Contractors: IR35 & general discussion

[tighnamara]

ITP said:

Anyone who stays working on the same project after next April after the client basically says ‘you were outside IR35, but now we only offer inside IR35 contracts on a PAYE basis’ is nuts.

You would be basically admitting you were inside all the time and be wide open to back tax. Hence you have to leave.

I think the government, and many companies, actually think that contractors will just stay on and go PAYE because there will be nowhere else to go. Mainly because unlike when it was brought in for the public sector there was somewhere to go, the private sector. Now they believe everyone will just roll over and go PAYE or staff because they have closed off all outside IR35 routes so you may as well just stay where you are, projects continue as they were, just with a few unhappy contractors who will just stay on anyway. Wrong.

Even if you decide to go for an inside IR35 contract it most certainly not be on the same project, or at the same client as you are already at due to the huge risk of exposure mentioned above. For example, I work on a complex multimillion pound brownfield O&G project and ALL of the experience contractors in my department with extensive knowledge of the project and it’s history will be leaving if their contracts are changed to inside IR35, without exception.
I am certain the management are totally oblivious to this and will be genuinely surprised when everyone walks.

They will then just send all of it to the ‘low cost centre’ and it will fail in a spectacular fashion.

Never mind.

What is the “low cost centre” ?
There are a lot of experienced and very capable contractors in the O & G industry who can’t just turn their back on the industry.

[hyphen]

ITP said:

Anyone who stays working on the same project after next April after the client basically says ‘you were outside IR35, but now we only offer inside IR35 contracts on a PAYE basis’ is nuts.

You would be basically admitting you were inside all the time and be wide open to back tax. Hence you have to leave.

I think the government, and many companies, actually think that contractors will just stay on and go PAYE because there will be nowhere else to go. Mainly because unlike when it was brought in for the public sector there was somewhere to go, the private sector. Now they believe everyone will just roll over and go PAYE or staff because they have closed off all outside IR35 routes so you may as well just stay where you are, projects continue as they were, just with a few unhappy contractors who will just stay on anyway. Wrong.

Even if you decide to go for an inside IR35 contract it most certainly not be on the same project, or at the same client as you are already at due to the huge risk of exposure mentioned above. For example, I work on a complex multimillion pound brownfield O&G project and ALL of the experience contractors in my department with extensive knowledge of the project and it’s history will be leaving if their contracts are changed to inside IR35, without exception.
I am certain the management are totally oblivious to this and will be genuinely surprised when everyone walks.

They will then just send all of it to the ‘low cost centre’ and it will fail in a spectacular fashion.

Never mind.

Not really.

If you take the example of HSBC, if they have made a top down decision of everyone inside, and not judges it project by project. Then that contractor is merely continuing business with them on the only terms available.

[Welshbeef]

Where is EricMc?

[ITP]

tighnamara said:

ITP said:

Anyone who stays working on the same project after next April after the client basically says ‘you were outside IR35, but now we only offer inside IR35 contracts on a PAYE basis’ is nuts.

You would be basically admitting you were inside all the time and be wide open to back tax. Hence you have to leave.

I think the government, and many companies, actually think that contractors will just stay on and go PAYE because there will be nowhere else to go. Mainly because unlike when it was brought in for the public sector there was somewhere to go, the private sector. Now they believe everyone will just roll over and go PAYE or staff because they have closed off all outside IR35 routes so you may as well just stay where you are, projects continue as they were, just with a few unhappy contractors who will just stay on anyway. Wrong.

Even if you decide to go for an inside IR35 contract it most certainly not be on the same project, or at the same client as you are already at due to the huge risk of exposure mentioned above. For example, I work on a complex multimillion pound brownfield O&G project and ALL of the experience contractors in my department with extensive knowledge of the project and it’s history will be leaving if their contracts are changed to inside IR35, without exception.
I am certain the management are totally oblivious to this and will be genuinely surprised when everyone walks.

