Have contractors just been hummed in the budget

Have contractors just been hummed in the budget

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hornetrider

Original Poster:

63,161 posts

205 months

Wednesday 8th March 2017
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Looks like. NI up, dividends hit.

Thanks a bunch ffs.

hornetrider

Original Poster:

63,161 posts

205 months

Wednesday 8th March 2017
quotequote all
Humped. Cheers autocorrect!

pherlopolus

2,088 posts

158 months

Wednesday 8th March 2017
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if a couple of hundred quid a year is a big thing for you then yes. Wait until next year for a real hammering.

pat_y

1,029 posts

201 months

Wednesday 8th March 2017
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Starting to feel like current govt have really got it in for contractors, that's 2 successive kickings for dividends. Gits.

elanfan

5,520 posts

227 months

Wednesday 8th March 2017
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From what I've read here contractors seem to get paid a lot more than direct employees doing the same job, why shouldn't they be contributing at least the same level of NIC?

Gargamel

14,987 posts

261 months

Wednesday 8th March 2017
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Contracting has largely been a massive tax dodge anyway, so I tend to think this is levelling it up a little more against PAYE.

I have done both, so no axe to grind, however some folks have been independent contractors for multiple years... at the same firm doing the same role.

hornetrider

Original Poster:

63,161 posts

205 months

Wednesday 8th March 2017
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Cough.

pat_y

1,029 posts

201 months

Wednesday 8th March 2017
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looking forward I suspect the 2k Tax free dividend allowance will totally disappear next year. I know there is a reduction in Corp tax being phased in so I guess there's a little give and take, but only a little.

Vaud

50,467 posts

155 months

Wednesday 8th March 2017
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elanfan said:
From what I've read here contractors seem to get paid a lot more than direct employees doing the same job, why shouldn't they be contributing at least the same level of NIC?
Quite. The drain on state resources is the same. I guess the answer is mildly inflationary - all add a little to the day rates, status quo emerges.

Moonhawk

10,730 posts

219 months

Wednesday 8th March 2017
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elanfan said:
From what I've read here contractors seem to get paid a lot more than direct employees doing the same job, why shouldn't they be contributing at least the same level of NIC?
You are looking at it wrong though. If a contractor is employed through a limited company - the contract rate being paid is not pay for the contractor - it's revenue for the limited company. The money in that limited company isn't just there for the contractor to do with as they please. In essence it's not the contractors money - it's the limited companies.

If the contractor draws a reasonable salary plus dividends from the limited company, the contractor pays tax and NI on their salary and tax on their dividends (if they are above the threshold) as would any employee. Plus the limited company pays employers NI on top of any salary paid to the contractor - and then has to pay corporation tax on any profit.

Also a contractor doesn't get pension, holiday pay, sick pay, maternity pay, bonuses, or other benefits (like healthcare, share options etc). All of these have to be provisioned out of the contract rate.

On the face of it - a contractor appears to be on a much higher rate than the hourly rate for a permanent employee - but the difference is not that great when you factor in all of the above.


Moonhawk

10,730 posts

219 months

Wednesday 8th March 2017
quotequote all
Gargamel said:
I have done both, so no axe to grind, however some folks have been independent contractors for multiple years... at the same firm doing the same role.
I too have done both - and agree that some contractors do end up working at the same firm for many years as if they were a permanent employee.

However - it's the company employing their services that makes that decision. It must be beneficial for a company to employ a contractor, rather than a permanent employee (a tax dodge perhaps - after all they don't have to pay any of the benefits I listed above - plus they dont have to pay employers NI on the contract rate - which itself is a tax write off).

I think that is what the government should be looking at. Why penalise the contractor when a company wants to engage their services long term - but wont take on a permanent employee to do it.

Edited by Moonhawk on Wednesday 8th March 20:33

rustyuk

4,578 posts

211 months

Wednesday 8th March 2017
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swerni said:
They should make them pay the same tax rates as normal employees on PAYE
IMHO
By rate do you mean the same % or same amount? Most contractors pay more tax than an employee but as a % it is less. For that % we get no employee rights what so ever.

