back to article Freelancers might be taxed as employees after High Court ruling

An IT contractor has been hit with a £99,000 tax bill after the High Court ruled that he should be taxed as an employee of the company he undertook work for. Jon Bessell, 50 per cent owner and sole director of Dragonfly Consulting, carried out work for motoring organisation AA for three years until 2003. Bessell is an IT …

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  1. Anonymous Coward
    Anonymous Coward

    Why always IT?

    Accountants and Lawyers have been using the same loopholes for years, so why is IT the target of all this?

  2. Steven Raith
    Thumb Down

    Oh dear

    Several thousand IT workers have started banging their heads against the wall in disgust, while several thousand lawyers and accountants are punching the air at the work coming their way soon....

    Steven R

  3. DaveE
    Flame

    Pay up

    Just pay your tax & NI, sunshine. The rest of us on PAYE salaries don't get a choice about it, so why should you? Great decision closing off another loophole quite a few contractors leech off the rest of us. Bet he was more than happy to drive on roads, have a GP, use schools the rest of us paid for through tax. Sort out the whole 'salary as loan' and 'decreasing value currency' fudges whilst you're at it please, Special Commissioner.

  4. Anonymous Coward
    Anonymous Coward

    so is tht the end of contractors

    Well, is that the end of contracting in this country ?

    Are we all going to have to be employed by a company, and not work for ourselves ?

  5. David Hendy
    Unhappy

    worried

    I'm a small contractor and have been in employment with a local authority for 1 year with a 6 week break. I'm little worried. unless you can rake it in i don't think it's worth it (especially with my agent's fee). would rather be an employee with a pension, car and dental.

    anon

  6. Anonymous Coward
    Anonymous Coward

    Apples and oranges

    So he gets taxed as an employee, even though as a contractor he does not have the employment protection and other benefits that he would have had as an employee. Can't a value for that be offset against his taxable income?

  7. Ozwadi Ogolugi
    Thumb Down

    crock of shite

    The UK Government is run by monkeys and the IR35 is a crock of shite. I presume that if contractors are to be classed as employees now that they will also be entitled to sick pay, holiday pay, BUPA, redundancy etc etc etc … Why does it always seem that anyone working for a living rather than sponging of the government are being well and truly shafted up the back passage… Best thing to do is feck of from the UK and let it sink along with all the illegal immigrants swarming in..

    Jon Bessell, my heart goes out to you and I hope you recover from this obvious pile of crap you have been dealt!

  8. Chris Long

    Not good for we contractors, but...

    ...does this mean that he can now sue the AA for not having provided him with paid holidays, pension contributions, training and the various other benefits that employees enjoy? And will the AA have to pay the Employer's National Insurance that would have been due if he had actually been an employee?

  9. Eddie Edwards
    Dead Vulture

    Headline is wrong

    "Freelancers might be taxed as employees after High Court ruling"

    No, this ruling only validates IR35. This guy's position is quite firmly inside IR35 and he should have known he would have been stung for the taxes. Having no substitution clause and no control over his work is a double-whammy no-one can expect to recover from. But freelancers who are sufficiently careful about working outside IR35 will have no additional problem from this ruling.

    What I want to know is how much he was earning to avoid paying £99,000 in NI over three years. Sounds like it was a pretty cushy number.

  10. Anonymous Coward
    Paris Hilton

    As a Taxpayer, all I have to say is...

    Diddums. [ducks to avoid slings and arrows of outraged contractors]

    Paris because it is about time someone got shafted.

  11. Anonymous Coward
    Stop

    So was he legally an employee of AA in the eyes of the law now?

    He should look on the bright side!

    1) He wasn't given redundancy pay when his AA work ran out

    2) He wasn't given annual holiday

    3) Nor any of the other standard benefits that AA provides its employees

    So what's the limit on contract lengths? Surely this ruling effectively kills off the ability to contract out a job to someone for more than 6 months without them being classed as an employee?

    On the other hand, why should he be allowed to funnel money through a company and avoid paying NI and income tax, when it is clearly income even if he claims it is a dividend he only has to pay CGT on? This guy must have been earning around £80,000 a year to rack up such a tax bill over three years as well, so I have little sympathy.

  12. Anonymous Coward
    Anonymous Coward

    Have I missed something?

    How is this different from all the other IR35 stuff? We fought, we lost, we changed our working arrangements. It's a bit late to still be moaning.

  13. Nick Kew Silver badge
    Thumb Up

    Good news for the genuine freelancer?

    I can just hear the howls of protest from the same brigade who cried Wolf at IR35!

    But having spent 10 years as a genuine one-man-band (never an "employee-equivalent" role, and at other times worked as a wage-slave employee, I have no sympathy. The tax benefits of self-employment are (rightly) intended to help people deal with uncertain and intermittent income.

    When pseudo-employees abuse the system, it damages it for everyone else. Concrete evidence for that is the rise of taxation on small business even as bigger business got a reduction in their corporation tax: the government is targeting abusers and hitting the legitimate along with them.

  14. Anonymous Coward
    Anonymous Coward

    Great, more victims

    The only legitimate thief in the land, who just happens to have the most guns by the way, now has another cache of victims to prey upon.

    Liberty? What liberty?

  15. Anonymous Coward
    Jobs Horns

    No effect then

    "Not only does it affect my family and me, but all the other freelance professional consultants who are trying to earn an honest living,"

    Has anyone met an honest freelance consultant, i.e one that has never claimed personal expenses as business costs?

  16. JoePritchard
    Unhappy

    Have I missed something here?

    To be honest, this seems like yet another skirmish in the IR35 war. I don't see anything in this case that contractors haven't been warned about for the last several years.

    3 years for one client, in a role that sounds like it was heavily directed by the client in terms of how the work was done, when, where and by whom. I have to say I'd be wary of trying to get that contract in my books as being outside IR35....

    But it's a heck of a whack to be delivered in terms of a tax bill.

  17. Anonymous Coward
    Alert

    Bessell is an IT systems tester and worked almost exclusively

    Important word there.. "almost". As in, not. As in, get your grubby paws of his dosh.

  18. Anonymous Coward
    Anonymous Coward

    @Ozwadi Ogolugi

    I think that is why you get a higher hourly rate.

  19. Anonymous Coward
    Anonymous Coward

    contracting is not freelancing.

    erm, I am a freelancer. I have about 5 regular clients that I visit, pick up project work, return a while later and hand it over. I am not in the slightest concerned. This doesn't affect freelancers.

    I mean, you are clearly not a consultant are you if you spend 3 years in the same place (regardless of what you own company name is)? You know the rules, stop crying. At least he'll have his memories of the good times and the high cash flow.

    get off the gravy train, and then you might get some sympathy with this IR35 nonsense.

  20. Anonymous Coward
    Anonymous Coward

    What is it with apostrophes?

    "...assessment of his work undertaken by AA manager's was..."

    manager's!

    MANAGER'S!

    I think you'll find you mean "managers"....

  21. Colonel Panic

    Score one for The Man

    Its not uncommon for large and reputable organisations (*cough* BBC *cough*) to use large numbers of "freelancers" - who basically work the same job as permanent staff, get taxed like permanent staff, except they don't have the pay, job security, benefits or protection employees have.

  22. Joe
    Jobs Horns

    I'm quite sure the AA will be able to ....

    ... hire a lawyer and prove they owe Mr. Bessell and the Inland Revenue zero redundancy, zero PAYE, zero Employers N.I., etc., etc. Isn't it odd how the little guy gets fucked in the ass, while the big corporation gets away with anything they want.

    /Fat PAul, because, like the law, he's an ass too !

  23. Anonymous Coward
    Unhappy

    They'll get you in the end!

    When I went contracting after 12 years as a permie, I went straight to reputable umbrella company, with wife, kids and mortgage I didn't need the taxman taking his pound of flesh when it got my sums wrong. It cost me a little more in admin fees, but at least I slept well at night!

  24. Jay

    @JonB

    It isn't always IT.

    Tax office have been trying to do this to couriers for even longer not to mention contract builders. As soon as an industry appears to be avoiding tax they go for it regardless of the intent.

    Without trying to protect the IR if they continue it might just stop abuses in various industries like stopping the pay cuts that are going through the IT job scene at the moment as contractors will have to be treated as staff.

  25. Anonymous Coward
    Happy

    @ anonymous coward

    I don't claim for my own personal expenses.

    I wonder how much less he'd have to fork out if the tax relief on mileage/fuel rose in line with price hikes.

  26. Sir Runcible Spoon Silver badge
    IT Angle

    Tax & NI

    for the non-contractors out there : In my experience, once you pay yourself a reasonable salary and take the rest as dividend for example, you end up paying about the same in tax (you pay less on your salary but you pay corp tax which usually ends up around the same level).

    What you save on is the NI contributions only. Add to this the accountants fees, lack of paid leave or sick pay, and no other benefits apart from being told to go home with two weeks notice and no requirement for redundancy, no pension contributions or being able to claim unfair dismissal, it doesn't sound _too_ rosy does it?

    Still, the government gets shafted by IT quite regularly, perhaps this is just payback? Anyone else complaining is just jealous and either too cowardly or not good enough to contract.

    For example, even after the odd nip and tuck in the overall tax liability I still end up paying more tax than most people earn. Work that into your calculations (for the person who said "quite a few contractors leech off the rest of us")

  27. Anonymous Coward
    Thumb Down

    Should've seen this coming

    I'm an IT contractor. The way I see it is that contract roles are about filling in short term needs within a company: they have a project to deliver, they hire in contractors. They're short staffed due to permie issues, they hire in contractors. They need a specific skill they don't have in house, they hire in contractors.

    This guy was there for THREE years. However he tries to explain it, that *was* a permie position he was filling. In that time he couldn't have maintained true autonomy over his own career, he has to have "gone native" within that company, it's inevitable.

  28. Anonymous Coward
    Paris Hilton

    @DaveE: Read before you print

    Dave,

    You might want to brush up on IR35 before you spew your crap. IR35 goes well beyond treating contractors as employees including providing an artificial 5% cap on expenses – an limit that normal PAYE folk do not get limited to.

    I left the country in 2001 rather than pay the 55%+ IR35 would have imposed on me in taxes.

    Walk a mile in someone else's shoes Dave before you show what a dickhead you are…

    /Paris, ‘cause she's apparently about as intelligent as Dave

  29. Anonymous Coward
    Stop

    Calm Down !

    Yes, this may be bad news indeed. However, the Arctic Systems case went all the way and it took many years.

    This muppet was with the same client (AA) for 3 years, as a testing resource he was under their direct control and they confirmed this.

    Companies do have a choice - hire permies (and they, and the permies pay higher tax) or bring in freelance, disposable resources (i.e. more expensive but easy to dismiss, low overheads, no HR issues - turn the "services" on and off at will). Consultants do take risks - I'm still waiting for 6 months fees from a company that went into administration several years ago - the permies lost 1 month's pay and are top of the list of creditors when the administrator gives out anything.

  30. Anonymous Coward
    Coat

    Flexible Workforce??