They will then just send all of it to the ‘low cost centre’ and it will fail in a spectacular fashion.

Never mind.

What is the “low cost centre” ?
There are a lot of experienced and very capable contractors in the O & G industry who can’t just turn their back on the industry.

‘Low cost centre’ are places like India.
Company money men like to use them as they can make more profit per hour at a lower cost to the client. Problem is quality can be very patchy unless you are lucky and much rework has to be done in general and problems get pushed to site construction, which gets very expensive.

To be fair, since there has been very little in the way of training apprentices for decades, there are now mainly just many older (50’s and 60’s) very experienced, but soon to retire, people left, so maybe they have no choice. I’d have preferred they took on apprentices instead of filling the gap with overseas cheap labour, so there’s still an industry here in the future, but sadly this is not the case.
HMRC not going to get much tax from the ‘low cost centres’......

[GT03ROB]

ITP said:

‘Low cost centre’ are places like India.
Company money men like to use them as they can make more profit per hour at a lower cost to the client. Problem is quality can be very patchy unless you are lucky and much rework has to be done in general and problems get pushed to site construction, which gets very expensive.

To be fair, since there has been very little in the way of training apprentices for decades, there are now mainly just many older (50’s and 60’s) very experienced, but soon to retire, people left, so maybe they have no choice. I’d have preferred they took on apprentices instead of filling the gap with overseas cheap labour, so there’s still an industry here in the future, but sadly this is not the case.
HMRC not going to get much tax from the ‘low cost centres’......

....and this is where some "contractors" go wrong.....

We like to use the offshore lost cost centres, simply because it's the only way we stay in business. Unless we can blend the low cost rates with high cost UK based rates we will not be in business. Companies who want to take on board additional cost from Uk based "contractors" will see any competitive advantage erode further. The market drives commodity engineering (80% of it on a normal O&G project) offshore. A "premium" can continue to be charged on some work.

No low cost centre.... no work in UK... no tax full stop for HMRC
Low cost centre.... some work in UK ....some tax revenue for HMRC

[SOL111]

GT03ROB said:

....and this is where some "contractors" go wrong.....

We like to use the offshore lost cost centres, simply because it's the only way we stay in business. Unless we can blend the low cost rates with high cost UK based rates we will not be in business. Companies who want to take on board additional cost from Uk based "contractors" will see any competitive advantage erode further. The market drives commodity engineering (80% of it on a normal O&G project) offshore. A "premium" can continue to be charged on some work.

No low cost centre.... no work in UK... no tax full stop for HMRC
Low cost centre.... some work in UK ....some tax revenue for HMRC

I'm sure it can work in some cases but my experience of this hasn't been great and invariably ends up costing more.

I've had direct involvement with TATA/TCS and a few other companies like Fairtek. They're cheap but any gains made on the rates are undone via rework and management of the resource.

[GT03ROB]

SOL111 said:

I'm sure it can work in some cases but my experience of this hasn't been great and invariably ends up costing more.

I've had direct involvement with TATA/TCS and a few other companies like Fairtek. They're cheap but any gains made on the rates are undone via rework and management of the resource.

The difference is when we use the low cost centres they are not somebody else. It's a different office of the same company. Simply subcontracting out to 3rd parties in lower cost countries will not end well generally!

[ITP]

GT03ROB said:

ITP said:

‘Low cost centre’ are places like India.
Company money men like to use them as they can make more profit per hour at a lower cost to the client. Problem is quality can be very patchy unless you are lucky and much rework has to be done in general and problems get pushed to site construction, which gets very expensive.

To be fair, since there has been very little in the way of training apprentices for decades, there are now mainly just many older (50’s and 60’s) very experienced, but soon to retire, people left, so maybe they have no choice. I’d have preferred they took on apprentices instead of filling the gap with overseas cheap labour, so there’s still an industry here in the future, but sadly this is not the case.
HMRC not going to get much tax from the ‘low cost centres’......

