PDA

View Full Version : Discussion document on IR35 published



LisaContractorUmbrella
17th July 2015, 10:52
https://www.gov.uk/government/consultations/intermediaries-legislation-ir35-discussion-document

northernladuk
17th July 2015, 11:01
So much for the edict that IR35 tax issues have nothing to do with the client lol.

jamesbrown
17th July 2015, 11:08
One option which could meet the objectives for reform, and specifically tackle the challenges in enforcing compliance set out earlier in this document, would be for engagers to take on more of a role in ensuring that the right amount of employment taxes are paid.


One option could be to align the test with that used for temporary workers in the agency rules, which is based on supervision, direction or control. Another option could be to look again at some of the suggestions considered by the OTS, such as requiring an engagement to last a certain minimum amount of time to be considered one of employment.

:laugh

Sure, it's a discussion document, so nothing is certain, but I think we can see where this is heading. I don't think the latter part of the last quote is going to hold water though (such simplistic rules have been demonstrated as unworkable in other jurisdictions, such as Oz, and there will be very strong representations against that).

Unix
17th July 2015, 11:08
They rule out abolishing it, but admit it's going to be very difficult to make it work as it.

TestMangler
17th July 2015, 11:14
From the doc.....

One option which could meet the objectives for reform, and specifically tackle the challenges in enforcing compliance set out earlier in this document, would be for engagers to take on more of a role in ensuring that the right amount of employment taxes are paid.

So, clients, via the agent, gets a signed document stating that the contractor PSC (yes, I know, it's not a legal term) is operating inside IR35 (i.e paying it in full, not getting a contract review and declaring themselves 'out'). Not willing ? Another contractor please Mr Agent. End of story, end of contracting in its current form for all but the few who currently operate concurrent clients or other more business like arrangements.

Stick any onus on the end client for compliance and every contract will become either inside IR35 or FTC. (Or outourced to a bob agent/consultancy).

jamesbrown
17th July 2015, 11:30
Stick any onus on the end client for compliance and every contract will become either inside IR35 or FTC. (Or outourced to a bob agent/consultancy).

Not necessarily. Remember, clients and agents want contractors for a reason (and it isn't tax, except at the very low end of the chain), so there will be a greater incentive to ensure that the working practices are squarely absent of SD&C (where possible, so admittedly some sectors may be impacted more than others). The alternative is they don't, and everyone loses (inc. the UK economy and hence the Exchequer in the longer term). Likely, they would make everyone in the chain (the client, agent and PSC) jointly and severally liable, so this would catch all types of relationships, not just agency contracts, but with PSCs themselves remaining the police in some cases (e.g. client overseas, no UK agency).

tractor
17th July 2015, 11:38
Any responses to this document are a complete waste of time with regards to making any IR35 changes more effective. From P5.


Whilst many PSCs would not fall within the legislation because the worker would properly be regarded as self-employed, the government would still expect to see a larger increase in the number of people paying tax and NICs under IR35. In 2011-12 around 10,000 people paid tax under IR35, an estimated 10% of those who should have paid tax on at least part of the income their PSC receives under the legislation


Until they determine unequivocally what the conditions for being 'properly regarded as self employed' any legislation can simply not be complied with. This has been their problem all along. This is why they introduced BETs and this is also why they scrapped them.

Of course, they will never, ever make that definition because in doing so, the hoops become clear and most people will be able to jump through them.

This is why it is a sham.

jamesbrown
17th July 2015, 11:48
Any responses to this document are a complete waste of time with regards to making any IR35 changes more effective. From P5.

I think we can put that to one side, as it will be determined by case law insofar as it involves employment status. As you say yourself, HMRC have a vested interest in casting the net wide, while increasing compliance, and these two things can probably only be reconciled through administration (i.e. indirectly, rather than new laws). Indeed, they note themselves that this is probably the angle to take w/r to a new role for policing by clients and agencies. Now, the only thing I'm unclear about is what the impacts of that might be. On the one hand, it could increase cooperation from clients and agents to properly understand employment status and to ensure that working practices are absent of any semblance of SD&C. On the other hand, large clients and agencies in some sectors may adopt a knee-jerk reaction.

northernladuk
17th July 2015, 11:53
One thing I'd like to know taking this and all the other changes. Exactly what does Mr Osborne think is a reasonable amount for us to earn. We aren't equivalent to permits. We take on risks they don't. That has to count for something. This flailing to bring us in to line is all OK but where is bench time, unpaid holidays and all that factor in to it? It's going to get to the stage where we get a one year contract and will end up earning less than a permie if he's not careful.

LisaContractorUmbrella
17th July 2015, 11:54
The T&S consultation document also refers to the 'engager' being severally liable but it's not clear whether the engager would be the agency or the client or possibly both

tractor
17th July 2015, 11:56
I think we can put that to one side, as it will be determined by case law insofar as it involves employment status. As you say yourself, HMRC have a vested interest in casting the net wide, while increasing compliance, and these two things can probably only be reconciled through administration (i.e. indirectly, rather than new laws). Indeed, they note themselves that this is probably the angle to take w/r to a new role for policing by clients and agencies. Now, the only thing I'm unclear about is what the impacts of that might be. On the one hand, it could increase cooperation from clients and agents to properly understand employment status and to ensure that working practices are absent of any semblance of SD&C. On the other hand, large clients and agencies in some sectors may adopt a knee-jerk reaction.

It should not be put to one side. This is the whole issue from our perspective. If only they would clarify once and for all what criteria they believe is the differentiator, we would all know what is required to 'comply'

This can only end badly unless new case law is made. That requires going to court. I am not sure there is any appetite for that from any source.

The whole scenario is very similar to the Opt Out regs in that whilst there is provision to, the government will not get involved in enforcing it from our perspective, taking the view that it is entirely up to the client/agent whether they even deal with not opted out contractors and it is not illegal for them to refuse to.

If they pass the responsibility to clients/agents to enforce IR35, both are likely to insist on Umbrella/Inside IR35 working or will not deal with you.

There are implications under EU law in this regard but again, is there any appetite to challenge it? Who would you take to court; Client, agent or HMRC? If there is no challenge or an unsuccessful challenge, it's goodbye contractor, hello temp, zero hours contracts with no expenses. From even an employees point of view, the worst of all worlds.

jamesbrown
17th July 2015, 12:09
The T&S consultation document also refers to the 'engager' being severally liable but it's not clear whether the engager would be the agency or the client or possibly both

My guess would be everyone in the contract chain but, failing that, at least the employment agency and the PSC in an agency arrangement.

northernladuk
17th July 2015, 12:14
My guess would be everyone in the contract chain but, failing that, at least the employment agency and the PSC in an agency arrangement.

I'd say it's the client seems it's them would be dictating working practices. The agent is purely commercial. This wouldn't be too bad would it. At least the clients would be involved. If they stay oblivious to IR35 we will still be stuck with them treating us like employees and won't raise the rates to take in to account this and new divi tax etc.

jamesbrown
17th July 2015, 12:14
This can only end badly unless new case law is made. That requires going to court. I am not sure there is any appetite for that from any source.

The whole scenario is very similar to the Opt Out regs in that whilst there is provision to, the government will not get involved in enforcing it from our perspective, taking the view that it is entirely up to the client/agent whether they even deal with not opted out contractors and it is not illegal for them to refuse to.

If they pass the responsibility to clients/agents to enforce IR35, both are likely to insist on Umbrella/Inside IR35 working or will not deal with you.

There are implications under EU law in this regard but again, is there any appetite to challenge it? Who would you take to court; Client, agent or HMRC? If there is no challenge or an unsuccessful challenge, it's goodbye contractor, hello temp, zero hours contracts with no expenses. From even an employees point of view, the worst of all worlds.

I agree with you that there's a risk here (even a significant one), but I'd be genuinely surprised if the majority of agents and clients took a knee-jerk reaction to enforcement, because it would be the end of their business models w/r to contracting. It's analogous to Greece insofar as everyone could lose (including the Exchequer).

jamesbrown
17th July 2015, 12:18
I'd say it's the client seems it's them would be dictating working practices. The agent is purely commercial. This wouldn't be too bad would it. At least the clients would be involved. If they stay oblivious to IR35 we will still be stuck with them treating us like employees and won't raise the rates to take in to account this and new divi tax etc.

Yes, I mean financially liable (i.e. jointly and severally liable for the tax and penalties), but everyone in the contract chain would ultimately need to take notice (including the client if they weren't financially liable, assuming they wanted continued access to contractors).

BolshieBastard
17th July 2015, 12:19
Not necessarily. Remember, clients and agents want contractors for a reason (and it isn't tax, except at the very low end of the chain), so there will be a greater incentive to ensure that the working practices are squarely absent of SD&C (where possible, so admittedly some sectors may be impacted more than others). The alternative is they don't, and everyone loses (inc. the UK economy and hence the Exchequer in the longer term). Likely, they would make everyone in the chain (the client, agent and PSC) jointly and severally liable, so this would catch all types of relationships, not just agency contracts, but with PSCs themselves remaining the police in some cases (e.g. client overseas, no UK agency).

Except they dont. Far too many clients want a contractor then, treat the contractor as a permie. An independent business is the last thing they think of.

jamesbrown
17th July 2015, 12:23
Except they dont. Far too many clients want a contractor then, treat the contractor as a permie. An independent business is the last thing they think of.

Sure, this would definitely impact some contractors, most likely those that shouldn't be contractors anyway (i.e. clients who want temps), and possibly a significant chunk of those that should in some sectors (depending on how clients and agents react). But, make no mistake, this would radically impact the business models of many clients and, obviously, agents, so I don't think the worst case scenario is likely to happen in practice.

BolshieBastard
17th July 2015, 12:26
Sure, this would definitely impact some contractors, most likely those that shouldn't be contractors anyway (i.e. clients who want temps), and possibly a significant chunk of those that should in some sectors (depending on how clients and agents react). But, make no mistake, this would radically impact the business models of many clients and, obviously, agents, so I don't think the worst case scenario is likely to happen in practice.

Stop talking rubbish 'most likely those that shouldnt be contractors.' You havent a clue.

jamesbrown
17th July 2015, 12:28
Stop talking rubbish 'most likely those that shouldnt be contractors.' You havent a clue.

Like you, for example? I think you were whining recently about excessive D&C from some client or other...

alphadog
17th July 2015, 12:30
It's going to get to the stage where we get a one year contract and will end up earning less than a permie if he's not careful.

Off topic I know, but talking to a teacher friend of mine oop north over the weekend, he says that in his school the non-permo teachers get paid less (if they work full time) than the permos.

In his instance I guess it's more a factor of supply and demand rather than any particular change in regulations by the govt tho. I just really hope that the same result doesn't eventuate in our industries!

TestMangler
17th July 2015, 12:31
Not necessarily. Remember, clients and agents want contractors for a reason (and it isn't tax, except at the very low end of the chain), so there will be a greater incentive to ensure that the working practices are squarely absent of SD&C (where possible, so admittedly some sectors may be impacted more than others). The alternative is they don't, and everyone loses (inc. the UK economy and hence the Exchequer in the longer term). Likely, they would make everyone in the chain (the client, agent and PSC) jointly and severally liable, so this would catch all types of relationships, not just agency contracts, but with PSCs themselves remaining the police in some cases (e.g. client overseas, no UK agency).

LOL, OK.

Do you really think the government can see anything other than that contractors are disguised employees and avoiding tax ? Read the examples in the consultation document. they clearly don't 'get it'. If you think a government is capable of working out the consequences of legislation before they enact it, you must have been hibernating for the last 25 years.

tractor
17th July 2015, 12:32
I agree with you that there's a risk here (even a significant one), but I'd be genuinely surprised if the majority of agents and clients took a knee-jerk reaction to enforcement, because it would be the end of their business models w/r to contracting. It's analogous to Greece insofar as everyone could lose (including the Exchequer).

I don't know how long you have been around but if you were around in the 70's early 80's you have clearly forgotten the legislation that forced us into incorporation in the first place! That meant that agents simply would not deal with the self-employed anything but insisted upon Ltd Co.

jamesbrown
17th July 2015, 12:40
LOL, OK.

Do you really think the government can see anything other than that contractors are disguised employees and avoiding tax ? Read the examples in the consultation document. they clearly don't 'get it'. If you think a government is capable of working out the consequences of legislation before they enact it, you must have been hibernating for the last 25 years.

I've been contracting for a very long time, seen legislation come and go in various countries, and contracting has and will continue to remain a viable option IMO. HMRC has always pushed their own angle vigorously, including w/r to IR35 (see the nonsensical BETs, for example), but it has always been manageable for the vast majority of us.

TestMangler
17th July 2015, 12:55
I've been contracting for a very long time, seen legislation come and go in various countries, and contracting has and will continue to remain a viable option IMO. HMRC has always pushed their own angle vigorously, including w/r to IR35 (see the nonsensical BETs, for example), but it has always been manageable for the vast majority of us.

So have I. The thing with iR35's introduction was that it was made clear that there was no change to the legal definition of 'employment' i.e. current case law stood. I'll be jumping for joy if you are right but I fear this government will introduce some blanket catch all, badly thought out legislation (the 'business friendly' tories) that will destroy the current model. I agree that contracting will continue in some form but I reckon 90% of contractors will end up as FTC or some other invented model in a government mandated disaster.

Loss of revenue and loss of business doesn't seem to have figured much in government thinking. ICT's are only there to alleviate a massive skills shortage in UK IT. Did you know that ?

jamesbrown
17th July 2015, 13:22
So have I. The thing with iR35's introduction was that it was made clear that there was no change to the legal definition of 'employment' i.e. current case law stood. I'll be jumping for joy if you are right but I fear this government will introduce some blanket catch all, badly thought out legislation (the 'business friendly' tories) that will destroy the current model. I agree that contracting will continue in some form but I reckon 90% of contractors will end up as FTC or some other invented model in a government mandated disaster.

Loss of revenue and loss of business doesn't seem to have figured much in government thinking. ICT's are only there to alleviate a massive skills shortage in UK IT. Did you know that ?

