IR35 tax reforms for UK freelancers glide through committee stage: D-Day set for 6 April 2021 IR35 tax reforms remain set to come into force on 6 April 2021 as the 2019-20 Finance Bill passed through its committee stage. Despite a report from the House of Lords calling for a complete rethink of the proposed legislation and a tabled amendment from David Davis MP, attempts to delay and amend the new rules have been …
Companies that are interested in IR35 being implemented have so much money they can spoil any independent wanting to run against it. At the moment there is a lot of misleading propaganda about these changes and people bought this mantra that contractors avoid tax and all it does that they will pay their "fair share". This couldn't be farther from the truth, however we will need to live with it so that people will see the damage this will cause to the economy first hand. I am sure that by then there is going to be a plausible story that will absolve this reform in the eyes of average voter.
After IR35 how many of those consultants will be paying the correct tax ?
I am thinking of those who are working away from home for a few months but cannot claim travel & hotels against tax - if they were doing the same but working for a large company they would have this paid for them by the company which would claim it against income.
The "consultants" will mostly be PAYE to the contaltancies.
"if they were doing the same but working for a large company they would have this paid for them by the company which would claim it against income"
A consultant is not a contractor and this is aimed at getting rid of contractors so consultancies can mop up the work with mostly over priced and unverskilled foreign nationals who are here on short term (up to 2 years) employment visa's. Yes they have to advertise the job, but there's nothing to say that they have to advertise the job at fair market rates.
I have said this before:
If as a contractor being outside of IR35 is so advantageous from a tax perspective then it rather supports HMRC in the belief that a significant number of contractors are not paying the appropriate tax. We have had contractors on 3 month to 24 month assignments and bluntly, they should have been a fixed term, or short term standard employee. I know there are arguments about pension, holiday and sick pay BUT this is abuse of the system by both the employer and the contractor.
If one is currently paying all the appropriate bits of tax it should end up being not far off IR35 or PAYE. Yes, a contractor is paid more because of the uncertainty, but that is not an excuse to avoid paying tax.
I have been a contractor and moved to a permanent position as I got fed up with all the admin needed to run the business, or end up being at the whim of some sort of agency. The end result is that I am more or less in the same financial position overall when everything is taken into account but have a significantly better work/life/family balance.
I don't think people who have problem with this reform are particularly unhappy about tax change. It's worth pointing out though that this reform also fails on that front, as the tagline is "worker doing the same job should pay the same tax", but contractor caught by the rules also has to pay employer's taxes without having benefits of an employer (e.g. being able to claim business costs).
If this was purely a tax issue, then surely Chancellor could just have raised the taxes where appropriate without throwing everyone under a bus and people would be happy.
What this reform does is that you cannot run a business when you have a contract in-scope as all the money you receive are your personal money and your company cannot touch it unless you make a loan. The second problem is that companies are afraid of aggressive taxman who doesn't understand its own guidance and case law. Taking someone "outside IR35" may cause unwanted attention and in the end the taxman can always say you could have taken someone "inside IR35" and the arrangement you have is purely to avoid tax. For a company to make sure the role is in scope, the contract just needs to refuse a substitute. Moving forward there is going to be little work outside of the scope, as there is no advantage for a client to get someone this way, only risks.
This means companies that specialise in providing such services are going to be run into infinite debt.
Because companies taking workers this way don't have to worry about providing any benefits to "disguised employees", don't have to worry about unions, equal pay and other pesky workers' rights, we may soon learn that everyone will become a contractor - something IR35 originally tried to prevent.
Another unintended consequence is that contractor caught by IR35 may choose to work for only a couple of months in a year, so that they won't get stung by a higher tax bracket. Is this also a tax avoidance and HMRC will try to force people to work for the entire year?
I've been both, permi and contractor. I like the former for a career move and contract for stepping stone to the next good role.
