especially the young, who have been born further from the Cold War era).
I have been working in Germany the last two years. In 2017 have enacted IR35 equivalent legislation there in a very strong way. It is devastating for the independent contractor sector and is making business far less nimble as a result. Before that I worked in the Netherlands. The same is happening there. This has been happening all across Europe. Why? Because it is EU legislation. Legislation that effects thousands if not hundreds of thousands of self employed professionals in the UK and across the EU. Legislation that wasn't in any manifesto. That has been pushed through. Funny thing is all my German colleagues think is is German legislation, all my Dutch colleagues that it is Dutch, and in the UK for years we have been talking of IR35 as being UK legislation. It isn't. It's legislation we have had to pass to remain in line with EU legislation. A massive change to employment status that didn't appear in any party manifesto. This is a profoundly broken system.
The EU is essentially akin to the world's biggest Quango. They apply the words "democracy" and "democratic process" but as soon as you are voting for people who vote for other people who enact the legislation, you don't have democracy, you have an organisation that is no more democratic than FIFA. Where is the manifesto? Where is the person responsible I can vote out if I don't like what they are doing? Don't say "MEP" the EU has a divide and conquer structural solution to keeping the MEP's in check - it is the Council not the parliament that has the whip hand. I'm not saying our democracy is perfect, but it is one hell of a lot better than this.
Forget all the other arguments, this is why I voted for BREXIT. People are welcome to have other opinions. I just wish people would respect there are good intellectual arguments for it instead of taking this line that Brexiteers must be a bit thick. IMO this is a point of principle far more important than short to medium term economic prosperity.
"Quite. If it's EU legislation how come Germany took a couple of decades or so to get round to it?"
International corporate pressure?
A decade and more ago here was a lot of talk about UBS UK being very pro-IR35 but I didn’t see any trace of that from UBS in other countries.
Which EU legislation specifically?! Oh come on everybody knows there are over 9000 different directive thingies. Take back control, Make Bananas Bendy Again.
I'm afraid that's the level of debate you have to put up with when trying actually to discuss Brexit in a logical way.
I'm afraid that's the level of debate you have to put up with when trying actually to discuss Brexit in a logical way.
Sadly so, but we still hope that the remainers will one day learn enough to be able to discuss it without bringing bananas or foreigners into the conversation. They're the only people who seem to care about either.
"Which EU legislation specifically?"
This is indeed the sort of argument we get when we try to discuss Brexit in a logical way. Someone alleges something to be EU legislation. When one asks for a proper citation for this the request just gets dismissed because there's so much it would be too much trouble to find it. Could it be that this was just one more of those bits of "EU red tape" which, on closer inspection turns out to be one of those plastic tear-off strips from the opening of a
biscuit cake packet that Boris dropped?
The EU was not behind this. The UK government needs no help to screw things up as we are perpetually finding out.
Why not educate yourself https://www.itcontracting.com/history-of-ir35/
that takes 1999 as a start but it goes back to 1981 when as per https://www.taxadvisermagazine.com/article/time-change
"Conservative government of 1981 had considered legislation to “ensure that temporary agency workers who work under conditions which are typical of employment rather than self-employment are, like employees, taxed under Schedule E and subject to PAYE” whether or not they operated “through a company”
Permies really hate being permanent workers don't they?
If contracting is all about piles of cash, living the high life and paying less tax, why aren't you doing it?
Is it fear? Is it that nagging doubt you have about your level of skill or ability? Do you not have the social skills to promote and sell yourself? Can't be bothered to keep up with the industry?
Or perhaps its because you enjoy your Wednesday night pint with the other permies ranting about how shit your boss is / company is / department is?
"just don’t avoid paying tax."
Do you pay any more tax than legally required to?
"Dividends, fine, but not as a replacement for a real salary."
It's your company as a contractor so you can pay yourself as you see fit. Why would or should anyone want to pay more tax than than legally required? So generally contractors draw a salary up to the NI limit - so circa £8K a year and take the rest as dividends.