There were many predictions of impending doom w/ IR35 and other pieces of legislation, and they were almost always overstated when the dust settled. However, if you're right, I'll consider heading overseas again. I'm not going to stop contracting (even if it becomes less lucrative than being a permie).

WordIsBond
17th July 2015, 13:46
One thing I'd like to know taking this and all the other changes. Exactly what does Mr Osborne think is a reasonable amount for us to earn. We aren't equivalent to permits. We take on risks they don't. That has to count for something. This flailing to bring us in to line is all OK but where is bench time, unpaid holidays and all that factor in to it? It's going to get to the stage where we get a one year contract and will end up earning less than a permie if he's not careful.
He's happy for us to earn a lot of money and be compensated for all that risk.

He just wants the engager to pay for that, rather than having any tax recognition of those risks. He wants his (your) money.

He wants to have low income people have more income, but he doesn't want to pay for it himself. Simple. He'll make companies pay for it. Magic!

Same with us. He's fine with independent workers being compensated well for the risk, he just wants the big companies to be the ones to pay for it.

And a lot of UK PLC will pay. They won't want the risk of unclear legislation being used against them. But they'll still need contractors, good ones. So what happens? They'll require their contractors to operate under IR35, and if that means they have to pay more, they'll pay more.

Or.... They will require their contractors to get a contract review and carry something like TLC35 on a per contract basis that complete indemnifies them. And that will cost maybe £5-10 a day on a six month contract, and many contractors won't even pass it on in their fees. But if they pay an extra £100 a week to have IR35 indemnification, that's nothing to much of UK PLC.

So, some will just say we always operate all our contractors under IR35, they'll pay more, and Georgie gets more money to waste. Others more savvy will require the contractor to indemnify them, and maybe pay a little more to cover the insurance. QDOS will make a lot of money offering insurance on a per contract basis. Others may be quite willing to work with contractors to stay IR35 friendly.

And others will just say, "Let's hire perms."

Of course, it is possible, since the government obviously cares more about UK PLC than small businesses, that the whole idea of making the engager liable will die, once the big corporate lawyers tell their clients to start screaming about it.

LisaContractorUmbrella
17th July 2015, 13:53
Employing permanent staff has become so, potentially, expensive in terms of employee entitlements and litigation that skilled contractors will always be in demand and net rates (so disregarding tax position) will have to be maintained for the supply to continue. What may stop is the forced move of low paid workers to umbrella companies and PSC's and I can't help thinking that's a good thing.

northernladuk
17th July 2015, 15:07
I think it ought to be a two phased approach to contracting.

Phase 1
Every new 'contractor' has to do a 1 year probation whereby they have to either go umbrella or be inside IR35 by default. 99.9% of new contractors are just doing it for the money and have no idea about being a business so how can they be a business in their own right and not a disguised employee? It will also make people think twice about taking what they see as an easy option to contracting so keeping more permies at clients and stops every idiot going contracting.

Phase 2
After the 1 year probation they are interviewed to find out what they know about their company finances and their attitudes towards their clients. If they can't distinguish between their money and company money and still have the mindset their client is their employer then they go back on probation. Instant fail if they don't use terms such as client, pimp, gig, warchest, boomed etc and fail a practical test to bleed a radiator. Not licking the chutney spoon and their view on gladiators will be a pointer but not absolute at this point. Those that can show some understanding of being a business and stand a chance of proving they can work outside IR35 then they can join the fray but still have to continue to prove they are outside on a contract by contract basis.

Dunno why it takes the government so long to do this. Piece of piss.

aoxomoxoa
17th July 2015, 15:20
I think it ought to be a two phased approach to contracting.

Phase 1
Every new 'contractor' has to do a 1 year probation whereby they have to either go umbrella or be inside IR35 by default. 99.9% of new contractors are just doing it for the money and have no idea about being a business so how can they be a business in their own right and not a disguised employee? It will also make people think twice about taking what they see as an easy option to contracting so keeping more permies at clients and stops every idiot going contracting.

Phase 2
After the 1 year probation they are interviewed to find out what they know about their company finances and their attitudes towards their clients. If they can't distinguish between their money and company money and still have the mindset their client is their employer then they go back on probation. Instant fail if they don't use terms such as client, pimp, gig, warchest, boomed etc and fail a practical test to bleed a radiator. Not licking the chutney spoon and their view on gladiators will be a pointer but not absolute at this point. Those that can show some understanding of being a business and stand a chance of proving they can work outside IR35 then they can join the fray but still have to continue to prove they are outside on a contract by contract basis.

Dunno why it takes the government so long to do this. Piece of piss.


Presumably referencing accountants in every forum post confirms status as a legit contractor.

VectraMan
17th July 2015, 15:30
One thing I'd like to know taking this and all the other changes. Exactly what does Mr Osborne think is a reasonable amount for us to earn. We aren't equivalent to permits. We take on risks they don't. That has to count for something. This flailing to bring us in to line is all OK but where is bench time, unpaid holidays and all that factor in to it? It's going to get to the stage where we get a one year contract and will end up earning less than a permie if he's not careful.

Again with the risk. Contractors don't take on any risk, other than not finding work, and that's no different than temps. But unlike temps you get paid a lot more than the equivalent permie, and you get to avoid tax to boot.

If you work for your own Ltd. then you do get paid holidays and paid bench time, just like any other employee it comes out of the company's funds. The thing that is totally wrong about IR35 is that they look at the company's income as yours; what they should do is tax you on your income like anyone else, but not allow dividends. Then you really are running a business - just pay yourself a salary through the year and it's up to you to make sure there's enough left to cover paid holiday or other periods when the company isn't earning. Simple.

OrangeSquash
17th July 2015, 15:30
Employing permanent staff has become so, potentially, expensive in terms of employee entitlements and litigation that skilled contractors will always be in demand and net rates (so disregarding tax position) will have to be maintained for the supply to continue. What may stop is the forced move of low paid workers to umbrella companies and PSC's and I can't help thinking that's a good thing.

^^^ This.
Except it will take several years for the dust to settle. For anyone wanting to continue contracting it looks like these will be several painful and uncertain years.

northernladuk
17th July 2015, 16:51
Again with the risk. Contractors don't take on any risk, other than not finding work, and that's no different than temps. But unlike temps you get paid a lot more than the equivalent permie, and you get to avoid tax to boot.


Well that's a risk not to be sniffed at. There is also all the other things we've seen people struggle with on here. No notice paid, no come back on instant termination, getting paid through an intermediary who don't always want to pay an so on..

Anyway, wasn't really a post that to create a discussion on the details lol.

Zero Liability
17th July 2015, 19:38
Any responses to this document are a complete waste of time with regards to making any IR35 changes more effective. From P5.



Until they determine unequivocally what the conditions for being 'properly regarded as self employed' any legislation can simply not be complied with. This has been their problem all along. This is why they introduced BETs and this is also why they scrapped them.

Of course, they will never, ever make that definition because in doing so, the hoops become clear and most people will be able to jump through them.

This is why it is a sham.

What I wonder is, how do they estimate that 90k contractors should have paid more tax? This is the sort of thing it takes a court case to determine, so without having undergone the whole investigation/review process, how on earth would they know that (and again, isn't this still a fraction of the 200k in total they estimate operating via "PSCs"; so how do they differentiate)? But they have a history of making baseless guesstimates, so nothing new here I guess.

Bluenose
18th July 2015, 11:48
zero: for those contractors that have been in the game long enough we know the two types of contractor Hmrc was trying to go after with ir35. of the first type, every company of a decent size has at least one or more.

these are the guys in their mid to late forties and over who started contracting in the mid to late 90s and tend to fly under the radar.

they earn crap money but seem to be endlessly re.extended on gigs and may have been there for many years.

and at the risk of a sweeping generalisation, in my experience they are at higher likelyhood of using an EBT scheme, because they are chasing the lifestyle they had during the golden years of contracting.

second type came of age during the recent recession and are usually outside of IT and are nothing more than permies on reduced rights.

instead of targeting these people directly Hmrc failed because they tried to cast the net too wide and try to catch real freelancers. end result was they ended up being able to catch far fewer of what I would class as the real Dodgers.

as posted earlier, Hmrc are making same mistake again as they are trying to cast the net even wider.

tractor
18th July 2015, 12:23
What I wonder is, how do they estimate that 90k contractors should have paid more tax? This is the sort of thing it takes a court case to determine, so without having undergone the whole investigation/review process, how on earth would they know that (and again, isn't this still a fraction of the 200k in total they estimate operating via "PSCs"; so how do they differentiate)? But they have a history of making baseless guesstimates, so nothing new here I guess.

They work out a number that would be tempting for the government to get behind them and support them with legislation. Coincidentally, they make sure the gp know so they can create a good deal of antipathy. They didn't fool the select committee but hey it doesn't matter. They fooled everyone else.

When 'estimating' their sole aim is to tempt the government, who will always go for it because it means revenue.

Zero Liability
18th July 2015, 15:14
zero: for those contractors that have been in the game long enough we know the two types of contractor Hmrc was trying to go after with ir35. of the first type, every company of a decent size has at least one or more.

these are the guys in their mid to late forties and over who started contracting in the mid to late 90s and tend to fly under the radar.

they earn crap money but seem to be endlessly re.extended on gigs and may have been there for many years.

and at the risk of a sweeping generalisation, in my experience they are at higher likelyhood of using an EBT scheme, because they are chasing the lifestyle they had during the golden years of contracting.

second type came of age during the recent recession and are usually outside of IT and are nothing more than permies on reduced rights.

instead of targeting these people directly Hmrc failed because they tried to cast the net too wide and try to catch real freelancers. end result was they ended up being able to catch far fewer of what I would class as the real Dodgers.

as posted earlier, Hmrc are making same mistake again as they are trying to cast the net even wider.

Even in the above scenarios, unless they can satisfactorily demonstrate that none of the three pillars apply, the conclusion that individuals are not paying as much tax as they would like under IR35 is premature - this also applies for their guesstimates on how much the measure 'protects'. They may not like this and they may think everyone should be a permie, but the reality is they're just making figures up out of thin air, for reasons I think tractor has hit upon.

Anyway, my guess is as of next year's budget or maybe a bit later, end clients will also be taking a hit on this, which may have unintended consequences, because like jamesbrown said, they're going to have an uphill battle trying to introduce (even more) arbitrary measures like time spent on a particular engagement.

unixman
18th July 2015, 16:06
Again with the risk. Contractors don't take on any risk, other than not finding work, and that's no different than temps. But unlike temps you get paid a lot more than the equivalent permie, and you get to avoid tax to boot.

Risk of not finding work = potential bankruptcy for you and homelessness for your family.

Contractors take the risk by contracting through choice, when they could get a permanent job. Temps usually do not have a choice of a perm job, and are therefore not taking the risk, just facing it.

In contracting, it is impossible to pay the same tax as your permy neighbour. You either pay more (umbrella, 2 sets of NICS) or less (Ltd/dividends).

Darkling
18th July 2015, 19:55
Under such an arrangement, those who engage a worker through a PSC would need to
consider whether or not IR35 applies (in the same way as they would need to consider
whether a worker should be self-employed or actually be an employee), and, if so, deduct the
correct amounts of income tax and NICs as they would for direct employees

So the proposal is that the 'engager' deducts the IC and NICs and pays what's left to the 'PSC'? Isn't the net payment then subject to double taxation (corporation tax if retained by the PSC, dividend or further employment taxes if distributed to the 'worker')?

Brussels Slumdog
19th July 2015, 15:04
I think it ought to be a two phased approach to contracting.

Phase 1
Every new 'contractor' has to do a 1 year probation whereby they have to either go umbrella or be inside IR35 by default. 99.9% of new contractors are just doing it for the money and have no idea about being a business so how can they be a business in their own right and not a disguised employee? It will also make people think twice about taking what they see as an easy option to contracting so keeping more permies at clients and stops every idiot going contracting.

Phase 2
After the 1 year probation they are interviewed to find out what they know about their company finances and their attitudes towards their clients. If they can't distinguish between their money and company money and still have the mindset their client is their employer then they go back on probation. Instant fail if they don't use terms such as client, pimp, gig, warchest, boomed etc and fail a practical test to bleed a radiator. Not licking the chutney spoon and their view on gladiators will be a pointer but not absolute at this point. Those that can show some understanding of being a business and stand a chance of proving they can work outside IR35 then they can join the fray but still have to continue to prove they are outside on a contract by contract basis.

Dunno why it takes the government so long to do this. Piece of piss.

Employee or Contractor .
In order to be independent the contractor should be able to prove at least two conditions :-
The nature of the work is irregular. Implementing a significant system change is irregular whereas providing help desk support is regular employee work.
At least two clients in 3 years , three clients in 5 years .
Notice period less than one month
Commuting more than 90 min a day

There are contractors on my current site in London who would not even meet one condition

SueEllen
19th July 2015, 15:30
Employee or Contractor .
In order to be independent the contractor should be able to prove at least two conditions :-
The nature of the work is irregular. Implementing a significant system change is irregular whereas providing help desk support is regular employee work.
At least two clients in 3 years , three clients in 5 years .
Notice period less than one month
Commuting more than 90 min a day

There are contractors on my current site in London who would not even meet one condition

The commute would be arguable as some of us have had clients where some or all of the work is done at home.

Underbase
19th July 2015, 15:30
Employee or Contractor .
In order to be independent the contractor should be able to prove at least two conditions :-
The nature of the work is irregular. Implementing a significant system change is irregular whereas providing help desk support is regular employee work.
At least two clients in 3 years , three clients in 5 years .
Notice period less than one month
Commuting more than 90 min a day

There are contractors on my current site in London who would not even meet one condition

I agree with the rest, but just because someone wants to live in central London they shouldn't be penalized.

SueEllen
19th July 2015, 15:45
Again with the risk. Contractors don't take on any risk, other than not finding work, and that's no different than temps. But unlike temps you get paid a lot more than the equivalent permie, and you get to avoid tax to boot.



Not true.

As a temp as long as you turn up and do your hours you get paid.

As a contractor both direct clients and agencies can try to get out of paying you. We have more in common with high skilled self employed than temps.

tractor
19th July 2015, 17:53
Not true.