    So another nail in the coffin of the "Flexible Workforce" that this government touts as the "great asset" of GB Inc. Does the DWP, the BERR & HMRC actually have either a communications policy or 3 brain cells to rub together?? If they want a flexible workforce & a growing economy they don't need to push incentives like this on us.

    Ex Contractor now a wage slave..

    Coat is the one with the "IR35 proof" contract in it (not!)

  31. Lozzyho
    Flame

    @all the envy brigade

    I'm not an IT contractor, but I do work in IT.

    All I can say is, I hope the government will be happy when there will be no such thing as a flexible workforce.

    Sure, some of these people can earn a lot of money, but it's not all a bed of roses. They take the risk that they will be out of work for an indeterminate length of time, and they have to fund their own training and pension. And neither is cheap.

    The way the government (HMRC in particular) has constantly moved the goalposts on IR35 (and section 669) is underhand and downright dishonest. Changing interpretation of law is unforgiveable.

    If this were benefit claimants having the rules changed on them and backdated, the do-gooders and scroungers would be rioting.

    In fact Mr. Brown, why don't you just save us all the hassle of putting up with you for the next 2 years. Just fuck off to Barbados with your index-linked guaranteed pension and paid-for-life personal protection, and give us all peace, will you?

  32. Anonymous Coward
    Coat

    Three options:

    1) Vote conservative and *hope*

    b) Stick within the framework of IR35 and not get stung

    iii) Leave the country

    Having left as a contractor in '95 and doing admin every month to eva....sorry....avoid tax, I moved to Switzerland where tax is fair and progressive. Now it's £100 or so for an accountant once a year and I pay a reasonable and fair amount of tax.

    Don't forget your coat!! :-)

  33. Aristotles slow and dimwitted horse Silver badge
    Flame

    @ Steven Raith and the first AC...

    I read through your comments and I can only presume that you are both as thick as shite as you obviously didn't give your points any balanced consideration before posting them? This case is all about unpaid NI contributions rather than income TAX deductions or road tax avoidance, although I'll partly conceed the point re the doctor, but it will be a slim concession at that.

    Whilst I can understand your bitterness at contractors earning a lot more than your timid middle ranking salary, we do as a rule pay FAR more income tax overall than you are likely to... ever. Deductions also include paying both employees and employers NI. Despite these large deductions though, most IT contractors CHOOSE to be so for a reason, take myself... I became a contractor to avoid becoming an ignorant, bitter and unhappy career desk rat similar to that which you both seem to be.

    Another reason was that it suits the lifestyle I want to live and I'm back to a new contract next week. I take six months holiday (or more if I choose to) every two years. How's your prescribed 20 something days a year?

    Fuckwits.

  34. Anonymous Coward
    Thumb Up

    He must have been raking it in

    To work for 3 years and owe 33k in tax!!!!!

    I for one am glad that this theiving bastard got this judgement.

    Too many people get around paying towards the upkeep of the country.

  35. John
    Stop

    Stop complaining

    So, he owes £99k in tax and NI for 3 years' work? He must have been pulling in at least, what, £70k a year for those 3 years? My heart truly does bleed for this "little" man and his tiny income.

    I worked as a freelancer for 6 years (in publishing, in case that matters) and it's trivial to avoid being hit like this. The rules are basically the same as they always were - work for multiple clients and always retain control over how you work. If you work for just one client and do precisely what you're told, when you're told, then you can't be surprised that you're treated like an employee by the tax office. If you feel that a contract is likely to be treated as employment by the Revenue then do the honest thing - talk to the Revenue and see what they say, then talk to the client.

    Stop evading taxes and pay up like honest folks.

  36. Anonymous Coward
    Anonymous Coward

    Re: Pay up @DaveE

    He did pay tax, probably at 40%, he also payed NI at the standard rate so he is entitled to drive on roads, have a GP, use schools like the rest of us.

    The tax man wants him to pay employers NI and wants him to pay tax on money he has used for expenses which may or may not include money paid to his spouse (who would have paid tax and NI on that money).

    While at the AA he never got paid holidays, paid training, paid sick leave, paid pension, paid medical benefits all of which those on PAYE get to some degree or other.

    When his contract was over he never got redundancy pay and never got unemployment benefit.

  37. Anonymous Coward
    Flame

    Wish the Tories would vow to get rid of IR35

    The whole thing is a socialist ploy to "protect" workers from themselves, poor things.

    Also to collect more taxes from "hardworking families" who don't get the 'benefits' of PAYE employment, poorer things.

  38. Anonymous Coward
    Anonymous Coward

    More detailed info

    can be found here

    http://www.pcg.org.uk/cms/index.php?option=com_docman&task=doc_download&gid=440

    It really does look like the guy should have done his homework rather than wing-it and hope he was overlooked.

    <ducks back into shadows>

  39. Anonymous Coward
    Anonymous Coward

    Re: So was he legally an employee of AA in the eyes of the law now?

    Dividends are not taxed as CGT they are taxed as income. The dividend is basically added to your income and taxed at whatever band it falls into which would probably be the 40% tax band.

  40. Anonymous Coward
    Anonymous Coward

    closing the gap

    and this is how the government intends to close the gap when things are looking down, by keeping the poor poor and making the well off poorer.

  41. Pete Silver badge

    old news is no news

    Hang on, this story is from 2003.

    We've recently had Google resurrecting a years old tale (about an american airline going/not-going bust), is this another case of a time-warp?

    I thought IR35 stopped being newsworthy many, many years ago - most of us just paid the tax and upped our rates to make up the loss. Why are we hearing about this guy now.

    To be fair, if the 'Revenue is squeezing him for £99K for 3 years work, then even with interest over the past 5-8 years, it does sound like he was paying zilch to the 'man and has finally been caught.

    So far as I can make out from the story, there's nothing that hasn't/wasn't chewed over from every angle at the time. Move on now folks, nothing to see here.

  42. dek

    IR35 is...

    ...purely to help fat well-connected shite companies from having to compete with the cheaper, more flexible, more knowledgeable contractor. Still, I blame the latter for being spineless when IR35 was first proposed and then subsequently introduced. And as for the distinction between "freelancers" and "contractors", ie, number of clients/ length of contract, etc, etc, I have to conclude that the former do pissy little jobs and are shy of any projects with meat on them. "Knowledge Economy" LMFAO... more like an army of half-wit MS "professionals".

  43. Mannie

    its all in the contract

    Having no substitution clause and having apprails isnt any help in being a contractor.

    Feel for the guy - £99k is heck of alot of dosh

  44. Anonymous Coward
    Pirate

    And all the other nearly-freelancers, like footballers?

    Looking forward to HMRC creaming large amounts off every footballer in the Premier League, since I'm led to believe they all have personal Limited companies, and I'd love to see them try to get right of substitution for their choice of player in the middle of a game!

    And the actors, the horde of celebrities, and all the other personal companies, all now get to cough as well? Or do they get left alone because the press might care about that?

    Pirate icon, for HMRC sailing in, looting the bank account, and sailing off into the sunset.

  45. Michael H.F. Wilkinson Silver badge
    Pirate

    I'd like to hear

    The BOFH on this one

    Skull and bones because there is bound to be a tragic accident

  46. Anonymous Coward
    Paris Hilton

    Missing a trick here?

    Are we missing a subtext here?

    The whole IR35 debacle was just that, a debacle. Trying to use existing law to shovel in new working practise was always destined to lead to a mixed situation where some comply, and some do not.

    What is depressing is that the only winners will be Lawyers and Accountants. We used to be a nation of shopkeepers, now we are a nation of ambulance chasers.

    PH because she doesn't bother with briefs.

  47. Anonymous Coward
    Anonymous Coward

    @DaveE

    You should be made aware that many contractors do pay tax (personal & corporate) and ni (employers & employees), are subject to the companies act (if they are running a limited company), and act as tax collectors for the HMRC.

    You should also ask yourself is it fair under these circumstances that a small limited company should be treated any differently that a large one?

    You should also understand that many companies will only use the services of a limited company, this is to absolve them selves of any liability for tax.

    Perhaps now you will comment a little more sensibly?

  48. Anonymous Coward
    Flame

    Oh well

    I handed in my notice to the company I work for on Monday. I'm a consultant.

    (Anonymous Coward, I've been working as a full time consultant for a consulting company for a third party for 3 years, prior to that I have consulted to various companies ranging from days to a year)

    I have 3 months notice to work out but after that I intend to go out contracting. During the last 3 years I've been contracted out to the third party for a reasonable daily rate, more than the daily rate I will make as a contractor.

    I've NEVER avoided paying taxes or national insurance, I've always been a full time employee. I get treated as a contractor when I'm on third party site, always have been always will be, yet I pay my tax the same as everyone permenantly employed.

    I don't think I've ever worked with a permenant employee (other than those employed by other consulting companies as well as the one I work for) who has put in as much effort or brought as much experience and knowledge as temporary employees.

    The difference for me is motivation, up until very recently I was motivated to work for my current company, the company were accomodating and were compensating me reasonably, with promise of holding a stake in the company in the future and profit shares etc.

    Employees simply get comfortable, when they get comfortable they have greater resistance to change and detest anything that changes their workload, it's incredibly visible in the unions, particularly local and national govt. employees, with union backing they basically do no work while their managers hire in contractors to perform the function of the employee.

    The contractor remains there effectively as an employee, but without many of the benefits and they are never comfortable because they don't have union backing and they can't slack off.

    I don't see a problem with this guys tax bill if he's going to be compensated in the same way as an employee for the 3 years he was employed, e.g. paid holiday, pension, paid sick leave etc. of course you can't really do that as it's retrospective and he's not going to get sick in the past.

    The only people going to benefit from this are the people at the top of the large corporations, I'm not sure I understand the mentality of the employees like DaveE, who is clearly jealous of the financial rewards afforded to the more willing and able.

    I've seen many times before where contractors are the first out of jobs when a company decides the work is not there, how can a contractor who is going to suddenly be back taxed as an employee be compensated for a risk that they've been taking up to that point?

    Clearly they can't, so how can it be justified that a contractor who is at grater risk than an employee should pay the same in tax as a regular employee?

    It's totally unfair on the guy, in this financial climate the contractors will be the first out of their jobs and yet their going to be taxed as employees?

    I wanted to be a contractor so I have more control over who I work for and when I work for them and if I'm at risk then it's a risk of my own making, now I'm not sure there's any point.

    What's he going to do when the AA cut jobs and he's out of a contract and there's no work available to him? The £99,000 which would have kept him going a couple of years has been chewed up by what I consider a stupid judgement.

  49. James Bassett

    Sounds reasonable to me

    If he was working for just one company for several years then yes, he was an employee and yes, to all the moaning bastards above, he would be entitled to all the same benefits (and constraints) of an equivalant employee within the same organisation.

  50. Anonymous Coward
    Coat

    Overseas employer

    does anybody know the suitation regarding an overseas customer (all work is done for and with overseas - but invoice is sent to financial unit that is UK based - although invoice is signed off in americas/apac)

    I work mainly with Americas and APAC arms of the business but am UK based - people have my number - they call me if they want a job done. My contract does not have a substituion clause as the level of work has built up over time (i.e. I take the chance to take more work on if it comes up) so at the time of the contracts formation, I did not realise it would be sensible to put in such a clause.

