back to article IR35 tax is a huge failure

Under the Freedom of Information Act, the Professional Contractors Group has been able to find out how much tax the British government has raised from IR35. IR35 was introduced in 2000, as a means for the Government to stamp out what it considered to be "disguised employee" arrangements, which reduced tax and national …

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' – but he’s not stupid'

And your evidence for this claim is ?

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Anonymous Coward

I think you're forgetting something...

Does that figure include the people who are now "doing it legit" - either as permies or as "proper" small businesses - rather than taking the piss as long-term contractors? Bet it doesn't.

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Unhappy

Be fair

Someone has to pay for the moat-cleaning and duck houses that are part of the 'necessary and exclusive' costs of being an MP. So why not freelancers?

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Linux

Evidence please

"We know that Gordon Brown is not stupid"

Really? I don't know that and judging by his grasp of elementary economics in announcing just when and how much of our gold he's selling I beg to differ.

As further evidence I offer the shambling wreck of an economy the Prime Mentalist and the former chancellor of the exchequer have created in Britain.

As even further evidence I offer a man who's too stupid to know when the games up and clings to 'power' even at the expense of the country and his party.

In fact the only good thing is that when we FINALLY get to vote for him as PM he will be cast into oblivion for 30 years...IMO.

God protect us from Cameron too. He's far too Bliar for my taste.

A plague on both their taxpayer funded houses!

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Ash
Joke

Outrageous!

"Surely the Government will have to drop IR35 too, now that the cat is out of the bag."

How DARE you bring logic and common sense to a story regarding politics! I'm afraid you're going to have to re-read the appendix of your Press Dictionary, the 11th Commandment especially:

"Thou shalt not apply critical thinking to a story related to current political climate, lest ye be mocked publicly for stating the obvious while knowing that nothing will change."

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A bit optimistic, methinks...

Gordon brown may be obstinate, and he may be not stupid, but he probably has other, bigger things on his mind just now.

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Unhappy

Careful what you wish for!

The current situation doesn't cause a problem for most people. There's a tiny chance that you will get investigated, and even tinier that you'll get caught out by it. It would be nice if the government eradicated this tax without replacing it... but Labour will probably just make things worse. They don't care about our votes, they've been ignoring vast swathes of the public for a long time.

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Anonymous Coward

Of course IR35 doesn't raise much money

It's intended to force people into mainstream taxation by plugging the previous loophole with something so expensive that nobody uses it.

The only thing this figure shows is that there are still people stupid enough to not use a decent accountant.

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obstinate – but he’s not stupid.????

Are you kidding ???

What about the removal of the 10% tax rate then - he either didn't think it through or he very cynically didn't care that some of the poorest people would see their tax nearly doubled -

(not quite doubled, as personal allowance was originally going to be increased by (only) £210)

I think he tries hard to do the right thing (just fails miserably), which only leaves not-very-bright

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The Point?!

"IR35 was introduced in 2000, as a means for the Government to stamp out what it considered to be "disguised employee" arrangements that reduced tax and national insurance payment of supposed freelancers by 25 per cent."

Given the point above there are really two answers to the low tax return...

a) the tax was succesful in its aim and "disguised emplyees" are now real employees paying normal tax.

or

b) there wasn't as many "disguised employees" as thought in the first place.

of course there is always a third option.

c) contractors started working differently to avoid the rules.

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But let's not just ignore it.

PCG must and will continue the fight to ensure that freelancers operate on a level playing field with the rest of the consultancy market.

Although PCG's FoI request has shown that the tax take on IR35 investigations is paltry (and probably results in a net cost to UK taxpayers) there's still a lot of work to do to ensure that freelancers can trade without ridiculous, punitive, vindictive and fundamentally flawed red-tape being put in our way.

And yes, I am an interested party - I am a freelancer and also the current Chairman of PCG.

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Coat

What a typical waste of time that was

Thankyou FOIA - what a waste of money.

Mind you IR35 did scare some of the shall we say "less skilled" contractors into being permies which kept the rates up nicely after the dot com bust and in my experience, not many of those who went to the dark side then have since "seen the light".

Hope they don't all go back into contracting when the tories scrap this rediculous tax.

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I thought

the purpose of this was to stop contractors abusing the system, being permant staff in all but name, not to make money.

this has done that as now contractors are now careful to avoid having to pay these extras.

