Contractors: IR35 & general discussion

[Tim330]

SOL111 said:

I guess it'll depend on the individual and their tolerance.

For example, a £100k ltd contract would attract an extra £10k on top of PAYE and NI. If that were me, I'd walk, because I'd rather retire than get stiffed by an agent who would be acting immorally.

If you're right and the agent is the employer, then they should be paying, not the contractor. The key would be the term used in the paperwork.

If you are on say a 12 month duration from today contract then come april 2020 the (client if direct) agency aren't allowed to deduct employers NI if the contract is assessed to be inside ir35. They have to pay it themselves. However what is likely to happen between now and April 2020 is that clients won't issue contracts with end dates beyond April 2020. Also there is also nothing stopping them for a contract that does run beyond April 2020 in effect now from terminating it and reissueing a new contract at a lower rate to take account of the employers NI and saying take it or leave it (imo)

[SOL111]

Tim330 said:

If you are on say a 12 month duration from today contract then come april 2020 the (client if direct) agency aren't allowed to deduct employers NI if the contract is assessed to be inside ir35. They have to pay it themselves. However what is likely to happen between now and April 2020 is that clients won't issue contracts with end dates beyond April 2020. Also there is also nothing stopping them for a contract that does run beyond April 2020 in effect now from terminating it and reissueing a new contract at a lower rate to take account of the employers NI and saying take it or leave it (imo)

Shooting themselves in the foot in the process.

Judging by the sledge hammer approach to the public sector, the evidence suggests that a lot of people left it and I don't blame them.

[Tim330]

SOL111 said:

Shooting themselves in the foot in the process.

Judging by the sledge hammer approach to the public sector, the evidence suggests that a lot of people left it and I don't blame them.

Trouble is this time there isn't another sector to go to unlike public to private in 2017. Im hoping that some clients will issue firmly outside ir35 contracts. Those that do will have the pick of contractors.

[98elise]

Mr Pointy said:

98elise said:

Most contractors are employed via agent. The agent will deduct it from the day rate.

Do you actually know this for certain or are you scaremongering?

No, to be clear I'm just a contractor, not an accountant.

It is how it was explained to me by an accountant though. The client will have a job that they expect to pay say £400 per day, what you as the contractor will receive is the day rate minus all taxes. Then end client is not going to pay the employers NI, as that's wrapped up in the day rate.

More than happy to be corrected though, as it would mean I would stay contracting for another 18 months (until 55)

[StanleyT]

wormus said:

SOL111 said:

Clearly I'm not deluded if, by your own statement, someone does something valuable for the client. So 'nobody' could be 'somebody'. Perhaps think about what you're posting before posting.

I get the sneaky suspicion, from the flavour of your posts, that you don't think contractors do anything valuable, hence your 'deluded' comment but quite obviously all contractors are different and have different levels of value.

I don't work in IT and have no idea if wombleh does either.

The key word in my statement is “if” which you’ve acknowledged.

I value all my contractors but my loyalty is my employer and making sure all our workforce are compliant with IR35 and HMRC tax guidelines. One thing I can assure you we won’t be doing is giving everyone a rate increase to compensate for their “losses”.

One of our framework contracts re-newed in April 2019 from a government client stated we can only use our company "xxx plc" PAYE staff on the delivery of projects, yet was won on the basis of decades and man centuries of experience of the contractors previously delivering this work (which has been going on 30 years+). Cue a mass rush from contractors trying to go staff with us but the market is at a bottom anyway (and 400 people off a big project are due from release in the NW in the next 6 - 12 months, rates have dropped). Be interesting to see how many stay the brave line and try and hold out? Our plc is being firm, contractors had the good times (*), now there staff rates are what the staff rates are. No dice re what your previous premium was.

(*) I remember being a BNFL employee, gold salary 6 weeks leave, 2 weeks scheduled sick additional leave, 13 development days off, gold pension final, bonii out my ears and still the contractors in the 1990s were taking home, per hour twice what I was and said I was mad to be staff. Now, I'm per hour, on a contributory pension, minimal benefits, but rate only 5% below contractors.

