Don't worry, IT contractors. New UK chancellor says HMRC will be gentle pushing IR35 rules The UK's new Chancellor of the Exchequer, Rishi Sunak, has promised that HMRC will not be "heavy-handed" in pushing its IR35 tax reforms. Sunak, speaking at an event in Birmingham on Saturday night, backed the government's plans to forge ahead with the controversial reforms, but added that tax officials would take a soft …
"In the future they will essentially be employees, but without any of the rights, protections, or long-term prospects."
They'll have the rights and protections which their contract allows. If they are daft enough to sign a contract which gives them no rights and protections then maybe they shouldn't be contracting. If companies can win the "take it or leave it" argument then the skills/experience they are selling aren't special enough and maybe they shouldn't be contracting. If they are working for a rate that doesn't cover sickness, holidays, pension, insurance, accountants, IT, etc. then maybe they shouldn't be contracting.
And if they want long-term prospects with a single company then they should be full-time employees, not contractors.
I work in a niche discipline with short contracts of a few days up to a couple of months and I might have 2 or 3 clients on the go at a time. The clients have no one with my skills in the company, so IR35 does not apply. I accept that it still has potential to mess me about, but my basic contract (which I usually write, not the client) won't change and my rate (i.e. what I bank) won't go down. It's likely that I'll do more work on a fixed price basis rather than a day rates, but that costs more because I absorb some risk. If clients don't like this then the beauty of being freelance is that I get to decide if I'll take them on.
"The clients have no one with my skills in the company, so IR35 does not apply."
You plainly do not have a clue. This has never been a determination for IR35. Substitution and MOO have been the main discriminators.
Unless this nonsense is sorted industry wide you'll be hounded out soon. Maybe you'll last longer or maybe you won't, but the doors have slammed shut and no-one is listening.
If you're in a position today where you can decide on your clients, then woop-de-doo, but make the most of it because this industry changes fast and so will your prospects.
@Harry: whether I'm doing the same or similar work as an employee could open the door for an IR35 determination. My contracts have named alternatives and, in the case of fixed price, if I don't deliver I don't get paid. MoO is also covered, as is my autonomy and ability to sack the client if they don't play nicely
As I wrote in my post, this doesn't mean that I expect to stay out of the IR35 net because of this blanket approach that some companies are taking and HMRC's apparent approach of prosecuting first and letting the courts decide. I believe I'll generally be outside but I understand that some clients might be taking an easy route and will want me on payroll. When this happens I'll look at the implications and decide whether I want the work and what the rate will be.
I don't understand your point about contractors not being able to choose their work (what and when) because I thought that's exactly what being a contractor was about; it's certainly the main reason that I, and most of the contractors I know, choose to freelance.
You might be right about the doors becoming more closed but I don't really work in any single industry and thankfully I'm not seeing any issues yet. I guess that IR35 exists because contracting has changed. When I started in the 80s contractors were few and far between. Today, some industries have, effectively, farmed out vast amounts of their core work to contractors. I know some who've had the same desk for years with unfettered access to the stationery cupboard, surrounded by fellow contractors all from the same agency and leaving cards when they retire. I don't blame the contractors for this - the money's OK and the job-security problem doesn't seem to exist. But I guess (don't know) the loss of NI as a result of this contractor boom in the last 20 years is what kicked off IR35 in the first place.
The best thing (IMO - others are available) would be to ditch NI and have a single income tax which taxed all individual income at the same rate, whether salary, dividends or capital gains. Ditto for corp tax - remove the employers NIC and just have a single tax. There'd be a bit of detail to work out I guess and the risk is that it might mess pensions up (like Brown's dividend tax), and pensioners would see their tax rate go up by 10%, but the principle of a single tax would remove a lot of the opportunities for avoidance and it's been a while since did what it was created for.
Since pensioners don't pay NIC, it shouldn't be beyond the wit of HMRC to avoid a 10% hike there (the more so since the Scottish tax rate has already introduced the need for such complications).