    I charge VAT. If I deliver something that doesn't meet requirements then I am responsible for fixing it at no cost to my client. If I want to get help doing the work that would be my lookout - people check the deliverables I submit of course but they are not concerned with how I got the work done.

    My company does other work - I release applications on the web - some have been commercially successful - most have not. And I have another regular client and the rest are very small jobs in comparison.

    If I thought for a second that my largest contract was not outside IR35 I would leave the UK - as I could forfill any of my obligations from whereever I like and I incure costs like Holiday and Sick pay, Indemnity insurance not to mention the basics like light and heat, equipment, software etc.

    Anyone have any insight here - I fear I may be in slightly murky waters.

    I would leave this country if I got hit with this - as I work every hour god sends, My life = work. If I put my prices up, they would simply go elsewhere - and replace my company with one based in APAC or Americas - at which point an IR35 bill could make me bankrupt. So the recurring VAT revenue I generate would be lost.

    I am worried about this - not because I feel I've done wrong - I will always pay my dues if I am able to. But that said, our country's finances are buggered. I think they be taking the shirt off all our backs if they get half a chance.

  51. Anonymous Coward
    Anonymous Coward

    taxes and law

    Let's be clear here. Apart from this guy and his £99k bill (where he surely must have been doing some dodgy accounting!), most contractors running outside of IR35 are paying all taxes they are required to by law based on legal advice. The law does not say that using dividends as a major form of income is illegal. Funny enough a lot of MPs probably do exactly this through their various side interests and investments (e.g. director/chairman of XYZ etc). All that's happened is the gov has said "we want a part of that!" and invented a convoluted contradictory law that costs the tax payer a fortune to police.

    The difference really is not that great, as a large chunk of income comes from dividends which (and people forget this) are taxed at source at 10% as part of corporation tax that the contractor's company pays, just the same as anyone else who gets dividends. A regular salaried employee pays 20% on their salary income at base rate. So really about a 10% difference. Well, and then there are the NI savings ;) (to be fair I'd be okay paying full NI if I have to, but not if I'm deemed an employee and forced twice what an employee pays which is what IR35 demands).

    If said contractor goes into the top tax bracket, they pay another 22.5% on those dividends.

    The real savings from contracting come more from the fact you are given a lump of money to use as you like (spend on sick, holidays, expenses, pension, invest in the company, etc), and typically your costs are lower than those of a big corporate.

    In fact, you are likely to be costing the client less than an employee who gets the same take home, when you consider all the overhead costs, and are easier to recruit (and probably more likely to have the required skills). Saving to the client, which boosts the IT industry and better for the economy.

    What's also frequently overlooked is the amount of business skills being gained through contractors running their own businesses, and how many of these businesses grow into more than just a simple contract service business.

    But anyway. The real beef I have is with the concept of IR35 and the employee status as a means of targeting a specific group. Paying the extra tax is not much of a concern, but being told I am an employee of the client but at the same time I'm not and don't get the same benefits, but must pay full income, can't have profits, and can't invest in my business and thus end up with theoretically less than if I'd been a full employee. It's just so contradictory and confusing.

    Solution is simple. Tax dividends as full salary with NI. We can then pay ourselves what we want, just at full tax. Bonus is we can still invest in our businesses and take profits from it when we want rather than when we are told, and thus can remain "proper" businesses.

    Of course they'd hate that as a lot of influential people way beyond the IT sector will suddenly be hit with tax ;)

    Failing that, provide us with a means of running our affairs that has the business/personal financial safety net of a Ltd company but is akin to being a true sole-trader / self-employed.

  52. Anonymous Coward
    Stop

    Cake and eat it

    <rant>I understand why contractors are paid higher rates than the rest of us to account for lack of sick pay, pension, holidays etc but I don't see why they should pay less tax than me while earning much more.

    Slam the loophole shut. I for one am sick of well over 60% of my pay going to tax between deductions and then tax on everything I spend while those doing the same job get silly money and pay less tax.

    Make the contractors pay corporation tax as directors AND paye/NI as an employee of their limited companies. </rant>

  53. Martin Owens

    Suprised Support from HMRC

    People should pay their tax, if they didn't want to have a tax system organised the way it is then perhaps they should vote for someone other than the blue and red sections of the authoritarian party.

    Someone mentioned Liberty? the UK isn't ready for Liberty, we don't have the mind set for freedom and we certainly don't care about free speech. Why are we surprised when we get shafted? it's us that are doing the shafting.

  54. Anonymous Coward
    Pirate

    The problem with IR35

    Whatever your thoughts are about contractors, the IR35 rules are just plain unclear. The guy wasn't avoiding paying tax - he wasn't sure if he had to and sure as hell wasn't going to volunteer any additional taxes.

    Imagine the following:

    You are a full time employee and the government decides to tax all full time employees an extra 10% on their income if they mostly drive a car to work.

    Now you are going to want to know what 'mostly' means! You drive to work three times a week. Are you caught? Are you going to pay the tax? Are you going to go to the revenue and say 'Hi, I drive to work three days a week - should I pay you more money'? What do you think they are going to say?

  55. Eric Dennis
    Thumb Down

    HMMM....

    Glad I'm not a contractor working in the UK. Sounds like your high courts have been influenced by a certain "Presidential Cowboy from Texas".

  56. Steve

    @ Aristotles (sic) Horse

    "I became a contractor to avoid becoming an ignorant, bitter and unhappy career desk rat similar to that which you both seem to be.

    Another reason was that it suits the lifestyle I want to live and I'm back to a new contract next week. I take six months holiday (or more if I choose to) every two years. How's your prescribed 20 something days a year?"

    So you decided to go with ignorant, arrogant and unpleasant contract rat instead?

    Personally, I'm still trying to work out what you took offence to in Steven Raith's comment. How do you get from someone pointing out that, in any dispute like this, the accountants and lawyers will always come out on top to him being ignorant and bitter? Maybe you need another of those 6 month holidays to calm down a bit.

    And before you start labelling people as "thick as shite", you might want to have a root about for the apostrophe that fell out of your username - it's probably under one of those big piles of money.

  57. Igor Mozolevsky
    Paris Hilton

    A title is required.

    So he was contracted exclusively for one company... Nothing new here, this rule was there for ages, the High Court just re-affirmed that people shouldn't take the p*ss...

  58. David Simpson
    Flame

    Huh ?

    Is anyone a qualified accountant because the amount of differing opinions on this page is staggering.

    @Overseas employer

    By Anonymous Coward

    As smart as Register readers are I would advise an accountant, I know we all like to save a few pennies but depending on comments on a news story for tax/business advice is not very wise.

  59. Jeff Bradshaw
    Flame

    Does that mean that the AA have to pay his employers NIC?

    Just one thing, since he was deemed to be employed by the AA does this mean that the AA are now liable for the benefits that they give other employees and also do they now have to pay his employers NIC? Since obviously they would if he were PAYE?

    Otherwise does he claim back the employers NIC that he has already paid to HMG? Surely if you are deemed an employee you should get the paid holidays and other benefits?????

  60. Anonymous Coward
    Pirate

    Contractors stop moaning

    You get paid a highly inflated hourly rate, unlike us employees that are on a fixed wage. You get paid for every hour worked, unlike us employees who mostly work bits of overtime all over the place and we're lucky if we get half of it back in lieu.

    This offsets the negative points:

    You don't get sick pay, redundency, some of your fee goes to an agency (on a plus side many agencies will give you some benefits normally afforded by employment), pensions, life insurance or healthcare.

    That's the risk... I know contractors who would normally be on about £40k per year earn around £80k in a year. They then take a couple of months off and travel or take time out to write a book, bring up kids etc. The extra money you can earn is to pay for your own pension fund, your own life insurance, to cover you in times of no work, or sickness... you can't have your cake and eat it too! (and yes, I know that's a stupid saying... why on earth would you want a cake and not eat it??).

    Contractors need to realise that this extra money they're getting paid is there for a reason... not just to pay for a lifestyle they couldn't otherwise afford.

    So earn double the money you would normally get...

    Pay for the extra services you need to cover you (or take a risk and not have them)...

    And PAY YOUR BLOODY TAXES!

  61. Anonymous Coward
    Paris Hilton

    Top news

    I'm all for clamping down on the piss takers.

    I know an IT contractor earning over 100k a year, and his declared income is £8k because of an IR35 "loophole". How much do you think he contributes in NI payments on that income?

    I know another guy who's contracted (solely) for the same company for 15 years and he still gets away with it.

    It's bee a piss-take for too long and it's immoral.

    Paris because she knows when it's ok to be immoral.

  62. Anonymous Coward
    Flame

    @DaveE et al

    I'm a contractor. I pay myself around £25k through PAYE - I therefore pay Employeres and Employee's NI. I also pay VAT. I pay income tax on the dividends too. I also paid around £16k of corporation tax. I pay around £1k for an accountant as well.

    I get no paid holidays, no sick pay, no pension, no redundancy.

    My contract is with an investment bank, so I had to suck up a 10% pay cut. I'm now also in the position of looking for a new contract in a tough market.

    I would still rather be a contractor, because I am far more in control of my fate than when I was a wage slave. I don't have to suffer through pointless HR performance reviews, and if I feel like it I can take 3 months off in the summer.

    So for DaveE and all the others, don't push the blame onto us contractors just because of your fear of being responsible for your own, and your envey at others getting out and making some cash for themselves.

  63. Anonymous Coward
    IT Angle

    "almost" is disingenuous

    The judgement actually says he worked for the AA every day for almost three years - not almost every day for three years.

    And guys, don't believe everything that the PCG put out. This doesn't attack IR35 defences, the contracts in this were a mess & the AA representative said they wouldn't accept a substitute unless the substitute had their own contract - a point that, ages back, killed another IR35 claim.

    Get the contracts right & make sure your client backs them up!

  64. Andy Barber
    Thumb Down

    John Birt

    Wasn't John Birt, the Tory imposed boss of the BBC, also employed as a Self-employed consultant?

  65. Anonymous Coward
    Anonymous Coward

    <no title>

    "I simply cannot understand how the High Court has reached its decision"

    From past experience, based on the media reporting of charges, and the court's final judgement, if one can actually understand a court's decision then the lawyers and judge simply weren't trying hard enough to reach an obscure verdict, that day.

  66. Anonymous Coward
    Happy

    There's a simple solution ......

    ...... just become an Indian citizen.

    My employer is currently sacking staff as fast as they can print the P45s.

    They are being replaced by Indians flown in to Blighty by an Indian outsourcing company. HMRC grants the Indians a 'dispensation' from all UK tax and NI. (Including the benefits in kind like free housing and BUPA).They can even reclaim VAT on leaving the UK if they keep their receipts. The Indian's are therefore laughing.

    The Indian outsourcing company, being Indian, pays no UK corporation tax or employer's NI. Best of all, they operate from one of India's 'Special Economic Zones'. Hence they pay no Indian corporation tax either. The Indian outsourcing company is therefore laughing too.