"It's your company as a contractor so you can pay yourself as you see fit. Why would or should anyone want to pay more tax than than legally required? So generally contractors draw a salary up to the NI limit - so circa £8K a year and take the rest as dividends."
OK, do that. Then don't complain when the Government introduces strict laws stopping you from aggressively avoiding tax. It's the same argument with Apple. "You haven't told me this is absolutely illegal, so I'm going to do it."
If your only argument as to why you are doing what you are doing is 'it's technically legal', then you are legally allowed to continue, and everyone else is legally allowed to hate you for it.
But normally the same people who say 'don't complain to me, I'm only following the law' also are the ones who bitch and moan about IR35 and similar things.
It's not aggressively avoiding anything ... on a day rate of £400 if (and it's a rare "if") you did a full 48 week year the difference in taxation to the government would be about £2-3K, it's just paid differently.
And you can charge £400 a day because of the risk associated with self employment as there might be days/weeks/months throughout the year where you might not be working.
All IR35 is succeeding in doing is driving contractors away from government projects that need those skilled workers, just not on a permanent basis.
I contracted for... nearly ten years. One-man operation. It was great. The hours I want. The pay I wanted. The choice of client. The flexibility. Broad base of skills, experience and clients. I was working for a different place every three hours, and worked only six hours a day, and only the days I wanted. Paid every penny of tax etc. necessary.
That's not what IR35 is about. IR35 is about you going to work for an employer, pretty much the only person you work for, and then opting-out of certain benefits by doing so, and charging more and then (the entire point of IR35's existence) trying not to pay the same tax. Now that you have to pay the same tax, you realise that you have to raise prices. And people don't want to pay those prices.
But you can't then have all of a) only one client, b) all the benefits of employment c) higher prices than an identical employee working for that same company d) not pay the same tax.
Pick one of the four and sacrifice it, preferably the one that's not illegal.
I agree with what your saying, in principle, but the reality is that the one-man band setup is pretty much identical to the large scale service providers - I've known people who have been placed with clients for many many years, in BAU roles, and they wouldn't come under IR35.
To me the main test of a contract vs disguised permie is the nature of the work being undertaken, whether it is for one client or many (sometimes a client will not accept someone working on other contracts for security reasons, or the amount of effort required for the work precludes it).
If the work is intermittant (i.e. project based, the money can run out and you're gone etc.) then you shouldn't be under IR35. If the work is BAU, or if the money for a project dries up and they will find you other work to do, then I can see how this would look like disguised employment.
However, the bottom line is that a client tells me what they want doing, it's up to me how I do it. If they like the results I keep getting paid, if not then they get someone else - no questions asked etc. - How is that anything like a permie?
If I were a plumber, and I subcontracted from a major house building firm and ended up working on a large scale project for over 2 years, would I be caught by IR35? Of course not, so why should IT consultants working under similar conditions?
"IR35 is about you going to work for an employer, pretty much the only person you work for, and then opting-out of certain benefits by doing so"
It's not a matter of opting out by the contractor. It's the client who's opting out of paying them. It really gets rich when it's HMG that (a) opts out of paying benefits as an employer and (b) insists on taxing like one. If it were Boris as Chancellor one might understand it.
Raise your prices. Take your holiday. Pay into a pension.
If that means you can't get work, maybe you need a thing called a job.
If you can get work at those rates, you can do those things yourselves (I mean... you co-write the contract, or agree to it, right? Stick a holiday in there You got the money, pay into a private pension. Not getting employer contribution? Charge more).
Fact is that the way you want to work means that you don't get certain benefits. If you want those benefits, give them to yourself. If you can't give them to yourself, then you need to raise prices, or go somewhere that will give them to you.
It's simple cost-benefit analysis.
And you're only under IR35 if you're effectively working as an employee, right? We're not talking about the 1-day-a-month, fly-by-night, drop-in consultants. We're talking you doing a regular job for a single employer for a significant length of time, while not do very much else outside that, and then complaining that you're not giving the benefits of people who do EXACTLY THAT, but earn less.