What I'm wondering is whether the new IR35 enforcement will recognise the "pensioner" NIC exemption. If not, the new approach will certainly get HMRC NICs it wouldn't otherwise have got (as there was no avoidance).
If your "customer" shoves a contract under your nose and tells you to sign it or there's no deal, that is one of the indicators that your "customer" is actually an employer, and therefore you are subject to IR35; as normally the supplier shoves the contract under the customer's nose.
Therefore, your comments about people being daft enough to sign it are not really appropraite.
I have had clients, and agents, tell me this when I've attempted to negotiate changes. At that point I have to weigh up, as a business decision, whether I want to accept the terms of that are on offer or go somewhere else.
This is a business matter, though, not one of employment vs contracting. If a small business wishes to supply services to a large one, the larger business often has a strong hand in negotiations. They may well produce a contract and say "take it or leave it".
If it ends up that by contracting I have the same take home pay as I would have as an employee with none of the benefits then the answer is simple: Ill just get a permanent role.
by extension the number of people contracting will go down and therefore the day rates will go up. Also of course for perm salaries will go down.
We will reach some new equilibrium with some % fewer contractors working at higher day rates and more competition for perm roles at a lower salary.
My interactions (regular but normally uncontentious) with HMRC have generally been very good - they have been efficient and prompt. Our 'discussions' (over double taxation) were resolved quickly to my relief. However to expect them to 'go soft' is only for people living in cloud cuckoo land. For better or worse, they will apply their understanding of the regulations (and laws) to maximise tax revenues - as is their job. Does this half-wit of a chancellor really believe this (unlikely) or is this a frantic attempt to soft-pedal that over which he had no effective influence? I will assume the latter. Given my work, I am under no doubt that I will not fall under IR35 - but if there was any question I am clear on which way they will go.
https://www.parliament.uk/business/committees/committees-a-z/lords-select/economic-affairs-finance-bill-sub-committee/written-submission-form/
Write to them by midnight tomorrow. From the Call for Evidence itself:
"The Sub-Committee welcomes views on any of the following questions relating to the proposed extension of the off-payroll working rules to the private sector. The SubCommittee is interested to know about the real-life experiences of individuals and organisations, as well as more general responses—for example, relating to the impact of these (and predecessor) measures on the tax classification of workers and the broader impact on the labour market." ie Public Sector rollout is also within scope.
And bear in mind that you will need to retain at least TEN years of records now if you work outside of IR35 at all. This is because it could take between 7 and 10 years to review the CEST for that particular contract and whether both you, as the contractor, the agency and the end client were telling the truth. Rishi Sunak will probably be a distant memory of a minor sex scandal by then.
"someone else [who] could be doing the same job is paying less tax"
But when I compared my annual tax contributions from back in 2010 when I worked through an umbrella, to what in paid in taxes last year, it's very VERY clear that HMRC will be losing around £25k a year. Government idiocy at it's finest.
Still, what do I care... I've been correctly ruled outside and have absolutely no intention of paying any more tax or NI than I have to.
Fair comment, but working through an umbrella is a quite different proposition from working through one's own limited company.
I perform short term assignments, so the only economic basis is being an employee of my own company. We're the guys who are hit hardest by IR35. It seems it's becoming standard practice to assume contracts are "within IR35" regardless of reality, so either we're forced onto the payroll but without the benefits or our work stream will dry up.
The ultimate result will probably be to legitimise a black market in "zero rights employment" solely to the advantage of the intermediary or client as costs such as paid holidays and pensions can be sidestepped.
"
But when I compared my annual tax contributions from back in 2010 when I worked through an umbrella, to what in paid in taxes last year, it's very VERY clear that HMRC will be losing around £25k a year.
"
But does that include the tax that the government gets from your employer which it did not get when you worked via an umbrella?
It does not matter whether HMRC go soft or not, the major hiring companies want no part of IR35, so there are blanket bans on Limited companies going in all over the place.
