What do we want? A proper review of IR35! When do we want it? Last year! Bunch of IT contractors protest outside UK Parliament Sign-waving contractors and freelancers accumulated outside the Houses of Parliament in London's Westminster yesterday morning to protest against the UK government's controversial IR35 tax reforms. The group then briefly marched to the Treasury building to present a letter that urges now ex-Chancellor of the Exchequer, Sajid …
"So all of these people here today and thousands of others are finding that their livelihoods are threatened – they cannot get the work. Even the companies they've worked with for years and years and years, are afraid to take them on"
Even the companies they are effectively permanent employees of, does she mean?
Lumping in the contractors and clients that are taking the piss with those of use that are genuinely running our own companies is not going to help.
We need our clients to be clear about what's safe, otherwise they will make blanket decisions erring on the side of caution.
Even the companies they've worked with for years and years and years, are afraid to take them on
Not in my experience, what we're actually seeing is the "contractors" who have effectively worked as employees for years are leaving in droves because they know that if their current roles are deemed to be inside IR35 then they're opening themselves up to HMRC coming looking for all the tax they should have been paying for all of those years.
Not even close. I work on projects with companies, when the project ends I leave. My contracts have always been IR35 compliant, I'm legitimately Outside, but my current client has ruled Inside. As has almost every other company I could contract with. HMRC have made statements that make it clear they will launch investigations going back up to 6 years if they see contracts going from deemed Outside to Inside. Which is almost all of them, regardless of the reality. So, stay and get investigated by HMRC for the last 6 years, or leave and find something else. Not a hard choice, I don't need that sort of stress, I'm walking, and so apparently are 72% of my fellow contractors. I know of some that have already accepted contracts outside of the country, others are seriously looking into doing the same.
£3k for me, but more to get my daughter one too It's an Australian company.
They need to gather his birth certificate (was Poland now Belarus) and his RAF record and his marriage certificate then my mother's and my birth and marriage certificates and my daughter's birth certificate. Then translate all that and the application forms into Polish, apply via a Polish agent, pay fees etc
Ah, erm, Miss Lincolnshire
*Paces round drawing room*
*clears throat*
You must forgive me for what must be an unutterable presumption but I must ask whether there is the remotest chance that you would do me the very great honour ... &c
Sorry, but you know, an actual "Miss" contracting in IT, an EU citizen, Feb 14th, and Emma matinee screening, I've come over a bit funny.
"It does not affect people who are self-employed under existing employment status tests and will ensure that tax that was always due is paid. Contractors who are complying with the existing rules will feel little impact."
So now they have confirmed they will come after those who show a status change...
Can they go and protest at Boris now?
Go through the outer office where Boris has a small desk, into the much plusher surroundings of the inner office, following the sound of laughter where you'll find a bloke sitting in a big leather chair stroking a white cat. The sign on the door says "Dominic Cummings"
Now everyone has been disappeared down at Number 11 and the new lot have moved in from next door, the petition has been carefully filed in the round filing cabinet next to Sunak's desk.
"It's completely unnecessary. There is a quid pro quo already – contractors don't pay National Insurance contributions but then they don't get a state pension, sick pay or holiday pay, maternity or paternity pay – so we don't need this legislation.
Yes. However, it helps to admit that there is an actual problem with companies (building companies especially) who have been forcing everybody to be a contractor to evade having to pay PAYE, Pensions, sick pay, holiday pay, and paternity pay.
Ok, technically your not forced. Your just told "do this and we'll employ you", with the unspoken point of "don't, and you can enjoy life on the dole until you decide to accept it". Which is forced, in plain english before it's newspeaked to mean whatever the tax dodgers want it to mean.
Come up with some mechanism that prevents people from being stripped of their employment rights, and the government from being defrauded of the tax income and i'm sure that they'll be quite happy to consider changing their approach so that people who are genuinely innocent aren't caught in the crosshairs. The point at which a small fix could and should have been applied was probably a decade ago. It's now kept rolling and what's going to inevitably happen is an overreaction rather than a reaction.
"It's completely unnecessary. There is a quid pro quo already – contractors don't pay National Insurance contributions but then they don't get a state pension........ so we don't need this legislation. "
Not true. You get a notional NI credit if you pay yourself a salary equivalent to the tax free allowance. This counts towards your state pension.
According to recent court cases, BBC presenters were actually told by the BBC to form companies to be paid through, rather than going onto the books. The direction was explicit.
I don't see where the "20% pay cut" comment is coming from, unless there's some dodgy play going on. Contractors get to pay Corp tax (19%) off the top, then any dividends are taxed at 7.5/32.5% dividend tax. Against this, they're (mostly) avoiding ~14% Employers NI + (probably) 4-8% Employee's NI, + marginal rates.