    Because the Indians pay no tax, my employer can pay them about half what they pay me while still giving them the same take home pay as me. No need to worry about UK employment law either. Maternity leave, working time regs, paid holidays and sick leave are all nostalgic memories for my employer. My employer is, therefore, also laughing.

    The only people not laughing are the couple of thousand British managers and engineers who have been made 'redundant' and who can't compete with a foreign workforce for whom tax is something other people have to worry about.

    There's a shiny shilling for anybody who can convince me that this is anything less than an outrageous abuse of UK tax law by HMRC.

  67. Steven Raith
    Stop

    @Aristotles horse

    "I read through your comments and I can only presume that you are both as thick as shite as you obviously didn't give your points any balanced consideration before posting them? This case is all about unpaid NI contributions rather than income TAX deductions or road tax avoidance, although I'll partly conceed the point re the doctor, but it will be a slim concession at that."

    Um, no, its about NI and tax contributions - and I quote:

    "Mr Justice Henderson upheld the Special Commissioner's view that Bessell should pay the **tax and national insurance** contributions he would have been due to pay as an employee, which amount to £99,000."

    As contracter, I'm sure you are aware of the 'pay yorurself minimum wage and take the rest as dividends' accounting scheme that is quite popular [although I go through an umbrella so this doesn't affect me too much at my 'middling income'.]

    "Whilst I can understand your bitterness at contractors earning a lot more than your timid middle ranking salary, we do as a rule pay FAR more income tax overall than you are likely to... ever. Deductions also include paying both employees and employers NI. Despite these large deductions though, most IT contractors CHOOSE to be so for a reason, take myself... I became a contractor to avoid becoming an ignorant, bitter and unhappy career desk rat similar to that which you both seem to be."

    I did much the same - and I completely agree with you - there are benefits of being able to just piss off from a crap job with a weeks notice, rather than playing the greivance game with HR and management! Also the ability to just say "I'm not going to be in next tuesday" and effectively be able to do that as much as you want, as long as the client is OK with it.

    "Another reason was that it suits the lifestyle I want to live and I'm back to a new contract next week. I take six months holiday (or more if I choose to) every two years. How's your prescribed 20 something days a year?"

    Nope, see above - I know exactly where you are coming from - handy, isn't it? I don't get paid enough to warrant six months off, mind...I expect your a specialist, DBA, project management or somesuch - either that or you have low outgoings compared to your incomings.

    On that subject, I might like to remind a few people who are banging on about 'leeching' contractors that the whole point of a free market economy is that you charge the going rate and if the service you provide is good enough, you get paid that rate. If you aren't good or specialised enough to get a high rate, then deal with it and stop being so fucking bitter - Aristotles horse is not wrong about the tax, once you get up to a certain level of income.

    "Fuckwits."

    Charming! Although for renting a flat in the commuter belt on my current rate, not entirely inaccurate. Suffice to say I am not commanding a stratospheric rate at the moment...!

    Ah, now lets review my post:

    "Several thousand IT workers have started banging their heads against the wall in disgust"

    This is because a lot of middling IT work - desktop and network support - is now almost all contracting, where you are there for several months, if not years, at a time, so this case *is* relevant to them and should the Govt decide to start making more examples, could well affect the marketplace, seeing how few companies these days seem to want to take on permanent IT support staff.

    "while several thousand lawyers and accountants are punching the air at the work coming their way soon...."

    Because should this kick off in a bigger fashion - and it might, just look at IR35 FFS - then yet again they will be the only people to gain from it as they will have more steady, relaible work coming their way from IT workers wanting accounts covered properly, and from IT workers and clients wanting themselves defended in court should someones contract or working style be a bit squiffy, and something like this come up again.

    That was the point I was trying to make [perhaps too subtly?] but I suspect had we been having this discussion in the pub, this apparent complete misunderstanding would never have happened!

    Hope that helps.

    Steven R

  68. Anonymous Coward
    Unhappy

    re. taxes and law

    I suspect that the problem is not what he paid tax on, but rather how he calculated his taxable income. Contractors, like any other business, can claim a lot of allowances before they calculate a profit for taxation.

    e.g. As an employee I have a 70 mile round-trip to work and back, which as a contractor I could claim at 40p a mile up to 10000 miles and 25p a mile thereafter. For 200 working days a year this gives me £5000 to offset against profit. As an employee I have to pay tax and NI on my wages BEFORE paying for petrol, insurance, road tax, tyres, servicing etc.

    I've worked as a contractor and as an employee, and this guy was clearly working as an employee.

    This is a situation that large companies have been keen to exploit, by paying people as contractors they've avoided their responsibilities as employers. Although I don't agree with those that would scrap IR35 and allow contractors to work as employees whilst exploiting the tax loopholes unavailable to the PAYE employees, I'm disappointed that the court hasn't looked at what the AA has done here to encourage this. Once again it's the little guy carrying the can.

  69. Callum
    Paris Hilton

    what about the big contracting consultancies?

    as an owner of a small IT company - why should I pay a higher rate of tax for my employees than the bigger guys such as Logica, Accenture, EDS, PA Consulting, Capita etc that are also engaged by clients to get consultants in to do the donkey work in exactly the same manner as my company is.

    Most switched on small freelancer companies operate exactly the same as the bigger IT consultancies: a daily rate with a multiplier markup to cover the cost of employing workers and the cost of sales, indemnity insurance, bench time, training, sickness and so on. the company status is the same - all applying the same companies act and tax rules.

    If freelance ltd companies have to pay corporation tax and full income tax, then Logica, Accenture, HP, et al are in for a big surprise because their employees will also have to pay personal income tax based on their consultants charge-out rate at their clients. Accenture employees take note given the enormous chargeout rates they get.

    When is a small company not a big company when they are structured the same way?

    I've not seen the judgement in full, but this guy was probably not operating like that and was using the lazy umbrella company mechanism and so was not taking the risk that a proper IT organisation would take.

    paris, because she doesn't mind being rogered by brainless idiots either

  70. Anonymous Coward
    Flame

    @AC

    "I'm a contractor. I pay myself around £25k through PAYE - I therefore pay Employeres and Employee's NI. I also pay VAT. I pay income tax on the dividends too. I also paid around £16k of corporation tax. I pay around £1k for an accountant as well."

    My heart bleeds for you. You pay yourself "around £25k through PAYE". So less than £25k then? When the NI limit for PAYE is £40k plus 1% on top of that?

    So you are deliberately avoiding the National Insurance payments that everybody else has to pay because you think that for some reason you deserve not to pay it?

    And well done for paying VAT. Would that be the same VAT that you charge your client?

  71. Anonymous Coward
    Anonymous Coward

    @ Overseas employer

    I do (proper) freelance work, and one client is in Spain. Makes no difference where the end point is, as far as the HMRC are concerned. It just means there's more bloody paper work to fill in!

    And to the tosser (dik?) that said freelancers shy away from meaty projects. You're a tosser, and most likely on the did-my-MS-exams gravy train doing the menial tasks given to you by you (contract) project manager or (vendor) project architect. Which is many a contractors lot, when not in mind-numbing support.

  72. Anonymous Coward
    Flame

    same company

    Sometimes it's unavoidable to end up in a situation similar to an employee - projects which run for years, having to work on site due to nature of data/software/security and having to do work as prescribed by a manager who may be permanent (I bet the Olympics is full of contractors in this situation - maybe they should all leave). I like the footballer comparison mentioned (would be surprised if they weren't minimising their tax), 5 year contract, has to be you, no control over where you play - clearly not within IR35 if they are running as a limited company. But they can afford better accountants I suppose.

    I've had plenty of permanent staffers moan about us contractors being paid more, but they seem very reluctant to give up their holiday pay etc for a chance at the same. On the other hand I have been offered permanent roles which I have turned down as it is easier to get a range of experience and do varied work as a contractor - all of which ultimately benefits the UK, the people I do work for and the people at those sites who I train.

    Never mind, I will eventually take my knowledge overseas with me and that will be good riddance to another foreigner stealing all your jobs.*

    *yes, had that too. So much so that now I often joke with permanent staff (those I get on well with at any rate) that I am only here to steal their jobs, take all my money overseas** and pay no tax***.

    **which clearly I don't as I live here.

    ***apart from the tax that I have to of course.

  73. Anonymous Coward
    Dead Vulture

    Ah, the old switcherooney

    We lost against Artic.

    We've changed the law

    Pick unsuspecting victim.

    Amazingly we now have our conviction and precedent.

    The only advantage to being a contractor is lower NI payments and a larger expense account. Oh and the freedom to change jobs without people thinking its strange. And avoiding office politics.

  74. Anonymous Coward
    Anonymous Coward

    Fuzzyness of IR35

    The IR35 rules are more like guidelines; At the end of the day if the IRS decides that you are a acting as an employee of a company, then you are.

    Unless you are a genuine freelancer, then you have three options:

    1. PAYE your taxes and NI like everyone else (e.g an via an IRS vetted umbrella company)

    2. Set up a limited company and take a personal insurance policy out against being hit by an IE35 audit (need to keep paying insurance for many years after you quit contracting)

    3. Bury you head in the ground and get hit by bill for five years of unpaid tax

    Regardless of your view of IR35, you have to prepare for it, and it's not something you can miss when setting up your consultancy.

    If you are not happy with your pay, then you must ask the client for a higher rate.

    Excellent point in the comment on "taxes and law"; Many people would like to pay the right amount of tax but without interference into how that person conducts his business.

    The real danger of IR35 rulings is that it puts people off hiring contractors. Most large companies now take an indirect route through an agency, but even this is not enough protection for either side.

    As a result of the ruling in this article, you would expect the individual to be able to claim three years of employee national insurance contributions back from the AA.

    As a contractor, you get your money early but take risks in terms of termination, sickness and benefits. There needs to be a legal status which recognises this status as distinct from an employee and levies a fair rate of tax as a result.

  75. Anonymous Coward
    Anonymous Coward

    @AC Having Cake and Eating It

    Either you were being ironic, or you really don't have a clue...

    Contractors DO pay corporation tax on their limited company profits and they DO pay full tax and NI (including employers contributions - that's an extra 12% or so) on any salary they draw from their limited companies. Or, at least, they do unless they want to get a REALLY nasty visit from HM Revenue and Customs.

    Of course, there are ways and means to minimise the amounts of tax and NI that you pay and some contractors do take the mickey to a rather extravagant degree that ends up making life more difficult for everyone. However, none of that stops IR35 being an ill-conceived and cack-handed bit of legislation that has caused far more harm and hassle than good. Not that it's likely to bother me any more - I bailed out of contracting in 2000 when I saw which way the wind was blowing - but the whole thing should still be dropped and only replaced by something that has had some sensible, coherent thought applied. (Yes, I know, that's a tall order for any UK government, much less the current one...)

    Oh, and to the person way back at the beginning who mentioned "salary as loan". If by that you are referring to the fact that a director's loan can be repaid to the director without additional taxation then you don't understand how the whole company financing thing works. Come back and discuss it again once you've put a couple of hundred grand of your own, already taxed, money into a company so that you can develop a business.

