Contractors: IR35 & general discussion
Discussion
Mr Pointy said:
They have, & they spent a fortune losing the cases as you well know. However, they lost because the people going to tribunals & the House of Lords were those contractors whose houses were on the line (in the worst case) & were highly incentivised to fight back. Your average HR director isn't going to pony up for a QC at £1000 an hour & will cave & the board will direct him to make sure it doesn't happen again.
The contractor might have gone to court for fear of losing their house(s) etc. But they didn't win the cases because of that. They won because HMRC couldn't prove their case.If many of today's contracts move to inside IR35 status, the remaining outside IR35 contracts will be in more demand. Market forces will push outside IR35 rates down and inside IR35 rates up. Putting a contract inside, and paying higher rates, will have a financial impact on the hiring business. Multiply this by numbers of contractors and all of a sudden your QC isn't looking that expensive.
Mr Pointy said:
You might find your contracts start including clauses indemnifying your employers against these costs as well.
And I'm confident the market will provide insurance for such an eventualityIN51GHT said:
Is there an official definition of what makes a medium or large company?
from herehttps://assets.publishing.service.gov.uk/governmen...
Companies that engage off-payroll workers are in scope of the reform if they do not qualify as small under the Companies Act 2006. To qualify as small, a company must meet two of the following qualifying conditions:
1. Annual Turnover not more than £10.2 million
2. Balance sheet total not more than £5.1 million
3. Number of employees not more than 50.
SOL111 said:
Perhaps naive but I'm still hopeful.
Unfortunately clients won't be able to push their national insurance costs onto the contractor (illegal?) so will face potentially huge additional costs to maintain a flexible workforce. Then there's attrition.
My client is already consulting 'experts' to help classify contractors. My gut is that they're looking for a watertight solution that may change how we operate, but in a way that clearly puts us outside. Not that we weren't anyway but you know
If I'm wrong then I'll just ask for an equivalent rate rise to cover my losses and think most will do the same. Fortunately I have more than one client so will still be able to operate my ltd co. (< 50 employee clients) .
Maybe I'm being naive again but clients must be crapping themselves at the moment, faced with higher costs and attrition. It could all be avoided quite easily so will be interesting to see how companies react. My guess is those who have failed to prepare will suffer.
Did you mean fortunately? I believe that for existing contracts they can't pass on the employers NI come April 2020 but come renewal time nothing to stop them reducing the rate by 13.8% and saying take it or leave it. Unfortunately clients won't be able to push their national insurance costs onto the contractor (illegal?) so will face potentially huge additional costs to maintain a flexible workforce. Then there's attrition.
My client is already consulting 'experts' to help classify contractors. My gut is that they're looking for a watertight solution that may change how we operate, but in a way that clearly puts us outside. Not that we weren't anyway but you know
If I'm wrong then I'll just ask for an equivalent rate rise to cover my losses and think most will do the same. Fortunately I have more than one client so will still be able to operate my ltd co. (< 50 employee clients) .
Maybe I'm being naive again but clients must be crapping themselves at the moment, faced with higher costs and attrition. It could all be avoided quite easily so will be interesting to see how companies react. My guess is those who have failed to prepare will suffer.
Edited by SOL111 on Friday 12th July 06:51
98elise said:
ChevronB19 said:
Totally genuine question, asked purely from my own ignorance - what’s the problem with this?
Contractors will have to pay employers NI on top of employees NI (extra 14%) and cannot retain money in the company to cover periods out of work.They will get no employee benefits of being an employee.
I'm a contractor, and have decided to retire when my contract ends in September. I will go from paying high rate tax to being on JSA
Edited by 98elise on Friday 12th July 01:02
Mr Pointy said:
98elise said:
Mr Pointy said:
You could always decide to operate as Sole Traders instead. No IR35 worries then.
None of my contracts would have allowed for being a sole trader. I also would not want to take on the personal risk.Tim330 said:
Did you mean fortunately? I believe that for existing contracts they can't pass on the employers NI come April 2020 but come renewal time nothing to stop them reducing the rate by 13.8% and saying take it or leave it.
In that case I'll leave it 
It's really up to the client and what they want. But I refuse to lose out by 13.8%.
98elise said:
Mr Pointy said:
98elise said:
Mr Pointy said:
You could always decide to operate as Sole Traders instead. No IR35 worries then.
None of my contracts would have allowed for being a sole trader. I also would not want to take on the personal risk.Tim330 said:
IN51GHT said:
Is there an official definition of what makes a medium or large company?
from herehttps://assets.publishing.service.gov.uk/governmen...
