This is the end of contracting...
Discussion
Tuna said:
loafer123 said:
It is possible we are saying the same thing. Contractors should get paid more gross income to take account of their lack of benefits and job security, but should pay the same tax rate as anyone else? Or are you saying they should pay a lower tax rate and, if so, why should HMRC charge a lower rate for contractors?
In a way I think we are agreeing - I don't see the tax thing as being a key part of providing contract services. I absolutely agree that 'Disguised employment' and excessive tricks to reduce tax are not a good thing.However, these rule changes aren't about preventing tax avoidance, they're crude rules trying to make freelance and contract services look like employment. Whilst contractors are upset about it, employers should also be concerned for the way it changes their relationship with the workforce. In fact I think employees should also be worried - if employers are encouraged to view short term, specialist services as 'just like employment', they're likely to view employees as a much more mobile work force. Things like zero hour contracts and 'trial periods' with short notice periods are a part of this culture of disposable staff.
The bottom line is that a 'one size fits all' solution to employment is inefficient, crude and unlikely to solve the headline problem that they're selling it on, particularly when it's built on a taxation system that is riddled with holes, inconsistencies and exceptions. Here's a chart of how much tax you pay at different income levels - what rate exactly is the fair one?
Finally, I'll say it again - a given professional working in the same role will be almost certainly be paying significantly more tax if they are a contractor than if they are permanent. If the moral imperative is to pay the most tax, then the contractor has absolutely met that requirement. Arguments about 'fair proportions' are (to my mind) far less justifiable - after all, how do you judge the value to society of a £100K a year specialist compared to a £10K a year shift worker? Why is one proportion of taxation more 'fair' than another?
One proportion of taxation is not more fair than another, but it is perfectly reasonable that taxpayers on the same income should be subject to the same tax rates and allowances. In the case of Contractors, they can claim for their costs as allowances, which permies cannot, but I see no reason why the marginal rate they pay should differ.
By the way, I think (unfortunately) that the marginal rate paid at the threshold just over £100k income is even worse than you show!
..and if we're going to talk about 'fair' taxation, why do we have the lowest tax threshold below the minimal wage rate? It makes absolutely no sense to instigate a minimal wage if you're immediately taxed for earning it.
Above that, so long as there are different rates for different sources of income, there will always be people pay a range of rates for completely legitimate reasons. Trying to add rules to prevent people from using those different rates is always going to have unforeseen consequences, and is just as likely to punish the innocent as prevent abuse. You could argue that people who are actively trying to avoid paying tax are not going to stop just because a given loophole has been closed. My objection is to the idea that it will all become 'more fair' if we just add more rules. If you want fairness, you tax all income sources at the same rate without exception (and get rid of a few thousand tax experts in the process).
If you were to survey a contractor on £150K a year and a permanent employee on the same headline salary I'd be willing to bet the permanent employee is doing everything they can to reduce their tax contribution - from company car to bonus payments, via expensed travel and paid for business trips and training.
Above that, so long as there are different rates for different sources of income, there will always be people pay a range of rates for completely legitimate reasons. Trying to add rules to prevent people from using those different rates is always going to have unforeseen consequences, and is just as likely to punish the innocent as prevent abuse. You could argue that people who are actively trying to avoid paying tax are not going to stop just because a given loophole has been closed. My objection is to the idea that it will all become 'more fair' if we just add more rules. If you want fairness, you tax all income sources at the same rate without exception (and get rid of a few thousand tax experts in the process).
If you were to survey a contractor on £150K a year and a permanent employee on the same headline salary I'd be willing to bet the permanent employee is doing everything they can to reduce their tax contribution - from company car to bonus payments, via expensed travel and paid for business trips and training.
Tuna said:
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If you were to survey a contractor on £150K a year and a permanent employee on the same headline salary I'd be willing to bet the permanent employee is doing everything they can to reduce their tax contribution - from company car to bonus payments, via expensed travel and paid for business trips and training.
