Contractors: IR35 & general discussion

[98elise]

Countdown said:

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

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?

Employee's don't pay VAT, employers NI, corporation tax, or tax on account. It's not easy to compare specific tax between an employee and an employer. The vast way is just to look at total money received, and total tax paid.

I meant what I said about control over pay. On my current project 5 people have been dropped at various points. 3 have found contracts straight away, 2 have not found work in 6 and 9 months respectively.

On the expenses front yes you can within limits, and you still can under IR35 (just with more restrictions).

Being able to continue recieving a monthly salary when you have no work is sensible planning for a contractor.

[Flooble]

Countdown said:

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.

I seem to recall the HMRC ESI tool is fairly flawed - https://www.theregister.co.uk/2019/02/08/ir35_tax_...

I think your example of Agency Temps is what HMRC envisaged originaly and I rather suspect that from a PAYE standpoint they are employees - the Agency in this case acting as their employer rather than your firm. They probably get a rough ride in terms of holiday and sick pay, but I strongly suspect HMRC gets its cut just fine.

The DBA is probably the other sort of "contractor" that HMRC is seeking to crack down on - the guys who work in the same place for 10 years. It happens with consultancies too, we had one guy in the consultancy division who I had never met in an entire decade of employment. He'd been five days a week with the same customer in the entirety of my time there.

However, it appears that HMRC can't be bothered to apply "common sense" and seeks to just apply broad legislation with dire threats, sweeping up everyone under the same legislation.

[anonymous-user]

swamp said:

I'm not sure what everyone is worried about. HMRC advertise their own contract roles outside of IR35...!

I have contracted 3 times for HMRC, the middle one was inside IR35, the other two was outside. Fortunately the middle was was a cushy gig so I had two other contracts on the go.

[Countdown]

Flooble said:

The DBA is probably the other sort of "contractor" that HMRC is seeking to crack down on - the guys who work in the same place for 10 years. It happens with consultancies too, we had one guy in the consultancy division who I had never met in an entire decade of employment. He'd been five days a week with the same customer in the entirety of my time there.

Agreed. Another thing is where a person is sat next to a permie doing more or less the same work but arguing that they're a "Contractor".

[snake_oil]

Countdown said:

Agreed. Another thing is where a person is sat next to a permie doing more or less the same work but arguing that they're a "Contractor".

You seem to be putting the blame on the contractor here. How else should they describe themselves if they are not PAYE through the client?

[SOL111]

Countdown said:

Agreed. Another thing is where a person is sat next to a permie doing more or less the same work but arguing that they're a "Contractor".

Yes, but what would you expect a contractor to do? A completely different job, sit on the floor, in a separate office?

Doing the same job isn't what defines a contractor. Of course a contractor is going to do the same job. It's how they're expected to do it.

The other side of it is that I've been in an office where permies have moaned about contractors. Next minute, the manager walks in and announces that workloads have slowed down. Therefore, all contractors working on xyz don't need to come in next week. Either that or I've been cranking away doing 50+ hours a week for months and am then told that all contractors need to limit hours to 37.

Permies soon stop moaning as none would accept instant dismissal or enforced 25%+ cut in income.

[zippy3x]

Countdown said:

Flooble said:

The DBA is probably the other sort of "contractor" that HMRC is seeking to crack down on - the guys who work in the same place for 10 years. It happens with consultancies too, we had one guy in the consultancy division who I had never met in an entire decade of employment. He'd been five days a week with the same customer in the entirety of my time there.

Agreed. Another thing is where a person is sat next to a permie doing more or less the same work but arguing that they're a "Contractor".

If the contractor is really doing nothing different, then why don't you become a contractor? Double you money for absolutely no extra effort.

[Countdown]

snake_oil said:

Countdown said:

Agreed. Another thing is where a person is sat next to a permie doing more or less the same work but arguing that they're a "Contractor".

You seem to be putting the blame on the contractor here. How else should they describe themselves if they are not PAYE through the client?

Just to clarify - we're talking about the application of IR35.

HMRC website said:

A worker is involved in off-payroll working when they work for a client through their own intermediary, often a personal service company (PSC), but would be an employee if they were providing their services directly.

If you're doing the same work as a permie then (afaics) there's no justification for arguing that you dont fall within IR35.

[snake_oil]

And who's fault is that. The contractor or the client?

[manracer]

98elise said:

and cannot retain money in the company to cover periods out of work.

Edited by 98elise on Friday 12th July 01:02

Can anyone explain this to me please, I appear to of missed this aspect?

I also can't wrap my head around how IR35 expects me to be treated similar to an employee with regards to employee tax, yet also pay CT et al?

[Tim330]

manracer said:

Can anyone explain this to me please, I appear to of missed this aspect?

I also can't wrap my head around how IR35 expects me to be treated similar to an employee with regards to employee tax, yet also pay CT et al?