It is the end of contracting as far as I am concerned. The start of the destruction of employee rights (just wait until permies get pushed in to government approved contracting through Umbrella companies... with no employee rights and less cost to the employer!)
Time for me to retire.
The rules might have been in place since 2000, but the legislation making the employer responsible for enforcing them has only been around since 2017, and this started in the public sector, where it has all but stopped any major project, or forced departments to form private companies to get the job done (See DWP Digital, HMRC Digital)
The problem is that deeming a role inside or out is a complex process, and far beyond the reach of anyone not thouroughly versed in the not inconsiderable tomes of uk employment case law.
HMRC are supposed to be able to do this, but they get it wrong a lot, every case that has made it to court (a lot have been settled by HMRC to avoid making more case law) they have lost, and some they were backed up by just their tool for deciding wether you are in or out.
So basically companies taking legal advice, have said they are not going to try to navigate the law, or face protracted legal wrangles with HMRC and just class everyone inside.
Not, "we're going ahead with this, but you can trust us, we might clobber you, but we might not".
It's exactly the same with the withdrawal agreement that the UK signed up to as well. "That legally binding border we signed up to with the EU, well, you can trust UK businesses, we're probably not going to have one".
Who the hell can run a modern economy like this?
Don't worry about the punishment beatings, they're going to be gentle for the first year.
Yes, that's apparently a reassuring phrase that should settle the matter. Back in your hole, contractor scum!
I hope the government learns it can't just take instruction from the large firms when it comes to economic policy.
Absolutely no point in making this partisan. IR35 came in under Labour and do you really think they would do any different? Do you think a Labour MP in number 11 would say something that may upset voters?
It is true that you rarely get truly poor (financially) contractors so we would be prime targets for the left of the party. The right of the party would not change IR35 for being seen to be soft on 'tax evasion'
Governments of all colours want taxes - politicians of all colours lie and the world keeps spinning...
More importantly in the context of the current ultra-partisan government... Rishi "Who?" Sunak is a complete fucking nonentity who no-one has seriously disputed was chosen for the position first and foremost not because of his skill or track record, but because- unlike Sajid Javid- he was a Johnson loyalist and stooge and presented no threat to him or Cummings.
Rishi Sunak - non-entity??? Sunak's wife is Akshata Murthy, the daughter of Indian billionaire and co-founder of Infosys, N. R. Narayana Murthy.
I think he'll know a thing or two about IT outsourcing and contractors. If he hasn't an agenda already, he'll soon be given one.
"A genuine contractor will have specific skills which will be expensive."
Exactly. Since I started contracting 10 years ago, I have NEVER never had a rate lower than £650 a day. My highest rate was £900.
I have had periods of months between clients looking for the next suitable client...and I have happily paid all my taxes I would be obliged to pay.
I always intend to be outside-IR35 as I always have been. However, this crazy fustercluck of a ham-fisted policy that has never shown itself to have been effective (in tax revenue for HMRC) since it was first implemented in 2000, will only do 1 thing well: screw UK PLC... (OK, 2 things) and have HMRC see their tax revenues nose-dive.
It depends on the client / sector you're working in. If you're a highly skilled embedded systems engineer, then you _may_ get up to £400 a day every now and then. A lot of the time, you'll be lucky to get anywhere near that.
I've turned down many contracts in the past when the rate on offer wouldn't have "paid" enough for a new graduate once expenses, pensions and the like have been taken into consideration. The agents don't quite know what to say when you explain the costs of servicing a contract if you don't live locally (when "you can relocate" is the reply, there's no point discussing IR35 status).
And yes, I do have very specific skills that are not easy to find. I only work direct these days, and can get up to £450 a day for short(ish) duration work packages.