Honestly, you aren't going to make IR35 disappear, certainly not overnight. You either need to convince your employers (yes, that's what they are, that's what IR35 is basically about) to employ you properly. Or get them to give you enough money to cover / substitute / pay for those benefits that you don't have because you're not officially on their books as an employee but as a contractor.
Though the technicalities may have changed, the business plan hasn't. Either charge enough to do what you need. Or find some other kind of work. It's sad that you might have to change how you work or charge more, yes, but that's how business works. And if you have to charge more and people won't pay? Then that's a sign. Lamp-lighters, wheelwrights and chimney sweeps all had to raise their prices when the work dried up, and eventually move on to other things. So do you.
I think you're missing the point.
HMRC have done this to try and raise more taxes and think contractors are an easy target (a bit like motorists).
They haven't done it because permie's hate contractors, or that they think contractors are avoiding too much tax, it's because they want more money for the coffers.
Only they didn't really think it through did they? If contractors respond by raising their rates or moving to other work, or getting permie jobs - then HMRC and other government agencies with IT projects suffer increases costs and a skills shortage.
So in the end by trying to encompass as many contractors as possible they are costing themselves more money than they are raising. If they try and do this with the private sector then they have no idea what kind of backlash they are in for from UK Industry.
If I have to charge more to cover these additional costs then the tax man benefits, but businesses don't benefit, the contractor doesn't benefit, and if UK-Gov wants to use contractors then I'm pretty sure the costs will outweigh the benefits.
Let us not forget that HMRC make the rules for IR35 complaince *very* vague. They are ignoring actual contracts and re-defining the goal-posts whenever it looks like they have got it wrong.
It's no co-incidence that initially almost all public service contractors were considered inside IR35, and then, magically, they weren't any more - and blanket statements were made etc. - how was this possible if they weren't making it all up as they go along?
This is a money-grab, pure and simple. I earn the money I charge, I'm extremely good value even if some permies do consider me expensive. I regularly implement cost savings and deliver work that saves companies millions of pounds a year. The fact that I do that consistently is why I keep getting taken on for difficult projects for very large companies - they understand the difference between cost and value. HMRC don't.
"If that means you can't get work, maybe you need a thing called a job."
I'm retired but I did have a job. For that last 10 years before retiring that job was with my own company as a freelancer. The entity that engaged with the clients was that company. That company was paid by the clients, paid me, paid taxes, paid other expenses where needed and built up a reserve to keep on paying me when there was no client so that I could continue to have a job.
So, a full time employee might earn £300 per day doing a job and get sick pay etc and pays all the normal levels of employee tax/NI.
But, a contractor doing the same job gets £1000 per day, doesn't want to pay normal rates of employee tax/NI but thinks that if they do pay the normal rates they should get 3 times the pay and all the benefits because their job is less secure? What is the premium for job security? I would suggest a maximum of 50% increase on the standard employee rate and they would still pay normal employee tax rates. Is that fair?
You don't really get £1000 a day tough do you, taking off the 20% corporation tax, thats already less than 3 times than the example permanent person is earning per day. Then take off all the other taxes, insurances, personal pension contributions and loss of money for sick days I can't be arsed to work out. You'll arrive at a very similar number, with far more hassle and less security.
In my area of tech, the contractor average is around £400 a day, as a guestimate. I've contracted in the past for between £375 and £500 a day for around 3 years. Its truly difficult to quantify as a simple salary what you earn as a contractor but I can tell you I'm permanent now (and have been for over 3 years) and its a lot less hassle for probably £10-15k a year more after all is said and done and that was all outside IR35. I can switch jobs and get £10-15k more as a permanent employee, so what does it matter?
I think all the permanent employees who feel jealous toward contractors need to try it. It was a good experience and now I can see the argument from both sides. I'd do it again but it is my opinion that it isn't worth it any more. Which is fine - I went perm. I haven't bitched about it. I like my perm job too.