    (Yes, OK, there are probably other salary/loan arrangements that I can think of, but none of them would save you much in tax - or even give you the appearance of saving any - and most of them would probably just be a red rag to a bull as far as nice, invasive HMRC inspections go.)

  76. Anonymous Coward
    Anonymous Coward

    Seriously go sort out the real criminals and fraudsters!

    This is ridiculous.. contracted in for a specific purpose is not as an employer/employee relationship... it serves the purpose of a project which you were brought in to do! Terrible!

  77. The Mighty Spang
    Thumb Down

    this stuff really gets on my tits

    All this bollocks of "pay your tax and NI matey", the problem here is that this is just an attack on the LONE contractor. People/press ignore the giant consulting companies. about...ooh... 8 years ago I was working for an investment bank where a consulting company was charging out £1200 a day for "consultants" - who were mostly guys fresh out of university (fairly useless) and being paid about £25,000 a year.

    where are the laws blocking these giant corporations with giant wings of accountants organising their affairs to take the (immense) profits offshore and avoid paying tax? there aren't any. because new labour has a fairly high proportion of ex-consultants whose loyalties seem to lay with them.

    need i remind you : http://news.bbc.co.uk/1/hi/uk_politics/1791168.stm

    Anderson banned from govt work after delorian debacle by tories. sued for £200m.

    New Lab settled for £21m. Anderson gets govt work again

    "Confusion is added to the Andersen angle by the fact that Accenture (the renamed Andersen Consulting), until 2000 its sister company, has also been close to Labour - Trade Secretary Patricia Hewitt used to be its research director. "

    these huge consultancies were upset that independant contractors were taking the "cream" that they "deserve" (and im talking only top tier here, plenty of contractors don't earn a great deal) and allegedly conspired with the govt to to bring in these laws.

    its a perfect tactic as it can be sold to the unwashed as a kind of socialist "how dare they", they must pay the right taxes when the benefit to both sides of a contracting deal is great. (especially for a company. gets to side step all the layers of moronic legistlation the lab govt brought in as a sop to the unions, which stifles small-medium employers in the UK)

    ignored is the fact that these giant consultantices working in organisations appear to fall foul of the same rules (i.e. they should be taxed/NId at their bill out rate)

    even more ignored is the ability for these companies to take the money out of the UK almost tax free. that's where the REAL money is. by playing a game of divide and conquer, they win. and yer average dave spart (eyes passism) is too damn thick to spot it.

    anyhoo it don't bother me I don't even work in IT anymore.

  78. Eman Tsal
    Paris Hilton

    Green eyed monsters ;-)

    Lots of them on here methinks.

    Paris cos they're probably all jealous of her as well.

  79. Anonymous Coward
    Paris Hilton

    Realities...

    Ok, contractors do very nicely but:

    1) You get totally conflicting advice from the HMCE and the accountancy profession. Accountants don't comprehend paying anything other than the miniumum possible tax - anything else does not compute. Mine put me outside IR35, even though I had specifically asked to be put inside!

    2) Getting contracts reviewed is nice theoretically, but in a tough market if someone offers you a gig starting next week then you're pretty much forced to sign whatever contract the agency gives you. Bouncing the contract between lawyers before the assignment starts isn't always possible.

    PS. I chose Paris - for the stupidity of it all....

  80. Anonymous Coward
    Anonymous Coward

    What a plonker

    Crikey, this is hardly news.

    "Contractors" have been using this loophole for years to avoid tax - the trick is to not only have the one full-time "customer" like this loser evidently did.

    Either he is thick as sh*t or was badly advised.

    He really should have seen this coming and he gets what he deserves.

  81. Anonymous Coward
    Anonymous Coward

    Contractors and NI

    Just to clear up how Limited Company contractors pay NI.

    If I pay myself £25k as a contractor, I have to pay PAYE on that £25K, employee NI at 1% AND employers NI at 11% as I am my own employer.

    What some contractors do is pay themselves £6k salary. This attracts 0% PAYE, 0% NI and 0% employers contributions.

    They then pay themselves in dividends. This is effectively, with tax credits, 0% up to £35k then 22.5% over that. Before they can pay themselves dividends though, all profit earned that year attracts corporation tax at 21%.

    So - a contractor could pay taxes at 0% up to £35k then 43% on anything above that. The risk of being a contractor is though to warrant this. If there is no risk, then no reward as it were.

  82. P. Lee Silver badge
    Thumb Down

    having cake and eating it

    As I understand it, tax law is not congruent with employment law. So you can be deemed an employee for tax purposes, but can't claim rights under employment law.

    No-one is under an obligation to arrange their affairs so the govt can grab the most tax possible, so "if permies have to pay, so should contractors," is just sour grapes. In that case, just charge NI on dividends or merge NI with income tax. I get the feeling IT is targeted because the mainstream populous aren't going to care about nerds who earn more than they do.

    I have to agree with Dek, IR35 was designed to help shield (or at least as a sop to) large IT companies from competition with people who know what they are doing and want to control their own life. I started contracting to support other business ventures. I've found it provides a different outlook and shields me from having to care too much about the internal politics of clients which concerns employees so much. I'm working because I bring value to the client and nobody is doing me any favours.

    A large corporate can put a single person on a client site and pay less tax than a small company doing the same thing. That's just not fair.

    A large company can deduct IT training (which can run at 700-1500 GBP/day) from income before tax, whereas, under IR35, the small company almost certainly has to pay the equivalent of income tax on the training. This really isn't fair.

    Ever seen the price of a set of Cisco books? A large company provides resources to employees and deducts the costs from income before paying tax, not so for the little guy, under IR35.

    If all companies paid the same tax I don't think there would be a problem, but it does seem that not all companies are equal under the law.

  83. Anonymous Coward
    Anonymous Coward

    my heart bleeds

    Every permanent employee knows that contractors exploit companies for money. Contractor pay comes from a different budget within the company so although they couldn't possibly afford to pay any of the permanent employees a penny more, or hire another, they are perfectly happy to lay out for 2 or 3 contractors on twice what they would have to pay permanent staff.

    If i paid no tax at all, or NI, it would take me about 15 years to rack up a £99k tax bill!

    the only thing that cheers me up is that my company recently blanket cut all the contractors rates 15% with the condition that if you don't like it, consider this your notice.

  84. Werner McGoole

    If he's an employee

    Then when the contract ends, presumably he'll be entitled to redundancy pay??

    Be interesting to see that go to court and hear the reason why he's not really an employee after all. Can you be in two states at once, like a quantum particle?

  85. Anonymous Coward
    Anonymous Coward

    @ Three options

    I chose the Swiss option too, and it suggested a big, no HUGE question for governments in other countries:

    The Swiss do everything at a MUCH lower rate. Sure, some things you pay for separately (i.e. extra), but in the mean you're well under UK or German tax.

    So, how come everything works here? How come a train more than 5 minutes late is still a scandal? How come that a complete rock on a motorway closes that for max 14 days (and most of that is debris clearing because they don't mock about and immediately blow it up)?

    How come the quality of life is SO much higher?

    Explain that one, and THEN ask for more taxes..

  86. This post has been deleted by its author

  87. This post has been deleted by its author

  88. Paul Johnson
    Boffin

    Dull, dull, dull...

    ...hasn't IR35 been done to death?

    First off, I've been a permie (like 99% of contractors) and a contractor. There are well-documented pros and cons attached to both. Some people prefer 'permanent' employment, others prefer to be contractors. Some people prefer to do one at a certain life stage, and then switch to the other, again for personal reasons. Live and let live, surely?

    IR35 is law. It's been debated, challenged, fought and generally done to death. There is no 'new news' to this story, just a headline-grabbing £99k tax bill.

    The guy had no demonstrable right of substitution (as acid a test as it gets twixt permie and non-permie); was under the direct control of a client permie staff member; and had 'mutuality of obligation' (MOO).

    He clearly fell within the remit of IR35. To try and claim otherwise based on the evidence available is a very, very high-risk strategy. Whoever advised him to take this stance is ill-informed imho. He should have weighed up the facts and coughed up the dough, simple as that.

    Some contractors are 'caught' by IR35 and some are not. This guy clearly was, so why was he taking such a high-risk approach given the sums involved? Greed? Maybe. Bad advice? Maybe.

    I agree with the sentiment that the AA should give him employee benefits though if HMRC are going to treat him as an employee.

  89. Steven Raith
    Stop

    @AC 1558gmt

    "So you are deliberately avoiding the National Insurance payments that everybody else has to pay because you think that for some reason you deserve not to pay it?"

    No, in leiu of having no employees benfits, he is offsetting what he could get from annual leave, sick pay, health care, etc to cover those costs.

    That's why we get paid more per hour than you in the first place - because we take a higher risk with our own personal situation, and higher up the chain [£40k plus equivelant after tax] we have specialist knowledge that is often only required for a single project, or a couple of projects over the course of a few years - such as, at the lower end, in depth AD, domain, GPO and sysprep/WDS knowledge for 500 unit office rollouts that it would take a permanent staffer who was unaware of those skills three months to become proficient in, and only use once.

    Or they could just call me and have those 500 machines rolled out in eight weeks, and then let me go at the end of it. I'd get paid, say 20% more per hour, and claim back the expenses incurred on travel against VAT,and pay corporation tax rates above a certain level to cover the fact that if I get knocked over by a cyclist on the pavement, spend three weeks in hospital and end up being replaced by another contractor with similar skills, then I have some financial backup to tide me over.

    The permy employee, after his training [where the project can't go forward], if he gets knocked down by a cyclist and spends three weeks out, he gets sick pay, and the project has to wait for him again before they can continue, or they can get a contractor in, or spend another few weeks training someone else at their expense.

    In the higher end of the market you will see much higher rates for DBAs and such like, because again, to employ someone permanently with the skills todo that costs more than the cost of getting a contracter in, getting them to set up the infrastructure, and then having your existing permanent support staff to support it once it's up.

    There is a reason for contractors existing - we have a certain mindset and skillset that either isn't found in many permanent staff [due to being at constant risk of being let go - I have been let go with one days notice before after a client decided they couldn't afford to keep me on due to unrelated financial issues] or is just too specialised to expect a permanent staffer to have added to their responsibilities without a substantial pay increase.

    It all makes sense in the end, but don't complain about the party being crap if you don't have the guts to walk in the door in the first place!

    What gets my goat, and I feel this is a legitamate complaint, is where contract staff are used for day to day desktop/network support and BAU operations like running backups etc - these should clearly be permanent positions as they are long term, required posts, and are clearly a get out to prevent companies from having to make pension contributions, offer sick and annual leave, training courses, give a reasonable amount of notice should the job no longer be viable, and other perks that permanent staff take for granted. Hell, I know people who wouldn't get out of bed for a company that didn't offer them subsidised gym membership, 25 days annual leave and a useful training budget.

    We [that is, support contractors] get none of these perks, run the risk of being let go at a much shorter notice period for the most spurious of reasons with no compensation, and are expected to be far more flexible in our work ethic, which is why we command better rates than permanent staff in most cases.