For contracts caught by ir35 the client deducts the tax and NI as if it were paying staff. They then pay your ltd nett of tax and NI which you can then pay to yourself. At the year end your accountant will account for the tax already paid for this contract so you won't pay tax twice. There won't be any CT to pay on an ir35 caught contact as all the money should be paid as salary so no profit for CT.

[Eric Mc]

Mr Pointy said:

You could always decide to operate as Sole Traders instead. No IR35 worries then.

Employers have never wanted to take on individuals as "sole traders" as the tax and NI risk has always been imposed on the employer.

What this new imposition means is that this same liability to tax and NI in regards to those operating through an intermediary (i.e. a limited company, partnership, trust etc) also falls on the employer - just like it always has in regards to hiring somebody on a sole trader basis.

The problem with all of this is that employers have always wanted as much control over their sub-contractor "employees" as they have over their normal employees - but not the legal and other commitments that they have to their normal employees.

[manracer]

Tim330 said:

manracer said:

Can anyone explain this to me please, I appear to of missed this aspect?

I also can't wrap my head around how IR35 expects me to be treated similar to an employee with regards to employee tax, yet also pay CT et al?

For contracts caught by ir35 the client deducts the tax and NI as if it were paying staff. They then pay your ltd nett of tax and NI which you can then pay to yourself. At the year end your accountant will account for the tax already paid for this contract so you won't pay tax twice. There won't be any CT to pay on an ir35 caught contact as all the money should be paid as salary so no profit for CT.

Thanks, so in theory it's just moving the tax from one place to another, and this other way of taxing results in additional tax for the end user ie the contractor. I'm therefore guessing that the CT benefit gained currently with expenses will go too, so an additional loss for the contractor.

Sorry if I'm taking in layman terms.

[Tim330]

manracer said:

Thanks, so in theory it's just moving the tax from one place to another, and this other way of taxing results in additional tax for the end user ie the contractor. I'm therefore guessing that the CT benefit gained currently with expenses will go too, so an additional loss for the contractor.

Sorry if I'm taking in layman terms.

For ir35 caught contracts you can no longer claim business mileage and other travel and subsistence costs (hotel, meals etc). They have also removed the blanket 5% travel and subsistence allowance for inside ir35 caught contracts from April 2020.
So essentially you can no longer pay the expenses out of gross income then calculate profits for CT. You must instead pay the expenses out of post taxed income.

[Olivera]

Countdown said:

If you're doing the same work as a permie then (afaics) there's no justification for arguing that you dont fall within IR35.

IR35 legislation says nothing about 'doing the same work as a permie', it has no bearing on IR35 status.

The same can be said regarding length of contract, again this is not part of IR35 legislation and has no bearing on IR35 status.

[98elise]

Olivera said:

Countdown said:

If you're doing the same work as a permie then (afaics) there's no justification for arguing that you dont fall within IR35.

IR35 legislation says nothing about 'doing the same work as a permie', it has no bearing on IR35 status.

The same can be said regarding length of contract, again this is not part of IR35 legislation and has no bearing on IR35 status.

And there is nothing in the CEST tool about it either IIRC.

Edited by 98elise on Wednesday 17th July 17:16

[Countdown]

Olivera said:

Countdown said:

If you're doing the same work as a permie then (afaics) there's no justification for arguing that you dont fall within IR35.

IR35 legislation says nothing about 'doing the same work as a permie', it has no bearing on IR35 status.

The same can be said regarding length of contract, again this is not part of IR35 legislation and has no bearing on IR35 status.

https://www.gov.uk/guidance/ir35-find-out-if-it-applies

[zippy3x]

Countdown said:

Olivera said:

Countdown said:

If you're doing the same work as a permie then (afaics) there's no justification for arguing that you dont fall within IR35.

IR35 legislation says nothing about 'doing the same work as a permie', it has no bearing on IR35 status.

The same can be said regarding length of contract, again this is not part of IR35 legislation and has no bearing on IR35 status.

https://www.gov.uk/guidance/ir35-find-out-if-it-applies

That's the conditions that would mean you need to decide on a worker's IR35 status, not that they are inside

[manracer]

Tim330 said:

manracer said:

Thanks, so in theory it's just moving the tax from one place to another, and this other way of taxing results in additional tax for the end user ie the contractor. I'm therefore guessing that the CT benefit gained currently with expenses will go too, so an additional loss for the contractor.

Sorry if I'm taking in layman terms.

For ir35 caught contracts you can no longer claim business mileage and other travel and subsistence costs (hotel, meals etc). They have also removed the blanket 5% travel and subsistence allowance for inside ir35 caught contracts from April 2020.
So essentially you can no longer pay the expenses out of gross income then calculate profits for CT. You must instead pay the expenses out of post taxed income.

That makes sense, thank you.

So would there be any CT to pay at all?
What about self assessment tax?

[Tim330]

manracer said:

That makes sense, thank you.

So would there be any CT to pay at all?
What about self assessment tax?

For ir35 caught contracts I don't think so. One thing I'm not sure about is how company expenses like accounting fees and business insurance are treated for CT when inside ir35 as these are not contract specific like travel and subsistence expenses for example.