Companies that engage off-payroll workers are in scope of the reform if they do not qualify as small under the Companies Act 2006. To qualify as small, a company must meet two of the following qualifying conditions:
1. Annual Turnover not more than £10.2 million
2. Balance sheet total not more than £5.1 million
3. Number of employees not more than 50.
It's interesting people are saying the large firms won't fight. I'm not entirely sure about that. Given the choice between having a 14% increase in their consultancy bill and losing the flexibility to obtain the skills they need when they need them (and shed them afterwards) or using their high powered legal teams to tell HMRC where to stick the fines ... I'n not convinced they may not decide to tell HMRC where to go. With the subtext threat of "of course, we don't really need to employ anyone in the UK anyway".
I imagine it's the medium sized firms that will be the most affected, much the same as the "deals" handed out to the large firms on other aspects of taxation.
I imagine it's the medium sized firms that will be the most affected, much the same as the "deals" handed out to the large firms on other aspects of taxation.
If flexibility is the key factor for Employers why not just employ people on Fixed Term Contracts (or even on 1 week notice periods)?
This will come down to a financial decision - a balance between what day rates the Contractor can charge and how much extra tax they will face vs the amount they can earn under PAYE
This will come down to a financial decision - a balance between what day rates the Contractor can charge and how much extra tax they will face vs the amount they can earn under PAYE
Countdown said:
If flexibility is the key factor for Employers why not just employ people on Fixed Term Contracts (or even on 1 week notice periods)?
This will come down to a financial decision - a balance between what day rates the Contractor can charge and how much extra tax they will face vs the amount they can earn under PAYE
Probably because under employment law, any fixed term contract lasting more than 2 years is deemed permanent and liable to all employee benefits.This will come down to a financial decision - a balance between what day rates the Contractor can charge and how much extra tax they will face vs the amount they can earn under PAYE
Contractors want exactly the opposite mostly.
Sadly I think it's going to wreck the industry unless clients can grow the balls necessary to put us well and truly outside.
It'll be interesting to see how it pans out.
SOL111 said:
Probably because under employment law, any fixed term contract lasting more than 2 years is deemed permanent and liable to all employee benefits.
Contractors want exactly the opposite mostly.
.
Surely if you’re in a role for more than 2 years you’re effectively an Employee and should be on PAYE?Contractors want exactly the opposite mostly.
.
Why do Contractors prefer to stay off-Payroll? I understand the tax benefits are supposed to be negligible. If it’s a question of flexibility then you could just negotiate minimal notice periods, so what’s the benefit of being a Contractor?
For me it's the freedom and avoidance of all forms of office politics. I like working for different clients/projects (simultaneously) without the stigma or hassle involved with compliance or HR. I enjoy mopping up during peak workloads and then moving on when a project is finished.
Ultimately the duration of a contract doesn't define whether you should pay PAYE, it's how you operate for your clients.
You're right about the financial aspects to some extent. I'm trading company benefits and job security for cash so the overall differences are small but significantly different in the method of delivery.
That's why this sucks, because we're on the cusp of being expected to pay the same tax for none of the benefits. Clients aren't suddenly going to offer pensions, holiday, sick, promotions or job security but are likely to stitch us up nonetheless.
If this happens with my main client then I'll just pull away and focus on my smaller ones.
Ultimately the duration of a contract doesn't define whether you should pay PAYE, it's how you operate for your clients.
You're right about the financial aspects to some extent. I'm trading company benefits and job security for cash so the overall differences are small but significantly different in the method of delivery.
That's why this sucks, because we're on the cusp of being expected to pay the same tax for none of the benefits. Clients aren't suddenly going to offer pensions, holiday, sick, promotions or job security but are likely to stitch us up nonetheless.
If this happens with my main client then I'll just pull away and focus on my smaller ones.
Countdown said:
If flexibility is the key factor for Employers why not just employ people on Fixed Term Contracts (or even on 1 week notice periods)?
This will come down to a financial decision - a balance between what day rates the Contractor can charge and how much extra tax they will face vs the amount they can earn under PAYE
Generally contractors (of the sort being targeted by HMRC) are high-skilled staff, where you wouldn't have many applicants for a permanent position that only offered a 1-week notice period, unless you increased the pay to the same sort of level that you would be paying for a contractor. Since that is basically what you would be offering in terms of job security - and should you not keep on top of people's length of employment you will find you are offering 2 weeks or 4 weeks anyway, as per the statutory rules. So it is easier to keep the status quo and not have the extra admin overhead. This will come down to a financial decision - a balance between what day rates the Contractor can charge and how much extra tax they will face vs the amount they can earn under PAYE
You also lose the flexibility to bring someone in for 1-2 days a week (I know many Project Managers working for a number of different clients; Software Architects can be similarly employed on a proper consultancy style basis).