As a temp as long as you turn up and do your hours you get paid.

As a contractor both direct clients and agencies can try to get out of paying you. We have more in common with high skilled self employed than temps.

Unfortunately, for the purposes of this discussion, HMRC would say that we have the same protections as employees in that we can Opt Out. In practice, if an agent/client wishes to disallow this, they can with impunity given that the value of a single contract is unlikely to be enough to induce one to take the matter to court for a definitive and binding decision that will be of value to the rest of us in terms of case law precedent.

And BIS or whatever they are called this week would shrug and say 'wibble, wibble, wobble, pook'

I am sure someone :eyes will be along in a moment and swear on his granny's life that IPSE have been looking high and low for a case to take to court for years. But it hasn't happened and neither will it.

So if you are forced to opt out to secure a role, HMRC will say that you forewent those protections voluntarily.

WordIsBond
19th July 2015, 20:56
I read the document again this weekend, taking a little more time on it. And the thing that struck me about it all is that we've already lost the argument, as far as the government is concerned, and if we want to have any hope to win it then the argument has to be re-framed.

Right now, the government clearly sees this in HMRC's terms. Those terms say that incorporation of freelancers is a negative for the government, because it means loss of revenue. It is bad for us to be independent, it is bad for us to be employees of our own companies rather than employees of our clients, because that model means less tax revenue. So there will always be this tug of war where they are trying to drag more of us back into the clutches of the tax model that maximises tax revenue.

That's a losing argument for us, because money talks. So they will constantly be doing things to drag us back into that model.

It seems to me that we need to make the case for why it is beneficial to the economy for us to have our own business, and to be incorporated, and to be accepted as businesses in our own right. This consultation document reads as if that isn't accepted as beneficial by government at all.

The document says IR35 must be failing because there is a whole industry that has grown up around beating IR35, and as contractor numbers increase, contractors operating under IR35 haven't increased. Maybe that means people are using that anti-IR35 industry to cheat. But maybe it means people are using it to structure their businesses to stay outside IR35. And maybe it means industry is choosing to work with contractors because they find it useful to have skilled and flexible workers available on a temporary basis, and so are willing to structure contracts and working relationships to accommodate contractors wishing to stay outside IR35. Maybe it isn't cheating. Maybe IR35 has changed behaviour....

But even if they accept that, it won't change anything, because they aren't getting the revenue they want. So they will just go after us in another way (like travel expenses?).

We need to not only make the case for flexibility, we also need to make the case for being limited companies, for being separate businesses. We need to make the case that the flexible workforce can't exist if we aren't protected from liability, so we have to form limited companies. We need to make the case that the flexible workforce has variable income, so having a limited company allows us to smooth out personal compensation between good years and bad years, and if we can't do that we'll have to push up costs to industry. We need to make the case to our client industries, to big business, that if we're the target of government, it is going to cost them, in increased fees but even more in the loss of parts of their available pool of skilled workers, and get them on board with arguing our case to government.

Right now, we're just a cash cow that isn't being milked, as far as government is concerned. The dividend tax, the expenses, the whole tone of this document, makes that clear. We need to make the case that our current model is needed, or they'll keep hitting it until it dies. We may fight off one thing, or another, but they'll just keep coming at us. We have to find a way to change the discussion.

jamesbrown
19th July 2015, 21:48
if we want to have any hope to win it then the argument has to be re-framed

There's an element of messaging insofar as very few MPs actually understand micro-businesses or existing government policies towards them, let alone the impacts of these policies. For that reason, we need to support and shape the message from those lobbying on "our" behalf (such as IPSE). However, I think we also need to be realistic and bear in mind that; 1) lobbying is an exercise in fishing rather than catching and it frequently doesn't work; 2) notwithstanding a more general level of ignorance among MPs, that many (with input from HMRC) do have a very strong sense of what and whom they're trying to target, and this involves a subset of self-employed workers (e.g. those on low/moderate incomes incorporating largely for tax purposes or those on high incomes blatantly milking the public purse through off payroll arrangements); and 3) that we'll need to better distinguish ourselves from that subset in order to avoid becoming collateral (although, frankly, I'm not sure this is a battle that can be won, because the complexity of these distinctions is well established).

This will most likely end in freelancers being given a special status, but not one that is beneficial from a tax perspective (beyond, perhaps, the ability to smooth income between years, which is critical IMO). What has always irritated me is the designed lack of clarity on which IR35 relies and the persistent propaganda that micro-businesses are somehow not legitimate businesses (unless they have a plan to expand and employ others). The loss of some perceived tax advantage won't really impact my decision making one way or another (unless it's punitive).

SpontaneousOrder
20th July 2015, 00:27
Its funny that the primary thing that stops us contractors working together & incorporating as a 'real' businesses (supplying multiple contractors to potentially multiple clients simultaneously) is the overhead and hassle imposed by HMRC & employment law :wink

They make it impossible or just not worth the effort (because it's wasted effort), and then try to shoot us down for running one-man bands.

The reality is they don't want too much low-level individual success. We must remember that we exist to serve the status quo. They need us to need them.

SpontaneousOrder
20th July 2015, 00:33
I read the document again this weekend, taking a little more time on it. And the thing that struck me about it all is that we've already lost the argument, as far as the government is concerned, and if we want to have any hope to win it then the argument has to be re-framed.

Right now, the government clearly sees this in HMRC's terms. Those terms say that incorporation of freelancers is a negative for the government, because it means loss of revenue. It is bad for us to be independent, it is bad for us to be employees of our own companies rather than employees of our clients, because that model means less tax revenue. So there will always be this tug of war where they are trying to drag more of us back into the clutches of the tax model that maximises tax revenue.

That's a losing argument for us, because money talks. So they will constantly be doing things to drag us back into that model.

It seems to me that we need to make the case for why it is beneficial to the economy for us to have our own business, and to be incorporated, and to be accepted as businesses in our own right. This consultation document reads as if that isn't accepted as beneficial by government at all.

The document says IR35 must be failing because there is a whole industry that has grown up around beating IR35, and as contractor numbers increase, contractors operating under IR35 haven't increased. Maybe that means people are using that anti-IR35 industry to cheat. But maybe it means people are using it to structure their businesses to stay outside IR35. And maybe it means industry is choosing to work with contractors because they find it useful to have skilled and flexible workers available on a temporary basis, and so are willing to structure contracts and working relationships to accommodate contractors wishing to stay outside IR35. Maybe it isn't cheating. Maybe IR35 has changed behaviour....

But even if they accept that, it won't change anything, because they aren't getting the revenue they want. So they will just go after us in another way (like travel expenses?).

We need to not only make the case for flexibility, we also need to make the case for being limited companies, for being separate businesses. We need to make the case that the flexible workforce can't exist if we aren't protected from liability, so we have to form limited companies. We need to make the case that the flexible workforce has variable income, so having a limited company allows us to smooth out personal compensation between good years and bad years, and if we can't do that we'll have to push up costs to industry. We need to make the case to our client industries, to big business, that if we're the target of government, it is going to cost them, in increased fees but even more in the loss of parts of their available pool of skilled workers, and get them on board with arguing our case to government.

Right now, we're just a cash cow that isn't being milked, as far as government is concerned. The dividend tax, the expenses, the whole tone of this document, makes that clear. We need to make the case that our current model is needed, or they'll keep hitting it until it dies. We may fight off one thing, or another, but they'll just keep coming at us. We have to find a way to change the discussion.

Not taking public sector contracts would be a start. But that won't happen.

Danglekt
20th July 2015, 08:48
In terms of reframing - simple maths should help.

I'm a project manager and get roughly double the gross income vs. previous perm roles I've had assuming I have reasonable utilisation through the year, which in the last couple of years I have.

In addition I am VAT registered, so HMRC get:

~14% of my gross in VAT
20% of retained profits
7.5% and 32.5% of whatever I whip out in addition to the the small salary I take.

So looking at the maths on VAT, plus CT, plus income tax and I generate SIGNIFICANTLY more income for HMRC than I ever did as a permie.

In addition to being able to provide highly experience temporary support to national and regional projects that were going no where fast with permie's pretending they had time to deliver it, helping business move forward.

Anyway, I'm off to clean my white armour :laugh

The Spartan
20th July 2015, 08:51
In terms of reframing - simple maths should help.

I'm a project manager and get roughly double the gross income vs. previous perm roles I've had assuming I have reasonable utilisation through the year, which in the last couple of years I have.

In addition I am VAT registered, so HMRC get:

~14% of my gross in VAT
20% of retained profits
7.5% and 32.5% of whatever I whip out in addition to the the small salary I take.

So looking at the maths on VAT, plus CT, plus income tax and I generate SIGNIFICANTLY more income for HMRC than I ever did as a permie.

In addition to being able to provide highly experience temporary support to national and regional projects that were going no where fast with permie's pretending they had time to deliver it, helping business move forward.

Anyway, I'm off to clean my white armour :laugh

It's this that they don't really understand and not just that, they want more from you they're not content with what they're getting.

tractor
20th July 2015, 08:57
It's this that they don't really understand and not just that, they want more from you they're not content with what they're getting.

It is and always has been more than just that. It is far easier and much, much cheaper for them to police a single BigCo than 2000 LittleCos. Not to mention getting what would otherwise have been CT in the form of tax/NI, collected up to 20 months earlier.

gables
20th July 2015, 09:17
Other people mentioned...

We have more in common with high skilled self employed than temps

So looking at the maths on VAT, plus CT, plus income tax and I generate SIGNIFICANTLY more income for HMRC than I ever did as a permie.



We are high skilled self employed people. We also provide part of the flexible workforce that the government said is required. And we generate more income for them than if we were employed.

I really don't get what is so difficult for the government to understand.

cojak
20th July 2015, 09:18
It is and always has been more than just that. It is far easier and much, much cheaper for them to police a single BigCo than 2000 LittleCos. Not to mention getting what would otherwise have been CT in the form of tax/NI, collected up to 20 months earlier.
Will the contractor business model end up as a collective (one MediumCo as opposed to 5/10/20 LittleCos), so that HMRC get what they want and and we get what we want, or does our very flexibility (3 month contracts, bench time etc) mean that HMRC will NEVER be happy with how we operate (in theory - in practice the word is that HRMC are screaming for contractors on stuttering projects...)?

tractor
20th July 2015, 09:26
Will the contractor business model end up as a collective (one MediumCo as opposed to 5/10/20 LittleCos), so that HMRC get what they want and and we get what we want, or does our very flexibility (3 month contracts, bench time etc) mean that HMRC will NEVER be happy with how we operate (in theory - in practice the word is that HRMC are screaming for contractors on stuttering projects...)?

It is never a surprise that they, like us want their cake and to eat it. I am toying with the idea of determining what is needed to set up outside their purview of what a 'PSC' is in terms of shareholding/corporate structure etc. and maybe setting up that way but then finding another 20 contractors with the right mix of skills and experience that you can also trust is akin to finding an honest politician!

In fact, I just took a year off and will be looking to get back to it shortly. During that time, I have kept my searches going on the usual job sites and during that year, the content of the emails have just got worse and worse with all encompassing job roles, fishing, etc. It should be interesting trying to find a new contract with a one year gap. Maybe I should apply to HMRC.

Gumbo Robot
20th July 2015, 11:46
He's happy for us to earn a lot of money and be compensated for all that risk.

He just wants the engager to pay for that, rather than having any tax recognition of those risks. He wants his (your) money.

He wants to have low income people have more income, but he doesn't want to pay for it himself. Simple. He'll make companies pay for it. Magic!

Same with us. He's fine with independent workers being compensated well for the risk, he just wants the big companies to be the ones to pay for it.

And a lot of UK PLC will pay. They won't want the risk of unclear legislation being used against them. But they'll still need contractors, good ones. So what happens? They'll require their contractors to operate under IR35, and if that means they have to pay more, they'll pay more.

Or.... They will require their contractors to get a contract review and carry something like TLC35 on a per contract basis that complete indemnifies them. And that will cost maybe £5-10 a day on a six month contract, and many contractors won't even pass it on in their fees. But if they pay an extra £100 a week to have IR35 indemnification, that's nothing to much of UK PLC.

So, some will just say we always operate all our contractors under IR35, they'll pay more, and Georgie gets more money to waste. Others more savvy will require the contractor to indemnify them, and maybe pay a little more to cover the insurance. QDOS will make a lot of money offering insurance on a per contract basis. Others may be quite willing to work with contractors to stay IR35 friendly.

And others will just say, "Let's hire perms."

Of course, it is possible, since the government obviously cares more about UK PLC than small businesses, that the whole idea of making the engager liable will die, once the big corporate lawyers tell their clients to start screaming about it.


I don't see end clients paying more; there will just be more of us turning down roles because it's not worth it.

End result?

There will be a "skills shortage" & they'll just increase the number of on-shored "consultants" on ICTs etc. to deal with the shortfall.

Tech Mahindra, Infosys et al must be rubbing their hands together...

tractor
20th July 2015, 11:56
I don't see end clients paying more; there will just be more of us turning down roles because it's not worth it.

End result?

There will be a "skills shortage" & they'll just increase the number of on-shored "consultants" on ICTs etc. to deal with the shortfall.

Tech Mahindra, Infosys et al must be rubbing their hands together reaping the rewards of all those brown envelopes...

FTFY

tomtomagain
20th July 2015, 15:23
From the FT - Freelance employees face new scrutiny on tax

My bold.



The IR35 rules were introduced in 2000 .... paid broadly the same amount of tax and national insurance contributions as other employees.

But HMRC accepted that non-compliance is widespread.
It estimates that nine out of ten of those who should comply, do not.


So HMRC think that 90% of contractors should be caught by the current IR35 but are not because of problems with enforcement.



The proposed shake-up would require anyone using a worker through a personal service company to consider whether IR35 applied and, if so, deduct the correct amount of income tax and national insurance from their pay.



So they are going to "Fix" the problem by making it someone else's problem. Putting the onus onto the agents and clients to decide whether the contract is IR35 compliant or not.

