TL;DR they were badly advised by their own accountants ?
(which comes as no surprise).
is there a case for suing the accountants then ?
HMRC has won an IR35 tribunal against BBC journalists Joanna Gosling, David Eades and Tim Willcox. That is despite an earlier High Court ruling finding the corporation had forced them into the wrong contracts. The presenters, through their personal service companies, could face a tax bill of tens of thousands of pounds in the …
From memory; accountants take no responsibility if they make a mistake.
(That's probably an over-simplification which an accountant can correct but I've got more than one acquaintance that had run-ins with HMRC and the accountants were able to back away with a sympathetic smile).
"From memory; accountants take no responsibility if they make a mistake"
Not true. My accountants failed to properly submit my accounts last year, HMRC levied a fine, the Accountants refunded the fine. (one of the big specialist contractor accountants)
The more probably scenario is that these people are claiming ignorance of the tax laws to try to get a sympathetic hearing. As they were working for the BBC and being highly paid, this suggests a sufficient level of intelligence to be able to understand the basics of IR35.
Most accountants will explain the tax implications clearly to their clients and in most cases accountants are on a fixed fee. Meaning there is little incentive in deceiving your client if you are not getting any extra money. The main discussion tends to be around risk - i.e. how likely am I to get caught? and that is where maybe the accountants were not clear enough. Even in this case, these people would fully understand that they were taking some level of risk.
"If the off-payroll working rules apply, workers' fees will be subject to tax and National Insurance contributions but they will not receive other benefits of workers on the payroll, namely holiday or sick pay."
That right there is the centrepiece of the clusterfuck that is IR35. It should be simple enough - if you are forced to pay tax as an employee, you should get employee benefits. That hard to understand?
End result is going to be that contractors will just charge firms even more, renegotiate contracts to work part-time with multiple firms, or just leave
"others may get paid more for doing more?"
Bullshit! Contractors don't get paid more for doing more. they get paid more because (a) the employing company doesn't pay their NI, they don't have paid vacation etc, and this has to come out of their own pocket and (b) there is a perceived trade-off of extra pay for less security.*
This isn't the place for name-calling and others-bashing, there are business requirements for both employed staff and contractors, and each of the two have different things to offer which is why some people are more comfortable with one than the other. But saying that one or the other group does more work (or is more proficient, or is more anything really) is simply wrong.
* My personal experience is that job security isn't any higher as an employee than as a contractor. If a company wants to cut headcount they can fire you either way. Rather than 'job security', which is bullshit, aim for 'employment security' which basically means be good at what you do and stay current, you can always find work to do whether a an employee or as a contractor. That security comes from yourself not from whoever is currently hiring you
>When I was contracting I just went through an umbrella and paid the same rate of tax as everyone else.
You were badly advised, which probably explains the past tense; an umbrella company is for pseudo employees (and earns the agency a fatter slice of your rate), not freelance contractors or one person consultancy businesses...
No one advised me. I looked at how much I was making, it was twice what I was earning as a permie and the work was easier. I was quite happy contributing a bigger wedge of tax cos I was taking home more than enough.
You lot really are just greedy. That's all it comes down to. People with plenty of money desperate for more.
I think you've been badly advised.
Firstly. I'm the AC you accused of "hiding" above. I'm "hiding" as I'm permi, and supposed to be working,
Not everyone who contracts gets a pseudo-permi position; some of us just go in for fixed work packages, don't have "a job" for the full year, don't get paid for any time off and have to pay significant travel and accommodation costs (it doesn't make sense to move every three to six months).
Which is why the rate I demand is higher than if I was permi. If they want to tax that as "income", then they need to ensure people get holiday pay (etc). It also seems unreasonable that legitimate business expenses like home office (when that is an option), travel, accommodation, accountancy (including costs for HMRC inquiries) have to come out of my personal income. Don't forget, these costs exist for permi staff as well, but I've never seen a deduction for "office space" on a pay slip.
When I was contracting, my take-home was only slightly more than I could have got as a permi. I contracted because I was good at what I did, liked working on diverse projects and didn't want to live and work down south for the rest of my life.
"Which is why the rate I demand is higher than if I was permi. If they want to tax that as "income", then they need to ensure people get holiday pay (etc)"
Sorry, but the higher rate you demand INCLUDES your holiday pay, etc. By getting "paid" more for days you charge for, you are covering those days you do not charge for. Same with all other benefits, they are included in your rate.
What IR35 is missing is a way for all those to be taken into account before the tax is calculated (e.g. you should be able to subtract the value of x holidays from your gross before the tax rate is applied.
>No one advised me.
So you chose to be badly advised.