....and this is where some "contractors" go wrong.....

We like to use the offshore lost cost centres, simply because it's the only way we stay in business. Unless we can blend the low cost rates with high cost UK based rates we will not be in business. Companies who want to take on board additional cost from Uk based "contractors" will see any competitive advantage erode further. The market drives commodity engineering (80% of it on a normal O&G project) offshore. A "premium" can continue to be charged on some work.

No low cost centre.... no work in UK... no tax full stop for HMRC
Low cost centre.... some work in UK ....some tax revenue for HMRC

I do understand all that, it’s a global buisness, someone bids for a project with lower design and engineering costs using more low cost centre than you and you have no work for anyone.
Like I said though, that’s only part of the job, the reduced quality and rework later on can end up costing more in extra material and construction costs, never mind rework. This cost can be massive, I have worked in projects where there were several hundred in the design and engineering dept, in Norway, so high wages, for 2-3 years and the total cost of all that was only 5% of the project cost. 95% was materials and construction. So trying to save a few quid on design can cause major issues later on.
Even on smaller uk projects i’ve seen shutdown costs of £1 million/day for every day overrun.

But none of that matters it seems now, and I suppose it doesn’t if you didn’t get the job in the first place. It’s just a race to the bottom now it seems.

So in a few short years all the experienced guys will be gone, with no one following on due to no apprentices (as offshore cheap labour is preferred) who could be the people who ‘guide’ the low cost centres in the future. Therefore very soon you will have to rely solely on low cost centres to even bid for jobs as there will be no experienced designers and engineers at all in the uk. You’ll all be out of work then.
It’s a sad state of affairs really, but that’s the way it’s going I suppose.

To bring it back on topic, as I mentioned above, in this industry due to the ageing workforce, these IR35 changes will have a tendency to just accelerate many experienced people’s retirement, hence accelerate the demise of the industry in the uk as companies will find it hard to source people they need to allow them to bid for projects in the first place. Plus HMRC will lose the tax they’d get for a few more years of them working of course.

[SOL111]

GT03ROB said:

SOL111 said:

I'm sure it can work in some cases but my experience of this hasn't been great and invariably ends up costing more.

I've had direct involvement with TATA/TCS and a few other companies like Fairtek. They're cheap but any gains made on the rates are undone via rework and management of the resource.

The difference is when we use the low cost centres they are not somebody else. It's a different office of the same company. Simply subcontracting out to 3rd parties in lower cost countries will not end well generally!

Fair enough. But that's some investment all the same.

Not having a go by it's a shame it has to come to this IMO as it slowly turns this country into nothingness, just in order to maintain competitiveness.

[GT03ROB]

SOL111 said:

Fair enough. But that's some investment all the same.

Not having a go by it's a shame it has to come to this IMO as it slowly turns this country into nothingness, just in order to maintain competitiveness.

By comparison to say a typical proposal budget, it's actually doesn't cost that much. I've done it twice in India & now run one somewhere else.

ITP said:

Like I said though, that’s only part of the job, the reduced quality and rework later on can end up costing more in extra material and construction costs, never mind rework. This cost can be massive, I have worked in projects where there were several hundred in the design and engineering dept, in Norway, so high wages, for 2-3 years and the total cost of all that was only 5% of the project cost. 95% was materials and construction. So trying to save a few quid on design can cause major issues later on.
Even on smaller uk projects i’ve seen shutdown costs of £1 million/day for every day overrun.

But none of that matters it seems now, and I suppose it doesn’t if you didn’t get the job in the first place. It’s just a race to the bottom now it seems.

So in a few short years all the experienced guys will be gone, with no one following on due to no apprentices (as offshore cheap labour is preferred) who could be the people who ‘guide’ the low cost centres in the future. Therefore very soon you will have to rely solely on low cost centres to even bid for jobs as there will be no experienced designers and engineers at all in the uk. You’ll all be out of work then.