I have been on both sides of the working fence, and currently on the "permie" side.If you were to survey a contractor on £150K a year and a permanent employee on the same headline salary I'd be willing to bet the permanent employee is doing everything they can to reduce their tax contribution - from company car to bonus payments, via expensed travel and paid for business trips and training.
The permanent employee pays tax not just on his salary, but on the company car, private fuel, and bonus, amongst others. Given that my expensed travel is for business or training (flights, hotels, meals, etc.) it is paid for as such by the business directly and not a taxable item.
If I were contracting I would of course make those items tax deductable, as I would have paid for them up front.
SidJames said:
I have been on both sides of the working fence, and currently on the "permie" side.
The permanent employee pays tax not just on his salary, but on the company car, private fuel, and bonus, amongst others. Given that my expensed travel is for business or training (flights, hotels, meals, etc.) it is paid for as such by the business directly and not a taxable item.
If I were contracting I would of course make those items tax deductable, as I would have paid for them up front.
My bad. The point being though that there is no direct equivalent.The permanent employee pays tax not just on his salary, but on the company car, private fuel, and bonus, amongst others. Given that my expensed travel is for business or training (flights, hotels, meals, etc.) it is paid for as such by the business directly and not a taxable item.
If I were contracting I would of course make those items tax deductable, as I would have paid for them up front.
I can see the pov that a contractor earning six figures won't be paying the same nominal tax rate as a permie, however this doesn't take into account the many benefits that a permie gets over a contractor.
As a quick example, a permie on £50k will be getting life insurance, sick pay, holiday pay, bonus, health insurance, partner incentive programmes, training. A package which on average adds £15k-£20k. A contractor turning over £100k will often take home about 75% of that with none of those benefits, all of a sudden that disparity doesn't look so great.
Also despite ltd company tax rates being nominally lower than PAYE, HMRC still receive more tax from ltd companies turning over £100k then they do from a permie earning £50k, you can argue all you want about how fair the nominal rate is but if they force people out of contracting by making tax rates punitive, they will actually lower the overall tax take for UK plc, that's like cutting your nose off to spite your face!
Going contracting is a risk, it involves lots of extra work, a different work ethic and putting your lively hood on the line. Yes the reward is higher but so is the risk. It's certainly not for everybody otherwise they'd all be doing it. I am very surprised that a Tory government of all people seem to be trying their hardest to quash this attitude to giving it a go. I thought out of all the parties, they'd be the ones who would encourage entrepreneurial enterprise, seems I was wrong.
As a quick example, a permie on £50k will be getting life insurance, sick pay, holiday pay, bonus, health insurance, partner incentive programmes, training. A package which on average adds £15k-£20k. A contractor turning over £100k will often take home about 75% of that with none of those benefits, all of a sudden that disparity doesn't look so great.
Also despite ltd company tax rates being nominally lower than PAYE, HMRC still receive more tax from ltd companies turning over £100k then they do from a permie earning £50k, you can argue all you want about how fair the nominal rate is but if they force people out of contracting by making tax rates punitive, they will actually lower the overall tax take for UK plc, that's like cutting your nose off to spite your face!
Going contracting is a risk, it involves lots of extra work, a different work ethic and putting your lively hood on the line. Yes the reward is higher but so is the risk. It's certainly not for everybody otherwise they'd all be doing it. I am very surprised that a Tory government of all people seem to be trying their hardest to quash this attitude to giving it a go. I thought out of all the parties, they'd be the ones who would encourage entrepreneurial enterprise, seems I was wrong.
Guvernator said:
I can see the pov that a contractor earning six figures won't be paying the same nominal tax rate as a permie, however this doesn't take into account the many benefits that a permie gets over a contractor.
As a quick example, a permie on £50k will be getting life insurance, sick pay, holiday pay, bonus, health insurance, partner incentive programmes, training. A package which on average adds £15k-£20k. A contractor turning over £100k will often take home about 75% of that with none of those benefits, all of a sudden that disparity doesn't look so great.