"Then they are probably disguised employees. A genuine contractor will have specific skills which will be expensive. I've never known a contractor earn less than £500/day, even back when I was employing them"
You've obviously never known any engineering contractors then. :-(
This is going to cause worse problems than simply reducing the pay and status of contractors. If many contractors decide it's more worthwhile to go permanent, as the pay and benefits combined are not so different anymore, and geting a contract gig will become more like getting a permanent role anyway if everybody adopts inside IR35 as standard, then more consideration needs to be given to the consequences further down the road than simply how much a contractor will pay in tax. From my own experience of years of contracting, there are many reasons for companies to be in favour of it in addition to the convenience of quick temporary hiring. Contractors bring lots of experience and knowledge of best practices and pitfalls from working in a wider variety of companies, and pasing this knowledge around many different places provides a sort of a beneficial cross pollination that helps a lot more people and projects be more successful and effective, than if everybody was stuck on the traditional career treadmill in seperate silos of culture and practices. Take this out of the national IT market and the wheels of efficiency and innovation will turn at a slower rate overall and reduce productivity and competetiveness. Short term, it would bring in more money as contractors pay more in tax, but over the long term the wider effects would reduce the overall gains that the positive benefits of contracting bring..
To be fair that all is kinda moot right now anyway. The brexit has killed IT market in London already, not as if there was much of it outside before. Whoever wants to sit out their time in Slough or Milton would likely never had much to offer to start with.
Who cares about contractors when there's no businesses to look for ones?
Another consequence, maybe unintended or maybe not, is that employers will look to reduce the number of permies to avoid sick pay, pensions, holiday pay, etc. Can put everyone on zero hour contracts, ignore unions, etc. Maybe it won't happen but it would make a lot of Tory donors pretty happy.
Another consequence would be to make Capita, TCS, etc, more attractive if a company cannot get a load of contractors in to help with a project.
When I was a government employee I must have done over 100 assessments using CEST. Now I know CEST isn't always reliable, but every single assessment put the contractor out of scope (outcomes-based contracts, substitution allowed, use own equipment). If the civil service can do it, why can't the private sector?
Honest answer is because a lot of the private sector view contractors as temps and treat them that way. You are often not allowed to use your own equipment, they try to insist you are around for 9-5 hours and almost always try to assign you a line manager, not to mention that despite what your contract says they try to move you around different projects instead of issuing a new contract with perhaps a different rate.
The private sector for the most part haven't been involved with hiring contractors in a genuine fashion for years and years and this is the result.
Prooving that yet again the government simply doesn't understand the interim market or the fact that we don't do the same job or have the same benefits.
The rate the company collects (PSC) is not a salary it is a rate for services rendered, out of that a company has to be run and one of those things is directors and other employees remuniration, along with pension, holidays, sick pay and other things that the larger companies provide for the employees.
What is difficult to understand?
This is the sort of mess you get when a government ignores the fact that a company is a separate legal entity and tries to game the system so that they, their mates, and their supporters can run a company to avoid tax while trying to prevent others doing the same thing. IR35 is targeted specifically at microbusinesses that provide services. Since there's no logical distinction between a company with a handful of customers providing IT services and ones with double handfuls (note that big consultancies actually have very few customers with "Government" being the biggest in most cases) there is simply an arbitrary division based on "probably too small to take this to court".
"HMRC reckons that only one in 10 contractors in the private sector who should be paying tax under the current rules are doing so correctly. It estimates the reforms will recoup £1.2bn a year by 2023."
Based on court cases ref
https://www.contractorcalculator.co.uk/ir35_court_cases_judgments.aspx
1 in 10 sounds about right.
Er - you might want to check your maths - in the last 10 years, when there's been better legal understanding of IR35 legislation the HMRC have chased up just SEVENTEEN businesses, won 2 judgements and had 2 split decisions. Splitting the draws this gives about 84% in favour of contracts NOT BEING IN IR35.
Remember HMRC will only go to court if they think they've got a case, I know a fair few people who have been investigated for IR35 compliance and found outside - these figures do not include those and are not publicised by HMRC either.
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