Contractors: IR35 & general discussion

[aeropilot]

Countdown said:

Strictly speaking this loophole was one that the Employer/End client was benefitting from rather than the Contractor so it's not really fair of them to pass it onto the Contractor.

Sadly, morals and ethic's go out the window with big corporations when it comes down to such things.

The end client I'm still with for another 4 weeks force all their staff to undertake lots of online ethics training modules and such other HR nonsense, as they take ethics very seriously <cough>

They didn't like my suggestion last week that this ethics training seems to be suitably ignored when it suits them.

[Olivera]

Countdown said:

"Normally" a LtdCo would already be paying Ers NI on salary payments made to its employees. However PSCs can avoid this by paying employees below the NI threshold.

I have to correct you here. You've frequently and repeatedly on this thread referred to PSC tax loopholes and avoidance strategies. However they are absolutely not specific to PSCs, they are instead just general tax avoidance strategies available to each and every LTD company.

[Guvernator]

As others have said companies have been having their cake and eating it for years by using contractors which have allowed them to

1) Avoid paying Employers NI
2) Avoid any and all employer responsibility
3) Avoid weird\arbitrary headcount restrictions that seem to be in force in most companies
4) Ability to hire and fire a lot more easily dependent on workload\finances
5) Account for contractors under a different column in the company accounts which makes the finance departments happy.

For this the contractor has been paid a premium so admittedly both have benefitted but when you weight up the full costs to a company for a contractor vs a permie, the overall costs aren't actually that different so it's the companies that have always been the real winners.

Now in the new world of IR35 they still get all the above benefits and pass on the Employers NI costs to the contractor. The only people losing out here are the contractors.

[V8mate]

It's interesting to see that people feel that it's the employing client who has avoided employer's NI.

From my perspective, this tax has been avoided by the contractors paying themselves little more than a PAYE retainer and taking the rest of their income by way of dividends.

My day rate equates to 2.5 times my market PAYE rate, so I can't really suggest that I've been the 'cheap option' for clients who have hired me on a day rate.

[Countdown]

Olivera said:

Countdown said:

"Normally" a LtdCo would already be paying Ers NI on salary payments made to its employees. However PSCs can avoid this by paying employees below the NI threshold.

I have to correct you here. You've frequently and repeatedly on this thread referred to PSC tax loopholes and avoidance strategies. However they are absolutely not specific to PSCs, they are instead just general tax avoidance strategies available to each and every LTD company.

As far as Im aware (and happy to be corrected) a "close company" (which is what a PSC basically is) is the only one which would make use of the Employers NI "loophole". i completely accept that different companies have different tax mitigation/avoidance strategies. However the point I was replying to was in relation to Ers NI, hence my comment.

It could be argued that IR35 is a way of stopping "disguised employees" from making use of LtdCo tax loopholes because they're not really Ltd Companies.

[aeropilot]

Countdown said:

It could be argued that IR35 is a way of stopping "disguised employees" from making use of LtdCo tax loopholes because they're not really Ltd Companies.

Which has been driven by the big corporations as it allowed them to avoid paying their Employers taxes as well....

As per my previous post when I can remember the times when it the end clients started putting Ltd only against the day or hour rates on contract jobs as they didn't want to hire contractors on PAYE, for obvious reasons, when many actually chose to do back in the day (in my industry at least)

Govt and big corporations/industry drive this not contractors.

[Countdown]

aeropilot said:

Countdown said:

It could be argued that IR35 is a way of stopping "disguised employees" from making use of LtdCo tax loopholes because they're not really Ltd Companies.

Which has been driven by the big corporations as it allowed them to avoid paying their Employers taxes as well....

I agree. As I think i said earlier I think if Employers think that "inside" Contractors should be expected to bear the brunt of ErsNI it's a royal mickey take.

From a HMRC perspective they're not particularly bothered "who" pays the ErsNI, the EEsNI, and the income tax. They just know that it is being avoided by disguised employees and they're using IR35 to try and stop this.

[Clockwork Cupcake]

You can draw parallels between this and diesel cars. No, bear with me on this.

Diesels were horrid smelly clanky things, and few private owners would choose a diesel over a petrol.

Then the government incentivised people to change to diesel, though a combination of propaganda and making it economically attractive. People switched in droves.