Also despite ltd company tax rates being nominally lower than PAYE, HMRC still receive more tax from ltd companies turning over £100k then they do from a permie earning £50k, you can argue all you want about how fair the nominal rate is but if they force people out of contracting by making tax rates punitive, they will actually lower the overall tax take for UK plc, that's like cutting your nose off to spite your face!
Going contracting is a risk, it involves lots of extra work, a different work ethic and putting your lively hood on the line. Yes the reward is higher but so is the risk. It's certainly not for everybody otherwise they'd all be doing it. I am very surprised that a Tory government of all people seem to be trying their hardest to quash this attitude to giving it a go. I thought out of all the parties, they'd be the ones who would encourage entrepreneurial enterprise, seems I was wrong.
and thats the worrying thing.As a quick example, a permie on £50k will be getting life insurance, sick pay, holiday pay, bonus, health insurance, partner incentive programmes, training. A package which on average adds £15k-£20k. A contractor turning over £100k will often take home about 75% of that with none of those benefits, all of a sudden that disparity doesn't look so great.
Also despite ltd company tax rates being nominally lower than PAYE, HMRC still receive more tax from ltd companies turning over £100k then they do from a permie earning £50k, you can argue all you want about how fair the nominal rate is but if they force people out of contracting by making tax rates punitive, they will actually lower the overall tax take for UK plc, that's like cutting your nose off to spite your face!
Going contracting is a risk, it involves lots of extra work, a different work ethic and putting your lively hood on the line. Yes the reward is higher but so is the risk. It's certainly not for everybody otherwise they'd all be doing it. I am very surprised that a Tory government of all people seem to be trying their hardest to quash this attitude to giving it a go. I thought out of all the parties, they'd be the ones who would encourage entrepreneurial enterprise, seems I was wrong.
mondeoman said:
Guvernator said:
I can see the pov that a contractor earning six figures won't be paying the same nominal tax rate as a permie, however this doesn't take into account the many benefits that a permie gets over a contractor.
As a quick example, a permie on £50k will be getting life insurance, sick pay, holiday pay, bonus, health insurance, partner incentive programmes, training. A package which on average adds £15k-£20k. A contractor turning over £100k will often take home about 75% of that with none of those benefits, all of a sudden that disparity doesn't look so great.
Also despite ltd company tax rates being nominally lower than PAYE, HMRC still receive more tax from ltd companies turning over £100k then they do from a permie earning £50k, you can argue all you want about how fair the nominal rate is but if they force people out of contracting by making tax rates punitive, they will actually lower the overall tax take for UK plc, that's like cutting your nose off to spite your face!
Going contracting is a risk, it involves lots of extra work, a different work ethic and putting your lively hood on the line. Yes the reward is higher but so is the risk. It's certainly not for everybody otherwise they'd all be doing it. I am very surprised that a Tory government of all people seem to be trying their hardest to quash this attitude to giving it a go. I thought out of all the parties, they'd be the ones who would encourage entrepreneurial enterprise, seems I was wrong.
and thats the worrying thing.As a quick example, a permie on £50k will be getting life insurance, sick pay, holiday pay, bonus, health insurance, partner incentive programmes, training. A package which on average adds £15k-£20k. A contractor turning over £100k will often take home about 75% of that with none of those benefits, all of a sudden that disparity doesn't look so great.
Also despite ltd company tax rates being nominally lower than PAYE, HMRC still receive more tax from ltd companies turning over £100k then they do from a permie earning £50k, you can argue all you want about how fair the nominal rate is but if they force people out of contracting by making tax rates punitive, they will actually lower the overall tax take for UK plc, that's like cutting your nose off to spite your face!