> I looked at how much I was making, it was twice what I was earning as a permie and the work was easier.
So why did you stop being a contractor? with more money and easier work, you would of had time and money to do other things.
>I was quite happy contributing a bigger wedge of tax cos I was taking home more than enough.
So you were already independently wealthy?
Only the independently wealth are in a position of knowing that they are taking home more than enough to see them through to the grave.
Working full time is a proper job.
Under question is whether the individual is working for their own company, or for another. The issue with IR35 is that it requires their own company to pay tax as though all income were from another, without the individual being an employee of that other.
This does leave such individuals without the employment protections mandated by law, as their own company is - under IR35 - denied the income required to provide those protections.
Do you disagree that this is an issue?
You decided to work for a company you set up that doesn't give you any employment rights. You think that means that you shouldn't contribute the same as other workers.
Where I disagree is with "without the individual being an employee of the other". We both know that most of the time that's exactly what you are, you'd just like to arrange it legally so you can make shit loads of money.
I can see there is an issue there. I don't think it's important. At all.
I have never taken on contract work, so I shall treat your use of 'you' as a broader point to all contractors.
They did not set up a company that doesn't give them employment rights. They do seek to provide those employment rights but doing so requires funds. The issue with IR35 is that it doesn't consider the necessary cost of those rights a valid expense, and so requires their provision to be made from post-tax income.
This is contrary to all established practice, be it accounting, employment law or indeed how any other employee across the country is treated.
The article suggests that they went down the route of setting up their own companies because the BBC wouldn't take them on otherwise.
If this is accurate, it seems highly probable that the BBC were doing so to reduce their own costs (ie by dodging the usual extra exmployer costs that employees generate - employer NI, pension contributions, sick pay, annual leave, and so on).
The fundamental problem is that such costs are not levied equally across all forms of employment and employers. IR35 would be rendered irrelevant if they removed those artificial differences (it would mean putting all the employment costs onto employees, and require the government to actually pay out for the benefits when due; a corollary would be better tax transparency from the govenment - which is anathema to them, of course).
How does contracting work exactly, in the UK? In Canada, "contractor" is a way of getting somebody to do the same job as an employee, only they don't need a reason to be fired, don't get sick days, don't get benefits at all really, including employment protections of any sort, and they get paid a lot less. Is it similar over there?
There are quite a few nuances and the meaning of "contractor" varies between countries: From a consultant with skills the client doesn't have in-house to a temporary worker doing BAU work backfilling a permanent post; Or from a contract specifying a deliverable to a contract specifying working hours.
True independents are usually outside the taxmans "disguised employment" net.
"Temps" are usually in the net - They're doing the same job as a permanent employee. So their daily rate needs to be about 50% higher than a permanent employee to allow for employers tax, pension contributions, sick pay, unemployment etc - plus personal taxes - just to reach parity with a permies annual take-home pay.
I've been offered (and declined) short-term contracts (defined project) where I would have ended up with a "salary" significantly below that of a permi staff member as the rate made no allowance at all for travel, accommodation or pension.
The agency commented "I wonder if that's why we're finding it hard to fill this position?" when I pointed this out!
Some contractors may get lots of cash, but that's generally not the case outside of financial and various other London-centric posts.
Wow, you can tell from the up and down votes that lots of people on here are contractors. I do think contracting is massively over used and is also under taxed at present. It my company for example, contractors are used because of the way that projects rather than departments are funded - so everything is double the price for no reason other than easier accounting.
>"In my company for example...so everything is double the price for no reason other than easier accounting."
I suggest you work out what your day rate would be based on your gross package (including employer NI, employer pension contributions etc.).
Don't forget most years there are typically 251 working days (52*M-F minus 9 bank/public holidays), which are reduced further by holiday entitlement and any other entitlement/allowance you may wish to include.
I've worked freelance for 15 years and know how it all works, so can you explain how you think "contractors are undertaxed" please? To make it easier for you why don't you simply post how much you paid in taxes last year, and then I'll post what I paid in total. I guarantee my labour generated more tax for HMRC last years than yours did.
There is a real whining streak of jealously permeating from these discussions from the permie set... and yes, I find it quite amusing.
There is a real whining streak of jealously permeating from these discussions from the permie set... and yes, I find it quite amusing.
From my experience the whining comes mostly from those who don't have what it takes to be a freelancer and pour scorn on others to divert from their own failings.
The intelligent ones soon stop whining when you walk them through the salary equivalence calculation and then add on the overheads. They then begin to understand that being an employee has some really good benefits and doesn't mean you need to subscribe to the permie mindset.