Now we're in the situation where the government has changed its mind, and diesel owners are planet-killing bds who benefited from Dieselgate, are all on the fiddle, are now banned from some city centres due to their child-killing smog monsters, etc etc, yet many made the switch to diesel in the first place as the government of the day were extolling it as greener.

Are the government admitting that they created this situation? As if. They're blaming it all on people who bought diesel cars.

So, to come back to IR35, as aeropilot points out many older PSC contractors were incentivised into setting up a Limited company by a) their clients and b) the government, yet somehow we are the bad guys.

[Anubis]

aeropilot said:

Which has been driven by the big corporations as it allowed them to avoid paying their Employers taxes as well....

yes very much this.

Both sides benefited from the arrangement - more so the larger big fish companies. They get a LOT of positives to obtaining skills like this to deliver what they want. Sadly they believe it's a simply "here...sign this instead" scenario which isn't going to work as costs will increase for them if they want Inside IR35 contractors.

These large companies had a choice when advertising their jobs - either permanent staff or bring in a contractor. All of them advertised their jobs for contractors, when really they should have been permanent jobs.

The contractors simply filled the demand created by the large firms. If the norm was to advertise as a permanent salaried staff then most wouldn't consider creating LTD companies and working as a contractor - it would be seen as a very niche thing to do which would scare off most people from doing it (too few roles advertised to think "hmmm....this is a good career move").

Sadly big companies won't instead now advertise most of their roles as permanent jobs. Instead they will still want their cake and eat it - either by offshoring the lot and making it someone else's problem...or by advertising their jobs as Inside IR35. Eventually being a no rights long-term employee would be considered normal....a future that neither perm staff nor current contractors want. Only big firms pulling the strings win. HMRC still won't get their taxes this way

[Guvernator]

Yep I agree, if lots of people move to inside contracts I can very much see this becoming the norm. Let's face it, pernie employees are a pain in the arse for employers in terms of having to offer them employer rights and benefits plus the difficulty in getting rid of them when they are surplus to requirements.

I can very much see zero rights employees becoming the norm in the future, why wouldn't they? It's pretty much a win-win for large companies.

[Anubis]

Clockwork Cupcake said:

So, to come back to IR35, as aeropilot points out many older PSC contractors were incentivised into setting up a Limited company by a) their clients and b) the government, yet somehow we are the bad guys.

Yep. HMRC have been very effective at peddling this myth that contractors are only in business because we can "fiddle tax and not pay very much" (despite the jobs never being advertised as perm to start with - it's a contract role...take it or leave it. Day rate looks fine...I'll take it then).

I'm paying more tax than a perm job; it's just categorised in a different way. HMRC's public bucket of gold receives more coins in it from me being a LTD company than if I were taxed like a perm employee....yet because the category (pot labelled) "employers NI" has no coins in it, we are deemed as "fiddling the books"....but we not.

HMRC have been very clever and purposely targeted known names like Mr Eamonn Holmes and BBC celebs to drive public opinion against contractors. Mr Joe Bloggs thinks "good! Why should I be paying less tax than well paid people like Eamonn Holmes. Make all contractors doing this pay their fair share like me...".

Average person on the street doesn't care; they rightly despise people who are perceived to be rewarded for the same days efforts as them but get away from paying the same tax. However, they don't ever see a breakdown of taxes paid to compare against - so publicly repeating soundbites like "making tax fair" works on the masses.

If I could show someone my perm role a few years back versus my LTD taxes they would honestly say..."wait a minute...you DO pay more tax than me as a contractor!". Well, yes - it's just categorised as corporation tax which permanent staff don't pay...it all ends up in the same pot for the government to spend like everyone else. It's just categorised differently.

HMRC have successfully made the common worker (perm) hate contractors as they have peddled this myth that we are somehow getting away with murder on the tax front - it's not like that when you compare numbers side by side. In this day and age it's simply "what lifestyle and career route" do you prefer rather than "hey...I know a great way to avoid paying taxes like everyone else".

Edited by Anubis on Monday 2nd March 15:12

[Anubis]

Guvernator said:

I can very much see zero rights employees becoming the norm in the future, why wouldn't they? It's pretty much a win-win for large companies.

Yes totally...it's common sense. You can get pretty much the same thing for far less commitment and hassle long term.