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Anonymous Coward

Misleading statistics

I'm not a fan of IR35, but this article doesn't paint the whole picture as it ignores those contractors who simply decided voluntarily to operate within IR35. I imagine that many would not consider it worth the risk of an investigation. But because they've never been before a court or the commissioners, they wouldn't show up in these figures.

To see the real impact of IR35, we need to know how many contractors were operating in 'IR35-style' (i.e. paying full tax and NICs on their income) and how many were not, both before and after the introduction of the IR35 legislation.

The government isn't worried about its £9m, it's worried about the mass of contractors who would switch back to dividends/paying family members, etc. if IR35 were to be repealed.

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Anonymous Coward

Hmmm

Contractors, not that much different from MP's really.

No surprise really .. FFS just pay your bloody NI contribution and tax like everyone else.

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Flame

This sums up the UK

Crap tax system, punishing those who work hard and innovate for a living whilst a good chunk of society have never worked a day in their lives.

I live in a country which has a very progressive approach to taxation (Switzerland) - so progressive in fact that OECD has us on the grey list.

If tax was perceived to be "fair" then fewer would seek to avoid and fewer still to evade. This, in turn, brings down the costs of collecting tax. It is not, as NuLabour would seem to think, rocket science.

I will be relocating some time in the next 12-18 months and I've ruled out the UK because it's overcrowded, overtaxed, overpriced, broken and, frankly, a poo hole.

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MnM
Happy

But think of the duck houses

How on earth will these be funded without this essential tax???

That's made my day. And it's sunny. Think I'll take the rest of the week off!

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Paris Hilton

Oh good,

A simple mathematical formula, Government + idea = Fail

Does that mean that all those unemployed contractors eh, sorry, "disguised employees" can now claim welfare?

http://www.itcontractor.com/Articles_IR35_News_Advice/jobsarticles.asp?category=JU

I guess not, you're self employed if you want something, you're an employee if the government wants something

Paris, who knows a thing or two baout being screwed

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Stop

Don't forget the timing

Don't forget that IR35 also gets tax into the govt's coffers - via PAYE - faster than as a dividend from the service company. But that's only a tiny crumb of comfort for Gordo. The whole IR35 is now exposed as just another anti-business ploy.

Yet another example of how the civil service will come up with any figure to support whatever bandwagon is currently being spun by useless ministers.

Roll on the election. The sooner the better.

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Dan
Flame

£9.2m over 5 years?!

So they collect enough annually to cover Michael Martin's pension?!

Bunch of jokers.

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Paris Hilton

i know...

lets give the government MORE of our money - so they can get more expenses... they must think we are all as dumb as that asshat that sits in no 10.

paris - she would make a better pm than that scotish doofuss

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Anonymous Coward

What a waste, .....

As a contractor, I just got a lawyer to modify my contract terms, so that I had a (theoretical) right of substitution and such. None of my clients seemed to object to these clauses & I also worked on the principle that the chances of HM finding me were minimal. Some of my colleagues were more cautious and 'voluntarily' became IR35.

All in all a waste of time and (our) money...

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If you want to stimulate the british economy ...

... a simple way to do it would be to roll back the penalties involved in buying and using a company car.

Contractors are (to all intents and purposes) not allowed to buy a car and then claim back the tax - either VAT, or taxes their companies incur from the purchase. This has basically killed off the whole area of small companies having company cars.

If the govt. wanted to, and I mean _really_ wanted to, kick start the british car market, a simple way to do it would be to roll the clock back 20-odd years. Allow the cost of a CC to be set against contractors' company's costs, just like buying a computer, training course or packet of envelopes is seen as a legitimate expense.

You never know, the added incentive might even prompt a few people to get off the dole and start up their own little entrepreneurial enterprise.

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Anonymous Coward

other savings...

I know of at least one person who used to do the same job as me (a fully-taxed employee) but as a contractor who also paid themselves a low enough wage from their one-man 'company' that they could claim housing benefit. I don't think they were the only one.

Let's face it, we're a nation of chancers from the top of society to the bottom.

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@ Hmmm (AC)

I am a 'contractor'. I make PAYE & NI 'contributions', I pay Corporation tax and tax on any dividends I take from the business. Is there anything else that you would like me to 'contribute' to HM Gov?