Contractors are often required by employers for whatever reasons. Now there are far fewer, or they cost far more. It isn't the contractors or ex-contractors that are really losing out here, is it?
"You don't really get £1000 a day tough do you, taking off the 20% corporation tax, thats already less than 3 times than the example permanent person is earning per day. Then take off all the other taxes, insurances, personal pension contributions and loss of money for sick days I can't be arsed to work out. You'll arrive at a very similar number, with far more hassle and less security."
Yeah, except Corporation Tax should be taken off at the end, not at the start. Unless you meant VAT?
Corp tax is on turnover, so after VAT is taken off, but before everything else.
Also, I don't know anyone on £1000/day - those gigs are typically of very short duration (<week). If you can get that for longer, fair play.
I'm considered good at what I do in an area that's in high demand. Getting more than £600 is rare, lots of companies don't want to pay that - especially when they are paying money on top for the agency's cut.
£350-450 is typical for an IT Security Engineer to take home to his Ltd. company.
No, Corporation Tax is on profits, not turnover.
So take out:
That leaves taxable profits on which 20% is paid.
What's left after that is profit available to the business for reinvestment or disbursal as dividends to shareholders.
Dividends attract a minimum 7.5% tax for receipts over £5000 at the basic rate, rising to 32.5% at the higher rate.
The dividend tax allowance was abolished 2 years ago so corp0ration tax paid can no longer be counted against income tax. In effect it gets taxed twice.
"Corp tax is on turnover"
If that's so they've changed it since my day! Corporation tax is on profits which involves taking off salary, employer's NI and any other costs. VAT, on the other hand isn't even part of turnover. VAT's added (the A in VAT is a clue) to the invoice, taken from the client on the behalf HMG and handed to them less any input VAT of the company but also without charging HMG for the service.
And the employee on £300 a day doesn't get that either - they pay tax including higher rate tax, NI, pension, etc. Once you take off the things that both the employee and the contractor have to pay (and you can include accountants if you want) then the difference is the pay for the things that aren't included (currently sick pay, training, paid holidays, etc). What premium is reasonable above a normal employees wage to cover those things that contractors don't get and their lower level of job security? If contracts that pay tax want the perks of sick pay, paid holidays, etc then their pay should go down to account for that. Paid holiday is not covered by tax - it is covered by the employer.
If contracts that pay tax want the perks of sick pay, paid holidays, etc then their pay should go down to account for that. Paid holiday is not covered by tax - it is covered by the employer.
I agree. But there is the rub: By allowing "Inside IR35 contracts" to exist, you are allowing people to be effectively employees (in terms of the job they perform) but with none of the associated rights. Why even have employment rights if people can opt out of them? They are supposed to cover all employees, which should include "disguised employees" (as should employee and employment based taxes, on both sides).
My bad about the Corp tax, I should know this stuff, right? :)
One other thing people have overlooked, especially the 'angry permie' types who think all contractors are getting out of paying tax etc.
Based on the amount of tax I generate for HMRC every year, I am paying a *lot* more than I would if I took a permie position with it's lower rates of pay, even when you include all the company contributions.
So, creating a situation that forces contractors into permie roles will not generate more cash, although it probably will put a (brief) smile on the faces of some embittered permies who haven't got a clue what they are talking about.
Also, considering that there aren't many contractors who can get by without being able to cut the mustard, all those permies might be less and sanguine when there is suddenly a lot more competition for their jobs from people who generally have a much more varied and extensive experience to draw upon.
"But, a contractor doing the same job gets £1000 per day, doesn't want to pay normal rates of employee tax/NI but thinks that if they do pay the normal rates they should get 3 times the pay and all the benefits because their job is less secure? What is the premium for job security?"
The rates of employee tax are exactly the same. The NI is different. In effect it's higher. The contractor company pays employer's NI and the contractor pays employee's NI. Did nobody tell you that.
