Have contractors just been hummed in the budget
Discussion
Moonhawk said:
The big one for me is why the government are targeting the contractors by changing the tax on dividends, implementing things like IR35 - yet they appear to be doing nothing about the companies who are willingly employing contractors in lieu of hiring permanent staff (and thereby avoiding paying employers NI and being able to disregard many of their other employment responsibilities). It needs to be tackled from both sides.
Employers NI still gets paid on contractor earnings. It's just the contractor's name on the cheque not the client's, just like employees NI and income tax.Dr Jekyll said:
Employers NI still gets paid on contractor earnings. It's just the contractor's name on the cheque not the client's, just like employees NI and income tax.
Only if it's above the threshold though - and employers NI doesn't get paid on dividends.A contractor paying themselves £50k per year as a combination of salary and dividends would pay a lot less employers NI than a company paying an employee a £50k salary.
However - my point was to discuss why companies keep contractors on long term. Even if the employers NI does get paid by the contractor, it must be beneficial to the company in overall terms taking employers NI and all the other benefits into account to pay contract rates for somebody. Plus the company have the ability to terminate said contractor at a moments notice without all the faffing around with redundancy.
I don't see what the likes of IR35 really sets out to achieve - when it's the company, not the contractor who holds the cards as to whether the contractor is treated like a permanent member of staff. HMRC are effectively imposing harsh tax implications on the contractor (essentially making them pay tax as both an employee and an employer) because of rules and working practices imposed by the company that employs their services. That's what IMO needs to be looked at.
Moonhawk said:
and being able to disregard many of their other employment responsibilities).
I have no wish to be an employee, be treated like an employee or have any of the rights of an employee,It is a business to business relationship, but a lot of contractors and companies seem to think otherwise.
pherlopolus said:
I have no wish to be an employee, be treated like an employee or have any of the rights of an employee,
It is a business to business relationship, but a lot of contractors and companies seem to think otherwise.
By being It is a business to business relationship, but a lot of contractors and companies seem to think otherwise.
edit due to PH pedantry and nitpicking
Edited by Moonhawk on Saturday 11th March 14:04
pherlopolus said:
Moonhawk said:
and being able to disregard many of their other employment responsibilities).
I have no wish to be an employee, be treated like an employee or have any of the rights of an employee,It is a business to business relationship, but a lot of contractors and companies seem to think otherwise.
Moonhawk said:
pherlopolus said:
I have no wish to be an employee, be treated like an employee or have any of the rights of an employee,
It is a business to business relationship, but a lot of contractors and companies seem to think otherwise.
By being caught by IR35 - HMRC are essentially saying that's exactly what you are though.It is a business to business relationship, but a lot of contractors and companies seem to think otherwise.
It reminds me of the anecdote of the chap who insured some expensive cigars and then later made an insurance claim that they had been destroyed "in a series of small fires". The insurance company took him to court and lost. But then brought a prosecution against him for arson which they won based on the evidence he had provided in the first case. However, the difference here is that being caught by IR35 (ie. deemed to be a "disguised employee") is not admissible evidence to bring against your "disguised employer" to get employee benefits. It seems that HMRC really can have its cake and eat it, and make you pay for the cake as well.
Tonsko said:
How many people have been so caught though? Said earlier there was 5 in 2012/3. Has that increased dramatically?
Are you sure that isn't 5 successful prosecutions? HMRC have conducted many IR35 investigations, resulting in a number of court cases, which have eaten up an awful lot of time and money, of which only a few have resulted in a win by HMRC. I'm sure that an awful lot more would have been successful due to capitulation on the part of the business being investigated if it weren't for the likes of IPSE throwing their considerable financial weight and lawyers against it in an attempt to establish more favourable case law for freelancers. The most stupid thing about IR35 is the uncertainty and vagueness of it all. The Animal Farm mentality of "all small businesses are real, but some are more real than others" means that HMRC have to expend huge amounts of tax pounds to prosecute every case and one has to wonder what their net gain is. They would probably get far more in the coffers if they managed to get big business to simply pay the tax that they ought to (and by "ought to" I don't mean in a socialist "tax the rich b
ds" sense, I mean in the sense of paying the same kind of percentage tax that most UK businesses do) Successful prosecutions, maybe. But isn't that the same thing? As you say, very expensive, so only worth going after the guys who really take the piss. I.e. 100k+ connies who pay themselves 5k/year, sell all their own stuff to themselves (or rather the business) and treat the business account like a personal current account. If you are a bit more of a modest earner and/or aren't so blatant, I'm not sure there's much to worry about.
Tonsko said:
Successful prosecutions, maybe. But isn't that the same thing? As you say, very expensive, so only worth going after the guys who really take the piss. I.e. 100k+ connies who pay themselves 5k/year, sell all their own stuff to themselves (or rather the business) and treat the business account like a personal current account. If you are a bit more of a modest earner and/or aren't so blatant, I'm not sure there's much to worry about.
If only that was the case. The Sword of Damocles hangs over every contractor and there is often little rhyme nor reason for investigations. Also, don't underestimate the stress, inconvenience and ballache of an investigation, even if it is then dropped.
Tonsko said:
How many people have been so caught though? Said earlier there was 5 in 2012/3. Has that increased dramatically?
When I say "When i'm talking about being
edit due to PH pedantry and nitpicking
Edited by Moonhawk on Saturday 11th March 14:08
ClockworkCupcake said:
Not quite. If you are caught by IR35 then you are merely taxed like an employee. They don't care whether or not you are treated as one, and you certainly don't get the rights or benefits of being one.