    And after all this? I'm actually looking for a permanent job. I've done five years of contracting at various support levels and I'm just not enjoying it any more - too many risks for not enough financial/job stability or compensation [at my level anyway] - I'm currently looking at doing SysAdmin on a permanent basis for a company I enjoy being in, and should I get it, one of the first things I'll be doing is taking my first real time off [IE more than the enforced holiday season time and bank holidays when you arent needed in] in over five years.

    Because I couldn't afford it.

    Being a contractor isn't the snout-in-the-trough that most permys think it is, certainly not at any wage below £30k for someone single, living on their own with bills to pay...

    Steven R

  90. Anonymous Coward
    Anonymous Coward

    Just speculating ...

    ... and I may well be wrong, but based on the opening statements

    "An IT contractor has been hit with a £99,000 tax bill"

    ... and ...

    "50 per cent owner and sole director of Dragonfly Consulting"

    ... a likely possibility is that although the guy was the only one generating any income for the company, half the profit was being taken by the other 50% owner. If that person had no other income, then they would be taxed on a lot, if not all, of that income at the lower rate.

    If that is the case, under IR35, I believe that tax on that income will now have to be paid at the higher rate by the chap in question, along with any NI, which is probably why the total owing is so high.

    I feel sorry for the guy, but the moral of the story (IMHO) is that if you take a risk and push the limits of what's acceptable, you do end up flashing all the warning lights on the HMRC dashboards.

  91. Anonymous Coward
    Flame

    madness......

    Reading this there are one hell of a lot of bitter people in permie roles out there....

    as a contractor you pay both employers and employees NIC, yes, you minimise the amounts, but this is the main problem with IR35, since if your contract is subject to IR35 you PAY MORE than a permie..... yes my permie friends the grass isnt always greener!!!

    The main story here for me is of someone who completely mis-calculated his tax and didn't make sure his contract was IR35 compatible. 99k is a lot to pay, I am assuming its not just the NI but also the HMRC fines that they make you pay.

    I am curious to see if there is a case for him to go back to his "Employer" and get the benefits for the last 3 years.

  92. Chris Williams
    Flame

    Fantastic, excellent, brilliant!

    I am a contractor -- I pay income tax, corporation tax and VAT; I don't use loopholes or faked expenses, off-the-books work or creative accounting and I'm not special in that regard so I'm not complaining about my situation per se.

    I also have more than one client and so tend not to have to worry about IR35, so hopefully I can air my views without being leapt on as a moaner who earns too much money.

    There, the ground cleared of bait to all but the most determined trolls, I'll say that this exemplifies what makes GB PLC such a difficult place to set up and maintain business in. Having contractors on the books tends to suit organisations because there is no commitment to long-term employment (ok, well where is there these days), not to payment of NI, health insurance, sick pay, holiday pay, etc.

    Somebody maintaining themselves as a small business has work to do outside the hours spent in clients' offices, has to keep up with trends in technology, maintain accreditation where necessary, purchase hardware and software, and so the list goes on.

    I won't suggest that there are *no* contractors who don't take the piss, but this just shits in the face of those [government] characters and [tax] officials who claim to want to make this fabulous country of hours attractive for small business.

    Many friends of mine also run businesses, not all in IT, and not all affected by IR35; but the one thing they have in common is the amount of effort and dedication required to maintain even a semi-decent level of income whilst working all the hours God sends, in spite of a constant barrage of bills, charges and other general skimmings off the top.

    Our beloved mayor [of London] and government are wringing their hands at the sight of big corporations upping sticks and heading for more friendly (and undoubtedly sunnier) climes, but when it comes to the countless small businesses and one man bands, it's less "what can we do to make you stay?" than "fuck you, give us your fucking money".

    Let me state once again, in case your finger is poised over the function key programmed with "my heart bleeds for you": I don't think I am any more hard-done-by than others; this is a general observation that, even without the credit crunch (and who could have seen that coming when the country was accumulating enough credit cards to build a small plastic town), things ain't great.

  93. Anonymous Coward
    Anonymous Coward

    If something like this happened in the US

    The IT industry would collapse. Too many out there have this fantasy that the next generation are computer geniuses (making it difficult for the IT professional), in addition, most of us are only able to get "consistent" (every day praying you won't end up unemployed) work through contract agencies, THEN many businesses are wanting to treat IT guys like maintenance workers (pay included), while having all the knowledge possible the boss could ever need related to IT, like its easily picked up by playing with a computer for a little while.

    I could go on, but don't want my blood pressure to kill me :P

  94. Ishkandar

    @And all the other nearly-freelancers, like footballers?

    That's why they move clubs every two years or so !! Obvious when you think about it !!

  95. Tom Silver badge

    That should cheer a lot of employees up

    I worked in IT for 25 years - I have given up due to British management.

    It looks as if this is one less excuse for them not to manage any more. I used to be amazed that work I could do in a week got sent to contractors and took months to do was somehow cheaper than if I did it. Always something about liabilities which always cost less than the contractor in the end.

    What is it about this country that management seems to be hell bent on preventing anyone actually enjoying their job?

  96. Anonymous Coward
    Anonymous Coward

    Labour wants the UK to fail

    it is that simple.

    A country of failures, that is their legacy, and the UK just plundered from abroad.

    It has got to the point where most people are looking to leave.

    You cannot do business in the UK, it is too awkward, and there are too many parasites in the system.

  97. Martin Usher
    Unhappy

    Welcome to the USA

    Software contractors have been singled out for this kind of special tax treatment in the US for nearly 20 years. Sad but true. Back in the good old days as a little one man business you could deduct, deduct, deduct -- life was good. Unfortuantely you are really just fiddling the tax so they eventually catch up with you.

    Its a bit sad that the UK tax people have introduced this by legal action that just clobbers some individual rather than publishing their new rules. They've also been a bit slow to catch on and they're obviously not up to speed on how you deal with this situation to your (tax) advantage....all grist to the mill, I suppose.

  98. Ishkandar

    @Overseas employer

    Not being a tax expert, I can't say with absolute certainty that what I think is right. However, I think that in your case, the first and most important fact is that you work on deliverables (i.e. discrete units of work) and not in an on-going task/function. This makes all the difference between being a contractor/supplier and being an "employee" as the person in this article is judged to be !!

  99. Richard

    But we DO have something like this in the US

    When I was an independent contractor, I paid my social security tax,

    and then I paid it again as a "self employer", not to mention the other

    taxes. Now maybe if I had set up a corportation I could have paid some

    lesser income taxes, but there are many other taxes and paperwork that

    did not make sense to someone earning what I was earning at the time.

    (Good rate per hour, but not a whole bunch of hours during the month.)

    Oh, I also got stiffed three times. Twice by companies where the lawyer

    fees would far exceed what I could recover, plus once by a company that

    went belly up, and since I was not an employee, my "invoice" went to the

    bottom of the stack and I ended up with nothing.

  100. yeah, right.
    Pirate

    @ DaveE

    Yeah, you're PAYE. And you get vacation, benefits, and all sorts of legal protection including sick time and mandatory notice periods. Meanwhile, the IT contractor gets FUCK ALL in terms of legal protection, and can be terminated with 5 minutes notice. So why the hell, since the contractor is taking ALL the risk, should they also shoulder ALL the taxes involved? I hope the erstwhile "employer" is also being hit up for back-pay, vacation time, sick time, and employer contributions? No? My, how surprising that it's the guy who can't afford the expensive lawyer that's getting shafted.

    Fucking glad I left the UK at this point. Saw the writing on the wall a while back and decided that the UK just wants IT workers to be slaves. Screw that.

  101. Stevie Silver badge

    DPP?

    Not *the* DPP? Nick Grady's bunch?

    I was one of their first consultants, back before India crashed into Asia.

  102. Igor Mozolevsky
    Paris Hilton

    RE: Why always IT?

    > Accountants and Lawyers have been using the same loopholes for years, so why is IT the target of all this?

    Ever known an accountant or a lawyer who holds a practice only work for *one* client?

  103. John

    This case has no relevence for contractors

    He was a nitwit. IR35 has been around for long enough for everyone to understand what the IR will tolerate and what they will not. Anyone who fails to take proper advice or act on is simply asking for trouble.

  104. The Mighty Spang
    Thumb Down

    @ yeah, right.

    that's a point I forgot to make. if the "contractor" was found to be "employed" then surely the "employer" should be prosecuted for failing to meet it's statutory obligations under employment law?

    as a large company controlled by a very rich private equity fund (who don't get taxed for some bizzare [possible corruption?] reason) it isn't going to fucking happen is it?

  105. Anonymous Coward
    Heart

    @AC 1352

    Was it a little company in Chichester to which you are referring?

  106. Keith T
    Boffin

    Similar issues in Canada

    It is important to listen to advise from your accountant on what it takes to be an independent business:

    1. Have more than one client in the long term. Do not have just one major end-client year after year after year. Do not restrict yourself to being represented by just one agency.

    2. Set your own hours to the extent possible. You might be at the client's only during the client's office hours, but you set your own hours for marketing and training.

    3. Provide your own training on marketing, programming tools, and systems software.

    4. Pay for your own memberships in professional organizations.

    5. Maintain some kind of home office.

    6. Keep receipts for everything you pay for yourself that would be paid for by the company if you were an employee.

  107. Clive Harris
    Unhappy

    Fled the country in 2000

    When IR35 was first proposed, a small band of us got together to convince the government that they were making a disastrous mistake. For over a year we campaigned, petitioned parliament, paid for expert studies, tried to inform the press, tried to make the professional institutions understand what was going on ... everything we could think of. I had my face plastered over the newspapers several times. It soon became obvious we were talking to a brick wall. Repeated sham "consultations" with government officials (primarily the cronies of "Red" Dawn Primerola), in which our representatives were invited to make presentations to parliament and then shut out of the very meetings we were invited to. It became clear that this was not an honest exercise in closing a tax loophole, but blatent class warfare.

    The end came for me when my MP told me that, basically, I was being punished for having prospered under Margaret Thatcher. He also warned me that, being so conspicuous, I was a prime target for a revenge attack from Red Dawn and her gang. He advised me to flee the country while I had the chance. I closed my business (which had been contributing a fortune in tax to the Revenue), sold the house and took my family to Australia.

    Many thousands of others took the same advice. The "Brain Drain" resumed in earnest, and the best and brightest of Britain's engineers and IT specialists took their talents overseas. (It's debatable as to whether I was part of the "Brain Drain" or the "Freak Leak")

    I wonder if anyone will know for sure how much damage was done to Britain by that act of vindictive stupidity. Even now, I keep bumping into new "IR35 refugees" over here in Australia - I met another one only last week.

    I briefly visit the UK on holiday last year. It's a very pretty country, but I don't belong there now. The country's leaders said loudly and clearly that my kind are not wanted there, and the voters confirmed their verdict at the next election. I don't think I'll return. It's not my country any more.