But you raise an interesting point about job security. What if everyone was directly employed by the engager? Everyone pays the same Income Tax, everyone pays employee's NI and the engager pays employer's NI, sick pay etc. What now differentiates the permie and freelance? Job security. How should we treat it? Quite clearly it's a valuable benefit in its own right and should be taxed as such. How about taxing all the HMRC staff on their benefit of secure jobs? I wonder how long it would be before his own staff revolted if a Chancellor proposed that.
That isn't the entire pay though is it, that is for tax purposes (fully legal ones, if you could take part of your salary in another legal way and pay a bit less tax, you'd do it right?).
Lets use the monthly take home pay after all the taxes and compare that to a permanent employee. If a contractor has a day off sick, it will decrease. As a permanent employee, it will not.
" If a contractor has a day off sick, it will decrease. As a permanent employee, it will not."
No. If a contractor has a sick day off it's the contracting company's income that will decrease. The contractor can be paid the same salary but there may be less money to pay dividends.
Monthly take home pay is a red herring. There will be months when the contractor is on the bench and there's no income to the company which should have built up reserves to be able to continue paying the contractor's salary.
Re: Sick Pay
What we are talking about here is not Statutory Sick Pay that you get when signed of sick longer term but getting paid for the odd days here and there that you ring in sick for.
A permie off for a couple of days with the flu or a dodgy belly will still get paid. A contractor doing the same won't be. No workee, no payee.
"And that is the decision of the contractor since they are director of the company paying their salary."
Of course it is. But it's one way in which contracting is different to permie work and those ways add up to a significant difference which permies and HMG try their best to ignore.
Sick pay for contractors does indeed come out of the company coffers, so it's not 100% accurate to say we don't get sick pay, we do.
However, it also isn't quite right to say that is the same as permie sick pay, because if we don't work then the company doesn't get paid for that time, so the sick pay for the contractor comes out of money already paid in, rather than coming from magic money-tree, which is why contractors might say they don't get paid if they are off sick.
So, their company doesn't get paid when they are off sick, but their company does pay their sick pay, which is limited to the amount of cash in the company accounts. Extended periods of sickness will exhaust cash reserves, at which point the contractor won't even be getting that sick pay.
You can be pedantic and split hairs, but the bottom line for a contractor is that if you don't work, you don't get paid. You can also be released from your contract with very little notice if you are off sick and they need the work done - permies can't be sacked for being off sick like that unless it's part of a wider set of circumstances etc.
"You can be pedantic and split hairs"
I think it's necessary to do that. Firstly, although most contractors really do get the reality but it's the FUD version that affects permie and HMG's thinking. Secondly those contractors that don't get it and really do treat company income as personal income are the ones who are held up as proof that all contractors are evil. I strongly suspect that as soon as times get tough they drop out of the industry because they've spent the cash and don't have anything to fall back on but those who are in it for the long haul get tarred with the same brush.
"Contractors commenting on here seem to think of what they charge their customer as their earnings, rather than their businesses revenue from customers."
A few do. They've been a problem for the rest of the contracting industry's reputation for years. Their approach is what brought about IR35. I wonder how they cope when times get tough and cash flow management becomes critical. Somehow I doubt they're the ones who get through the lean times.
"I've still not a heard a reason why contractors working for a a one man band limited company can't / don't pay themselves sick pay."
There's a reason why you haven't heard of a reason why they don't. It's because they do.
As an employee of your own company you're paid an annual salary. If you're sick (and I have on occasion been taken from site to hospital) then you continue to be paid that annual salary. The big difference is that the company isn't being paid by the client unless the freelancer has fielded a substitute. The company should build up a buffer so that it can cope with that. It's making the provision for that that falls on the contractor but not on the employee that you hear about in the comparison.
The VAST majority of "contractors" have always been within ir35
I am a contractor because I hate working for the same company for years.
I am generally project resource on IT projects, migrations and roll outs occasional BAU and backfill stuff. It would be soul destroying to sit in the same chair doing the same shit for the rest of my life?
it makes me suicidal
vSphere is vSphere no matter what chair I sit in, but changing that chair makes it bearable.
My working like is long and hard; why the fuck SHOULD I make it worse by sitting in the same office for the rest of my life.