DimPrawn
20th July 2015, 15:30
Let's see, is a client going to do that, or will they call an Indian bodyshop "consultancy" for some UK Govt approved and sponsored "highly skilled migrants" instead? No risk, low cost option. Why have HMR&C all over you when you can shop abroad and let the Indian tax authorities worry about it.

Vote LibLabCon, end UK Contracting today!

SimonMac
20th July 2015, 15:35
Discussed here

http://forums.contractoruk.com/accounting-legal/107700-discussion-document-ir35-published.html

Mods, can we close this down so we don't end up with a budget like scenario where there are 15 threads discussing the same thing

SimonMac
20th July 2015, 15:38
Contractors don't take on any risk, other than not finding work, and that's no different than temps. But unlike temps you get paid a lot more than the equivalent permie, and you get to avoid tax to boot.



Between VAT, CT and PAYE, I pay a lot of tax, probably more than if I was a permie in a similar role

tomtomagain
20th July 2015, 15:46
awwwe don't close my thread. It's the first one I've created in 10 years.

SimonMac
20th July 2015, 15:49
I know with every budget we are up in arms saying it's the biggest thread to Contractors ever, but I get a feeling with this one it might actually be the case.

If HMRC are trying to push the responsibility onto the Client, we all know what is going to happen, these are the same Clients that have pushed the responsibility of recruiting onto agents so there is a risk that agencies will start popping up offering the entire solution to Clients which will end up screwing us.

DaveB
20th July 2015, 15:54
From the FT - Freelance employees face new scrutiny on tax

My bold.




So HMRC think that 90% of contractors should be caught by the current IR35 but are not because of problems with enforcement.





So they are going to "Fix" the problem by making it someone else's problem. Putting the onus onto the agents and clients to decide whether the contract is IR35 compliant or not.

So many issues with that article, it's basically a regugitation of an HMRC press release.

It misrepresents the purpose of IR35, it convieniantly overlooks the corporation tax component of the tax being paid and grossly oversimplifies the example used.

If even the FT is just brainlessly repeating the HMRC line then we really are stuffed.

tractor
20th July 2015, 15:56
awwwe don't close my thread. It's the first one I've created in 10 years.

10 years and you haven't learned that tulip goes in general and anything serious does not?

I would also argue with the premise you made in the OP...


So HMRC think that 90% of contractors should be caught by the current IR35 but are not because of problems with enforcement.


The article says "It estimates that nine out of ten of those who should comply, do not."

The two are not the same thing at all.

Everyone knows that 100% of IR35 doesn't work because they cannot define a real business!

SimonMac
20th July 2015, 15:56
awwwe don't close my thread. It's the first one I've created in 10 years.

Be grateful you are now in the professional forums so we can't beat you with your own spleen for not using the search function :D

suityou01
20th July 2015, 17:15
I think if a by product of this is that ClientCos start to differentiate us from temps because this brings the contracting model under the microscope then I'm all for it.

Case in point. A bank I started working at last year shitcanned me after 4 months for refusing to fill out an annual leave request. The debacle blew up after one of the other contractors rightly kicked up a fuss. He folded and stayed there filling out holiday requests.

Again this was all Human Remains throwing their weight around, and their central argument was that all contractors were under direction and control, and should be bound under the terms of the AWR. This utter cretinism does not stop there, as when I pointed out that AWR workers are entitled to paid annual leave, statutory sickness etc and in fact they were only enforcing the aspects of AWR that suited them.

Now if this legislation meant that the bank had to back date holiday payments for their 100 or so contractors, a healthy percentage of which had been there for over 15 years happily filling in annual leave requests and providing doctors notes etc. if this meant they got walloped for backdated NI payments, and the contractors that so wantonly flouted the rules got brought to book I for one would laugh my not so skinny ass off.

But I'm not bitter :rolleyes:

SueEllen
20th July 2015, 17:28
Everyone knows that 100% of IR35 doesn't work because they cannot define a real business!

They tried to with the BETs. Though what they defined as a business came out of the 1960s and ignored technological innovations such as the internet.

I've had clients' who don't have "proper" offices in the UK. Everyone works from home unless they have to work on a client site, all workers meet up when required in coffee shops/hotels/bars for face-to-face interaction, and they book meeting rooms as needed for clients, interviews etc.

Acme Thunderer
20th July 2015, 17:35
A number of people on this thread (and in other places) keep on counting VAT in how much Tax they contribute. To HMRC it is VAT neutral, if fact we probably cost the HMRC VAT revenue.

If I charge my agent VAT, the agent then just uses that as input into their VAT calculations and reduces their VAT bill accordingly. So HMRC doesn't get anything extra in VAT because of us. For those of use in the FRS we cost the HMRC because I bet a lot of us don't have VAT inputs that are 5.5% of our turnover.

So don't be surprised if the VAT FRS gets canned as well.

eek
20th July 2015, 17:47
A number of people on this thread (and in other places) keep on counting VAT in how much Tax they contribute. To HMRC it is VAT neutral, if fact we probably cost the HMRC VAT revenue.

If I charge my agent VAT, the agent then just uses that as input into their VAT calculations and reduces their VAT bill accordingly. So HMRC doesn't get anything extra in VAT because of us. For those of use in the FRS we cost the HMRC because I bet a lot of us don't have VAT inputs that are 5.5% of our turnover.

So don't be surprised if the VAT FRS gets canned as well.

+1. This has always been a pet hate when people quote the high level of tax they pay..

WordIsBond
20th July 2015, 17:55
Yeah, VAT doesn't come into it unless you are providing services to the consumer. You aren't generating any revenue for the government with VAT, you are just shifting where it comes from, and maybe skimming a little with FRS.

Look for one man bands to not be able to use FRS before long.

BolshieBastard
20th July 2015, 18:46
I know with every budget we are up in arms saying it's the biggest thread to Contractors ever, but I get a feeling with this one it might actually be the case.

If HMRC are trying to push the responsibility onto the Client, we all know what is going to happen, these are the same Clients that have pushed the responsibility of recruiting onto agents so there is a risk that agencies will start popping up offering the entire solution to Clients which will end up screwing us.

KPMG are the latest big co to offer an 'all in one consultancy' service ie from dev to testing.

The writing is on the wall. Its not if but when.

tractor
20th July 2015, 18:52
They tried to with the BETs. Though what they defined as a business came out of the 1960s and ignored technological innovations such as the internet.

I've had clients' who don't have "proper" offices in the UK. Everyone works from home unless they have to work on a client site, all workers meet up when required in coffee shops/hotels/bars for face-to-face interaction, and they book meeting rooms as needed for clients, interviews etc.

BET was a tool to catch some of us out. It worked after a fashion because lots of people 'failed' and either declared themselves inside or went umbrella/PAYE. We lobbied against them and it probably would have been better in hindsight to have let them be.

They will never define a 'business' in terms of what they will accept.

Because as soon as they do, we know what hurdles we have to jump and they cannot easily change it then bang goes any deterrent they ever had.

WordIsBond
20th July 2015, 19:07
They will never define a 'business' in terms of what they will accept.

Because as soon as they do, we know what hurdles we have to jump and they cannot easily change it then bang goes any deterrent they ever had.
Pretty much it. They want the fear and the confusion.

They claim a high percentage aren't complying with IR35. Perhaps a high percentage are complying by making sure they stay outside of it. But for HMRC, "complying" means making sure you pay everything they want you to pay.

northernladuk
20th July 2015, 19:23
Pretty much it. They want the fear and the confusion.

They claim a high percentage aren't complying with IR35. Perhaps a high percentage are complying by making sure they stay outside of it. But for HMRC, "complying" means making sure you pay everything they want you to pay.

Another problem is most contractors don't know what a business is either.

Waldorf
21st July 2015, 00:03
In addition I am VAT registered, so HMRC get:

~14% of my gross in VAT
20% of retained profits
7.5% and 32.5% of whatever I whip out in addition to the the small salary I take.

So looking at the maths on VAT, plus CT, plus income tax and I generate SIGNIFICANTLY more income for HMRC than I ever did as a permie.

No, HMRC is not getting more.

VAT - whatever amount you pay over, your agency/client will reclaim the VAT they pay you so HMRC effectively will not see any of this.

The amount you pay as CT and on dividends is a small proportion of the amount that you would pay as an employee, PLUS you would pay National Insurance PLUS your employer would pay NIC.

In addition you would not be able to claim travel etc.

You can see why HMRC see employees as for attractive to people working through their own company.

jamesbrown
21st July 2015, 00:19
The amount you pay as CT and on dividends is a small proportion of the amount that you would pay as an employee

I agree with your central premise, but not for the reasons you provide. A contractor would typically generate much more profit subject to CT than the equivalent permie salary subject to income tax and NI. However, this is a completely flawed comparison, because permies also generate profit for their employers, so the difference (if any) in CT is really about productivity. Couching any argument in terms of overall tax revenue is likely to be a very hard sell and probably wrong, except for those contractors that are beyond retirement age and, therefore, unemployable or those that would move overseas or currently generate a large amount of revenue from overseas. Anyway, this shouldn't be the focus of any representations.

TheFaQQer
21st July 2015, 11:08
Now if this legislation meant that the bank had to back date holiday payments for their 100 or so contractors, a healthy percentage of which had been there for over 15 years happily filling in annual leave requests and providing doctors notes etc. if this meant they got walloped for backdated NI payments, and the contractors that so wantonly flouted the rules got brought to book I for one would laugh my not so skinny ass off.

But it doesn't - and the consultation makes it clear that it is not attempting to modify employment law.

The worst case is that clients adopt the safety first approach and assume that everyone is inside IR35. And why wouldn't they do that?

psychocandy
21st July 2015, 11:25
From the doc.....

One option which could meet the objectives for reform, and specifically tackle the challenges in enforcing compliance set out earlier in this document, would be for engagers to take on more of a role in ensuring that the right amount of employment taxes are paid.

So, clients, via the agent, gets a signed document stating that the contractor PSC (yes, I know, it's not a legal term) is operating inside IR35 (i.e paying it in full, not getting a contract review and declaring themselves 'out'). Not willing ? Another contractor please Mr Agent. End of story, end of contracting in its current form for all but the few who currently operate concurrent clients or other more business like arrangements.

Stick any onus on the end client for compliance and every contract will become either inside IR35 or FTC. (Or outourced to a bob agent/consultancy).

I fear you could be right. Clients don't care - they're going to want a contractor whos hassle free i.e. willing to sign the document saying they're paying the tax.

Client wont give a monkeys about the ifs or whats... Neither will the agent.

I fear with the expenses thing too we're all going to moving towards being FTC people. Entire income being paid as a permie salary with no expenses, no dividends etc. just all PAYE.

Rates are not going to raise enough to compensate either. No way.

psychocandy
21st July 2015, 11:28
The T&S consultation document also refers to the 'engager' being severally liable but it's not clear whether the engager would be the agency or the client or possibly both

I think thats the killer. If you get the client or agent involved then whether you're right or not they will decide things because they don't want the hassle.

Gone will be the days of client/agency not caring.

jamesbrown
21st July 2015, 11:34
The worst case is that clients adopt the safety first approach and assume that everyone is inside IR35. And why wouldn't they do that?

Out of curiosity, how would you respond if they did?

LisaContractorUmbrella
21st July 2015, 11:46
I think thats the killer. If you get the client or agent involved then whether you're right or not they will decide things because they don't want the hassle.

Gone will be the days of client/agency not caring.

So does the panel think that the end client (if held liable under debt transfer) would just say, without consideration of circumstances, that everyone was under SDC just to mitigate risk??

DaveB
21st July 2015, 11:50
So does the panel think that the end client (if held liable under debt transfer) would just say, without consideration of circumstances, that everyone was under SDC just to mitigate risk??

Why wouldnt they if there was no downside for them?

It mitigates their risk in a way that costs them nothing.

LisaContractorUmbrella
21st July 2015, 11:55
Why wouldnt they if there was no downside for them?

It mitigates their risk in a way that costs them nothing.

I think that you're right but just wondered if that was the general consensus - I'd put up a poll but I don't know how :frown

TestMangler
21st July 2015, 11:56
So does the panel think that the end client (if held liable under debt transfer) would just say, without consideration of circumstances, that everyone was under SDC just to mitigate risk??

I certainly do. In the same way the 'opt out' has become compulsory with a lot of clients (yes I know it's not allowed to be before some smart arse tells me).

Clients won't want the hassle or worry. It'll be pay up of we'll get a cheaper option that doesn't give us this issue. (ICT, offshore etc).

The whole combination of dividend tax, expenses, IR35 review etc will turn out to be a giant nail in the coffin of UK contracting and it is one I believe we'll all lose from, including the exchequer, but at least it will show 'fairness' as the governments seem to like to call it.

jamesbrown
21st July 2015, 12:06
It mitigates their risk in a way that costs them nothing.

Assuming that contractors would either suck it up en masse or rapidly transition to other arrangements (such as large consultancies) en masse. Any such transition could be quite ugly for clients in the short-term, and experience elsewhere (e.g. the IPS in Australia) appears to suggest some long-term damage to the flexible workforce. So, "costs them nothing" might be overstating it, but it's perhaps easier for clients that rely on generalists to offshore etc. For overseas clients with no UK presence, there's no mechanism for enforcement or transfer of liability (obviously not relevant to everyone, but I dare say a significant minority).

Contreras
21st July 2015, 12:12
But it doesn't - and the consultation makes it clear that it is not attempting to modify employment law.

The worst case is that clients adopt the safety first approach and assume that everyone is inside IR35. And why wouldn't they do that?

That is exactly what I see as the end result of proposed T&S changes and IR35 consultation.

Penalties on the 'employer' if a contractor is found to be under SDC and this hasn't been reported*.

*Reporting means collecting the NI numbers of all contractors that the client considers to be under SDC. It could be as simple as an extension to RTI. Clients will blanket declare all contractors under SDC, why not?

Further along the line a new corporate entity, call it FLC, will be created and will be exempt from reporting. Client response is to engage only FLC contractors.

psychocandy
21st July 2015, 12:47
Assuming that contractors would either suck it up en masse or rapidly transition to other arrangements (such as large consultancies) en masse. Any such transition could be quite ugly for clients in the short-term, and experience elsewhere (e.g. the IPS in Australia) appears to suggest some long-term damage to the flexible workforce. So, "costs them nothing" might be overstating it, but it's perhaps easier for clients that rely on generalists to offshore etc. For overseas clients with no UK presence, there's no mechanism for enforcement or transfer of liability (obviously not relevant to everyone, but I dare say a significant minority).