I can 100% see people becoming envious of others for having a perm job. A bit like those with final salary gold plated pensions today. A case of "ah wow mate, lucky you! You got a perm contract...now way! I would hold on to that if I were you...not many of those around today"

It's a very sad state of affairs. Mr and Mrs average will end up in a situation of having no rights, no holidays, punished for taking too many sick days (just get rid of them) and so on. Mr and Mrs average won't run things like a business...they'll avoid paying into pensions, take out loans based on their current day rates (i.e. "my current 3 month contract") and everything, which is only going to make huge societal problems later on.

Edited by Anubis on Monday 2nd March 15:17

[worsy]

Anubis said:

Clockwork Cupcake said:

So, to come back to IR35, as aeropilot points out many older PSC contractors were incentivised into setting up a Limited company by a) their clients and b) the government, yet somehow we are the bad guys.

Yep. HMRC have been very effective at peddling this myth that contractors are only in business because we can "fiddle tax and not pay very much" (despite the jobs never being advertised as perm to start with - it's a contract role...take it or leave it. Day rate looks fine...I'll take it then).

I'm paying more tax than a perm job; it's just categorised in a different way. HMRC's public bucket of gold receives more coins in it from me being a LTD company than if I were taxed like a perm employee....yet because the category (pot labelled) "employers NI" has no coins in it, we are deemed as "fiddling the books"....but we not.

HMRC have been very clever and purposely targeted known names like Mr Eamonn Holmes and BBC celebs to drive public opinion against contractors. Mr Joe Bloggs thinks "good! Why should I be paying less tax than well paid people like Eamonn Holmes. Make all contractors doing this pay their fair share like me...".

Average person on the street doesn't care; they rightly despise people who are perceived to be rewarded for the same days efforts as them but get away from paying the same tax. However, they don't ever see a breakdown of taxes paid to compare against - so publicly repeating soundbites like "making tax fair" works on the masses.

If I could show someone my perm role a few years back versus my LTD taxes they would honestly say..."wait a minute...you DO pay more tax than me as a contractor!". Well, yes - it's just categorised as corporation tax which permanent staff don't pay...it all ends up in the same pot for the government to spend like everyone else. It's just categorised differently.

HMRC have successfully made the common worker (perm) hate contractors as they have peddled this myth that we are somehow getting away with murder on the tax front - it's not like that when you compare numbers side by side. In this day and age it's simply "what lifestyle and career route" do you prefer rather than "hey...I know a great way to avoid paying taxes like everyone else".

Edited by Anubis on Monday 2nd March 15:12

Did you pay more tax in your perm role because you were paid less than you gross day rate figure? I can assure you that an equivalent paye salary pays a lot more tax than a contractor.

And if you are trying to compare the lower rates of a perm salary then there are two responses I can give you:

1. We have a progressive income tax approach where those who earn more contribute more.
2. The difference in costs to employ someone will be taxed through the profits of the employing company.

• If you only ever contracted for a finance company, due to the VAT rules then I accept that the additional 20% vat cost to the client would increase the tax take but unless you are a very high earner and the 2% ERNI rate applies to significant amounts then it would still be PAYE higher tax take.

[Countdown]

Anubis said:

I'm paying more tax than a perm job; it's just categorised in a different way. HMRC's public bucket of gold receives more coins in it from me being a LTD company than if I were taxed like a perm employee....yet because the category (pot labelled) "employers NI" has no coins in it, we are deemed as "fiddling the books"....but we not.

In that case surely you will be better off being "inside" (or even PAYE) ?

[pring_ing]

mondeoman said:

Gad-Westy said:

RammyMP said:

A mate of mine has been self employed with the same firm for 15 years, currently he’s on £7500 a month with paid holiday. He was called in last week and offered £69k to go perm which he was told was the same cost to the company with pension and N.I. payments. He’s not happy about it but hasn’t much choice, mortgage to pay etc.

But in this example, unless the exact circumstances are highly unusual, your friend has been inside IR35 for 15 years and should have been paying tax accordingly. Which means that his net income should have been equivalent to a salary of £73.5k. So a salary of £69k shouldn't change the picture much. But in reality, I assume your friend has been paying tax as if he is outside of IR35 and is about to take a big hit in take home. But the bigger worry for him might be when HMRC come sniffing later on as it really won't look good and 15 years of underpaid taxes is going to be a whopping amount.