Yes, writing stuff off against the company profits helps. Yes, you can leave profits in the company, but that mainly postpones the problem unless you're close to retirement.
So, can somebody enlighten me on where this 20% comes from? I'm permie at the moment but there's always the possibility of going back to contracting, so it might become pertinent.
Outside of IR35 CT is payable on profits after expenses such as mileage, accommodation etc are deducted. Within IR35 those expenses are not allowable and therefore that proportion of income that was previously untaxed would be taxed.
i.e at present I'm outside IR35 in the public sector and legitimately draw about £500 a month in mileage from my company That £500 is not subject to CT. Under IR35 the £500 would be treated as salary and subject to income tax and NI. Same would apply were I stopping in hotels and paying for those out of the day rate.
I believe that that is where some, if not all, of the additional % comes from.
Miss Lincolnshire, mileage and other expenses are just as claimable as a person as they are for your business, using a P87 or a tax return for claims over 2500. The rules for keeping paperwork are the same as well (ie you need proof).
Commuting to a regular place of work isn't. But your not doing that are you? unlike us proles who can't claim for commuting.
The "proles" is a bit chippy isn't it?
Don't know about your circumstances but I was a permanent employee for over 30 years until I was made redundant for being too grey and expensive, I opted to contract because I wasn't going to allow myself to being thrall to a shitehawk outsourcer again and I accept the risks and benefits that go with that choice.
If you promise to be more polite I will let you have a go in my imaginary helicopter or Ferrari. Perhaps you could book some paid annual leave or even take a paid sickie for the occasion. My international supermodel girlfriend is, sadly, not included in the offer.
Corporation tax isnt my field. Your right about the rates but the important part is *profit*. Pretty much anything you can think of can be deducted by a competent* accountant to reduce those profits. Loss relief, carrying it back etc is always a good one. Plus you get goodwill, depreciation of assets, losses to write off and so on.
* Good luck getting one of them, about 1/3 k speak to are worth the time of day.
So personal tax 101.
It's my job, so this is the legit lowdown
The trick is to pay yourself exactly the lower earnings limit for National Insurance through PAYE, and take the rest as dividends. At the lower earning level, your employer and you pay a % on income over it. How much is 12% of £0.00 again?
Tax gets more fun. You have the personal allowance, roughly £4,500 is unused, then you get the dividend allowance on top. You draw the profits out the business as dividends, at a 7.5% rate. This is far cheaper than tax and NI through PAYE. If it wasn't, you would be a sole trader (or if your smart a LLP).
Even though you paid £0.00 in contributions, as you have made the LEL each week you qualify for the benefits that come from NI. The company that pays you is responsible for paying your entitlements, such as SSP, holiday pay etc. Its your company. If your refusing to pay yourself then you are ripping yourself off. If that doesn't sound daft than I have a bridge to sell you in Middlesbrough. If your employer can't afford SSP, they can claim help through PAYE, or send you to the dole office with a SSP1. Either way, you have those rights, and your dodging tax by bending the law into a pretzel, while denying yourself employment rights you are responsible for making sure you get.
All this to help some multinational shave 1% off its pay bill. This is just like uber, deliveroo, hermes, and and there "self employed" staff, Lorraine Kelly and her career acting as, errrr Lorraine Kelly, and so on. Just like all those people who paid themselves via a "loan" that was never collected, such as, Glasgow Rangers.
Franz Kafka would be proud.
It's only 7.5% until you hit the higher rate threshold, when it becomes 32.5%.
Yes 7.5%/32.5% are lower than the normal marginal rates, but you're still paying Corp Tax (less all the things you mention of course) before you get to that point.
Loss relief is pretty hard for "normal" PSC's. Unless your rate's pretty low, it's going to be hard to convince the HMRC that you're making a loss on it. (I do have other companies doing non-IT stuff where that works pretty well though.)
Perhaps we could take Macjules' advice and incur lots of expenses visiting our money Company HQ in Belize?
It is nothing to do with corporation tax, which is something a independent contractor typically has to pay the same way as their customers. Having a fake employer (umbrella company) between you and your customer is a cost. There are charges from the pay-roll processing, lawyer and tax advisors they need, web portal, back office infrastructure, office employees and, of course, their profit margin. An umbrella company is not run out of the goodness of their hearts.
That is where the (up to) 20% comes from.
(An ex consultant/contractor after a recession put a hold on contracts for roll-out projects)
"pay PAYE, Pensions, sick pay, holiday pay, and paternity pay"
Companies cannot avoid the law, even small companies with single employees. Yes, certain rules are amended for Director/Employee, but the appropriate laws still apply. All "benefits" and "rights" must still be met by the Contractor's company, that's why the day rate is higher, to cover the cost of those provisions.