To bring it back on topic, as I mentioned above, in this industry due to the ageing workforce, these IR35 changes will have a tendency to just accelerate many experienced people’s retirement, hence accelerate the demise of the industry in the uk as companies will find it hard to source people they need to allow them to bid for projects in the first place. Plus HMRC will lose the tax they’d get for a few more years of them working of course.

I fully understand how the benefits of low cost engineering can rapidly evaporate in the face of poor design leading to material & construction overruns. It still counts, but doing it in established western offices doesn't guarantee the outcome we all want. I've spent more than enough time sorting out these sorts of messes & I'll tell you this has happened from established western offices as much as low cost places. This is where keeping it in house helps keep control. We already bid & execute projects entirely out of low cost centres & have done for some years now. The Uk has it's place but bulk engineering isn't it.

Contractors in O&G throwing their toys out of the pram will only further accelerate the rate of transfer & reduce their future opportunities as the UK companies focus on core strengths & real value added stuff. So to some extent we agree!! The only think IR35 will do is change rate at which things happen not cause them to happen.

[ITP]

I’ve seen plenty of jobs go wrong in western companies too, of course, I’ve just seen a lot more go wrong using the offshore option. But that’s just my experience on work on projects with a mix of western and low cost labour since the 90’s.
But, as you say, it’s happening anyway, more and more, so it’s a dying trade in the uk in the end sadly. I suppose if they are taking all the engineering and design there’s no reason they can’t take all the rest too in time, management, procurement etc. That would be much cheaper too.

Part time at B & Q beckons!
I can become one of those 43% of adults paying no tax reported in the daily wail yesterday!

Edited by ITP on Wednesday 7th August 13:02

[EmilA]

Zulu 10 said:

Firstly, remember that the bulk of the defence industry is currently in the private sector, hence the revised IR35 Inside/Outside client judgement which hit the public sector in 2017 will not hit the private sector until April 2020.

But I think you’ll find that the origin of the defence rumour is from when the revised inside/outside IR35 legislation was rolled out across the public sector in 2017, it used an interesting definition of ‘public sector’ namely any government or pseudo-government organisation to which the Freedom of Information Act applies.

There are a number of government organisations to which the FoI Act does not apply: Cheltenham being one, and there are obviously a couple more in London.

Thus any contractor/consultant working for any of these organisations is not currently affected by the client driven IR35 status bunfight.

It remains to be seen how the April 2020 changes will address the private sector especially sensitive areas such as defence, though it’s worth noting that Dstl and MoD didn’t get exempt from the 2017 legislation, because they are quite clearly subject to FoI, albeit bounded by classification.

My understanding is that MoD took a pragmatic stance and did properly assess each role on its merits, rather than simply saying "blanket judgement; you're all within" which Dstl seems to have done.

What isn’t clear to me is whether HMRC would, in the case of a defence company contractor, be willing to concede that using the client’s IT equipment is inevitable when working on classified projects.

Then when asking about management of task and direction, how could HMRC conduct a fair investigation when their questions on what the contractor is doing meet with a need-to-know (and you don’t) response?

Edited by Zulu 10 on Wednesday 7th August 07:44

A few good points raised, thank you.

[GT03ROB]

ITP said:

I can become one of those 43% of adults paying no tax reported in the daily wail yesterday!

Edited by ITP on Wednesday 7th August 13:02

I already am! Sat in a little airport where no one speaks English in the middle of nowhere, but having spent the last few days trying to funnel work to my office here, while hiving the clever stuff off to the UK.

[wombleh]

I've so many war stories from clients about outsourcing and offshoring that I just don't believe it works in the majority of cases. I've only ever seen one that I think actually worked well, ironically that client then insourced anyway.

Stats can be massaged to make it look successful and it's not like the managers responsible will ever fess up when they can bullst everyone and get a nice retirement package, leaving the staff or customers suffering from the crap service. It's not sustainable and is Soviet like model in terms of beurocratic corruption. Over the next decade I think we are really going to start suffering the problems this approach has woven into UK systems, arguably we already have with the spate of massive outages at banks and travel companies of late.