Yes but an individual client is not going to sit there and think "hmmm if I do this Im helping to kill contracting and I might be stuffed in 12 months time".

No they're going to think. Need someone now. Bugger that IR35 thing - well they'll have to sign because I can't be bothered with the hassle.

psychocandy
21st July 2015, 12:48
One other thing this is going to cause - A massive freakish overreaction from the agencies to make absolutely sure they're not in line for any of the fallout from this.

Beggs1985
21st July 2015, 12:54
That is exactly what I see as the end result of proposed T&S changes and IR35 consultation.

Penalties on the 'employer' if a contractor is found to be under SDC and this hasn't been reported*.

*Reporting means collecting the NI numbers of all contractors that the client considers to be under SDC. It could be as simple as an extension to RTI. Clients will blanket declare all contractors under SDC, why not?

Further along the line a new corporate entity, call it FLC, will be created and will be exempt from reporting. Client response is to engage only FLC contractors.

From 6 April 2015 all employment intermediaries are required to submit a quarterly report detailing all payments made to workers (Ltd Co or soletrader) where they are not operating PAYE.

By the time changes to T&S and IR35 changes are introduced next April HMRC will have (in theory) data on all PSC's engaged through an intermediary.

The Spartan
21st July 2015, 13:12
One other thing this is going to cause - A massive freakish overreaction from the agencies to make absolutely sure they're not in line for any of the fallout from this.

You've got that right, I had enough problems with them wrongly interpreting the intermediaries reporting legislation.

Danglekt
21st July 2015, 13:13
+1. This has always been a pet hate when people quote the high level of tax they pay..

You are assuming that everyone is the same as you and that we are all contracting with a business that can pass the VAT, I work a lot (not always) supporting the public sector with temporary projects using temporary funding - they can't pass the VAT on anywhere.

So I am 100% correct to state that I generate ~14% extra income in the form of VAT.

jamesbrown
21st July 2015, 13:29
Yes but an individual client is not going to sit there and think "hmmm if I do this Im helping to kill contracting and I might be stuffed in 12 months time".

No they're going to think. Need someone now. Bugger that IR35 thing - well they'll have to sign because I can't be bothered with the hassle.

Indeed, they won't, and this will only be exacerbated by an act first, mitigate later, approach to laws that target PSCs specifically (aka an FLC). In other words, if the worst happens, the damage could be immediate and mitigated only in the medium-term.

eek
21st July 2015, 13:30
You are assuming that everyone is the same as you and that we are all contracting with a business that can pass the VAT, I work a lot (not always) supporting the public sector with temporary projects using temporary funding - they can't pass the VAT on anywhere.

So I am 100% correct to state that I generate ~14% extra income in the form of VAT.

You might but that's actually worse. For most of the public sector VAT is just an accounting feature. The fact you charge the Government 20% and don't return all of it straight back to HMRC isn't a argument that you pay extra, more one for you actually costing HMRC money, they contribute the 20% but only get 17.4% back....

Contreras
21st July 2015, 13:34
From 6 April 2015 all employment intermediaries are required to submit a quarterly report detailing all payments made to workers (Ltd Co or soletrader) where they are not operating PAYE.

By the time changes to T&S and IR35 changes are introduced next April HMRC will have (in theory) data on all PSC's engaged through an intermediary.

Yes but not direct to client. And not with an implied "inside IR35" flag.

TheFaQQer
21st July 2015, 13:39
Out of curiosity, how would you respond if they did?

If there is no choice but to take inside IR35 work, then I'd do the sums and consider very carefully whether it's worth continuing as a contractor or not.

TheFaQQer
21st July 2015, 13:42
So does the panel think that the end client (if held liable under debt transfer) would just say, without consideration of circumstances, that everyone was under SDC just to mitigate risk??

I think the majority would - even on the basis that it's easier to say that than to have to learn what it's all about anyway.

If many do, then there is no differentiating factor between clients, so it won't affect the client's ability to engage a contractor. If only a handful do then they will get the few contractors who are willing / able to take the work inside IR35 - the outcome of that being that they probably won't get the best people that the really want (because they tend to operate outside IR35), and there will be more increased competition for outside IR35 roles (thereby driving rates down).

WordIsBond
21st July 2015, 14:02
So does the panel think that the end client (if held liable under debt transfer) would just say, without consideration of circumstances, that everyone was under SDC just to mitigate risk??
It's a supply and demand question, isn't it? If enough contractors just decide to eat the extra tax cost, then end clients will do that. If they don't, if they insist that inside IR35 contracts are going to cost more, then clients will make a decision whether to pay the extra cost or not. It's really up to the contractors whether we will insist on passing along the costs. If we do, then the client has to make a cost benefit analysis, and some will just pay the extra cost to mitigate risk. Others will decide differently.

For me, it would make no difference. If a client decides they don't want the risk and want to declare a contract as under IR35, and they want to pay an extra 15% or so, that's ok with me. Saves me the hassle of having to be sure to keep good IR35 records. That would be the contract out of which I'd make a big pension contribution, presumably, anyway.

It's hard to justify to a client raising my rates to pass along the dividend tax. It's not hard to justify giving them two different prices depending on whether they are going to declare the contract as inside IR35. The dividend tax is something George Osborne did. Declaring a contract under IR35 when it doesn't have to be would be something the client would do, it would directly impact my compensation, and I would expect them to pay if they want to do that.

Of course, if contractors can't afford to walk away, they can't insist a client pay extra for this. But I think where this is going is most clients will declare all contracts inside IR35, contractors will get hammered on expenses, and a lot of contractors will get out of the game. When that happens, those who are left and are good at what they do will be in high demand.

WordIsBond
21st July 2015, 14:06
No they're going to think. Need someone now. Bugger that IR35 thing - well they'll have to sign because I can't be bothered with the hassle.
And "need someone now" means the contractor can say, "Fine, but it will cost an extra 15%" (or whatever). And a lot of end clients will say, "I'll find someone cheaper." And others will say, "15% for no risk? No brainer."

TheFaQQer
21st July 2015, 14:12
Of course, if contractors can't afford to walk away, they can't insist a client pay extra for this. But I think where this is going is most clients will declare all contracts inside IR35, contractors will get hammered on expenses, and a lot of contractors will get out of the game. When that happens, those who are left and are good at what they do will be in high demand.

Alternatively, clients are left with the cheap, local ones who don't want to run a business and are content to be inside IR35.

WordIsBond
21st July 2015, 14:21
Alternatively, clients are left with the cheap, local ones who don't want to run a business and are content to be inside IR35.
Yeah, some clients will go that way.

expat
21st July 2015, 15:18
Alternatively, clients are left with the cheap, local ones who don't want to run a business and are content to be inside IR35.I think that that is false, and actually I resent the easy insult. I am good and I am not cheap, but I don't want to run a business and I will work inside IR35; obviously I prefer to be outside but I don't have explicitly different rates for in and out.

expat
21st July 2015, 15:20
It's a supply and demand question, isn't it? .....
Of course, if contractors can't afford to walk away, they can't insist a client pay extra for this. But I think where this is going is most clients will declare all contracts inside IR35, contractors will get hammered on expenses, and a lot of contractors will get out of the game. When that happens, those who are left and are good at what they do will be in high demand.When that happens, fast track visas will be in high demand.

Edit: ISTM that it is a very long time since "good at what they do" has been on the requirements list for contractors in reality, mainly because agents have commoditised the market and they have no idea what "good at what they do" might mean for a contractor.

Danglekt
21st July 2015, 15:21
You might but that's actually worse. For most of the public sector VAT is just an accounting feature. The fact you charge the Government 20% and don't return all of it straight back to HMRC isn't a argument that you pay extra, more one for you actually costing HMRC money, they contribute the 20% but only get 17.4% back....

hmm... I don't agree, but I can see your perspective I suppose. Your looking at in theory, but in practice if they used a contractor that didn't charge VAT the service being mobilised or whatever wouldn't keep 20% back to pass back to the Dept, who then pass it back to HMRC, so you point doesn't quite hang together, but I see where you are coming from.

I'm happy to disagree with you though, and don't want to fill a thread up with a discussion of semantics. The main thrust of my post was in £ terms I pay more to HMRC than I did as a permie. That is not true in % terms of course, but there is an assumption contractors cost HMRC income, but I'm making the point that it is a matter of looking at it in totality and not as a like for like - hence my point about reframing the discussion.

WordIsBond
21st July 2015, 16:28
I think that that is false, and actually I resent the easy insult. I am good and I am not cheap, but I don't want to run a business and I will work inside IR35; obviously I prefer to be outside but I don't have explicitly different rates for in and out.
I envy you. I don't have either spare time or energy to spend on resent Internet insults. You must have a good life. ;)

Not that I'd expect it to ever happen under today's rules, but I wouldn't have a different rate for in and out, either.

But if they change the rules and a client gratuitously throws me in just so they can avoid risk, they'll pay for it, or find someone else. No reason for me to be out of pocket just so they can feel secure.

Edit: ISTM that it is a very long time since "good at what they do" has been on the requirements list for contractors in reality, mainly because agents have commoditised the market and they have no idea what "good at what they do" might mean for a contractor.
I suppose that is generally true. I go direct, but I'm in a particular niche, and almost everyone knows me. If I weren't good at what I do, I'd be done.

expat
21st July 2015, 16:41
I envy you. I don't have either spare time or energy to spend on resent Internet insults. You must have a good life. ;)

Thanks ;)

I just meant that I feel that your categorisation was too easy and I know it's not so because I don't fit it. I don't like the idea that one is "a real business", or cheap and not up to much. In fact that's what's wrong with IR35 IMHO. Sorry if that's not what you meant.

WordIsBond
21st July 2015, 16:46
Actually, it wasn't my categorisation, you were replying to someone else, and I arrogantly inserted myself into the conversation as if anyone should care what I thought about it.

I thought his categorisation was a little too easy, too, FWIW. As if anyone cared what I thought on that, either. :D

expat
21st July 2015, 17:03
Actually, it wasn't my categorisation, you were replying to someone else, and I arrogantly inserted myself into the conversation as if anyone should care what I thought about it.

I thought his categorisation was a little too easy, too, FWIW. As if anyone cared what I thought on that, either. :DDamn. Note to self: Self, read posts before "replying".

Acme Thunderer
21st July 2015, 21:04
hmm... I don't agree, but I can see your perspective I suppose. Your looking at in theory, but in practice if they used a contractor that didn't charge VAT the service being mobilised or whatever wouldn't keep 20% back to pass back to the Dept, who then pass it back to HMRC, so you point doesn't quite hang together, but I see where you are coming from.

I'm happy to disagree with you though, and don't want to fill a thread up with a discussion of semantics. The main thrust of my post was in £ terms I pay more to HMRC than I did as a permie. That is not true in % terms of course, but there is an assumption contractors cost HMRC income, but I'm making the point that it is a matter of looking at it in totality and not as a like for like - hence my point about reframing the discussion.

I think it is your point that doesn't hang together. HMRC collects £120 in Tax to give to a department to get some work done. You do the work for £100 and add VAT so bill to the department is £120. You then pay VAT to HMRC of 120 @ 14.5% £17.4 so the Government net position is £100 of work and £17.40 of VAT, less than they started with. You have just cost the government £2.60 extra.

In the case of someone that does charge VAT the government would actually get £100 worth of work and have £20 left over to get some more work done, so are in a better position than had they used an FRS contractor.

Your main point of argument is also flawed. You may pay more tax than you did than as a permie but your income is a lot higher as well. A permie earning what you earn do would pay a LOT more in tax than you do. If this wasn't true why would we be so afraid of the IR35 changes?

As was brought up earlier in this thread, we need to get over our sense of entitlement and prove why we are good for the British economy and justify our preferential tax treatment that way

tractor
21st July 2015, 22:50
I think it is your point that doesn't hang together. HMRC collects £120 in Tax to give to a department to get some work done. You do the work for £100 and add VAT so bill to the department is £120. You then pay VAT to HMRC of 120 @ 14.5% £17.4 so the Government net position is £100 of work and £17.40 of VAT, less than they started with. You have just cost the government £2.60 extra.

In the case of someone that does charge VAT the government would actually get £100 worth of work and have £20 left over to get some more work done, so are in a better position than had they used an FRS contractor.

Your main point of argument is also flawed. You may pay more tax than you did than as a permie but your income is a lot higher as well. A permie earning what you earn do would pay a LOT more in tax than you do. If this wasn't true why would we be so afraid of the IR35 changes?

As was brought up earlier in this thread, we need to get over our sense of entitlement and prove why we are good for the British economy and justify our preferential tax treatment that way

It makes no difference what you prove to whom and whichever way you frame the argument, there is no one listening. There never was and there never will be.

Beggs1985
22nd July 2015, 08:43
It makes no difference what you prove to whom and whichever way you frame the argument, there is no one listening. There never was and there never will be.

Completely agree with these sentiments. Various representations were made to the government when the original travel and subsistence discussion document was put forward that the restriction of these expenses would have a negative impact on the flexible labour market.

The reply on page 28 point F of the consultation document states 'The government has received no evidence that changes in this area will impact negatively on the flexible workforce and we do not believe this will be the case'.

eek
22nd July 2015, 08:51
Completely agree with these sentiments. Various representations were made to the government when the original travel and subsistence discussion document was put forward that the restriction of these expenses would have a negative impact on the flexible labour market.

The reply on page 28 point F of the consultation document states 'The government has received no evidence that changes in this area will impact negatively on the flexible workforce and we do not believe this will be the case'.

This is 1 reason why I don't think the general public should write responses. A badly written response allows them to interpret it in the way they want to not the way it was intended..

Beggs1985
22nd July 2015, 09:09
This is 1 reason why I don't think the general public should write responses. A badly written response allows them to interpret it in the way they want to not the way it was intended..