Good for business (less employees), good for HMRC (more revenue) and good for the contractor (a bit more cash and lots of freedom).

elanfan

5,520 posts

227 months

Wednesday 8th March 2017
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I was watching the budget live earlier when Philip Hammond started talking about this. Relying on my memory which is always a mistake he said something like - the average PAYE employee pays around £6k a year in NICs but a contractor only pays £2000 odd. Patently an unfair situation. I cannot claim to know the ins and outs of contracting vs direct employment I'm sure there are pros and cons but it's wrong that the basic tax burden is so different between the two.

Eric Mc

122,010 posts

265 months

Wednesday 8th March 2017
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If an individual is operating as a contractor through their own limited company, there has been no change as far as NIC is concerned.

Individuals in that situation will be paying Class 1 NI based on their salary from their own company. Nothing has changed there.

The increase in NI relates to Class 4, which is what is paid by Sole Traders/Self Employed and is calculated on their net taxable profits from their sole trading activity. It is also paid by partners in partnerships based on their share of the taxable profit from the partnership.


pherlopolus

2,088 posts

158 months

Wednesday 8th March 2017
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The extra money covers my pension, sick pay, holidays, time off whilst looking for the next contract (21 weeks over past 3 years) . Also hotels, subsistence, mileage etc when my assignment is not close to home.

I enjoy contracting, with the side effect of it being reasonable money to compensate for the uncertainty. Pay more tax and I think rates will start to creep up to compensate, which I am not against.


AlexC1981

4,923 posts

217 months

Wednesday 8th March 2017
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hornetrider said:
Humped. Cheers autocorrect!
Bummed in the budget works better.

Fastpedeller

3,872 posts

146 months

Wednesday 8th March 2017
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elanfan said:
I was watching the budget live earlier when Philip Hammond started talking about this. Relying on my memory which is always a mistake he said something like - the average PAYE employee pays around £6k a year in NICs but a contractor only pays £2000 odd. Patently an unfair situation. I cannot claim to know the ins and outs of contracting vs direct employment I'm sure there are pros and cons but it's wrong that the basic tax burden is so different between the two.
You've clearly never worked as a contracted employee. Someone in a steady job, with holiday pay, sick pay and (when employment is curtailed) redundancy pay is far better off.

Tonsko

6,299 posts

215 months

Wednesday 8th March 2017
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Let's not forget it's not just contractors that use this model. Entertainers, MPs, Peers... in fact, any career where it appears to be tax efficient to maintain the ltd company.

pincher

8,558 posts

217 months

Wednesday 8th March 2017
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Moonhawk said:
elanfan said:
From what I've read here contractors seem to get paid a lot more than direct employees doing the same job, why shouldn't they be contributing at least the same level of NIC?
You are looking at it wrong though. If a contractor is employed through a limited company - the contract rate being paid is not pay for the contractor - it's revenue for the limited company. The money in that limited company isn't just there for the contractor to do with as they please. In essence it's not the contractors money - it's the limited companies.

If the contractor draws a reasonable salary plus dividends from the limited company, the contractor pays tax and NI on their salary and tax on their dividends (if they are above the threshold) as would any employee. Plus the limited company pays employers NI on top of any salary paid to the contractor - and then has to pay corporation tax on any profit.

Also a contractor doesn't get pension, holiday pay, sick pay, maternity pay, bonuses, or other benefits (like healthcare, share options etc). All of these have to be provisioned out of the contract rate.

On the face of it - a contractor appears to be on a much higher rate than the hourly rate for a permanent employee - but the difference is not that great when you factor in all of the above.
Agree 100%

I think I'm getting close to the tipping point - I like the place where I work and if they made me a good enough offer then I would seriously consider it - the bottom line figure would be less but when you factor in non-contributory pension, medical, bonus etc, it becomes more attractive as each budget passes.

It's certainly something I'd think about......

hornetrider

Original Poster:

63,161 posts

205 months

Wednesday 8th March 2017
quotequote all
Eric Mc said:
If an individual is operating as a contractor through their own limited company, there has been no change as far as NIC is concerned.

Individuals in that situation will be paying Class 1 NI based on their salary from their own company. Nothing has changed there.

The increase in NI relates to Class 4, which is what is paid by Sole Traders/Self Employed and is calculated on their net taxable profits from their sole trading activity. It is also paid by partners in partnerships based on their share of the taxable profit from the partnership.
Time to break out the Dom and bathe in my pile of non sequential twenties! Cheers Eric! beer