I'd wager that HMRC have written off more than the £9.2 million a year when dealing with large corporates who 'estimate' their tax bill.

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@Gordon Paterson

or

d) started working abroad (and stayed there - Posted from Rome ;^)

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@AC 08:44

I presume you're being ironic, but just in case:-

I'll be happy to pay tax and NICs just like an employee the day I become entitled to ALL the same benefits as an employee. Since that will never happen, I'd rather have my company treated tax-wise as any other small business in the UK. Like a huge number of freelancers I choose to be a freelancer and have no desire to become an employee of any of my clients. It is a way of life I have chosen and I also accept all the risks and downsides and the upside of the potential rewards that go with that risk - just like any other business I hope to profit from my efforts but if I don't then I don't expect to be bailed out by state benefits.

All that most freelancers want is a level playing field which treats all the participants in the same way. IR35 was supposed to protect the Friday-to-Monday workers (who are mostly at a lower level of skills) - it didn't and doesn't. What it does do is make it impossible for freelancers to ensure that their business model can operate to the same rules as the likes of EDS and Accenture, KPMG and indeed the local PC repair shop. That is unfair in the non-Blair/Brown sense of the word.

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Waaa, poor tax dodging contractors

Right, because obviously you should pay less tax because you are a "company" with one client and your mum as the only other officer. Get over your sense of entitlement, money grabbing expense fiddling contractor scumbags. Perhaps we should abandon all attempts to tax the rich, because they are so good at avoiding them?

I'm a contractor, but I don't feel the need to join a special Group for people who earn lots of money and think they should pay less tax. Isn't that what the Tories are for?

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Stop

House in Order

MPs pay family members.

Over many centuries, there have been family firms (hence &Sons as a suffix) and many firms pay dividends based on company results rather than fixed monthly salaries.

Where the government need to legislate properly is large companies wanting to "employ" people via a contractor arrangement. In the short term, for projects that have a defined start and end date this seems fine. However, I know guys working for many firms (Lloyds and UBS seem to be the worst) where "contractors" have been there years doing a permie job... the companies make permies redundant and these guys remain - under the direct control of the firm. HMRC should go after obvious cases like these. Substitution clauses that are never invoked when a person has been with an employer for more than a year are not regarded by HMRC as an IR35 get-out - and justly so.

The legislation and enforcement need changing to allow companies flexibility for discrete consulting engagement but to target pseudo employment more effectively.

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Heart

LOL

Interesting to read the bitterness of full-time employees but you guys really need to do some research about this subject.

OTOH if contractors really don't pay any tax, why are you so stupid as to still be in full-time employment?

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If I may...

... quote future prime minister Clarkson, it would seem that in addition to being both blind & Scots the Brown One is, actually, stupid.

Now who can debate the Great Man's wisdom on this ;o)

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Anonymous Coward

Dawn Primarollo public flogging anyone?

Now this lady called us all tax dodgers and thieves. If we are so bad as contractors, why can't her paid lackeys prove it in court?

Yes: some people will just do what I did and do everything through payroll and take the thousands of pounds a year hit, I can't afford another 15 grand for an investigation that proved I was doing nothing wrong, which you can't claim back.

Anyone for a public flogging, followed by lots of ridicule?

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Anonymous Coward

we need to see...

... if there was a increase or decrease in tax from permentent staff to see if this tax actually made a impact (the fact that it made 9.5 million is still 9.5 million extra for the country however, so i don't get why its a failed tax)

Most likely they just started doing the taxs differently to avoid this tax, or signed on as full employees.

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Silly premise

Whatever gave you the idea that IR35 needs to collect more money than it costs to enforce? There are countless laws that don't "turn a profit." IR35 was introduced to close a loophole and uphold the government's idea of fairness. The fact that people work around it suggests to me that they'll tighten it rather than abandon it.

BTW, how many is "just over a handful"?

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Happy

@John Lamb

Never let ignorance get in the way of a good rant, eh?

Oh, wait a minute; maybe those two things aren't completely unrelated . . . . .

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Anonymous Coward

contractors = tax dodgers

contractors pay less tax than if they are working full-time and that smacks of a privileged few gaining at the expense of the majority.

paying tax is not wrong. it is necessary to provide the services that enables everyone to enjoy a reasonable standard of living.