The issue with that is that the money to provide those benefits is being taken by HMRC before those benefits can be provided.
A 'traditional' employer uses money to pay for those benefits - pre corporation tax, pre payee etc.
A contractor has to use post tax money to pay for those benefits... and because it's marginal income that's tax at the highest rate they pay (which will likely include a couple of slices of NI as well).
When I was last contracting my overall tax rate was basically 50% (I used to split all invoices down the middle and that gave me a small 'bonus' come year end) the *marginal* tax rate was significantly higher than that.
"I suspect you split your invoices after deducting VAT."
Yes almost certainly - although that only added 13% due to the cash services scheme*
The other option is that I am misremembering and I actually did the split 60/40, that's also possible - it's . a few years back.
* Smaller VAT registered businesses could charge the full 17.5%, abut only give 13% to HMRC - in return you didn't get to claim back VAT on purchases...
Since what I was selling was basically my time it was economically sensible for me to not bother accounting fir VAT on expenses, but just to pay it - even ignoring the added time for the accounting and VAT returns - and get a bit of a kick back on the charged VAT.
"You are entitled to all employee benefits.
From the company that employs you.
Which is, ummm, you."
yes, and the company that employs you, ie you, wants to account for the cost of the employee benefits as a business expense, which it is. Just like every other company, which you are. Except you're not allowed to
The legislation requiring IR35 status to be determined by private sector companies is contained in the 2019/20 Finance Act, which is still in draft. It would normally be presented with the Budget and voted on by Parliament, which is currently done in October.
Now, the Government, having prorogued Parliament, cannot have a Budget while Parliament is not sitting, and when it does sit again, will be very busy preparing for [Brexit][Election][Further Prorogation][staying out of prison]*, so are unlikely to have a Budget at any time soon.
Even if they did, and they remained in office long enough, the way the numbers stack up it would seem very unlikely that they would get the Budget to pass.
AIUI, the emergency financial statement that the Chancellor presented earlier in the month was enough to allow the tax rates and some other financial instruments to roll over in April (they are also normally presented in the Budget), but they did not pass this years Finance Act in it's entirety into law.
So, if we accept that normal government will not resume until things have settled down one way or another, I would say that it is exceptionally unlikely that we will get any sort of Budget until the new year. This make the cries of there being not enough time to implement the IR35 changes even more poignant, and that makes it likely, IMHO, that the measures will be delayed until at least April 2021.
*Select any/all appropriate choices
P.S. I am not am accountant/lawyer, so this is just my thoughts on the matter. It does not directly affect me anyway, I work through an Umbrella!
If we were living in a sensible world your observation would hold true.
Sadly politicians do not live in the real world and have demonstrated many times they have a complete lack of understanding of what is achievable in any given time frame. This will be included in the Tory or Labour finance bills assuming one of them presents the next finance bill.
I'm guessing most contractors couldn't afford the initial legal fees to start off-shoring their income, but I reckon ten thousand contractors could band together and achieve Amazon tax status, with a trust in the Caymans or other British but not full British island.
A trust who's beneficiaries will never be revealed, that owns multiple shell companies, that pay astronomical sums to the trust for the use of a brand name, that bills your employer for your work.
If it's good enough for the filthy rich, mobsters, drug barons and despot rulers from around the globe, it's good enough for the hard-working lackeys of Britain.
I'm guessing most contractors couldn't afford the initial legal fees to start off-shoring their income
It's not so much the fees as being a UK resident for tax purposes; having your income paid via an off-shore entity is tax evasion.
However, you could set up an off-shore entity and avail yourself of the double Irish with a Dutch sandwich (although the door is closing on this arrangement), so that your company has to pay branding fees etc. to an off-shore entity, which would reduce your UK tax bill. Although I suspect the setup and annual operating fees would exceed any tax saved for a typical contractor.
Well, there is always then the question of how should all of the services and facilities provided by the state be paid for? Only other way I can see is to increase the tax on purchases (VAT, businesses). Either way, the money has to come from somewhere.
I don't like paying 40% tax, but I don't think it's unreasonable.
BJs (I think it was) plans to reduce taxes for the super rich is wrong - it would be much better to reduce the taxes at the bottom end (moving more people out of taxation), as this would benefit everyone to some extent.
It is also not right for the majority of the wealth to be held by a very small number of people - not that I support communism or other "lefty" principles.
It is also not right for the majority of the wealth to be held by a very small number of people
Playing devil's advocate here:
If they stole the money (which was perhaps more likely the case a few centuries ago) I see your point.
If they have that money because they earned it (much more likely today), why not?
If they have it because they were given it by someone else who earned it, why not?