[StanleyT]

Olivera said:

wormus said:

My gut feel is we will see more contractors inside IR35 as most large companies decide it's too difficult to justify keeping them outside and the risk of a fine/tax liability from HMRC is too great.

Again you appear to be implying that you intend to make a blanket conservative position for the benefit of your employer, which is not legal.

Stephen Barclay MP previously stated this regarding NHS contractors:

“However, as per the changes to the Income Taxes (Earnings and Pensions Act) 2003 outlined in the 2017 Finance bill, decisions as to whether or not contractors fall inside or outside of the IR35 rules should be made on an individual basis. Recent HM Revenue and Customs research has indicated that 91% of public bodies are making these decisions on an individual basis and we would expect all NHS bodies to be compliant with this legislation and not applying a blanket decision on IR35 to all their contractors.”

Clever statistics, I'm sure on Contractors UK they picked up on that, i.e. 91% of all public bodies is not the same as "91% of all contractors employed by public bodies".

[Pit Pony]

wormus said:

One thing I can assure you we won’t be doing is giving everyone a rate increase to compensate for their “losses”.

To be fair the agency who is forced to pay via PAYE will.surely incur some NIC costs and mat seek to pass these onto the client, so Having a lone contractor asking for more isn't going to impress them

If this makes the contract market smaller, then clients with a need my struggle to find people suitable so may h when to putputting rates up.
The one RC I spoke to said they expect 4 months of turmoil

[manracer]

hyphen said:

manracer said:

hyphen said:

manracer said:

. Why should they get £60/70 a day for me, for the duration of my contract?

Because the client chose to use them, and pay them...

Bored are we?

But its true.

The client can't be bothered to recruit a contractor themselves (several large banks for example do it inhouse).

If the client is happy to pay them, then it's their choice. They hired and engaged in a contract with them!

Obviously I understand that, im saying its one way to partially negate any loses to the contractor due to IR35, it's an additional option, rather than the contractor just sucking it up.

I'm happy for the agency to make some money on the initial contract, but when it comes to extensions, time to trim the margin.

[omniflow]

I had a detailed discussion with one agency about the practicalities of taking a contract deemed to be inside IR35 by the end client. In this case it was the BBC.

The BBC have a maximum budget for the role - let's say £560 / day. Of this the agency take £60 / day for all of their hard work and the risk & expense they incur by paying the contractor before the BBC have paid them.

Outside of IR35, that leaves £500 / day for the contracting company.

Inside IR35, the agency then takes the Employers NI from that figure, and the remainder is then paid to the contracting company net of Employee tax and NI. From my point of view this means that the day rate is not £500 / day, it's more like £440 / day, and that £440 / day is then taxed as if you were an employee.

There was another method discussed, which was working via an umbrella company. The only difference that I could see here was that, depending on which umbrella company you used, you could claim some expenses from the gross, before tax being deducted as above. The BBC only allowed a choice of 3 umbrella companies, all of which are totally "inflexible".

On the surface, it's not really any different to taking a contract at £400 / day, when your "normal day rate" is £500 / day. £400 / day is more than £0 / day, so do you want to be working or don't you. You might be concerned that HMRC develop a view that once inside IR35 you can never leave, but that's unlikely.

The whole thing is a farce.

[Murph7355]

omniflow said:

...
Inside IR35, the agency then takes the Employers NI from that figure, and the remainder is then paid to the contracting company net of Employee tax and NI. From my point of view this means that the day rate is not £500 / day, it's more like £440 / day, and that £440 / day is then taxed as if you were an employee. ...

Do you have a breakdown of how you're working this out?

If the agent is deducting employee taxes for you, why are you then expecting further tax deductions as an employee?

omniflow said:

...
The whole thing is a farce.

This 100%...

In theory blanket decisions on IR35 by clients are not allowed. How that will work in practice who knows. Badly for a while I expect.