That's £250k + fines all day long. Or is it? If he transferred to umbrella/agency as inside, then he's open to trouble, but transferring to perm? Not so sure.

Sorry to dredge this up from a couple of weeks ago but since it's relevant to me (long term contract, but IR35 reviewed and insured by QDOS) - isn't the maximum they can go back 6 years unless it's fraudulent? So long as you've had someone professional telling you that it's Outside IR35 then that should tick the non fraudulent box - it's just a difference of legal opinion. So he'd be on the hook for 6 years which while still hellish isn't quite as bad as 15.

[Gazzab]

pring_ing said:

Sorry to dredge this up from a couple of weeks ago but since it's relevant to me (long term contract, but IR35 reviewed and insured by QDOS) - isn't the maximum they can go back 6 years unless it's fraudulent? So long as you've had someone professional telling you that it's Outside IR35 then that should tick the non fraudulent box - it's just a difference of legal opinion. So he'd be on the hook for 6 years which while still hellish isn't quite as bad as 15.

Am afraid no one can provide an answer to this question without using words like ‘maybe, might and / or risk’.
You might never get a retro investigation, your insurance might cover you, they might only go back 6 years, they might go back further, it might be a horribly painful process regardless of insurance, the bill might be eye watering etc

[pring_ing]

Gazzab said:

Am afraid no one can provide an answer to this question without using words like ‘maybe, might and / or risk’.
You might never get a retro investigation, your insurance might cover you, they might only go back 6 years, they might go back further, it might be a horribly painful process regardless of insurance, the bill might be eye watering etc

Thanks, you are of course correct. The lack of absolute answers seems par for the course! It's my main bugbear with all this - the fact that it's not possible to get a clear/cast iron In/Out determination from HMRC and it's always going to be an opinion- yours, your clients or HMRCs. The potential fallout from getting that opinion wrong can be horrendous. If HMRC would issue cast iron rules like "If you've worked for a client for more than 2 years you can no longer be considered Outside IR35" then that'd alleviate some of the uncertainty.

[super7]

Should find out today if we're in or out of IR35.

To be honest i'm not fussed either way, if were out, we carry on as normal, if we're in we've been offered a bloody good package to go permie (working for a consultancy) so could be win win situation as the basic is massive and then bonus and perks.

But.... thinking about it.... PSC's could have been fixed very easily by HMRC by creating a new class of Ltd company for PSC's and making a minimum director salary (to catch some more NI and Emp Ni) and increased Corporation tax to cover the NI bit a bit more.

Would have saved a whole load of bad press and st!

[theboss]

super7 said:

Should find out today if we're in or out of IR35.

To be honest i'm not fussed either way, if were out, we carry on as normal, if we're in we've been offered a bloody good package to go permie (working for a consultancy) so could be win win situation as the basic is massive and then bonus and perks.

But.... thinking about it.... PSC's could have been fixed very easily by HMRC by creating a new class of Ltd company for PSC's and making a minimum director salary (to catch some more NI and Emp Ni) and increased Corporation tax to cover the NI bit a bit more.

Would have saved a whole load of bad press and st!

I don’t think such a simple solution would work. What would the criteria be for registering this new type of company? Why wouldn’t I simply register the old type and carry on doing as I have been? How do you distinguish between a “disguised employment” type of Ltd co operator and a more genuine service provider?

I do think the current situation with blanket PSC bans is rubbish, but people need to try and adapt to the new way of working. I’ve gone from a situation of being caught by a blanket assessment to distancing myself from IR35 very safely. Opportunities do exist.

[aeropilot]

theboss said:

I do think the current situation with blanket PSC bans is rubbish, but people need to try and adapt to the new way of working. I’ve gone from a situation of being caught by a blanket assessment to distancing myself from IR35 very safely. Opportunities do exist.

I think whether opportunities exist of not is very industry specific.

In mine, in my role, that amounts to zero outside IR35 options now apart from the very few small companies that meet the small company criteria.
Over time (and that's not in the next 18-24 months) I'm sure things will evolve and change, but it will be too late for me, with only 5 years working life left.

For me now its 25%+ pay cut or nothing.