"they should have been a fixed term", why? fixed term is for exactly that..a fixed term, you get all the benefits/perks of being a permi. Risk is less for fixed.
"I know there are arguments about pension, holiday and sick pay BUT this is abuse of the system", not just arguments, they're facts! here's a list you may have forgotten since you were a contractor.
https://www.contractorcalculator.co.uk/what_employee_benefits_contractors.aspx
Also how is it abuse? the idea of a contractor is to carry out work on a temporary basis, using skills specific to that contractor, no training needed, no nothing. All the risk is on the contractor, virtually no notice period, maybe not being paid at all/in full, potential of not having ANY work therefore nothing coming in.
"I have been a contractor and moved to a permanent position as I got fed up with all the admin needed to run the business,", what a cliche, what admin? some expenses and a bit of business banking? hardly a massive time consumer.
"the end result is that I am more or less in the same financial position overall when everything is taken into account but have a significantly better work/life/family balance", uh huh. you can take holiday as much as you like as a contractor, except you're not being paid in the mean time. the financial position is almost always better being a contractor unless you were on a low rate.
Correct, a contractor has to earn more in real terms than a permanent employee to cover all the things that are included in the latter's terms and conditions.
If being outside of IR35 is so advantageous then clearly the current tax/company arrangements people are using are perceived by HMRC to be underpaying. One cannot get away from that. If HMRC felt that people were being reasonable it is unlikely they would have spent so much time on this. There may have been some lobbying but at the end of the day, if those doing the engaging feel that they are are risk of HMRC attention then they will take IR35.
Small is always going to be an easier target than big corporates but the figures they are quoting are substantial. Tax mitigation using companies, dividends and all the other options to reduce tax paid and avoid NI is all well and good but don't be surprised when people who do pay all of that are not hugely sympathetic.
Both permanent and contractors in this forum are going to be well above the wage median for the UK. Money is not everything and I actually prefer being able to reliably commit to things out of work time on a regular basis and not spend hours commuting all over the place.
"NI avoidance" is such a great propaganda tool, except that all tax money land in the same pot, so it is just a label. You say I pay tax with this label, therefore I am better than someone who pays tax with this label. NI realistically only registers particular person rights to benefits. In the scenario where nobody paid NI, the money would have come from other taxes and there are already mechanisms for that. Conversely if there was too much money NI in the pot, it could be used to pay for something else.
Tax output contractor versus employee on PAYE is roughly the same, but employer's NI is not paid and this is what HMRC has a problem with. They want the client to pay this tax, but say it is completely fine to reduce contractor's rate by that amount. Why should contractor pay this tax without having any benefits of an employer?
If this was a tax issue, they wouldn't have to release this bureaucratic nightmare and just simply raise appropriate tax by equivalent amount, for example make corporation tax + dividend tax equal paye + employer's NI.
That suggests the "reform" is not about tax, but remove independent contractors from the market.
I would have been unable to claim under the Furlough scheme (as I am fortunate to have enough subcontracting work anyway so no need to furlough anyway), ergo I am either self-employed with turnover >£50k or a limited company director.
What I can't be is an employee (of anybody) since even though I do pay salary under PAYE neither my end-clients nor my Limited company could or would pay out under the Furlough scheme anyway.
Surely being unable to claim under the Furlough scheme is evidence enough of not being a disguised employee?
"Surely being unable to claim under the Furlough scheme is evidence enough of not being a disguised employee?"
No. Obviously not.
1) Company directors are eligible for furloughing (statutory duties notwithstanding), so your limited company should be allowed to furlough you.
2) No disguised employee is eligible to be furloughed. If this were an argument then there would be no disguised employees at all.
(1) is not necessarily true. If a sole director of a company is furloughed, they cannot engage in any work necessary to the ongoing running of that company, including searching for future contracts. Given that contracts are the meat and veg of an independent contractor, furlough would be a death sentence for their ongoing existence.