Only 3 of the respondents to the T & S discussion document were private individuals. The majority where accountants, umbrella companies, PSC's and trade unions.

TheMrs
22nd July 2015, 09:17
I appreciate doom and gloom and general hating on the Taxman is de rigueur on here (and in my contracting life in general) HOWEVER...wouldn't it make more sense for clients en masse to issue an edict that they will only employ on basis of outside IR35 rather than insist we are all inside?

My reasoning is that a) the drastic decrease in take home pay will make it worth retiring early and/or leave the UK for many of the most experienced, b) the in-demand skill sets will up their rates accordingly first chance we get, c) the disruption and loss of key skills will impact business even in the short term and, crucially, d) we all have (or should have) contracts which already make it clear there is no S, D or C, right of sub etc as we are actual real functioning Ltd companies with risk and insurance costs and all the other stuff that makes us so clearly NOT disguised employees that even clients could see that.

I appreciate there will be the new threat of liability for deemed NIC distributed along the chain and clients could fall liable but I'd bet my shirt that as soon as that risk becomes real some sort of insurance will pop up to cover it and/or the client will devise a nifty clause which transfers the liability back to MyCo.


Or am I just a glass full, deluded dreamer?

TheFaQQer
22nd July 2015, 09:26
I appreciate doom and gloom and general hating on the Taxman is de rigueur on here (and in my contracting life in general) HOWEVER...wouldn't it make more sense for clients en masse to issue an edict that they will only employ on basis of outside IR35 rather than insist we are all inside?

It may well make sense, and it may even be what the clients really want to do.

However, it is significantly easier for a client to adopt an "always in" position - they don't open themselves up to any liability, they don't need to learn about IR35, they don't have to make any judgement calls about your tax status, they don't need to get involved, and (most importantly) they don't leave themselves open to the whim of the taxman. It's about risk management - and why would you put your business at risk for little to no benefit?

Now, if there was a series of reasonable, decent tests that all clients could be applied to confirm the working arrangements were inside or outside, and HMRC would accept them as being right, then that would mean that clients don't expose themselves to those whims. A test of whether something is a business entity or not, if you will...

LisaContractorUmbrella
22nd July 2015, 09:33
Completely agree with these sentiments. Various representations were made to the government when the original travel and subsistence discussion document was put forward that the restriction of these expenses would have a negative impact on the flexible labour market.

The reply on page 28 point F of the consultation document states 'The government has received no evidence that changes in this area will impact negatively on the flexible workforce and we do not believe this will be the case'.

There are a lot of contractors that use this forum and they, in turn, probably know a lot of contractors - surely all of us as a group can provide the evidence that the Government needs - actual facts and figures rather than emotive speculation?? We will be putting in a response to the consultation on T&S and will be involved in the discussions on son of IR35 - I'd be quite happy to add in facts and figures from you guys. It seems that HMRC think all contractors live and work in central London - I am sure we can prove that most of you lot are prepared to travel for your contracts and that your associated costs are those of a business and not an employee. Anything added in would be collated and no names, no pack drill so if you think it would help pm me or email me at lisa@contractorumbrella.com.

Suggestions for alternatives to SD&C as a determination would be useful too. I think part of the overall problem is that loads of low paid workers have been flooded onto the market as companies realise that they can move employment costs to an umbrella or a PSC - if that's the case then not allowing companies to move workers who earn less than a certain amount to an intermediary would surely solve the problem - got to be easier than keep messing about with ever-changing employment law surely?

If we can prove to Government that these moves will actually end up being a cost to the economy rather than a saving to HMRC surely they'll have a rethink?

TheFaQQer
22nd July 2015, 10:11
There are a lot of contractors that use this forum and they, in turn, probably know a lot of contractors - surely all of us as a group can provide the evidence that the Government needs - actual facts and figures rather than emotive speculation?? We will be putting in a response to the consultation on T&S and will be involved in the discussions on son of IR35 - I'd be quite happy to add in facts and figures from you guys. It seems that HMRC think all contractors live and work in central London - I am sure we can prove that most of you lot are prepared to travel for your contracts and that your associated costs are those of a business and not an employee. Anything added in would be collated and no names, no pack drill so if you think it would help pm me or email me at lisa@contractorumbrella.com.

If you have the figures to hand, please also include them in any response to IPSE for the consultation - https://www.ipse.co.uk/news/2015/travel-and-subsistence-relief-%E2%80%93-we-want-hear-you

When working from home, my costs in this area have been low (shock!) but still 1.5% - 4% of turnover because of travel to meetings and overnight stays; when working in London it's ranged from 19% - 30% of turnover in travel, accommodation and subsistence.

eek
22nd July 2015, 10:30
If you have the figures to hand, please also include them in any response to IPSE for the consultation - https://www.ipse.co.uk/news/2015/travel-and-subsistence-relief-%E2%80%93-we-want-hear-you

When working from home, my costs in this area have been low (shock!) but still 1.5% - 4% of turnover because of travel to meetings and overnight stays; when working in London it's ranged from 19% - 30% of turnover in travel, accommodation and subsistence.

Looking at the last few contracts I've claimed probably £7000 or so in mileage a year (20,000 or so miles) with possible another £1500 on hotels... And that is hitting the two nearest markets from where I live (they are in opposite directions). Were I to move full time to one of those locations I would end up spending more in the other whenever the market in town a dried up... 1 year I would have zero expenses the following year £5500 in mileage, and £10000 minimum in subsistence.. (hint thats a mere £50 a night people know on here that I'm a cheapstake)..

For this contract (in London town) I have the advantage of staying with my parents so that's rent free. Train tickets are still £250 a week though.... That's 10% of turnover prior to any other expense...

jamesbrown
22nd July 2015, 11:09
Suggestions for alternatives to SD&C as a determination would be useful too. I think part of the overall problem is that loads of low paid workers have been flooded onto the market as companies realise that they can move employment costs to an umbrella or a PSC - if that's the case then not allowing companies to move workers who earn less than a certain amount to an intermediary would surely solve the problem - got to be easier than keep messing about with ever-changing employment law surely?

Yes, I think it's worth considering, although I think they'd err on the side of draconian rules to avoid returning to the problem later. The motivation IMO was low paid workers incorporating for tax purposes, on the one hand, and high-paid off payroll arrangements in the public sector on the other. We're collateral to a large degree, but not collateral that they care about. Off-payroll arrangements in the public sector have been tackled without the need for controlling persons. Let's see how the new agency rules impact the former. Now they're talking about revisions before the impacts of the recent changes can be seen, and these changes have the potential to increase collateral a lot.

aoxomoxoa
22nd July 2015, 11:22
There are a lot of contractors that use this forum and they, in turn, probably know a lot of contractors - surely all of us as a group can provide the evidence that the Government needs - actual facts and figures rather than emotive speculation?? We will be putting in a response to the consultation on T&S and will be involved in the discussions on son of IR35 - I'd be quite happy to add in facts and figures from you guys. It seems that HMRC think all contractors live and work in central London - I am sure we can prove that most of you lot are prepared to travel for your contracts and that your associated costs are those of a business and not an employee. Anything added in would be collated and no names, no pack drill so if you think it would help pm me or email me at lisa@contractorumbrella.com.

Suggestions for alternatives to SD&C as a determination would be useful too. I think part of the overall problem is that loads of low paid workers have been flooded onto the market as companies realise that they can move employment costs to an umbrella or a PSC - if that's the case then not allowing companies to move workers who earn less than a certain amount to an intermediary would surely solve the problem - got to be easier than keep messing about with ever-changing employment law surely?

If we can prove to Government that these moves will actually end up being a cost to the economy rather than a saving to HMRC surely they'll have a rethink?

As supply-side contractors we clearly have a strong vested personal financial interest in the outcome, and that's likely to diminish the impact of any such representations we make collectively or as individuals - "they would say that wouldn't they?". Not to say it's a bad idea to assemble a weight of evidence/opinion etc.

Surely the approach that's more likely to have an impact on the eventual outcome is for our clients as a body to be lobbying that these changes will be detrimental in terms of business flexibility. So, I hope IPSE and others will be pushing the CBI etc to make appropriate representations.

tractor
22nd July 2015, 11:38
Here's one person who won't be affected, my very own 'contractor supporting' MP...

Rob Wilson (http://www.bbc.co.uk/news/uk-politics-33606908)

Do as I say, not as I do!

9 pence :laugh Tight barsteward!

LisaContractorUmbrella
22nd July 2015, 12:33
Looking at the last few contracts I've claimed probably £7000 or so in mileage a year (20,000 or so miles) with possible another £1500 on hotels... And that is hitting the two nearest markets from where I live (they are in opposite directions). Were I to move full time to one of those locations I would end up spending more in the other whenever the market in town a dried up... 1 year I would have zero expenses the following year £5500 in mileage, and £10000 minimum in subsistence.. (hint thats a mere £50 a night people know on here that I'm a cheapstake)..

For this contract (in London town) I have the advantage of staying with my parents so that's rent free. Train tickets are still £250 a week though.... That's 10% of turnover prior to any other expense...

That's exactly the sort of information I think that they want eek - numbers and how those numbers would change if the rules change and whether or not those changes would make you think about not contracting in future

webberg
22nd July 2015, 13:32
The Consultation process is in some ways a sop to public opinion and often in no more than lip service to the process when decisions have already been made. It is however a key part of how you can influence, however slightly, the outcome.

The best way to exert influence is EVIDENCE.

As Lisa says - without it, your chance of changing anything is NIL.

BIG GROUP will be putting an evidence based response in. BIG GROUP will hope to coordinate that with other groups and individuals.

Have a think and dig out numbers and contribute.

DaveB
22nd July 2015, 13:47
The Consultation process is in some ways a sop to public opinion and often in no more than lip service to the process when decisions have already been made. It is however a key part of how you can influence, however slightly, the outcome.

The best way to exert influence is EVIDENCE.

As Lisa says - without it, your chance of changing anything is NIL.

BIG GROUP will be putting an evidence based response in. BIG GROUP will hope to coordinate that with other groups and individuals.

Have a think and dig out numbers and contribute.

Do you want info from non-BG members? I'm not affected by any of the APN/Scheme issues so not a member of BG or NTRT.

DaveB
22nd July 2015, 13:52
Yes, I think it's worth considering, although I think they'd err on the side of draconian rules to avoid returning to the problem later. The motivation IMO was low paid workers incorporating for tax purposes, on the one hand, and high-paid off payroll arrangements in the public sector on the other. We're collateral to a large degree, but not collateral that they care about. Off-payroll arrangements in the public sector have been tackled without the need for controlling persons. Let's see how the new agency rules impact the former. Now they're talking about revisions before the impacts of the recent changes can be seen, and these changes have the potential to increase collateral a lot.

If they really want to do that they could simply remove tax relief from the company, rather than making reimbused expenses taxable income. Easy to implement, increases tax revenues without impacting peoples personal income.

riffpie
22nd July 2015, 13:55
KPMG are the latest big co to offer an 'all in one consultancy' service ie from dev to testing.

The writing is on the wall. Its not if but when.

I had Arrows group on the phone a bunch of times recently, telling me all about their new "professional services" division that is hiring for some secret project or other that they have the entire contract on.

tractor
22nd July 2015, 14:53
That's exactly the sort of information I think that they want eek - numbers and how those numbers would change if the rules change and whether or not those changes would make you think about not contracting in future

Unfortunately, this has the potential downside of them taking the highest outliers and using that to beef up their own estimates, which can only further justify the position they are taking here.

Damned if you do and damned if you don't :(

DaveB
22nd July 2015, 14:53
After a quick chat with Lisa, this should be a good format for submitting your info.


Current annual costs based on last 6 months of contracts <Optional, state if you have more than one client>

~£x in T&S costs. ~x% of Turnover. ~£x in tax relief.

Cost to me if I had to pay tax on reimbursed expenses would be ~x% of my personal income.

These are legitimate costs that I would not otherwise incur as a permanent employe, as I would live within commuting distance of my employer if I was.

If the proposals go through they will significantly affect my ability to travel for contracts and to support multiple clients as it will make it more costly for me to travel between client sites as needed.

The more the better, so get on with it!

DaveB
22nd July 2015, 14:58
Unfortunately, this has the potential downside of them taking the highest outliers and using that to beef up their own estimates, which can only further justify the position they are taking here.

Damned if you do and damned if you don't :(

Not if the figures are avergaed out prior to submission.

e.g. From 1000 contractors surveyed the results indicated average T&S costs to be £x pa equating to x% of Turnover with expected cost of x% of personal income should the proposals be enforced.

x% of those surveyed indicated that the proposed changes would have a significant impact on their abilty to meet client demand for flexability and availability in supplying services.


Or something like that.

tractor
22nd July 2015, 15:13
Not if the figures are avergaed out prior to submission.

e.g. From 1000 contractors surveyed the results indicated average T&S costs to be £x pa equating to x% of Turnover with expected cost of x% of personal income should the proposals be enforced.

x% of those surveyed indicated that the proposed changes would have a significant impact on their abilty to meet client demand for flexability and availability in supplying services.


Or something like that.

Agreed but we have to bear in mind that the most likely respondents will be those with expenses, those with negligible or none are unlikely to respond which will skew the average.

DaveB
22nd July 2015, 15:28
Agreed but we have to bear in mind that the most likely respondents will be those with expenses, those with negligible or none are unlikely to respond which will skew the average.

You mean in the same way that HMRC are selective in their use of figures?

Either way, if we submit nothing we have no chance. The more people who contact Lisa, IPSE and BigGroup to provide info the more chance we have, regardless how how much they claim in expenses.

LondonManc
22nd July 2015, 15:34
Agreed but we have to bear in mind that the most likely respondents will be those with expenses, those with negligible or none are unlikely to respond which will skew the average.

Which is good.

gingerjedi
22nd July 2015, 15:48
The amount you pay as CT and on dividends is a small proportion of the amount that you would pay as an employee, PLUS you would pay National Insurance PLUS your employer would pay NIC.

In addition you would not be able to claim travel etc.



