Will contract rates increase to pass dividend tax increase to clients?

[jamesbrown]

But if they're not paying CT then they're not paying any dividends (and therefore are not relevant in a dividend tax argument)?

It isn't me that mentioned CT. The only connection between CT and dividends is that the reduction in taxation of the former can be used as a political argument for clamping down on the latter, as a means of avoiding further TMI (but this is a political argument). The reduction in CT is a separate issue, focused on large businesses, definitely not us.

[javadude]

SJD sent emails out this morning....

In answer to the OP: Yes I will be increasing, by 8%.

I'm not alone then. Unite the two of us will drive the market rates up.

Seriously, I don't expect any general trend to be that fast or obvious. I fully agree that agents and clients won't care what tax we pay but when the agents ask "Wot's your rate?" then the div tax increase will be just one factor on my mind when I pluck a figure out of the air. Maybe I am a diva pricing myself out of work but I've not been on the bench in 10 years. Perhaps I'm underpricing my skills but the tax increase will motivate me to see if I can squeeze an extra £10 or £20 a day out of the agent. Just wondered if anyone else was considering it as one extra thing to consider.

[northernladuk]

Just wondered if anyone else was considering it as one extra thing to consider.

I consider that's been answered already.

What you are talking about is a straight rate negotiation. You are after the best chunk of the agents or clients money. The new divide tax absolutely zero bearing on this figure except for what the lowest you will take is. If you won't take it someone else will.

But fill your boots and do it for all contractors the length and breadth of the country!!!

[LondonManc]

It isn't me that mentioned CT. The only connection between CT and dividends is that the reduction in taxation of the former can be used as a political argument for clamping down on the latter, as a means of avoiding further TMI (but this is a political argument). The reduction in CT is a separate issue, focused on large businesses, definitely not us.

Potentially seen as a way of getting corporations to declare larger UK-based profits, knowing that the shareholders will take a dividend clobbering rather than the corp itself taking the hit.

[NibblyPig]

I doubt that. It might be better. I know guys from the Midlands doing what I do in Manchester yet I'm in the Midlands stealing a piece of their pie. I simple location re-balance will take place initially which I think will probably negate the need for driving prices up. It's not like it's going to leave some areas with zero local contractors. There are so many of us now I can't believe that will happen.

This is all true.

What I hope is that less commutable places and those where people don't want to live put the prices up, and then other contractors/recruiters use those prices as a basis for average rate.

If a gig in swindon goes from 375 to 450 because no bugger will go there, when people are deciding rates they will see many gigs at those high rates and feel they have to be similar to compete. Likewise, you'd be reluctant to turn down gigs at 450 even though you know it'd make little financial sense to accept them. And I mean the collective you as in contractors in general. Psychology is a powerful thing.

At least, I hope that's what happens. I guess the opposite may occur, if you live in a place with lots of contractors suddenly they'll all take local jobs.

[jamesbrown]

Potentially seen as a way of getting corporations to declare larger UK-based profits, knowing that the shareholders will take a dividend clobbering rather than the corp itself taking the hit.

CT is about growing the pie of all business and personal taxes by attracting inward investment, so it's best viewed as the headline to a broader strategy. For large corporations, dividend taxation is a secondary issue (most shareholders wouldn't be affected) whereas, for us, CT is a secondary issue (1% in April 2017), and dividend taxation is relatively important.

[expat]

In a free market what should be expected to happen is that that increased costs to the suppliers (contractors) should lower the supply curve, i.e. make it so that fewer suppliers are willing to supply at any given price point. If the demand curve is unchanged, i.e. clients don't give a toss about our costs, then the result would be a combination of higher rates and lower availability of contracts. Some contractors would leave the market and some would get higher rates; some clients would pay higher rates and some would shelve projects because of the new higher costs.

That would be classical economic theory in the presence of a government that believed in the market. With a government that believed in making the country open for (big) business at any cost, the result would of course be more injection of competition from lower-cost parts of the world. Higher costs for contractors and lower rates. But why would anyone vote for that?

[WordIsBond]

My rates are going up by 3%. Easy to justify that my cost of doing business has increased, but the increase is small enough not to scare anyone.

The cost of being a contractor just increased. That means there will be a few less people for whom it is worth it. A few will go permie. A few older guys may just decide to quit, they aren't clearing quite as much and they can't be bothered any more. The T&S changes will drive some more out of the market. Maybe not a lot, but some.

The end result is a little less supply, a little more demand. The price will adjust. Clients still need to get their projects done. If there is a little more competition, they'll pay a little bit more. If they have to pay too much more, they'll defer projects, decreasing the demand, and the price will drop a little bit. Eventually, an equilibrium will be reached. It always is. The market always wins.

The equilibrium price will be a little higher than today. Maybe not 7.5% higher, but some. It won't happen right away unless all contractors immediately put their price up by 7.5%. They won't, because there isn't enough demand for them to get away with it. Supply and demand is what will win, what will decide where rates go. Supply and demand usually takes a while to filter through as new realities affect behaviour. If you increase your rates by 7.5% now, you'll be ahead of the curve, and if you are ahead of the curve you might just fall off of it and be on the bench for a while. If you don't want to be behind the curve, increase a little bit at your next renewal. "Cost of business has gone up" (no need to get specific) "and I'm increasing my rate. I'm not looking for a lot, just enough to cover some of my increased cost."

[northernladuk]

All very nice but missing a whole host of things, mainly the fact that every man and his dog is going contracting now and there are the offshore bods. The rates for contracts has been dropping and will continue to drop as it becomes the defacto standard of resourcing and then something major will happen to redress this fact. Every single IT bod can't be on contractor rates. It just doesn't work.

I like the way you think and that you are looking to increase your rates by 3% and the like but good luck with that.

[tomtomagain]

HMRC's view of contractors using LTD companies is that a LTD is used way to avoid paying their "fair" share of tax.

So first they cut down on what was claimable, then when that didn't work they introduced IR35.

That didn't work, so now they are increasing the take on dividends.

If that doesn't work they will simply force "close company's" to pay all the income taken by the company as PAYE. End of "problem".

At the end of the day HMRC view a LTD company as a device to create jobs and value - as in services and products : A "real" company employs multiple people who all pay PAYE.

A LTD company is not meant to be a structure to allow individuals to avoid paying the same rate of tax to that paid by people with a comparable skill-set who are on PAYE.

There should always be a premium given to people who are prepared to take the risk of working short-term contacts with no job security, but the tax advantages will continue to narrow.