Can someone explain to me how it works in the UK?
In the US, I was a contractor until two years ago. I always found my own contracts through my network of contacts, took only long term gigs, never once relied on an agency. I negotiated the rate they were willing pay for me, and they told me what intermediaries they dealt with. They wouldn't deal directly with a single person corp like mine. I'd tell the intermediary "I've negotiated $125/hr from X, I want you to pay me $115/hr corp to corp". $10/hr for basically passing paperwork through is more than they deserve, but I ended up giving them between $7 and $20 per hour to do this depending on the leverage they had. Better deals when there are multiple intermediaries to choose from, worse deals when there was an exclusive arrangement.
So big corp X I was contracting for paid the intermediary corp who paid my corp which then paid me. I paid myself a salary of $60K a year. I was audited once by the IRS, they asked how I calculated that but the way the laws are here you just have to pay yourself a "reasonable" salary. It doesn't have to be as much as you could possibly get, just a salary that someone doing work similar to yours could conceivably make in a full time job. So paying myself minimum wage is out, but I didn't need to pay myself everything I made, either. The hourly rate I was getting from contracting was approximately 50-100% higher than what I could have got for full time employment doing the same. I know this because I was offered to become permanent more than once. Adding in the long breaks between gigs (mostly by choice) I calculated once that I made about $150K a year on average during the time I contracted.
I paid employment taxes (both sides, 15.2% in the US) on that $60K along with the regular income taxes, and paid regular taxes on the rest that was taken as dividends of the corporation. I quit contracting and went full time two years ago because I got an interesting job offer, and it was becoming more and more difficult to find contracts myself. Too many of the big companies were putting processes in place where no one had any authority to say "I want this guy for this work" so my way in was shut. They now have to forward a list of requirements to their body shops who will find people for them, taking a 30-50% cut off the top themselves of course.
From reading people's posts here, it seems the below is how things work in the UK. Please correct where I'm wrong:
1) before IR35, many/most people were taking 100% of their income as dividends and paying no employment taxes at all
2) companies are paying about the same or not much more to contractors than they pay to permies, so they liked hiring contractors as they could avoid paying for benefits and contractors liked it because they could dodge employment taxes
3) with IR35 in effect you have to take 100% of your income as salary, and have little or no room to take anything as dividends, removing the monetary advantage of being a contractor instead of permie
4) because contractors were willing to work for essentially the same salary as permies before because it saved them a lot of money, companies got used to the rates for contractors and permies being the same, so it is not always easy for contractors to ask for more, thus many are forced to go back to being permies
Biting the hand that feeds IT
