Atos's UK auditor raises 'material uncertainty' about future The UK wing of Atos, the ailing IT services provider that has scored billions of pounds in government contracts locally, has pointed to a "material uncertainty" over its ability to continue trading as a going concern. In the latest annual report for the year ended December 31, 2022 [PDF] – filed on June 24 – Atos highlights …
This probably isn't affected by the effects on IR35 on small businesses.
Most of what Atos is on the hook for are either datacentre operations, or big budget IT projects, both of which, by definition, wouldn't have been provided by small businesses.
In fact, there is probably very little that businesses that are affected by IR35 do that is directly contracted by the government. True, many government departments engage small businesses/contractors to provide specific services, mainly for (supposedly) short-term skills requirements, but I don't know any SME that will be interested, or even could, step up to run a datacentre. A company that is large enough to do this work is pretty much by definition too big to be a SME, and thus won't be affected by IR35.
What IR35 has done is made the businesses that are large enough to handle these things consider whether they can engage these smaller companies/contractors to help provide these services to the government. That certainly has been affected.
I am a contractor currently working through an umbrella myself, so I do understand the IR35 issues, and what you said isn't one of them.
If you are an employee of an umbrella, you are not a contractor. IR35 doesn't apply to umbrella companies hiring out their employees.
Setting this aside, IR35 is not just about one-person-band business, but applies to any business that provides services and their workers delivering it have stake in the company (at least 5%).
For instance, if you got your mates to setup a small shop that could service a data centre, there is 20 of you each with 5% share in the company, you may also have a few employees, the IR35 is still going to apply. This combined with HMRC ensuring that government departments don't buy services from small business you get the situation where small businesses are not engaged and then you can say it doesn't affect small businesses because this type of work goes to larger entities. That's precisely the point.
Another ancillary effect of IR35 is that entrepreneurs and talented individuals no longer have desire to start their own business, because it's not possible to make it work, and so they are available to be employed and these big corporations get another boost - they have greater pool of people to choose from and exploit. Like only thing that's left is becoming zero-hours employee for a small bump in salary, so large corporations don't have to worry about unions, or that they can't let go of their employee when spreadsheet suddenly made them a surplus to requirement.
IR35 is an aid for large corporations that works on multiple levels.
I think that exactly when IR35 affects a small company has always been a moot point. Many people have asked the question, HMRC has never (AFAIK) made a general rule about it, and argued each case in isolation. I actually understand that in the example you quote, if some of the income is dividend on profits, but the bulk is paid as salary with tax and NI deducted, and the small company employs more than about 5 people, HMRC will not expect IR35 to apply. I would welcome a reference to a case which contradicts this.
The point of the IR35 guidance was to stop what was perceived as a NI (National Insurance - a tax in all but name) avoidance issue by declaring income as dividends not as salary. I'm not going to get into the argument about whether the extra taxes that have been placed on profits and dividends is equivalent to the income tax plus national insurance issue, but many single person companies rather than paying mostly monies as salaries and topping up with profit related dividends as is the case in larger companies, chose to pay a salary in line with minimum wage and the rest (often the bulk) as dividends, and not paying the NI. This is what HMRC and the Government took exception to, because they regarded it as abusing the sprit of the rules, if not the actual letter of the law.
When I was a real contractor, running (badly) my own company, I lived through the initial implementation of IR35, and although I now work through an umbrella, so strictly speaking for IR35 purposes as you point out, am not a contractor, you may not realise how little some of the agents (who mostly act as job finders, and take a fee from the fees as they flow through them for the duration of the contract) understand about the distinction between someone working through their own a small company, and someone working through an umbrella. So I have taken it upon myself to try to understand it to inform/explain to the agent(s) about what their responsibilities are, and where they stop. This should be the job of the umbrella, but even though I work through one of the big ones that have existed for a similar time to the original IR35 rules, they seem reluctant to engage with the agent to do this. So I have frequently been asked directly by the agent to justify why I am not covered by IR35.
For almost every case besides salary/tax, I work almost exactly like a contractor. The end-client treats me as a contractor, I have the same sick/holiday treatment from the client as other contractors, and I am responsible for finding each contract as needed. I just don't get involved in the month-to-month and yearly issues with working out pay/tax/VAT etc..
And, in fact, as I was an atypical contractor when I was running my company, where I paid almost all of my income as a regular salary anyway, all working through an umbrella has changed for me is my need to fill out the regulatory paperwork. The biggest difference is how and what I can charge as expenses, which is a lot less than if I ran my own company.