If the entire tax system was not set up to allow the rich to stay rich then we would have the ability to have a far more simple system, set up for people like me.
In fact, the average IT contractor is the same as the average Deliveroo cycle rider dropping off McDonald's, but politicians are also limited companies?
We should NOT be limited companies, but have some other classification which has 5% of the required paperwork.
But by putting this in place, I assume that many senior figures would have their financial systems effectively ripped apart and make it obvious how they are hiding their money.
HMRC not putting simpler systems in place is just proof that the system is a protection for a certain strata rather than a usable system.
Nowadays I am generally paid the same as the full time staff except I won’t get any of the advantages they have (sick pay etc.) I am forced to "opt out" of all of these legal advantages before any agency will give me a job anyway.
Even when I work for .Govt and they come to me directly I am forced to go through their agency of choice where I am told I need to opt out with my own volition!.
"We should NOT be limited companies, but have some other classification which has 5% of the required paperwork."
My understanding is that the whole Ltd Co thing is a response to earlier IR decisions. Previously (before my time so this is hearsay) contracting was as sole trader. If the sole trader defaulted on tax the next Ltd Co up the chain was responsible. Clients didn't want this so insisted on the Ltd Co setup. I've heard people who were contracting in the sole trader days being regretful about its passing.
Oddly enough this client attitude isn't universal, it seems to apply more to IT. I went direct to a client. As there was no agency contract we had to draw one up between us at which point I discovered that they had a standard contract for sole trader freelancers because they still existed in that industry; it was a long time ago now so might not still apply.
If via an agency you are employed by the agency surely? As such how can you opt out of your legal rights? Either the agency employs you and has to give you all your legal rights, or you are a sub-contractor and there would be no rights to opt out of.
Government could just go back to employing professional staff as employees on good wages and stop paying contractors to do the work. I think an extra tax rate for contractors would sort the problem nicely. Might help fix some of the skill shortages too buy encouraging organisations to train staff again.
"Government could just go back to employing professional staff as employees on good wages and stop paying contractors to do the work."
You must be joking. Government has been trying to cut head-count for years. For a start direct employees have pension entitlements and as the Ponzi-like nature of state pensions and Civil Service pensions are threatening implosion they want as little as possible to do with it. Why shouldn't they throw those and all the other benefit costs on the worker and them rip the workers off by pretending they're ordinary employees for tax purposes.
What do you do with them once the project runs out of money/is terminated or completes (as unlikely as that sounds)?
People hire contractors because
1. The money comes out of different budgets and doesn't get classed as 'head-count'
2. If you need to save some money quickly, then you can can a project and the associated contractors without any notice or issues with compensation or being sued for discrimination or unfair dismissal or redundancy payments.
3. You don't have to train them
4. They are usually good at what they do. If they aren't you can just get rid of them and get someone else in (see #2)
The Revenue has had an agenda of forcing the whole country onto PAYE for at least the past 30 years, maybe 40-50. I should know because I used to be a collector of taxes myself and I saw the attitude of the Revenue staff in 1993. The absolutely resented anybody who took a risk and set themselves up as a business and made some money. The clever ones bailed out.
At the top of the Revenue and in the Treasury I am sure that the Sir Humphreys have been trying to hoodwink successive chancellors into making it law to tax all dividends as PAYE for all this time. When Gordon Brown got in they found a sympathetic ear and he introduced IR35. What I found most disappointing was that it was George Osborne who went the extra leg and started increasing dividend tax, mainly because the country was bailing out the banks and going broke, when the Treasury saw it's chance to fight entrepreneurs even more he signed up. So now I won't vote tory or labour or liberal or anyone to the left and as a pro-european, not anyone to the right either.
"When Gordon Brown got in they found a sympathetic ear"
I always assumed the word for what they found was "mug" but you may well be right. His predecessors seem to have seen through the arguments, however.
I'm not sure whether it's a socialist agenda. I think it's simply that PAYE was designed by people in permanent jobs for people in permanent jobs and adding another way of doing things involves hard stuff like thinking.