  108. Anonymous Coward
    Thumb Down

    I bet the Beeb's "employees" don't have this issue

    I bet the Beeb's "employees" don't have this issue such as their highest paid, a Mr Ross, who our license fee pays, but he's "freelance" from what i recall.

  109. Anonymous Coward
    Black Helicopters

    re: Lozzyho

    In total agreement!

    I dont contract, I am aware, of the benifits that contracts dont get as perm empolyees, its horse for course and works out about even at teh end of teh day, so get a life and stop moaning about what you dont understand.

  110. Steve Massey
    Stop

    Re: Three Options.

    Because, the cost if living is much higher in Switzerland. I've just returned to the UK after living in Zurich for 4 years. Plus (and even my Swiss friends agree), the Swiss government would tax air if they could get away with it. Don't make Switzerland to be the land of milk and honey - it isn't.

    Many Swiss-Germans, cross the border and do their monthly shopping in Germany due to the price differences. Infact many Swiss live in Germany and work in Switzerland due to the difference in costs.

    Living in Switzerland was an experience. But the Swiss-germans are nationalist and racist (not all, just mainly the older generation). Their SVP party (which gets the most votes) makes the BNP party look timid.

    Everything in Switzerland is to the benefit of the companies not the public. Trying to move out of an apartment (outside of the official leaving months - remember you are only allowed to "officially" move out of an apartment is in two months in the year. April and September "i think"). If you want to move out on any other month you have to do the job of the landlords (advertising of the apartment, finding a suitable applicant - which has to be vented by the landlords and they can easily reject - and as such the process starts again). You have to get professional cleaning done (expensive), the walls will generally have to be painted by professionals (expensive) - before the landlord will even accept the apartment is suitable to be handed over.

    Even if you have caused no damage at all to the apartment, your deposit will be void, as you will have to spend a good portion on that for the cleaning.

    Add all this above, and that Zurich only had 57 available apartments 6 weeks ago (was in both Blick and 20 minutes), and that everyone tries to move out on the official months... it ain't pretty.

    Now add that Switzerland hardly ever runs stories about the problems inside the country (one of the highest sucide rates in europe), a teenage who brought his swiss army gun home (but also took some bullets as well) shooting and killing another teenage at a tram stop... no mention in the regional newspapers. A young boy threw himself infront of a train right in front of me (i had bits of his... flesh... on my jacket, and watched his shoe roll passed me with his foot still inside)... no mention of this in the regional news.

    As a drunken swiss bloke told me in the pub in Zurich - "You expats are nothing but slaves to the Swiss people. We only let you live here to make us money. If you didn't make us money you wouldn't care about you".

    The best thing about Switzerland? The expat community. Go figure.

    Disclaimer: All the above is regarding the Swiss-German side of Switzerland, the Swiss-French were completely different and far more laid back.

  111. Anonymous Coward
    Thumb Down

    @yeah, right.

    "Yeah, you're PAYE. And you get vacation, benefits, and all sorts of legal protection including sick time and mandatory notice periods. Meanwhile, the IT contractor gets FUCK ALL in terms of legal protection, and can be terminated with 5 minutes notice. So why the hell, since the contractor is taking ALL the risk, should they also shoulder ALL the taxes involved?"

    May I suggest that part of the blame for that is with the contractors as a whole - If everyone upped their rates to cover the extra risk then that would be one thing, but unfortunately contractors are not one unified mass and hence you get a chase to the bottom on rates in a lot of areas.

    I've done contracting, the low paid pseudo-consultantcy someone alluded to above, and am now in a permie role.

    In my 12 years in IT I've see the rates for the lower end of the market stagnate for quite some time - the agency may be charging more, but precious little of that makes it through to the guys at the 1st and 2nd line positions.

    In my current place we have approx 40% contractors manning our servicedesk, most of whom have been around for more than a few months. Talking to these guys it's the same story, working through an umbrella company and clearing the same, if not less, than some of the permies they are working next to - and this is repeated across many places up here in Scotland.

    The salad days of picking up contracting and clearing Texa$ money every week are gone for a lot of guys - the whole flexible workforce scenario just means drop people at a minutes notice and to hell with the consequences.

  112. David Barr
    Thumb Up

    About Time

    I'm a financial advisor, I'm fed up with seeing Sole Traders tax "shifting" and all sorts of other tax dodges. I pay 31%/40% tax on my earnings. Sole Traders don't. I've had clients tell me to shove it and go to someone else who will close their eyes.

    Any whining about "Yeah, but being a Sole Trader means I need to earn more to keep even" I'm not interested in. Work for a company if it's so good.

    I've advised clients against this for years, nice to see someone who either was badly advised, or who thought he could get away with it getting caught.

    It's morally right to pay your taxes, thinking that it's "the government" who lose out is living in a fantasy. The government piss our money up the wall, sure, but if you dodge your taxes then everybody else ends up paying more.

  113. Anonymous Coward
    Anonymous Coward

    Taxes are immoral

    to claim otherwise is sheer lunacy, and just advocating theft.

    Oh well, taxes are set to drop and government jobs set to haemorage, such is the beauty of a recession, it just brings back in common sense.

    It is the government and their workers that take from an economy, see they produce nothing of value, that is why tax is wrong, it encourages recession, they are parasites. You get a recession when the parasites outweigh the good honest contributors to an economy, and that is what has happened. The parasites cannot be supported so they just end up being fired. And trust me most in business know where to put the blame for a recession, it is government taxation, it is that simple.

    Lordy, lordy economics 101.

  114. Tim Croydon

    Should sue his accountant

    Surely the accountant should have been able to avoid this happening. If there was no accountant, well it just goes to show why it's worth paying a professional.

    As for all the people complaining about how hard contractors get it, tough. That was your choice; You sacrifice the 'stability' of a fixed job for better pay, choice and flexibility, not for the chance to avoid taxes.

    TC

  115. paul
    Happy

    Rampton Broadmoore Esq.

    I wonder if I'll be able to buy his house for peanuts now he has a £99k bill to pay???

    Would Sir like cash or a cheque?

  116. dervheid
    Flame

    You can't be much...

    of a financial 'advisor', if you don't know the difference between a "Sole Trader" and a "Limited Company".

    Remind me not to come to YOU for financial advice!

  117. Anonymous Coward
    Anonymous Coward

    The golem is just getting into gear

    The government's tax-hoovering machine is getting steadily greedier and less discriminating. If anything is happening anywhere, they want their cut - and it better be a big one, and they want it NOW (if not sooner). Laws? They've heard of them, but they don't pay much attention to them. Either get a court to decide that, according to the best legal opinion money can buy, black is white. Or - failing that - it's easy enough to change the law, retrospectively if possible.

    Bottom line: we're the rulers, you're the serfs; shut up and do as you're told. And give us half of everything you earn.

    Or else.

  118. Anonymous Coward
    Stop

    Its IR35 ... again.

    I don't quite understand why this has made the headlines here. This is a straight IR35 fight ... these have been going on since circa 2002 (2 years after IR35 was introduced). He played the odds and lost.... and to be brutally honest ... it looks like he deserved to lose as he did not have adequate provisions in place to combat IR35. IR35 was created to nail cases like this. I bet you good money the other 50% shareholder would be his wife and that dividends were paid to her.

    The headline is in a way misleading. It is not taking into consideration the Corporation Tax that would have already been paid by his own Limited Company. Looking at those figures I would wager that he paid about £20,000 a year on Corporation Tax as he needed to do this in order to get the money out as dividends. This money is owed back to him. Thus the real figure is £33,000 - £20,000 = £13,000 * 3 equals a total figure of £39,000 not £99,000. Of course £99,000 makes a much better headline.

    Of couse the real argument should be ...... ok I am a disguised employee .... so lets be having the money for the missed holidays, sick days, pension etc. What a lot of Permies (I am one myself now after 15 years contracting) do not understand is that contractors like this guy end up paying way more tax than their true employee equivalents as they have to pay Employer NI. Surely paying both Employee and Employer NI entitles such a person to at least the same benefits as the real employees.

    Lets face facts. This is only the tip of the iceberg. For all you boys and girls who have moved abroad ..... all I can say is well done. I would do it myself but family matters do not allow it. This country is both morally and financially bankrupt. The country has passed the point of no return. The government need more money in order to pay for the immigrants now over here and our own lazy bu88ars who won't do any work. Its all well and good the government saying that the immigrants add to the economy but what they don't explain is what the heck are we going to do when these poorly paid people reach retirement age .... they will not have anywhere near the pensions they need themselves and so the richer poeple will have to pay yet more taxes. Add to this the problem that your average immigrant has more children than your average British couple and things get even worse. Its an effin disaster... not in the making ... but right here ... right now. There is NO way out. Taxes are going to have to go up massively.

  119. Mike Rogers

    Who is liable to pay?

    It's not clear to me who is liable for the £99k bill

    Is it his limited company or him personally? Anyone care to explain why?

    If the former, I'd sugest that HMRC are unlikely to see the money. If the latter, he could well find a charging order on his house, assuming he doesn't have £99k spare change.

  120. Dennis Armstrong

    @ Clive Harris

    I also saw the writing on the wall in 1998 when IR35 was proposed, I was a contractor for over 10 years and payed a fair amount in tax and NI in those years. Even had a VAT inspection (which I passed without problems). I now work in Europe, so what has HMRC 'gained' from me in the last 9 years? nothing!! and the UK has lost another IT/Software contractor. Any modern country has to have a vibrant technology sector to compete in the world today. Glad I left says it all.

  121. Paul Johnson
    Unhappy

    Liability

    He's personally liable.

    The company setup is essentially a sham vehicle in the eyes of HMRC, even though it's insisted upon by agencies before they will supply a contractor to a client.

    The company income minus allowed expenses is treated as deemed salary on which employers NI, employees NI and income tax is assessed.

  122. Andy
    Flame

    Big Five Next I hope

    I was employed by PriceWaterhouseCoopers for many years. As a senior consultant, substitution was not allowed without client approval (the project was sold based on me being the technical lead). We worked on site for long assignments (up to 3 years for an SAP implementation).

    Are the government saying that all the PwC consultants on-site were actually employees of the client. If so, £99,000 is a drop in the ocean. PwC consulting turnover is in the billions.

    I look forward to all the consultants on the recently cancelled PA contract being declared employees of the government and demanding their public sector pensions.

  123. David Goadby

    So now sue the AA

    As he was deemed to be an employee then surely he was entitled the benefits that an employee would get? So, holiday pay, sick pay, training, out of pocket expenses etc. Also, the AA should contribute to the NHI as a normal employer would.

    They cannot have it both ways.

    I'm glad I quit contracting before IR35 came in. This sure is a mess!

  124. Richard
    Unhappy

    How its done

    "I was never an employee of the AA and I simply cannot understand how the High Court has reached its decision."

    Its amazing how people still believe we live in a country of an honest justice system.

    This is how its done:

    Ruling against him means more money for government.

    The High Court is more corrupt than a FAT file system after 3 months of Windows ME running on it.

    The High Court serves the government.

    Thus:

    HC: "We *could* rule in favour on the plaintiff, which would be just"

    GOVT: "Yes, but then we would lose money"

    HC: "This is a point, but we wouldn't see said money..."