Provided your employment agency is happy with it you can re-register your PSC offshore. This places an onus upon the agency to ensure that the CEST form is completed correctly but the end client does not have any further responsibility and thus can carry on as normal.
I have already set up a PSC in Belize, cost around £750.
Why do you insist on conflating avoidance and evasion? Avoidance is not paying tax you don't owe, evasion is not paying tax you do owe. Only one of these is illegal and immoral.
This Belize fella is avoiding. He might also be evading, depending on how things are set up.
Yep. If you've ever bought anything in Duty Free, you've been engaged in tax avoidance, perfectly legal.
If you've brought more than your personal allowance of (say) spirits into the country without declaring it and paying duty then you've engaged in evasion, most definitely not legal.
My employer (I'm permie atm) has simply announced that the only way we'll accept temporary staff is via Umbrella companies or Fixed-term contracts. So, effectively they're just avoiding any discussion about IR35 status altogether. Existing contractors have been told to convert to permie or comply with one of the alternatives above, or bugger off. SWMBO's current contracting client - one of the major banks - has made a similar declaration.
So, while moving the company to Belize would be nice, it's not going to help for a lot of people. A shame, as that would mean nice tax-deductible trips to company HQ...
There must be some discussion here about whether moving people away from PSC's into Umbrellas constitutes agreement that the role is inside IR35. I would argue that it does nothing of the kind, but I'm sure HMRC won't let it stop them.
So the Umbrella company doesn't take the PAYE off the top then before paying your Belize company?
And the cash gets paid into a Belizian bank account I assume?
(Apologies for all the questions - this might be an interesting arrangement for Mrs Fink, who is looking at Umbrellas at the moment.)
Then they aren't doing it right - when we did it back in 1999 we were inside, nice and warm in the lobby, green carding our MP's (and going for a pint afterwards, on expenses, of course).
Must admit thinking the writing was on the wall though as Andrew Lansley didn't really give me many assurances.
And so 20 years later we see the death of computer contracting (taking with it similar professions, I imagine).
As for the comments above - I still paid NI. A few pounds a year over the threshold, enough to guarantee my state pension, the wife's maternity pay etc etc.
We protested outside and also inside, both last July and yesterday. Many more MPS listened and attended yesterday than last July...but that’s because people like us carried on lobbying and not rolling over and accepting large devices shoved up our orifices.
Others have ordered extra heavy-duty batteries for their devices.
The real story here is the creation of the "employed for tax purposes", No Rights Employee (NRE).
Once the big companies realise that they can convert their permies to NREs without attracting any HMRC trouble (which they couldn't do with contractors) then we're all up the swanny. A hundred years of unions negotiating working conditions swiped away in a heartbeat. Entire sites, divisions and departments closed on literally the same day as the bosses announce it. People getting fired for getting pregnant - or fat, or arriving late to work. You name it - all possible with NREs.
For public listed companies especially, NREs mean less head count, and that means they can report a higher "earnings per employee" in their accounts. That improves their share price, which improves their chances of (foreign) investment or takeover. The odd contractor having to take an "inside IR35" role might sound innocuous enough, but when you realise NREs are the wedge that will end up selling off British businesses and the assets they own, it starts to look slightly different.
That's the way I see it, too. This is effectively the end of employee rights - the Tory wet dream. As I've said before, all those muppets in previously Labour constituencies are soon going to be regretting changing their votes to the Tories, and denying that they ever did it.
From the article
“ As a result, contractors and freelancers are being forced into "zero rights employment", where they will be taxed as permanent employees, but not receive any of the standard benefits.”
.... but get paid *far* more than the permies for doing the same job.... so I’m not crying you a river over this.
... so they can afford to fund this themselves. Pension, Rainy Day fund, Holiday fund, sickness insurance, NI ‘stamp’ payments.
Oh so you blew it on a Porsche Macan.....
I don't think that has been true for quite a while.
I contracted for over 20 years and went back to permie when the rates just didn't stack up against permie salaries (after figuring in the benefits of course). I then dipped back into it between permie jobs to pay the bills.
Contractor rates took a big dip in the early 2000's (down from £55/hr to £40/hr) and I haven't heard of them fully recovering in real terms, but as I haven't contracted in over 10 years maybe some current contractors can update us?
Like I keep saying, if the contractor sitting next to you doing the same job is being paid massively more, then YOU are in the wrong job, look for one with a better salary.
Yep. Sensible contractors have totted up the costs/benefits and know exactly what their take-home equates to against a permie salary. You'd be surprised at how close things are, once you've done the calculations against paid holidays, pension contribution matching, paid sick days etc etc.