As with most things, "who pays" will depend on many factors. Not least of which the skills the client needs. The BBC, for example, may have a budget of 560 per day...but if the market rate for the skills required moves to become 600 per day, or 800 per day then they have a choice to make.

For commodity skills, they will be able to stick to their rate I suspect. But I'd probably argue that contractors supplying commodity skills, especially for extended periods, would be more likely to have always fallen within IR35 anyway.

For very specific skills for very specific, typically non-perpetuating (for the same client) projects, I suspect it might be different.

I'm pretty pragmatic about the whole thing. There have always been things that influence how companies take on staff. This is just ANOther. Clients will all deal with them in different ways.

[Countdown]

Murph7355 said:

For commodity skills, they will be able to stick to their rate I suspect. But I'd probably argue that contractors supplying commodity skills, especially for extended periods, would be more likely to have always fallen within IR35 anyway.

For very specific skills for very specific, typically non-perpetuating (for the same client) projects, I suspect it might be different.

Agreed. And whilst I might be being overly cynical I think the people who are most concerned about this are the ones who know they probably fall slap-bang inside IR35.

[omniflow]

Murph7355 said:

omniflow said:

...
Inside IR35, the agency then takes the Employers NI from that figure, and the remainder is then paid to the contracting company net of Employee tax and NI. From my point of view this means that the day rate is not £500 / day, it's more like £440 / day, and that £440 / day is then taxed as if you were an employee. ...

Do you have a breakdown of how you're working this out?

If the agent is deducting employee taxes for you, why are you then expecting further tax deductions as an employee?

The way it appears to be working, is that the agency explain the numbers differently. They mention an initial day rate (£500), which sounds ok. Then they talk about this rate minus employers NI, which is something like 12% (£500-£60 = £440). But then that £440 is subject to Employee's NI and Income Tax, which they deduct at source. The net result to your company is that it is paying Employer's NI, Employee's NI and Employee's Income Tax all from the same day rate, with zero flexibility as to exactly when you as an individual decide to take the money from the company.

[FredClogs]

omniflow said:

Murph7355 said:

omniflow said:

...
Inside IR35, the agency then takes the Employers NI from that figure, and the remainder is then paid to the contracting company net of Employee tax and NI. From my point of view this means that the day rate is not £500 / day, it's more like £440 / day, and that £440 / day is then taxed as if you were an employee. ...

Do you have a breakdown of how you're working this out?

If the agent is deducting employee taxes for you, why are you then expecting further tax deductions as an employee?

The way it appears to be working, is that the agency explain the numbers differently. They mention an initial day rate (£500), which sounds ok. Then they talk about this rate minus employers NI, which is something like 12% (£500-£60 = £440). But then that £440 is subject to Employee's NI and Income Tax, which they deduct at source. The net result to your company is that it is paying Employer's NI, Employee's NI and Employee's Income Tax all from the same day rate, with zero flexibility as to exactly when you as an individual decide to take the money from the company.

I don't get how this will work, I understand this maybe how it's supposed to work but in reality.

Whom would I be an emoyee of, still my ltd company? The agency? The client?

In my current role I have two agencies in the loop, my recruiting agency and my end clients in house contracted out resource managers. So who's taking the responsibility for holding this cash? How will the revenue know who is responsible for this and what happens to me if they don't?

Does this mean my limited company and I are no longer liable if the deducted money never makes it to Cumbernauld? Many agencies are still little more than a couple of contractors with a phone line themselves.

It's a cluster fk.

[Countdown]

FredClogs said:

I don't get how this will work, I understand this maybe how it's supposed to work but in reality.

Whom would I be an emoyee of, still my ltd company? The agency? The client?

In my current role I have two agencies in the loop, my recruiting agency and my end clients in house contracted out resource managers. So who's taking the responsibility for holding this cash? How will the revenue know who is responsible for this and what happens to me if they don't?