Going contracting is a risk, it involves lots of extra work, a different work ethic and putting your lively hood on the line. Yes the reward is higher but so is the risk. It's certainly not for everybody otherwise they'd all be doing it. I am very surprised that a Tory government of all people seem to be trying their hardest to quash this attitude to giving it a go. I thought out of all the parties, they'd be the ones who would encourage entrepreneurial enterprise, seems I was wrong.
Guvernator said:
mondeoman said:
Guvernator said:
I can see the pov that a contractor earning six figures won't be paying the same nominal tax rate as a permie, however this doesn't take into account the many benefits that a permie gets over a contractor.
As a quick example, a permie on £50k will be getting life insurance, sick pay, holiday pay, bonus, health insurance, partner incentive programmes, training. A package which on average adds £15k-£20k. A contractor turning over £100k will often take home about 75% of that with none of those benefits, all of a sudden that disparity doesn't look so great.
Also despite ltd company tax rates being nominally lower than PAYE, HMRC still receive more tax from ltd companies turning over £100k then they do from a permie earning £50k, you can argue all you want about how fair the nominal rate is but if they force people out of contracting by making tax rates punitive, they will actually lower the overall tax take for UK plc, that's like cutting your nose off to spite your face!
Going contracting is a risk, it involves lots of extra work, a different work ethic and putting your lively hood on the line. Yes the reward is higher but so is the risk. It's certainly not for everybody otherwise they'd all be doing it. I am very surprised that a Tory government of all people seem to be trying their hardest to quash this attitude to giving it a go. I thought out of all the parties, they'd be the ones who would encourage entrepreneurial enterprise, seems I was wrong.
and thats the worrying thing.As a quick example, a permie on £50k will be getting life insurance, sick pay, holiday pay, bonus, health insurance, partner incentive programmes, training. A package which on average adds £15k-£20k. A contractor turning over £100k will often take home about 75% of that with none of those benefits, all of a sudden that disparity doesn't look so great.
Also despite ltd company tax rates being nominally lower than PAYE, HMRC still receive more tax from ltd companies turning over £100k then they do from a permie earning £50k, you can argue all you want about how fair the nominal rate is but if they force people out of contracting by making tax rates punitive, they will actually lower the overall tax take for UK plc, that's like cutting your nose off to spite your face!
Going contracting is a risk, it involves lots of extra work, a different work ethic and putting your lively hood on the line. Yes the reward is higher but so is the risk. It's certainly not for everybody otherwise they'd all be doing it. I am very surprised that a Tory government of all people seem to be trying their hardest to quash this attitude to giving it a go. I thought out of all the parties, they'd be the ones who would encourage entrepreneurial enterprise, seems I was wrong.
mondeoman said:
Kinda glad I didn't vote for them tbh - shocking that the Conservatives have abandoned their roots (?) this way.
Unfortunately I did, after years of living under the yoke of a regime that seemed dead set on bankrupting the entire country, I was glad the blues got in. Here's someone who'll support businesses I naively thought, if there's one thing you can rely on it's that the Tories will give enterprise a chance, there whole ethos used to be based on it after all. As you say what a shock, I feel as if George Osborne has personally stabbed me in the back. Thanks George.Granfondo said:
How is a one man band contracting to the same company for months/years on end a buisiness?
Do you mean it's not "proper" contracting unless you have at least a dozen clients on the go at once, and you have to duck and dive every day to keep your head above water?Horses for courses, there are many ways to contract out work. Some very short term, some longer term.
Or did you mean something else?
Granfondo said:
How is a one man band contracting to the same company for months/years on end a buisiness?
Why is it any different than contracting to two businesses or a two man band contracting to one company? If your company provides a service they aren't otherwise getting and they want to pay for it, why not let them without hiring the individual?Companies are surely a continuum. This is just one (easy to snipe at) end of it.
Granfondo said:
I was responding to Guvernator who said he thought Tories would support "business" and I was asking the question.
How is a one man band contracting for months/years on end a business?