If this accelerates it more then god help UK Corp.

Edited by wombleh on Wednesday 7th August 18:58

[Countdown]

wombleh said:

I've so many war stories from clients about outsourcing and offshoring that I just don't believe it works in the majority of cases. I've only ever seen one that I think actually worked well, ironically that client then insourced anyway.

Edited by wombleh on Wednesday 7th August 18:58

Ive been involved in a lot of outsourcing and 95% of the time it’s a PITA resulting in a worse service. However, when in-house staff price themselves out of a job it can be the only option available.

[StanleyT]

GT03ROB said:

SOL111 said:

I'm sure it can work in some cases but my experience of this hasn't been great and invariably ends up costing more.

I've had direct involvement with TATA/TCS and a few other companies like Fairtek. They're cheap but any gains made on the rates are undone via rework and management of the resource.

The difference is when we use the low cost centres they are not somebody else. It's a different office of the same company. Simply subcontracting out to 3rd parties in lower cost countries will not end well generally!

I've worked in a couple of places using outsource / low cost centres. Low cost centres do require more management and rework. But we always found offshoring worked best for us. Aberdeen placed projects could be done 9-5 in Aberdeen, then transferred overnight via Brisbane and Santiago to continue the commodity work! People in our co at the time (2005, before the oil crash, doesn't exist now) actually got paid the same nett salaries and expenses and allowances to go and manage the offshore centres. Whilst this didn't save us any direct cost, it took 30 - 50% off our project management and overhead duration cost as we delivered the work a third faster than had it all been done in the UK. Patagnonia and Brisbane are certainly out IR35.

How does it work where you have a role where SC at a certain grade is needed? I'm presuming as you can't substitute in that situation that must be inside IR35?

[MagicalTrevor]

StanleyT said:

How does it work where you have a role where SC at a certain grade is needed? I'm presuming as you can't substitute in that situation that must be inside IR35?

I can’t recall the wording but the CEST tool covers this and the wording excludes security clearance

[tighnamara]

ITP said:

‘Low cost centre’ are places like India.
Company money men like to use them as they can make more profit per hour at a lower cost to the client. Problem is quality can be very patchy unless you are lucky and much rework has to be done in general and problems get pushed to site construction, which gets very expensive.

To be fair, since there has been very little in the way of training apprentices for decades, there are now mainly just many older (50’s and 60’s) very experienced, but soon to retire, people left, so maybe they have no choice. I’d have preferred they took on apprentices instead of filling the gap with overseas cheap labour, so there’s still an industry here in the future, but sadly this is not the case.
HMRC not going to get much tax from the ‘low cost centres’......

I get what you are saying but there are a lot of positions where outsourcing to low cost centres will / are not possible.

It’s another one where there hasn’t been much thought put into it, take pensions for example where HMRC have said it would be too difficult for the “agency” to manage multiple transactions.

This means that if the end client deems the contractor to be PAYE he can’t pay into a pension at source.
So much for being treated as an employee and the need to make sure all are saving for retirement.

Seems another where they are picking and choosing what can / can’t be done with little thought on the big picture and ensuring a level playing field.

Granted you can have a personal pension and claim back tax but removes what should be a given as an employee benefit, especially with all the push for saving and pensions.

Edited by tighnamara on Monday 12th August 20:37

[PostHeads123]

Hirers seem to be accepting its going to happen in the private sector, myself I have been approached 3 x in a week regarding different 'contractor' roles which then quickly morphed into 'fixed term contract inside IR35 - 12 months'. Clients were big player in the finance sector

[manracer]

im currently in for 3 new contracts, i specifically asked about ir35 - 2 said had already dealt with it and deemed OUTSIDE, the last one said they were finalising the details but it will be OUTSIDE too..