Also bear in mind the ossification of many large corporates' HR departments. If I need someone to sort a problem today, I do not want to grind through a four week discussion of person specifications, role descriptions, competency measures, market appraisals etc. and then have another month of interviews, tests and evaluations followed by a further month of "background checks". Then when my person starts, they have to go through their mandatory induction training ... by the point the average HR department is ready to let my new hire start work my project could be over!
Thanks Flooble
Doesn’t the HMRC ESI tool help to differentiate between those that you describe (ie “genuine” Contractors, multiple clients, the ability to pick and choose when they are going to do the work) against those who are de facto employees but being treated as self-employed for tax/NI savings?
or, to put it another way, would it be fair to argue that if somebody is doing exactly the same job as a permie then they should be PAYE? To give you an example we have Agency temps working as finance assistants (doing exactly the same job as permenanent staff). They are covering maternity leave and internal secondments. They’re effectively employees. We occasionally hire SAP Consultants. They get paid on a day rate. IT employ a DBA permanently. they are not really a Contractor.
TL:DR - I think, using the HMRC ESI and some common sense it’s not difficult to assess when a person is a genuine contractor and when a person is self employed. IMHO.
Doesn’t the HMRC ESI tool help to differentiate between those that you describe (ie “genuine” Contractors, multiple clients, the ability to pick and choose when they are going to do the work) against those who are de facto employees but being treated as self-employed for tax/NI savings?
or, to put it another way, would it be fair to argue that if somebody is doing exactly the same job as a permie then they should be PAYE? To give you an example we have Agency temps working as finance assistants (doing exactly the same job as permenanent staff). They are covering maternity leave and internal secondments. They’re effectively employees. We occasionally hire SAP Consultants. They get paid on a day rate. IT employ a DBA permanently. they are not really a Contractor.
TL:DR - I think, using the HMRC ESI and some common sense it’s not difficult to assess when a person is a genuine contractor and when a person is self employed. IMHO.
Countdown said:
SOL111 said:
Probably because under employment law, any fixed term contract lasting more than 2 years is deemed permanent and liable to all employee benefits.
Contractors want exactly the opposite mostly.
.
Surely if you’re in a role for more than 2 years you’re effectively an Employee and should be on PAYE?Contractors want exactly the opposite mostly.
.
Why do Contractors prefer to stay off-Payroll? I understand the tax benefits are supposed to be negligible. If it’s a question of flexibility then you could just negotiate minimal notice periods, so what’s the benefit of being a Contractor?
Contractors prefer the term contractor as that's what we are. HMRC say off payroll as they want to see you as an employer not being paid on the payroll
The benefit of being a contractor is you have control over how and when you are paid. Any sensible contractor will use their company funds as a buffer for their pay, ie they continue to be paid when there is no money coming in. We also have complete control over pensions, holiday etc, and ca take director loans.
98elise said:
Length of time has nothing to do with defining you as a contractor. If company A contracts to company B the employees don't automatically switch companies after any set period.think cleaners, security, FM etc.
Contractors prefer the term contractor as that's what we are. HMRC say off payroll as they want to see you as an employer not being paid on the payroll
The benefit of being a contractor is you have control over how and when you are paid. Any sensible contractor will use their company funds as a buffer for their pay, ie they continue to be paid when there is no money coming in. We also have complete control over pensions, holiday etc, and ca take director loans.
Apologies for sounding argumentative Contractors prefer the term contractor as that's what we are. HMRC say off payroll as they want to see you as an employer not being paid on the payroll
The benefit of being a contractor is you have control over how and when you are paid. Any sensible contractor will use their company funds as a buffer for their pay, ie they continue to be paid when there is no money coming in. We also have complete control over pensions, holiday etc, and ca take director loans.
Technically we’re ALL Contractors (we all have some kind of contract with the Employer)
When you say you have control over when you’re paid I think it’s more accurate to say “control over when you are taxed”. Employees/Contractors get paid in accordance with the Contract that they have agreed with the employer (weekly, monthly, 30 days from invoice date) However an employee is taxed at source, the Contractor pays tax X months after year end or when he draws an income as an Employee from his LtdCo. In terms of holiday pay, directors loans etc, the employee can do much the same via savings.
Do self employed people claim travelling to and from the office as a taxable expense?
Gassing Station | Jobs & Employment Matters | Top of Page | What's New | My Stuff