It reminds me of the anecdote of the chap who insured some expensive cigars and then later made an insurance claim that they had been destroyed "in a series of small fires". The insurance company took him to court and lost. But then brought a prosecution against him for arson which they won based on the evidence he had provided in the first case. However, the difference here is that being caught by IR35 (ie. deemed to be a "disguised employee") is not admissible evidence to bring against your "disguised employer" to get employee benefits. It seems that HMRC really can have its cake and eat it, and make you pay for the cake as well.
That's just what i'm getting at. HMRC tax or prosecute as they deem the contractor to be a disguised employee - but who is actually disguising the contractor as an employee.....the company employing their services. It reminds me of the anecdote of the chap who insured some expensive cigars and then later made an insurance claim that they had been destroyed "in a series of small fires". The insurance company took him to court and lost. But then brought a prosecution against him for arson which they won based on the evidence he had provided in the first case. However, the difference here is that being caught by IR35 (ie. deemed to be a "disguised employee") is not admissible evidence to bring against your "disguised employer" to get employee benefits. It seems that HMRC really can have its cake and eat it, and make you pay for the cake as well.
The company should therefore shoulder at least part of the burden/blame.
As it stands - the company take on a contractor as a disguised employee, yet if they declare IR35 status, it's the contractor who takes all of the tax hit (more in fact than they would if they were a permanent member of staff).
Moonhawk said:
That's just what i'm getting at. HMRC tax or prosecute as they deem the contractor to be a disguised employee - but who is actually disguising the contractor as an employee.....the company employing their services.
The company should therefore shoulder at least part of the burden/blame.
As it stands - the company take on a contractor as a disguised employee, yet if they declare IR35 status, it's the contractor who takes all of the tax hit (more in fact than they would if they were a permanent member of staff).
That's not how it works at all. The company should therefore shoulder at least part of the burden/blame.
As it stands - the company take on a contractor as a disguised employee, yet if they declare IR35 status, it's the contractor who takes all of the tax hit (more in fact than they would if they were a permanent member of staff).
The Consultancy and the Client can enter into a contract whereby neither wants an employer-employee relationship, the contractual Agreement is worded to make it explicitly clear there is no desire or intent to form such a relationship, the Consultancy costs up their rate based on this, and then at a later date HMRC are able to come along, rip up the legally-binding contract, invent a "notional contract" that neither party has agreed to, and then conduct their IR35 investigation based on this new pretend contract which flies in the fact of what the Consultancy and Client agreed to and intended.
You are right inasmuch as it is the Consultancy and not the Client who bears the full financial brunt of this, though. And that is not by accident - by making it consequence-free for the Client, HMRC sweeten them into colluding. You can be sure that if the Consultancy being caught by IR35 meant the Client was liable for Employers NI and employee benefits, then not a single IR35 prosecution would have been successful.
Moonhawk said:
When i'm talking about being caught by IR35 legislation - i'm talking about all of the people who self declare that they are subject to IR35 and taxed as such. I suspect that figure is rather higher than 5 in 2012/13.
That's not being "caught" by the IR35 legislation, that is declaring yourself inside it. I doubt there are any figures for that. I know some contractors who do this "for an easy life", but I consider them more to be "permatemps" just waiting for their next permie job rather than actual freelancers. Certainly none like this that I have met have had the contractor mindset. Edited by ClockworkCupcake on Saturday 11th March 10:44
egomeister said:
Actually, can I formally object to which forum this thread has been started in and request it be moved to business. I'd be a lot more comfortable that way...
That's a fair analogy actually. The OP could want it to stay here, the participants could too, but the mods would be the ones who would decide based on their sole discretion. (The analogy breaks down when you start talking about legal action)
ClockworkCupcake said:
That's a fair analogy actually. The OP could want it to stay here, the participants could too, but the mods would be the ones who would decide based on their sole discretion.
(The analogy breaks down when you start talking about legal action)
It's a serious point in reality, and in some ways shows that there is some legitimacy to HMRC's clampdown if some people consider these changes to be a "Jobs & Employment Matters" issue.(The analogy breaks down when you start talking about legal action)
I'm always very careful to ensure my work is framed correctly as a B2B relationship. I don't have a job or "go to work", I have a business that I need to run which often (but not always) involves me being at a customers site. It's important to have a clear idea of your obligations in the relationship you have with a client, and those you have to running your business.
In that respect, I recently turned down a renewal that in all likelihood would have turned into another 12 months work or more, because I wasn't comfortable with how long term the work was becoming. I'd much prefer return later when they become busy and can really use me and find something in the interim, than keep taking the money and put myself in a position where disguised employment could become an issue.
egomeister said:
It's a serious point in reality, and in some ways shows that there is some legitimacy to HMRC's clampdown if some people consider these changes to be a "Jobs & Employment Matters" issue.
That's a fair point actually. Although, just like IR35 itself, it's kind of neither one nor the other. egomeister said:
I'm always very careful to ensure my work is framed correctly as a B2B relationship. I don't have a job or "go to work", I have a business that I need to run which often (but not always) involves me being at a customers site. It's important to have a clear idea of your obligations in the relationship you have with a client, and those you have to running your business.
Oh, absolutely. This is to what I was referring earlier when I mentioned the "contractor mentality". Being outside of IR35 isn't just a box-ticking exercise but a state of being. ClockworkCupcake said:
egomeister said:
I'm always very careful to ensure my work is framed correctly as a B2B relationship. I don't have a job or "go to work", I have a business that I need to run which often (but not always) involves me being at a customers site. It's important to have a clear idea of your obligations in the relationship you have with a client, and those you have to running your business.
Oh, absolutely. This is to what I was referring earlier when I mentioned the "contractor mentality". Being outside of IR35 isn't just a box-ticking exercise but a state of being. Gassing Station | Jobs & Employment Matters | Top of Page | What's New | My Stuff