That's assuming you'd want to carry on contracting being taxed as an employee without the benefits, I for one would throw the towel in and go perm close to home on a much reduced rate as the ongoing expense from my own pocket would be out of the question.

So how has the government squeezed more tax from me in that scenario?

It's been mentioned before but the only solution that will make people move from their entrenched positions is some middle ground between paying a lot more/less tax than an equivalent employee.

webberg
22nd July 2015, 15:58
Will BIG GROUP take information to feed into its consultation feedback?

Yes.

Will BIG GROUP work with others here?

Yes.

BIG GROUP has a calculator. It compares the 15/16 position with 16/17 - 19/20 taking into account the changes to dividend taxation and expenses taxation. We have yet to decide how to deploy that.

That model however could be used to process the sort of data being requested here in order to show HMRC the impact of their ideas. Again, I would have to consider how to deploy it.

The above posts (and this one) are all supply side. The real difference would come if the demand side of the equation came out against changes. Would a client want the risk of having an employee from a legal or tax perspective? What would their insurance company think? How might their accounts reflect the potential risk of future tax bills? Would this damage their SME status if they are close to FTE for certain incentives or grants?

Some thought into how to raise awareness QUICKLY is needed.

Perhaps a flyer (contributed to by those who make a living from contractors) that you can give to your client pointing out risks?

Perhaps a briefing note to the CBI and other employer/client groups?

Perhaps a briefing note to all your MP's?

Perhaps, perhaps...

There are two aspects here that need solving FAST.

The first is that preparing the above needs organisation and leadership. The commercial ventures in this space (Umbrellas, accountants, advisers and yes, BIG GROUP) all have the ability to do this but charge for their time. How much? I don't know.

Would everybody here and at other places be prepared to contribute £20?

The second is that there are probably as many opinions as there are people. Whilst throwing in every valid argument and nugget of data is good and if properly presented might make a difference, any submission has to be relevant and focused. It may be therefore that a final paper might not include a favourite hobby horse (in which case it can be made as an individual) or your favourite idea. Being part of a group you have to accept that this is the price.

I suggest:

1. Consider a fund raise via one of the crowd funding platforms.
2. Have a small committee in charge of funds
3. Same committee to appoint suitable people to prepare a submission*
4. Any funds not used to pay for 3 above, are returned pro rate.

* "Suitable people" should be those who work in this sector and are knowledgeable in how this sector works, the impact of the changes proposed and HMRC. The latter seems to be bouyed in confidence by acting on behalf of a Government who know that unwelcome changes now will be largely forgotten by the next election and are determined to press through unpopular revenue raising measures.

Discuss

eek
22nd July 2015, 16:14
And once again webberg is after money.

I'm sorry but I really don't see what you bring to the party here..... And given your background in tax avoidance schemes personally I don't want to be in any way associated with you as I your associate will do more harm than good.

And we don't need evidence of what the impact will be. Genuine evidence of how much is spent on travel would be useful but guess works on what it would look like afterwards won't interest HMRC no matter what you think...

webberg
22nd July 2015, 16:22
And once again webberg is after money.

I'm sorry but I really don't see what you bring to the party here..... And given your background in tax avoidance schemes personally I don't want to be in any way associated with you as I your associate will do more harm than good.

And we don't need evidence of what the impact will be. Genuine evidence of how much is spent on travel would be useful but guess works on what it would look like afterwards won't interest HMRC no matter what you think...

As you wish. If your view is a general one, I'll happily focus my attention elsewhere.

You DO need evidence of impact and with the experience of having made responses to dozens of such consultations, I would respectfully disagree with all of your second paragraph.

TheMrs
22nd July 2015, 16:43
Surely the Govt would look to the existing IR35 rules enforced atm when contracting thru a PSC to public sector client?

If that is the case then anyone with a genuinely non IR35 contract has nothing to fear? Yes we will need to routinely pay for reviews (which I do anyway) and possibly the investigation insurance will increase in price but that will still be reasonable.

Having said this I've never contracted for public sector as am oil industry based so doubtless others know better. ..

tractor
22nd July 2015, 16:45
Will BIG GROUP take information to feed into its consultation feedback?

Yes.

Will BIG GROUP work with others here?

Yes.

BIG GROUP has a calculator. It compares the 15/16 position with 16/17 - 19/20 taking into account the changes to dividend taxation and expenses taxation. We have yet to decide how to deploy that.

That model however could be used to process the sort of data being requested here in order to show HMRC the impact of their ideas. Again, I would have to consider how to deploy it.

The above posts (and this one) are all supply side. The real difference would come if the demand side of the equation came out against changes. Would a client want the risk of having an employee from a legal or tax perspective? What would their insurance company think? How might their accounts reflect the potential risk of future tax bills? Would this damage their SME status if they are close to FTE for certain incentives or grants?

Some thought into how to raise awareness QUICKLY is needed.

Perhaps a flyer (contributed to by those who make a living from contractors) that you can give to your client pointing out risks?

Perhaps a briefing note to the CBI and other employer/client groups?

Perhaps a briefing note to all your MP's?

Perhaps, perhaps...

There are two aspects here that need solving FAST.

The first is that preparing the above needs organisation and leadership. The commercial ventures in this space (Umbrellas, accountants, advisers and yes, BIG GROUP) all have the ability to do this but charge for their time. How much? I don't know.

Would everybody here and at other places be prepared to contribute £20?

The second is that there are probably as many opinions as there are people. Whilst throwing in every valid argument and nugget of data is good and if properly presented might make a difference, any submission has to be relevant and focused. It may be therefore that a final paper might not include a favourite hobby horse (in which case it can be made as an individual) or your favourite idea. Being part of a group you have to accept that this is the price.

I suggest:

1. Consider a fund raise via one of the crowd funding platforms.
2. Have a small committee in charge of funds
3. Same committee to appoint suitable people to prepare a submission*
4. Any funds not used to pay for 3 above, are returned pro rate.

* "Suitable people" should be those who work in this sector and are knowledgeable in how this sector works, the impact of the changes proposed and HMRC. The latter seems to be bouyed in confidence by acting on behalf of a Government who know that unwelcome changes now will be largely forgotten by the next election and are determined to press through unpopular revenue raising measures.

Discuss

Why would anyone wish to do any of the above when they can contribute to the IPSE call for comments both without cost and without being a current member?

If your organisation really is that bothered, why don't you call IPSE and ask if you can help?

EDIT: No, you cannot have £20

webberg
22nd July 2015, 17:04
Why would anyone wish to do any of the above when they can contribute to the IPSE call for comments both without cost and without being a current member?

If your organisation really is that bothered, why don't you call IPSE and ask if you can help?

EDIT: No, you cannot have £20

Am I that bothered?

I made a suggestion if how things could be organised and how the con docs might be responded to.

Did I ask for £20?

I think I suggested that this is raised and held by a group of you people.

Did I pitch for the work?

Don't think so. As noted already in this thread, there are many firms active here and probably the top accounting and law firms (who promise access to the highest levels of influencers in Treasury) would be a better choice.

The point is to take action.

If the condoc proposals are enacted as presently drafted, most of you will be forced into some form of employee relationship or will look for the sort of aggressive structures you see advertised on the net which will inevitably be the subject of enquiry in a few years time.

eek
22nd July 2015, 18:16
Right,

I'm going to set up an online survey to see if we can collect some figures: Thinking of the following questions:-

Industry sector (IT / Oil / Business Consulting...)

Travel Expenses last month :
Average monthly expenses last 3 years:

Percentage of turnover: %

Stay over during week: Y / N

Travel distance to current client : xx miles / xx hours
Average distance to client last 3 years: xx miles / xx hours

Number of different clients last 3 years:
Multiple clients at some time: Y / N

Do you agree with these statements

These are legitimate costs that I would not incur as a permanent employee: Y/N

If the proposals go through so you can no longer claim expenses it will significantly affect my ability to travel for contracts as it will make it more costly for me to travel between client sites as needed. Y/N

Anything else people can suggest or wish to amend?

Once I've done this (over the weekend) I'll share the link so people can advertise it. I plan to correlate the results in the last week of august...

Danglekt
23rd July 2015, 11:06
Cheers EEK :smile

Coalman
23rd July 2015, 11:39
I'm in a difficult position on this.

I've been with current local client more than 2 years (slight break last year) so cannot currently claim expenses based on 24 month rule. I will be here a while longer as the project I'm on is a train wreck!

I have a second client which I do very occasional work supporting thier sales operations (and projects if we sold anything) which does involve a lot of travel. This will be affected but hard to quantify.

The big thing for me is FUTURE work. I am centrally based so can commute at 1hr approx to a a good number of locations, and chosen to live near a train line to London so can contract in London if cannot find anything local. Expecting to have to do this at some point, and expecting to have to stay in London 3-4 nights a week to support this. This is now going to be very financially difficult to do unless rates increase to cover the costs.

Eek - is your survey going to be able to capture this kind of issue, i.e. impact on future work or is this irrelevant as it is not a current example.

eek
23rd July 2015, 11:52
The big thing for me is FUTURE work. I am centrally based so can commute at 1hr approx to a a good number of locations, and chosen to live near a train line to London so can contract in London if cannot find anything local. Expecting to have to do this at some point, and expecting to have to stay in London 3-4 nights a week to support this. This is now going to be very financially difficult to do unless rates increase to cover the costs.

Eek - is your survey going to be able to capture this kind of issue, i.e. impact on future work or is this irrelevant as it is not a current example.

I'm trying to work out how to do that. I may add questions regarding current base location, current work location and plausible client locations. The problem is the more questions you add and the more complex they are the worse the results you get...

London is actually an issues I want to deal with separately as I want to try and group contractors in the commuter belt from everyone else...

As for future work I think that's covered by

If the proposals go through so you can no longer claim expenses it will significantly affect my ability to travel for contracts as it will make it more costly for me to travel between client sites as needed. Y/N

The Spartan
23rd July 2015, 12:34
London is actually an issues I want to deal with separately as I want to try and group contractors in the commuter belt from everyone else...

Makes good sense to me as even if you're in the commuter belt travel is quite expensive, I was quite surprised about how much it cost to travel around London while I was there as there's no way you can drive around London unless you're a sadist.

eek
23rd July 2015, 12:57
Makes good sense to me as even if you're in the commuter belt travel is quite expensive, I was quite surprised about how much it cost to travel around London while I was there as there's no way you can drive around London unless you're a sadist.

The issue there is that a lot of permanent staff commute into central London daily. Contractors expense it while they pay that £3-8k out of their taxed income....

As such I want to differentiate them in case it has an impact on actual figures....

LisaContractorUmbrella
24th July 2015, 06:49
Right,

I'm going to set up an online survey to see if we can collect some figures: Thinking of the following questions:-

Industry sector (IT / Oil / Business Consulting...)

Travel Expenses last month :
Average monthly expenses last 3 years:

Percentage of turnover: %

Stay over during week: Y / N

Travel distance to current client : xx miles / xx hours
Average distance to client last 3 years: xx miles / xx hours

Number of different clients last 3 years:
Multiple clients at some time: Y / N

Do you agree with these statements

These are legitimate costs that I would not incur as a permanent employee: Y/N

If the proposals go through so you can no longer claim expenses it will significantly affect my ability to travel for contracts as it will make it more costly for me to travel between client sites as needed. Y/N

Anything else people can suggest or wish to amend?

Once I've done this (over the weekend) I'll share the link so people can advertise it. I plan to correlate the results in the last week of august...

Total and unashamed bump :smile

LisaContractorUmbrella
28th July 2015, 07:07
Another bump for Eek to see how he's getting on with the survey :hug:

eek
28th July 2015, 07:07
The survey is on its way and should be ready tonight. Sorry for the delay but family got in the way...

LisaContractorUmbrella
28th July 2015, 07:16
The survey is on its way and should be ready tonight. Sorry for the delay but family got in the way...

Families are like that :smile Thanks Eek - you're a star :yay:

DotasScandal
28th July 2015, 14:45
there's no way you can drive around London unless you're a sadist.

Sorry to be pedantic...but surely you meant masochist?

Goatfell
28th July 2015, 17:47
Sorry to be pedantic...but surely you meant masochist?

Have you seen him drive?

eek
28th July 2015, 23:01
The survey is up at http://goo.gl/forms/O2O4WhscV4 .

Please share to any contractors you know...

mudskipper
29th July 2015, 05:25
The survey is up at http://goo.gl/forms/O2O4WhscV4 .

Please share to any contractors you know...

Couple of comments - you haven't said what you're going to do with the data.

Abroad thing possibly irrelevant - travel expenses will still be allowable.

I think a question about how many different client journeys you've had in the past (say) two years might also be useful.

eek
29th July 2015, 07:17
Couple of comments - you haven't said what you're going to do with the data.

Abroad thing possibly irrelevant - travel expenses will still be allowable.

I think a question about how many different client journeys you've had in the past (say) two years might also be useful.

Fixed with your question added (I asked for comments on questions last week by the way)....

OrangeSquash
30th July 2015, 21:53
Bump - just completed, only takes a few minutes:happy

SueEllen
30th July 2015, 23:10
Fixed with your question added (I asked for comments on questions last week by the way)....

Can you put something like "travel expenses including hotel/accommodation costs" in bold?

As I presume you are aiming at as wide an audience of contractors as possible you need be aware that most people don't read small print properly. So while people will automatically will put in their mileage and train costs they will not put in their hotel/accommodation costs.

Also it's unfair to pick on others who make suggestions for amendments to your survey, as until someone puts a draft copy of their survey up suggestions to improve/clarify questions can't be made.

hugebrain
4th August 2015, 18:48
No, HMRC is not getting more.

VAT - whatever amount you pay over, your agency/client will reclaim the VAT they pay you so HMRC effectively will not see any of this.

The amount you pay as CT and on dividends is a small proportion of the amount that you would pay as an employee, PLUS you would pay National Insurance PLUS your employer would pay NIC.

In addition you would not be able to claim travel etc.

You can see why HMRC see employees as for attractive to people working through their own company.

This is of course completely wrong. Never go full retard.

Just to see how ludicrous your argument is, try to answer the question of why the government make us charge VAT in the first place.