To my mind they are just an employee under another name!
Well firstly my company employs more than one person. Secondly I don't work like an employee as most of my work is project based. I buy and provide my own equipment for work and then work according to agreed deliverables, this might be from home, at a client site or at a datacentre or all 3 in one week depending on what I am doing and how I plan to do it. I am constantly looking for new business\clients as I don't work at the same place for years and will sometimes have more than one client on the go. I have a website where I sell my companies services. I don't get holiday or sick pay and as long as the work is completed, I don't have to ask my clients if I can have time off or not go into the office. My assistant does a lot of paperwork required by various people to keep the company running. This includes invoicing, book-keeping, monthly, quarterly and yearly accounts returns. Running the business probably takes about 20% of my time as opposed to time spent working for clients, while I am doing that I'm not earning any money, in fact I'm also paying someone else to assist me to do those bits so effectively 20% of my time working is done at a cost to me rather than a profit, this is on top of the full day I put in doing "proper" fee-earning work.How is a one man band contracting for months/years on end a business?
To my mind they are just an employee under another name!
If you or George can show me an employee who does all or even some of what I've listed above then I'll happily admit to being one. Oh and if I do I'll also want the exact same rights, benefits and job security as an employee too as that sword can cut both ways.
Guvernator said:
Granfondo said:
I was responding to Guvernator who said he thought Tories would support "business" and I was asking the question.
How is a one man band contracting for months/years on end a business?
To my mind they are just an employee under another name!
Well firstly my company employs more than one person. Secondly I don't work like an employee as most of my work is project based. I buy and provide my own equipment for work and then work according to agreed deliverables, this might be from home, at a client site or at a datacentre or all 3 in one week depending on what I am doing and how I plan to do it. I am constantly looking for new business\clients as I don't work at the same place for years and will sometimes have more than one client on the go. I have a website where I sell my companies services. I don't get holiday or sick pay and as long as the work is completed, I don't have to ask my clients if I can have time off or not go into the office. My assistant does a lot of paperwork required by various people to keep the company running. This includes invoicing, book-keeping, monthly, quarterly and yearly accounts returns. Running the business probably takes about 20% of my time as opposed to time spent working for clients, while I am doing that I'm not earning any money, in fact I'm also paying someone else to assist me to do those bits so effectively 20% of my time working is done at a cost to me rather than a profit, this is on top of the full day I put in doing "proper" fee-earning workHow is a one man band contracting for months/years on end a business?
To my mind they are just an employee under another name!
If you or George can show me an employee who does all or even some of what I've listed above then I'll happily admit to being one. Oh and if I do I'll also want the exact same rights, benefits and job security as an employee too as that sword can cut both ways.
Granfondo said:
I was responding to Guvernator who said he thought Tories would support "business" and I was asking the question.
How is a one man band contracting for months/years on end a business?
To my mind they are just an employee under another name!
Supporting 'business' doesn't mean supporting individual businesses, it means (or should mean) supporting business as a process. Which includes allowing established businesses to on the one hand take on skilled people on a flexible basis, and on the other to be exposed to competition as one man bands offer the same service as large consultancies and may grow to be the established businesses of the future.How is a one man band contracting for months/years on end a business?
To my mind they are just an employee under another name!
Preventing a skilled freelancer from working while firms are suffering from a shortage of the freelancers skills may be good for the body shops and consultancies that donate to political parties, but it's bad for business in general.
Guvernator said:
If you or George can show me an employee who does all or even some of what I've listed above then I'll happily admit to being one. Oh and if I do I'll also want the exact same rights, benefits and job security as an employee too as that sword can cut both ways.
I'm an employee and also a director of a limited company. I do all those things with knobs on. I'm paid PAYE, I get holiday pay, health insurance etc and if I was ever sick I would get paid.If you were really running a business it would also pay you those benefits. Clearly you aren't because you talk as though you are an employee unfairly denied those benefits.
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