I suggest that you read the legislation. The rules are clear when the legislation apply.
It is all described in the manuals.
but the bulk is paid as salary with tax and NI deducted
That's really not relevant, as whether customer has to do assessments and bear the liability is based on whether workers delivering the contract have financial interest in the company. Even if they are paid salaries and the business doesn't distribute dividends.
The point of the IR35 guidance was to stop what was perceived as a NI (National Insurance - a tax in all but name) avoidance issue by declaring income as dividends not as salary.
That is unfortunately HMRC soundbite that is not true. NICs are not really hypothecated, so this is just a goal post. The tax output of a small business is higher than of an employee doing the same work sent by a big consultancy, even if the worker is paid through small salary and dividends. This is because the employees are paid substantially less that big consultancy is charging for their work. Clients of big consultancies also don't pay Employer's NI and that doesn't seem to be an issue. These rules are designed to stop small business from competing. If the tax was a real issue then IR35 would have applied to all service based businesses.
I have the same sick/holiday treatment from the client as other contractors, and I am responsible for finding each contract as needed. I just don't get involved in the month-to-month and yearly issues with working out pay/tax/VAT etc..
Umbrella is like bare bones big consultancy where employees have to take responsibilities of the missing sales team and offer bare minimum that is legally required. The IR35 makes you a captive workforce with no prospect of growth.
And, in fact, as I was an atypical contractor when I was running my company, where I paid almost all of my income as a regular salary anyway, all working through an umbrella has changed for me is my need to fill out the regulatory paperwork. The biggest difference is how and what I can charge as expenses, which is a lot less than if I ran my own company.
Big consultancies generally pay low salaries to their workers and may distribute the rest as dividends to their shareholders. It's only bad when small business does it. But reality is that our PAYE system has not been designed well for such scenario. From accounting perspective is just way simpler to set up low salary and have the owner draw dividends when they need and when it is possible.
I concede your point about reading the manuals. The last time I really read the intermediary legislation was back in around 2017.
It seems like the criteria for an intermediary has been seriously tightened up since then (April 2021 seems to be the real change, probably during the roll-out to non-governmental organisations).
I had not realised that it had changed so much and they had brought in the rules about "material interest" in an intermediary, and as such my statement about staying relevant was clearly wrong.
I don't think that I ever stated that NI was hypothecated for the purposes the government says it is for. They just treat it as money that they can spend. I thought I alluded to that in my statement about it being "tax in all but name".
I am a few years away from retirement, so the prospect of being a "captive workforce" is not a huge worry to me. I just want the remainder of my working life to remain as simple as it can be as long as I see no downside. I would consider going permie if the opportunity arose, but it won't. But the one thing about working through umbrella's is that generally they charge a fairly flat monthly fee, so it is possible to get contractor type rates, which are generally higher than employees pre-tax salary, as long as you know that you will be paying the normal worker deductions, sick and holiday.
I still reckon that I am better off than if I got a permanent job, but it's getting quite close.
Why can't the UK business be nationalised for £1 the moment it goes bust? That would £1 over the actual value of the business at that time, so fair value and recompense provided to the French parent company for the assets. What the French parent does with the rest of the business is then France's problem.
It makes absolutely no sense whatsoever to me that Atos, that bought Bull in 2014, and is the current parent of Eviden, that is behind top supercomputers in the current Top500, with installs in France, Germany, Italy, Spain, Sweden, Finland, Slovenia, Luxembourg, Brazil, and the UK, could be in such a dire financial state, trading on Euronext at €1.12, particularly with current enthusiasm for datacenter AI. There must have been terrible internal management there, especially seeing how they are the one company in the EU that has (had?) the wherewithal to produce large computational systems, competing successfully with the US and China (HPE-Cray, Dell, Lenovo). This Atos crash is a goddam shame.
Most of the Atos supercomputer sales I saw in the press appeared to be to European public sector organisations, where there might have been political considerations along the lines of "buy French" or "buy European".
In my opinion, Atos were very slow to see the potential of public cloud products like AWS and Azure, and discouraged their staff from even trying out those products. I suspect Atos wanted to carry on earning revenue from hosting customer systems in their datacentres, and maybe push their own "Canopy" private cloud offering. I believe the "reverse takeover" purchase of Syntel had a substantial negative impact on staff morale in some countries where Atos operated.
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