Then think about this. The companies hire us, not out of charity, but so that they can make more profit out of whatever they are selling. So not only do HMRC get the 20% or whatever directly from us, they also get another 20% of the added value we bring to the company (clue is in the name).

Finally, the most unlikely thing of all, permies being more attractive than us? What were you thinking?

Waldorf
5th August 2015, 08:54
This is of course completely wrong. Never go full retard.

Just to see how ludicrous your argument is, try to answer the question of why the government make us charge VAT in the first place.

Then think about this. The companies hire us, not out of charity, but so that they can make more profit out of whatever they are selling. So not only do HMRC get the 20% or whatever directly from us, they also get another 20% of the added value we bring to the company (clue is in the name).

Finally, the most unlikely thing of all, permies being more attractive than us? What were you thinking?

Oh dear, you just don't understand how VAT works do you?

VAT is only effectively paid by the end user in the chain.

Any VAT you charge to your client will reduce their own VAT bill and reduce the amount of VAT is paid over to HMRC.

The style of the tax is in the name, VALUE ADDED, ie a VAT is only paid on the value added part of the service/goods you provide. Whatever VAT you charge comes straight off the VAT your client pays, simples.

If your client engaged a permanent employee rather than a contractor, their VAT bill would be higher as they would not be reclaiming the VAT you would have charged them.

Permies are more attractive to HMRC, in terms of cash flow, admin etc. clearly there may be some argument regarding the tax raised, but overall permie staff probably would contribute more as there is less leakage of revenue such as contractors expenses, not paying taxes etc.

DaveB
5th August 2015, 09:49
This is of course completely wrong. Never go full retard.

Just to see how ludicrous your argument is, try to answer the question of why the government make us charge VAT in the first place.

Then think about this. The companies hire us, not out of charity, but so that they can make more profit out of whatever they are selling. So not only do HMRC get the 20% or whatever directly from us, they also get another 20% of the added value we bring to the company (clue is in the name).

Finally, the most unlikely thing of all, permies being more attractive than us? What were you thinking?


I'm sorry but this is so wrong it's ridiculous. You clearly don't understand how the VAT system works.

VAT is a tax on consumuption, paid for by the final consumers of good or services, not the suppliers. Any VAT paid by suppliers in the course of producing goods or services is reclaimed by that supplier from HMRC.

We charge VAT on our invoices to the client and pay it to HMRC. The client then reclaims that VAT from HMRC as part of their VAT return. It's a Zero Sum.

VAT only generates actual revenue at the point at which the final consumer of goods or services does not reclaim it. So when Joe Public buys the product that the client sells and that the contractor helped to develop, then he pays VAT on the purchase price. The client then pays that VAT to HMRC.

Most contractors operate the Flat Rate Scheme for VAT as they have minimal VAT'able expenses. This means we pay less VAT to HMRC than we charge our clients. This results in a net loss to HMRC in VAT recovered. This would not happen if it was an employee doing the job instead of a contractor.

northernladuk
5th August 2015, 10:10
I'm sorry but this is so wrong it's ridiculous. You clearly don't understand how the VAT system works.


Sometimes I wonder if we are our own worst enemy when trying to defend the way we work. It's hardly a surprise HMRC are after us when it's blatantly obvious too them that most of us don't have a clue. Maybe VAT isn't the best example but when people think giving notice has something to do with MoO for example how can we put a defense up?

eek
5th August 2015, 10:11
I'm sorry but this is so wrong it's ridiculous. You clearly don't understand how the VAT system works.

Most contractors operate the Flat Rate Scheme for VAT as they have minimal VAT'able expenses. This means we pay less VAT to HMRC than we charge our clients. This results in a net loss to HMRC in VAT recovered. This would not happen if it was an employee doing the job instead of a contractor.

+1. I have a simple viewpoint on this (which is crude but effective). Anyone who claims that VAT is an additional tax we pay rather than just an annoying task with paperwork attached that we have no choice but to do really has lost the argument before they begin...

DaveB
5th August 2015, 10:16
Sometimes I wonder if we are our own worst enemy when trying to defend the way we work. It's hardly a surprise HMRC are after us when it's blatantly obvious too them that most of us don't have a clue. Maybe VAT isn't the best example but when people think giving notice has something to do with MoO for example how can we put a defense up?

I wouldnt say it was most, but it's a significant enough minority that it's not hard to spot. Makes you wonder if HMRC read these threads as some form of light relief since we already know they read some of the Retro Tax related stuff.

:wave: --> HMRC.

northernladuk
5th August 2015, 10:20
I wouldnt say it was most, but it's a significant enough minority that it's not hard to spot. Makes you wonder if HMRC read these threads as some form of light relief since we already know they read some of the Retro Tax related stuff.

:wave: --> HMRC.

Hmm that would be an interesting statistic to investigate. In the big clients I've been at recently for every contractor that plays the game and knows what they are doing there will be 10s of others that don't know what IR35 is let alone the intricacies of it. Maybe my experience is different.

eek
5th August 2015, 10:24
Hmm that would be an interesting statistic to investigate. In the big clients I've been at recently for every contractor that plays the game and knows what they are doing there will be 10s of others that don't know what IR35 is let alone the intricacies of it. Maybe my experience is different.

I reckon your statistics are right and may even be on the low side. You then have those where the phrase "in the kingdom of the blind, the one eyed...." definitely holds true. Which means that dodgy information starts to become fact (which is how dodgy schemes end up taking hold)...

DaveB
5th August 2015, 10:25
Hmm that would be an interesting statistic to investigate. In the big clients I've been at recently for every contractor that plays the game and knows what they are doing there will be 10s of others that don't know what IR35 is let alone the intricacies of it. Maybe my experience is different.

It's been the other way around for me.

In the contractor heavy gigs I've been on most have been clued up and doing it right, but there always seem to be a couple who either don't care or refuse to understand.

northernladuk
5th August 2015, 10:31
It's been the other way around for me.

In the contractor heavy gigs I've been on most have been clued up and doing it right, but there always seem to be a couple who either don't care or refuse to understand.

Hmm. Very interesting indeed....

pr1
5th August 2015, 10:38
+1. I have a simple viewpoint on this (which is crude but effective). Anyone who claims that VAT is an additional tax we pay rather than just an annoying task with paperwork attached that we have no choice but to do really has lost the argument before they begin...

An annoying task that allows us to keep an extra ~2.6% of turnover in our companies pocket, you mean?

I certainly wouldn't do it if it wasn't of benefit to me/myco

ShandyDrinker
5th August 2015, 10:58
Hmm that would be an interesting statistic to investigate. In the big clients I've been at recently for every contractor that plays the game and knows what they are doing there will be 10s of others that don't know what IR35 is let alone the intricacies of it. Maybe my experience is different.


I reckon your statistics are right and may even be on the low side. You then have those where the phrase "in the kingdom of the blind, the one eyed...." definitely holds true. Which means that dodgy information starts to become fact (which is how dodgy schemes end up taking hold)...

I'm with NLUK and eek on this one. From working for clients in both retail and investment banking over the last 5+ years my experience has been mostly that contractors do not take an interest in IR35 at all.


It's been the other way around for me.

In the contractor heavy gigs I've been on most have been clued up and doing it right, but there always seem to be a couple who either don't care or refuse to understand.

I am surprised although I would imagine contractors in some sectors are more clued up than others.

Reading the IPSE benchmarking survey recently confirmed what I have observed in that only a third of contractors have their contracts reviewed for IR35.

From what I've seen, particularly over the last couple of years, is that if you make waves about whether a contract is IR35 friendly the stock answer is typically that "we've already got x number of contractors with the same contract" which makes you out to be a troublemaker if you ask for problem clauses to be changed.

eek
5th August 2015, 11:02
I'm with NLUK and eek on this one. From working for clients in both retail and investment banking over the last 5+ years my experience has been mostly that contractors do not take an interest in IR35 at all.



I am surprised although I would imagine contractors in some sectors are more clued up than others.

Reading the IPSE benchmarking survey recently confirmed what I have observed in that only a third of contractors have their contracts reviewed for IR35.

From what I've seen, particularly over the last couple of years, is that if you make waves about whether a contract is IR35 friendly the stock answer is typically that "we've already got x number of contractors with the same contract" which makes you out to be a troublemaker if you ask for problem clauses to be changed.

I think DaveB has been public sector for a while which probably explains their knowledge (with the rules the cabinet office tried to implement)..

As for your last point I wanted a recent contract changed because it had an utterly insane substitution clause (look we may not use it and you may not want us to but it should at least look like its usable)... As they wouldn't change it I went elsewhere....

DaveB
5th August 2015, 11:08
I think DaveB has been public sector for a while which probably explains their knowledge (with the rules the cabinet office tried to implement)..

As for your last point I wanted a recent contract changed because it had an utterly insane substitution clause (look we may not use it and you may not want us to but it should at least look like its usable)... As they wouldn't change it I went elsewhere....

It probably is sector specific, as you say I've been doing a lot of Public Sector work in the last few years. Certainly the CO and CLOne contract cockups highlighted things for a lot of contractors and made sure we knew exactly what was going on and raised objections when we needed to.

ShandyDrinker
5th August 2015, 11:10
As for your last point I wanted a recent contract changed because it had an utterly insane substitution clause (look we may not use it and you may not want us to but it should at least look like its usable)... As they wouldn't change it I went elsewhere....

I did get the agency to agree to some of the amendments advised by QDOS and ensured that I had confirmation from the client about working practices although the inflexibility was a factor in eventually leaving/not renewing.

In this respect I've found the small/mid sized agencies much better to deal with than the larger ones as they're much more open to amending the contract.

eek
5th August 2015, 11:35
An annoying task that allows us to keep an extra ~2.6% of turnover in our companies pocket, you mean?

I certainly wouldn't do it if it wasn't of benefit to me/myco

Try again... If we were excluded from the flat rate scheme how would you avoid doing it....

Yes we get a benefit from it (2.6%) but that isn't a selling point to HMRC that is another reason for not letting us get that benefit... Its not as if we need to accurately account for 150 cups of coffee a day with additional purchases that may or may not have vat included....

pr1
5th August 2015, 11:43
Try again... If we were excluded from the flat rate scheme how would you avoid doing it....

Yes we get a benefit from it (2.6%) but that isn't a selling point to HMRC that is another reason for not letting us get that benefit... Its not as if we need to accurately account for 150 cups of coffee a day with additional purchases that may or may not have vat included....

that's a different question - we aren't excluded from it (yet) so complaining about having to do it at the moment is unsubstantiated

you'd still end up with more money in your pocket even if you only had 1 VAT-claimable expense per year (assuming you're already set up), my point is that it isn't just an annoying bit of paperwork - it works in yourco's favour so don't complain about it

eek
5th August 2015, 11:52
that's a different question - we aren't excluded from it (yet) so complaining about having to do it at the moment is unsubstantiated

you'd still end up with more money in your pocket even if you only had 1 VAT-claimable expense per year (assuming you're already set up), my point is that it isn't just an annoying bit of paperwork - it works in yourco's favour so don't complain about it

I wasn't complaining about it.

I was complaining about those people who continually claim they pay £x thousands more in tax now using a limited company than they did as an employee and then include their VAT payments within that calculation...

pr1
5th August 2015, 12:05
I wasn't complaining about it.

I was complaining about those people who continually claim they pay £x thousands more in tax now using a limited company than they did as an employee and then include their VAT payments within that calculation...

that's alright then, I agree, being FRS vat-registered takes away from how much tax "you pay" (rather than add to)

LondonManc
5th August 2015, 12:38
that's alright then, I agree, being FRS vat-registered takes away from how much tax "you pay" (rather than add to)

The only downside being that it makes you feel like you're earning 20% more than you actually are :D

Danglekt
5th August 2015, 14:07
I wasn't complaining about it.

I was complaining about those people who continually claim they pay £x thousands more in tax now using a limited company than they did as an employee and then include their VAT payments within that calculation...

What about people that pay x more thousands in tax now than as a permie, excluding VAT?

Like me.

pr1
5th August 2015, 14:26
What about people that pay x more thousands in tax now than as a permie, excluding VAT?

Like me.

that's not the point (most of us are in the same boat as you)

the point is you're not paying as much as if you paid PAYE on your turnover, that's why hmrc are trying to change the rules

eek
5th August 2015, 14:42
that's not the point (most of us are in the same boat as you)

the point is you're not paying as much as if you paid PAYE on your turnover, that's why hmrc are trying to change the rules

And that is one bit to emphasis. My turnover may be £100k + VAT, but if I was to take a permie role it would probably pay £60k due to the impact Mutual obligation and other employer costs would add.

dingdong
7th August 2015, 14:59
The contracting industry is doomed if this legislation goes through as proposed in the discussion document.

No client is going to sign on a dotted line saying that they have no supervision, direction or control over contractors that are working in their organisation.
They will simply take the safe option of saying that they do have control meaning contractors are then liable to be treated as employees by HMRC despite having none of the protections that employees have (eg. holiday pay, job security, sick days etc.)

This, combined with personal tax rates that are now going to be higher than tax rates for people paid only via salary, removal of tax breaks on travelling expenses etc. means the tories are single handedly going to destroy the flexible workforce that contracting provides. I thought they were supposed to be be party of small business entrepreneurial types.

I'd recommend as many people as possible reply to the consultation document.

mudskipper
7th August 2015, 17:33
IPSE members, see Andy's update here (https://community.ipse.co.uk/threads/discussion-document-ir35.109743/page-2#post-971600).

jamesbrown
7th August 2015, 17:40
IPSE members, see Andy's update here (https://community.ipse.co.uk/threads/discussion-document-ir35.109743/page-2#post-971600).

W. T. F.

SueEllen
7th August 2015, 18:05
W. T. F.

That's very polite - ******* shit!

jamesbrown
7th August 2015, 18:16
That's very polite - ******* tulip!

If that characterisation is true, I don't know whet they bothered with a discussion. Why not go straight to consultation?

SueEllen
7th August 2015, 18:21
If that characterisation is true, I don't know whet they bothered with a discussion. Why not go straight to consultation?

They have to be seen to following protocol otherwise an organisation/individual will find some legislation to make a legal challenge.