A disguised employee could furlough easily on the assumption that their existing contract would continue at a future point.
"(1) is not necessarily true. If a sole director of a company is furloughed, they cannot engage in any work necessary to the ongoing running of that company,"
Untrue, since a company if registered VAT, still has a statutory obligation file quarterly VAT returns.
You are not allowed to engage in revenue raising work.
- Sales puts stuff in the pipeline for the future, it does not generate revenue Immediately
- however If the work is an immediate start that does generate revenue, self-evidently you don’t need to be furloughed
"Sales puts stuff in the pipeline for the future, it does not generate revenue Immediately"
Whether it generates revenue now or later is irrelevant. Even if the owner doesn't pay himself, he's still breaking the law on the matter of furlough payment by seeking future contracts, because he's doing work for the company when the law specifically prohibits any - even unpaid - work by a furloughed employee beyond what is statutorily required.
"The reforms to the IR35 rules make large and medium-sized businesses responsible for determining the employment status of contractors for tax purposes, rather than the contractors themselves doing this."
It should be a fairly simple test: In the great COVID-19 debacle 2020 did you furlough them with the rest of your employees, make them redundant or push them off the sledge because they weren't employees at all and you owed them nothing?
This statement is highly misleading. If company doesn't want to be liable they can just create a role that is inside IR35. There is no such thing as "assessment" that is you get someone to work on a project for your company and then you figure out what is their status. This comes from the contract and the client is in power to shape the contract so that it always falls inside IR35 and this is what is happening. Clients don't want to have a taxman who doesn't understand their own guidance and case law on their back and potentially having to pay exorbitant bills.
Another lie is that such contractor will be paying the same tax as employee - that was the case for paying yourself in dividends. Combined with corporation tax, the overall output was similar to PAYE. What IR35 does is that you also have to pay employer taxes and at the same time you cannot deduct any business costs like employer can.
You have a situation when on an inside IR35 contract your company is required to buy insurance, your tools, training, accounting, premises, without being able to have any money in the bank to make such purchases, because all the money it gets has to go to you as your salary. You end up having to run your company into debt to cover these expenses. This model is no longer workable and it is going to get worse.
What I find so unfair is what if you want your company to build up reserves for a rainy day, or save up for a property to buy for your business etc.?
Just as large corporations don't pay NI on gross income, neither should small Ltd. biz.
Guess the rotten apples spoiled it for the rest.
As a "disguised employee" you still have to buy liability insurance, your own equipment, provide training and other things, but out of your salary. This is a farce.
When companies realise they can make their employees switch to these no rights employment contracts suddenly everyone will be a "contractor".
...MPs, at least government ones, don’t read them. Passing a finance bill is central to the continuing existence of the current government so they’ll vote for it anyway.
This opinion stems from an anecdote I heard about an previous bit of egregious legislation in a Finance Bill. When it brought to the attention of a govt MP as part of a campaign, they were surprised by it. Something they surely would have voted for, if they had bothered to turn up that day of course.
I think that's misleading. IT contractors fear companies will simply make make blanket assessments because since the companies are the ones who will be penalised, it's in their interest to be conservative.
HMRC unfortunately made people believe that if they seem to be a legitimate company, they have an office, their website, multiple clients and are not employees by any means, that somehow they will be not affected by the "reform". Assessment comes from the contract and if the role doesn't allow for a substitute (and few other conditions) then it is classed as "inside" and it doesn't matter who the contractor is. The appeal mechanism is also a joke, because it has no incentive for a company to change the contract. Companies just don't want to be even remotely liable, so they will only offer "inside" roles and for people running genuine business it is rightly worrying.
Abandon IR35 and corporation tax, treat limited companies as persons, as they are defined by law.
Then everyone pays the same tax.
Companies or legal persons pay the same, Natural persons do.
this also fixes the Amazon and Google issue, if you have income in the state it is taxed, not taking into account all the loophole licencing agreements ....
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