A few years ago I went permie after a lot of years' contracting. My take-home from my permie salary isn't a lot different from my contracting days. TBF my new role is fairly senior and comes with a decent salary, so YMMV.
So, while it may LOOK like the person beside you is taking home a lot more than you are, it may not be the case once you've calculated it all out. So, don't just look at the headline figure.
As Adam40 says: if the contractor beside you is actually getting a lot more in the hand than you are (for the same job), then it's time to move jobs. Or go contracting. You do have the choice.
".... but get paid *far* more than the permies for doing the same job.... so I’m not crying you a river over this."
Every contract I've had I'm not doing the same job as a permie.
And I don't mean "by definition", I mean there were no permies doing a similar job as me.
I have always been contracted to do something specialist, which clients just don't give to permies as they want someone who doesn't need to go on a sabbatical to learn that thing they want. They want someone who already has the skills and experience (and who probably has worked for their competition recently, which permies cannot do of course).
If contractors stopped making excuses About why they shouldn’t pay an equivalent rate of tax they would then see that their own psc/umbrella or what ever should be covering those things they think they are missing out of. As they are their own boss it’s up to them to fund the holiday/sick/out of contract pay!
I was a UK IT contractor, but I escaped the rat race and started a work from home IT consultancy.
What shocked me is how easy it is - the skills you built as a contractor are almost what you need to run your own business.
You know those contract interviews which used to intimidate you but which are now easy, familiar territory? Very similar to pitching to clients.
But how do you find the clients? That was the problem which stopped me all those years from trying to set out on my own.
My ex sales trainer wife gave me the answer - find local business meet-ups, pitch up in nice clothes, introduce yourself to everyone, ask about their business, ask what they think of mobile apps (or whatever service you plan to offer). If they say "I've been thinking of building an app...", bingo, new client.
Its that simple. You get a lot of knockbacks, but ask enough people and you'll find someone with money who's interested in spending that money on you.
Most of my clients are small startup businesses, not the kind of potential clients agents would normally target. Or they were small startup businesses - a few of them have grown. Their budgets have grown with them, and they stick with the IT person who helped them grow.
Don't try to target big businesses, at least not at first. Big businesses take months or even years to make a decision, and unless you have a lot of cash you can't wait that long, burning time and effort in endless meetings. In any case they won't want to deal with a one man show, unless you have an extraordinary rare skill. Small businesses make fast decisions and frankly they're usually a lot more fun to work with.
I no longer live in the UK, nowadays I live on a tropical beach in Australia. But if I was still based in the UK, this way of doing business is IR35 proof. You do part time piecework for multiple clients, at your own direction, in your own home / office. No different to a self employed plumber or decorator doing small jobs. Anyone who tries to say you're an employee with this method of business is barking.
>> "Anyone who tries to say you're an employee with this method of business is barking."
Do your clients want to try out interim builds to see how the development is progressing? (Supervision)
Do your clients get to decide what colour the icons should be? (Direction)
Do your clients expect you to attend their Monday morning project meetings? (Control)
HMRC: Sounds like employment to us.
"We have put various measures in place to make sure that contractors and businesses know what is happening, what they need to do, and have dedicated teams providing education and support"
with all the cases they have lost at tribunal, as to wether people are in or out of IR35, are they actually qualified to provide education or support?
I was a contractor! I want to be a contractor! All of my jobs are done by little green men in mars now because they were cheaper(?). Now it affects the UK economy by taking all that money out of our economy and gives it to the martians. Mars 1 Earth 0! The government has affected the economy by selling us up the swanny again, the employment figures are boosted by the number of deliveroo, amazon delivery and uber cabbies after the retraining takes place.
What is the point?
It's like when the bailiffs come to us and ask for money. I spent it all.
To the tune of “(You Gotta) Fight For Your Right (To Party!)” by the Beastie Boys
Kick it! (IR35)
You start your new contract, man you’re rarin’ to go
It’s classed as outside but the Gov says no!
You’re paying proper tax with no “inside” work
But the g-man chases tax like you’re some kind of perp
You gotta fight for your right to contract
The Gov caught you working, just earning your way
They take you to court to make you pay
Try to get what we do, what we face
Wasting our money trying to make your case (bankrupt!)
You gotta fight for your right to contact
You gotta fight
Don’t come and steal my cash if that’s the proof you’ve got to show
The judge will kick it out and tell you where to go
The Lords busted in and said, what’s all the fuss?
At last someone with a brain, get on our bus!
You gotta fight for your right to contract
You gotta fight for your right to contract
Contract
Contract
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