Does this mean my limited company and I are no longer liable if the deducted money never makes it to Cumbernauld? Many agencies are still little more than a couple of contractors with a phone line themselves.

It's a cluster fk.

The End-Client has ultimate responsibility for making sure the correct Tax/NI is paid over to HMRC. What they need to do is get written assurance from the Agency they are contracting with that the Agency will make the deductions. If the Agency can't provide this assurance then the End Client has to do it themselves.

[Gecko1978]

Readingnthis thread combined with what I am hearing in the city makes me believe the government's policy is going to lead to less money going into the economy and more going to bank shareholders. Who are often going to be overseas.

Tax people Who have no employment rights, training, support, sick or holiday pay like they do and infact tax them on lower rates...I can't help think this is not going to last if we have a hard brexit and want to show the world we are open for business.

Also I think blanket IR35 policies are going to cause issues so it's likely just FTC going forward. Question how in long run do you attract someone to a FTC if its not better than perm role

[PSB1]

Countdown said:

FredClogs said:

I don't get how this will work, I understand this maybe how it's supposed to work but in reality.

Whom would I be an emoyee of, still my ltd company? The agency? The client?

In my current role I have two agencies in the loop, my recruiting agency and my end clients in house contracted out resource managers. So who's taking the responsibility for holding this cash? How will the revenue know who is responsible for this and what happens to me if they don't?

Does this mean my limited company and I are no longer liable if the deducted money never makes it to Cumbernauld? Many agencies are still little more than a couple of contractors with a phone line themselves.

It's a cluster fk.

The End-Client has ultimate responsibility for making sure the correct Tax/NI is paid over to HMRC. What they need to do is get written assurance from the Agency they are contracting with that the Agency will make the deductions. If the Agency can't provide this assurance then the End Client has to do it themselves.

What if the End Client is an Asian Banking Organisation in the US?

[PSB1]

Countdown said:

Murph7355 said:

For commodity skills, they will be able to stick to their rate I suspect. But I'd probably argue that contractors supplying commodity skills, especially for extended periods, would be more likely to have always fallen within IR35 anyway.

For very specific skills for very specific, typically non-perpetuating (for the same client) projects, I suspect it might be different.

Agreed. And whilst I might be being overly cynical I think the people who are most concerned about this are the ones who know they probably fall slap-bang inside IR35.

[Countdown]

PSB1 said:

What if the End Client is an Asian Banking Organisation in the US?

They're beyond the reach of HMRC so IR35 doesn't apply.

(Assuming they don't have a UK registered subsidiary with its own HMRC account reference....)

[egomeister]

anonymous said:

[redacted]

It's baked into the rate in the current environment where you can manage deductions via minimal salary & dividend. Take some of those advantages away, and I can't see how it won't ultimately get passed on even if the initial reaction sees the contractor takes the hit. Ultimately the market will find a new equilibrium.

[anonymous-user]

Gecko1978 said:

Readingnthis thread combined with what I am hearing in the city makes me believe the government's policy is going to lead to less money going into the economy and more going to bank shareholders. Who are often going to be overseas.

Tax people Who have no employment rights, training, support, sick or holiday pay like they do and infact tax them on lower rates...I can't help think this is not going to last if we have a hard brexit and want to show the world we are open for business.

Also I think blanket IR35 policies are going to cause issues so it's likely just FTC going forward. Question how in long run do you attract someone to a FTC if its not better than perm role

Sorry but you sound like you are just having a moan about paying the tax you should have been paying all along. Many of we employers would love to invest in our workforce, offering perm jobs & developing people's careers but the fact is so many who we pay to train bugger off to become contractors as soon as they become basically competent. When they have, we cannot ask them to take part in normal perm activities to make the company better or manage other people and to be honest the lack of continuity is a pain in the arse which we have to work around. Add to that so many over inflate their skills in order to command a higher day rate and we need to weed them out.

I respect all my contractors but I'm looking forward to being able to access a quality workforce who are prepared to invest in us as much as we are in them.