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Anonymous Coward

but isn't this like congestion charge?

If it works, it raises no money because everyone avoids the zone.

So presumably all the single-employer, long-term contractors are now properly employed as permies with pensions, holiday allowances, redundancy rights etc which generally works out cheaper if less flexible for the employer anyway.

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Gav
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IR35 is a success by this measure

What kind of ridiculous logic is this? IR35 was introduced to plug a loophole in tax arrangements. Contractors were pulling a (legal) fast one, and had no right to expect that they'd be allowed to continue to avoid tax.

The fact that it's not gathering much revenue now is not an indication of its failure, it's an indication that contractors have ceased to conduct their affairs in this manner and are, it is to be hoped, being taxed the same way as rest of us working schmucks.

Therefore IR35 can only be regarded as a complete success by this measure.

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Waaa, poor, no expense permies

@John Lamb Posted Friday 22nd May 2009 09:52 GMT

Let's level the playing field a bit then, and make permies/PAYE workers pay an accountant a couple of grand to produce an audited set of accounts and make a tax return every year. Would you like a job with a 12 week contract?

Waaaaaa Waaaaaa

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Anonymous Coward

Is Gordon Brown Stupid?

Gordon Brown has a degree from Edinburgh University, so he ought not to be stupid. But....wait for it folks...his degree was in History. So that'll be 7 hours a week of lectures then?

I wouldn't really have thought that a degree in History would equip them with an analytical mind and problem solving ability. (Engineering will do that, but not History).

But then I'm biased: I have an engineering degree!

Who really thinks Brown can get his head around economic theory, of closed look feedback systems, of understanding the behaviour of dynamic systems, oscillation(instability), postive and negative feedback?

Can someone with a History degree understand graphs, understand the maths behind the time varying parameters being plotted, of prediction algorithms...

May be this is why he sold the country's gold reserves at rock bottom price!

(You'd have at least thought he'd have looked at the previous 6 months gold price - a graph - and could see that it had a negative gradient....if he understands the concept of a gradient. Historians aren't known for their grasp of maths are they?!! )

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Flame

To recap on what has been said

re: AC and "Contractors, not that much different from MP's really. No surprise really .. FFS just pay your bloody NI contribution and tax like everyone else."

Yeah, I'd love to pay the Govt. effectively double the NI contributions - employers and employees - just so I could claim no benefits from these payments.

I've been out of contract since August. Net amount claimed off the Govt. during this time - zilch. Tax paid during 12 year's contracting and running several businesses - well north of £1m. Well north.

I don't mind taking the risk of being unemployed and having to rely on myself. Ditto sickness / holiday / pension. But I'm damned if I'm paying shedloads of NI and not getting anything back in return. And no, I don't pay myself a stupidly low salary either.

AC - I'd put a pound to a penny that you are a frustrated permie, probably managing contractors, and in envy of their "lifestyle". Well, from where I am right now, the market's shot and I won't work again this year, I imagine. That's the risk I've been prepared to take. If you are risk-averse, fair enough, but don't get green with envy. We *do* pay taxes, and lots of them. Try directing your ire at major plcs who pay <10% tax in total.

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Anonymous Coward

Re: AC LOL - The Pros and Cons of Contracting

Permy's are right to bitch about their renumeration packages. I've done both: contracting and Permy. There are pros and cons to both.

I did contracting for five years until the bottom fell out of the telecoms market a few years ago and I found myself out of work for a whole year, being a contractor, being self-employed I couldn't go any claim any benefits...the consequences were dire.

Now, we're going through another recession, I'm a permy now, had I been a contractor I would have been well and truely shafted.

People need to recognise there are pros and cons of both and there are times and personal circumstances where being one is better than the other.

But generally, it's a sad fact that in the UK you can't get a decent wage in information technology unless you are a contractor.

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Eh? What's the problem?

What do you mean it's not working, just because it's operating at a loss?

It's not meant to make money, it's meant to suppress the small contractors so there's more work for the big consultancy companies that NuLab is so chummy with.

'Fairness' means 'we and our mates are the ones that get to make the money out of it'.

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Stop

Myths

Re - Anonymous Coward Posted Friday 22nd May 2009 09:34 GMT

"I know of at least one person who used to do the same job as me (a fully-taxed employee) but as a contractor who also paid themselves a low enough wage from their one-man 'company' that they could claim housing benefit. I don't think they were the only one."