"The Revenue has had an agenda of forcing the whole country onto PAYE for at least the past 30 years, maybe 40-50. ......When Gordon Brown got in they found a sympathetic ear and he introduced IR35. "
Odd then that over those decades there has been a massive increase in self-employment and incorporation.
Under Gordon Brown in particular vast numbers incorporated because of the tax and NI savings available. (Some may recall the time of a nil rate band for corporation tax - as if companies needed a "personal allowance" for a minimum amount of income to live on.) IR35 followed only when even Gordon Brown accepted the avoidance was becoming unacceptable.
Much the same with the construction industry. The problem was the "lump" and the vast numbers paying no tax or NI at all. And so competing unfairly with those genuinely self-employed people who did pay their fair share..
Anonymous because I also worked for IR - in HO - and knew the people who devised IR35 (both the first who did the iniital scheme and the second who rewrote it).
Maybe I'm a just a dumb yank. But at first IR35 looks simple but when I hear it explain it's seems1 complex 2 punishing independent contractors. Maybe cause I'm use to the US were if you are paid on a 1099(true intendant contractor) you pay the employee and the employer contributions Or you set up an LLC the LLC bills and you get paid as an employee of the LLC even if the LLC only has one contract.
So is it surprising to want employee rights if you're going to be taxed as an employee. Clearly not.
Personally, I'd like the freedom to organise the sick/holiday/pension/other entitlements myself simply because it's not practical to become engaged on any short term contract and receive those benefits, particularly where rates are unsustainably low such as in the NHS. My concern is that a bad idea (IR35) will be extended to save face at ministerial level rather than admit it was poorly conceived; however, testing something out and discontinuing it when it's found lacking is just good practice (sort of!). Roll it back.
"My concern is that a bad idea (IR35) will be extended to save face at ministerial level rather than admit it was poorly conceived; "
This is a common approach, especially when you look at this government's most long-term and high-impact policies: f* the consequences, just try to make the politicians look slightly less like a self-serving and fundamentally dishonest cabal.
I had a contract with GovDept a year or three ago, and they have asked me back a couple of times.
On the first occasion, the new public sector rules were about to come into play, they didn't really know how to handle it at the time, so I stayed clear.
I am now about to return for a deemed-IR35-caught contract (based on the working practices, I don't agree that it is, but this decision is now in GovDept's hands of course).
However, they have increased rates to compensate, so I'm happy to go along with it. I won't be requiring any employee rights - I'll be paying a fortune from post-tax income on travel and accommodation, but having run the calculations, my net take-home will be about the same.
The irony is that GovDept pays 30-40% more, HMRC collects that 30-40% and via the various budgetry mechanisms uses it to fund GovDept, who now have a higher bill for contract resources.
So HMRC claim "victory" - "look at all this tax we're collecting", but they don't actually gain anything tangible other than additional processes and paperwork. The money is either spent on GovDept to cope with their increased bills, or spent elsewhere (but that's just diverting funds, in essence).
GovDept either loses out (can afford fewer resources, or have to spend money they could use elsewhere) - or they are given more money to deal with the increased bills.
Contractor: No net difference
UK PLC: No net difference
Double irony applies when GovDept == HMRC
Lets do a comparison:
Inside IR35 for £300 p/d contractor:
Annual salary equivalent = £76k (+ £14k) approx agency fee.
Equivalent perm employee cost = £54k
Both take home exactly the same net pay i.e £3250
One of these 'employees' is a multi skilled specialist taking huge risk that doesn't get sick, holiday or pension benefit living out of a suitcase.
The other gets all of these plus better chances for a mortgage application
Where's the surplus money going?
To agencies and the tax man. In this case the greedy tax man is netting an extra £22k fortune per person. This is a joke. I'm getting permanent job immediately.
All the while during old days outside IR35 I paid an accountant, hotel and the rail company VAT benefiting HMRC. The whole changeover exercise is a complete farce losing the exchequer a fortune.