But that's bollox because the Gov housing benefit web-site says:

"You may get Housing Benefit if you pay rent and your income ***and capital (savings and investments) *** are below a certain level."

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Re: Dawn Primarollo public flogging anyone?

By Anonymous Coward Posted Friday 22nd May 2009 10:39 GMT

Yes!

And she mislead the House of Commons on 06-Jan-2004 when she said that she could not give these figures because HMRC did not keep them.

Is crucifixion really too severe?

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Coat

Lost 200K.

The company I work for was investigated under IR35, 2 years later, lots of expense, lots of unbilled time later, no penalty to pay.

Firm has relocated to Australia. So IR has lost all corporation tax that might have been paid by staying and working in the UK.

Looks like the 50% tax rate might have the same effect but on 'big' business rather than the small-trying-to-get-bigger.

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Linux

transient workforce

Lots of you people telling us contractors that we dont pay as much tax... that sounds just plain wrong... i am a contractor and on average i pay 26% deductions.

Since i get no benefits such as sick pay or holiday pay, nor paternerity leave, i think it is quite fair.

I also pay for ALL my own training and my accountant. Sorry if you are not brave enough to go out there and try and make a bit more for yourself.

Besides we provide a valuable service. How many technical projects are less than a year ... for web stuff, just about all of them, so it makes sense for your company to hire me for 3 to 6 months rather than have the cost and tax burden of getting a permie who then sits on their hands for the other 6 months of the year and cant be fired easily.

Permie's are welcome to their life and often it is the security of a job they are after, well as we have seen recently, your job is probably less secure than mine!!!!

Stop whining and join us.

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Anonymous Coward

@AC - Fairness

You're trying to argue that contractors should pay more tax because it is fair.

I'll ask: why is it fair that because someone earns more money than someone else that they should pay a higher percentage of their income as tax ? (I include NI+PAYE here).

Isn't this what happens every day to us all? With the concept of differing tax bands. Why is it fair that a higher income earner should pay 40% tax and not 20% (or whatever it currently is)?

Basically the tax system isn't about fairness. It's about raising money for the government.

You're saying that because someone's been in a job for a long time they must be regarded as an employee, yet they don't get the benefits that employee does!

You're not comparing like for like so your own analysis is flawed.

One needs to look at the actual benefits of this IR35 legislation and the complications which it causes. One has to look at all sides of the coin. In terms of benefits, it raises a pitifully small amount of tax revenue for the government, costs a huge amount to administer, and the negative side is it places a high administrative burden on the contractors/small business owners. It does not help contractors/small businesses in anyway whatsoever. It's a hinderance.

The only benefit is to HMRC and that's very small.

Qualified accountants before the legislation came onto the Statute said that it would be a very bad piece of legislation, and they were right.

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Anonymous Coward

RE: Silly Premise

Given that the situation was (1) financially based and (2) open to anyone the only premise for bringing in something like IR35 would be to make money.

That it actually costs money is wrong on so many levels and to so many people:

-It costs contractors money, the money being recompense for the lack of things like security, sick pay, holidays, employee rights etc. and to cover the additional costs such as accountants, insurances, not being able to get a mortgage etc. etc.

-It costs the taxpayer money. How fucking happy are you to know that not only do contractors get less money (that you might be pleased about in some petty schadenfreude / jealousy manner) but also there are fewer nurses / police / teachers / NHS treatments etc. due to the extra wasted money? Tell you what - I will pay you £1000 per annum, all you have to do is give me £10000 every year to cover the cost of recovering it, you sound stupid enough to think that is a good deal.

-There will be an influx of well-qualified*, well-trained*, highly skilled*, flexible* IT staff into the permie market, competing with you for jobs in the future. Given your apparent lack of cognitive skills it doesn't bode well for your career.

*And some really crap, lazy, useless ones also, I freely admit.

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Flame

Well done .... NOT

OK - so now its been made public that its a waste of time and money right? Well done. Now why does anyone with even half a brain cell think that the tax will just be scrapped? Hello!?

It will be replaced with a far more effective tax that doesn't have the loop holes.

Nice one... NOT. Some things should stay hidden.

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