    GOVT: "Well, swing things our way and you might..."

    HC: "Ah. Your drift is caught with aplomb."

    PLAINTIFF: "So, what say?"

    HC: "Denied."

    Seriously. This happens. This is why the recent case against the Lisbon treaty was chucked out. Not because it was "politics dressed up as law" (it wasn't, treason is a crime), but because the government didn't like it.

    Cambodian police force? Pure, in comparison to Britain these days.

    -- Richard

  125. Alan Gregory

    Ambiguities

    I have worked as a contractor both in the UK and in Holland. This kind of debate doesn't occur over there because they have laws in place that specifically define who is and isn't a limited company and how they can arrange their finances.

    Instead we get situations whereby a contractor will follow the letter of the law, as in the Arctic systems case, and still find HMRC on their case.

    If the gov could be clear as to what we can and can’t do rather than hiding behind ambiguities then things would be a lot better all around….or would that tread on the toes of Barristers, MPs, footballers, etc. who use the limited company system to reduce their tax bill.

  126. caesar
    Paris Hilton

    permiesarejealous

    not that anyone is going to read this far down, but i have to say ALL PERMIE'S are jealous. There's no question about it. Contractors take all the risk, get paid to do complex mission critical work and to take on the responsibility to get work done that permies can't or won't necessarily do.

    We are expected to know everything and know it without any company training.

    Hell yes we should earn much much more and do what we can to avoid paying taxes, we take all the risks so we should get the rewards.

    /Paris because I wouldn't say no..... ;o)

  127. Anonymous Coward
    Thumb Down

    Utter BS.

    I know Jon, I worked with him for a number of years as a contractor at the AA.

    The AA uses a number of ways to get resources, as most companies do, employees, large consultancies and contractors.

    The large consultancies have long contracts with the AA, the same as some of the contractors did. So what's the problem?

    The AA did not want the risk of taking on inflexible staff, or paying the rates for a large consultancy so they went to the contract market.

    The large consultancy's consultants are not deemed *employees* of the AA and Jon has a legitimate business the same as them, just on a smaller scale.

    I had the right of substitution in my contract and exercised it, I also had about 10 or so contracts with other companies whilst I was there, and I was found to be outside or IR35.

    Also, im not arguing about the rates charged, as it's irrelevant to this conversation. That's one for bitter permies to get the chip of their shoulder.

    Contractors are essential to our IT industry.

    I hope Jon has been saving and this won't hit him too hard..

    Take it to the house of lords..

    Anon

  128. Juillen

    Ridiculous Laws..

    I left contracting, shortly after IR35 came about. I had a lot of clients that sat as 'clients' but required bits of work performing once in a blue moon. This arrangement was made feasible by having a 'bread winning' primary contract that filled the main part of the day.

    In general the contracts lasted from weeks to a couple of months, and were highly paid.

    From this, I had to pay corporation tax, accountancy fees, sort out my own salary (gave myself a reasonable salary, so I did play fair with the NI payments), pay my own pension, spend time OUTSIDE the usual work to take care of the books, and other arrangements, pay my liability insurance (and people who have never contracted, I DARE you to say that stuff is cheap), pay for my own training to make sure I was up to speed on all the latest systems, pay for my own software licenses for applications that I was specialising in, or anticipating meeting at the next contract, pay for my own computer hardware, work in advance of contracts (for no pay, apart from that coming from the "company reserves" I'd worked for already), and keep my skills current in all the areas of my smaller clients, so I'd actually be useful to them, and could provide the consultancy/work they required to a good standard.

    At one point, I went to work for an employer on a 6 month contract to do some security/system work. During that time, I brought a lot of new processes into the place (and trained the staff in how to implement them), but had the company request that I stay on for another 6 months, as my approaches were bringing a lot of value to the table, and the project was expanding due to its success. I agreed, with the anticipation of being freed from that in 6 months.

    Again, successes led to a request that I extend by another 6 months. I ended up there for a smidge over 3 years until the project was complete in its final form, at which point I was entirely surplus to requirements (having been there to do the technical architecting, and solving implementation issues). This was before IR35 (just).

    Now, from that, the company got a great deal. It paid me a lot, but it needed specific skills for a while (definitely not permanently). They had the flexibility to monopolise my time for 3 years (IR35 would have killed that), and by doing so, they implemented a project that saved them millions a year in wasted effort, and more efficient working (which ended up being taxed, and putting a lot more in the coffers of the Government anyway).

    But all the way through this, I had no 'paid for' holidays, no pension (that I didn't pay), not administrative support, no right to continue working past 2 weeks notice without any required explanation. I needed to pay for my own training, updated software, new software and so on (which came out of the company coffers).

    The old way let me work hard, play hard, and be flexible depending on the needs of the contracting company at the time. If I'd had to leave after 6 months, the next contractor would have had to revisit everything I'd done (taking a month or so out of 6 available months).

    With IR35, I went permanent, and have exactly the same lifestyle with less than half of the pay, a lot more security, and without the very stressful requirement to stay right at the front of things. After working in both environments, and seeing what IR35 does, I rate it as nothing more than a malicious grab at money made from jealousy, ignorance, and the complete lack of understanding of long term flexibility.

  129. Anonymous Coward
    Anonymous Coward

    Tax system

    Personally I believe that the day rate for contractors should be at a level that takes into consideration the irregular work (gaps between contracts) and often the higher distances and costs associated with travelling long distances for specialised work (I have to pay 4 nights a week in a hotel because not only am I staying away from home but for short term contracts the availability of rental accommodation is very limited).

    With that rate in mind, there should then be one tax system that does not offer an advantage of company Vs Personal status and then IR35 would not need to be a consideration. The reason why companies pay such a low rate of tax is because the government wants to encourage enterprise and does not want companies basing themselves overseas to reduce their tax liability. However, this then places a disproportionate burden on employees meaning that they are taxed at a higher rate at 40% and National Insurance as well.

    If the government did something about the differential between corporate and personal allowances, corporate and personal tax and corporate (ie double) national insurance and individual national insurance then these sort of issues would not arise and the relevant pay rate for contractors would be reflected in the day rate they earn.

    I wonder how the government would get on if all the contractors stopped working until there was a fairer deal with less red tape?

  130. Anonymous Coward
    Alert

    What about the employer

    So if he has to pay the tax, does he also have to pay the NI? And if he pays the NI, does the AA also have to pay their NI contribution?

  131. Anonymous Coward
    Pirate

    Contractor-Agency, Agency-Client

    One of the problems with IR35 is the way many agencies insist upon keeping the contractor in the dark about the contractual details between the agency and the client, and these can affect the contractor & his/her IR35 standing. HMRC get to look at both contracts when deciding if IR35 applies (Contractor-Agency, Agency-Client).

    I have been in a contract where the client and I found the agency were blatantly lying to both of us, bigtime.

    How did we find out? Well God bless the UK education system - a work experience bod left a badly addressed agency fax intended for the client on my desk because my name appeared at the top under the client company name!

    (Probably another work experience bod at the agency.)

  132. Anonymous Coward
    Anonymous Coward

    Re: What about the employer

    "So if he has to pay the tax, does he also have to pay the NI? And if he pays the NI, does the AA also have to pay their NI contribution?"

    The AA pay nothing. He has to pay the deemed income tax based on what HMRC theorised he should be taking home (regardless of what income he did actually pull out of the company profits), plus both the employee's and employer's share of NI.

    He still has had to fund his holidays, sick, pension, expenses and all other benefits.

    At the end of it his take home will likely be less than if he was an "equivalent" employee of the AA. He'll be considered by HMRC an employee of the AA but with no rights or benefits from them. Worse in his case because of some monumental screw up in accounting by the sound of it.

    To get the equivalent take-home inside IR35, considering the costs to him, he will need a much higher rate now. Fine you may say, but the client may just opt for an employee instead. He may of course not want the binding level of contract that a full employee gets, along with the politics and corporate events that go with it.

  133. Anonymous Coward
    Flame

    Simple.....

    Vote with your feet - if you don't like the system, choose a different one.......

    wasn't there mummerings on El Reg a few weeks ago that IT industry in the UK is dumming down because of overseas out-sourcing.... I wonder how quickly things will also change when IT professionals start boycoting the UK system and look to work in places with more favourable conditions..... and business are unable to fill the niche roles contractors often provide, it's a big world out there, go and try some of it !!!!!

  134. Anonymous Coward
    Anonymous Coward

    deserves to keep his 99K for getting on with the real job

    @skelband

    "What a plonker ... loophole ... the trick ... not ... like this loser ... thick as sh*t ... badly advised ... should have seen this coming ... gets what he deserves."

    He deserves to keep his 99K for simply being busy getting on with the real job while people like you were too busy jumping through stupid arbitrary unfair hoops just to avoid paying more.

  135. TimM

    "loophole"

    ""Contractors" have been using this loophole for years to avoid tax"

    It was never a loophole. Anyone has and can be a shareholder of a company and take an income from it in the form of dividends.

    The fact those dividends are taxed at 10% instead of 20% at the base rate, and with no NI, is no one's fault except the government's.

    The solution is very simple. However it means more than just the target contractors will have to pay a lot more tax, and that would make the government even more unpopular.

    Instead they use a shambles system called IR35 to "deem" contractors as employees as a way of taxing dividends as salary income (which seems fair to me), in way that ensures one group pays and another don't (which seems highly unfair to me).

    The fallout from this I see is just a further push towards badly skilled outsourcing, which are akin to contractors in their temporary status and no need to provide benefits, very cheap, and outside of UK law.

    The upside is 10 years from now the UK IT industry will be in such a mess from failed projects driven by outsourcing that demand for decent skills will rise and we'll perhaps be paying top rates for home-grown skills at employee level. Either that or it all goes down the pan.

    I'll probably have left the country by then, taking with me my business skills I've learnt from contracting and contribute to the economy of another, better, country.

  136. Nano nano

    Superposition of states

    Yes, you can be both employed and not employed, since tax laws and employment laws differ.

    This guy was a "deemed" employee under tax law, but not under employment law.

    Heads you lose, Tails we win.

    The other thing that's certain is Death ...

  137. Anonymous Coward
    Anonymous Coward

    @Take it to the house of lords..

    If I recall, the PCG did that, the Lords sympathised, but would not go against the law of the land.

    This cost in the region of 500k , to take it to the european court would be an estimated 1M, HMRC of course funded the defence costs out of the taxpayer.

  138. Bob Scratchit

    Anyone else leaving the country

    Time to go!

    Oh and @Lozzyho: You do realise that the whole reason that Gordon Brown is destroying the economy is so he can afford a huge chunk of real estate in the south of England? No Barbados for him: He's a Scot with a Scot's appreciation for real weather (i.e., rain), which England seems to have more of than Scotland these days.

  139. Anonymous Coward
    Anonymous Coward

    @ Nano Nano, @ all the "pay up" posts

    Nano nano: you can also be married and not married. Back when there was a married person's tax allowance (and the shifting of personal allowances between spouses) I was not elegible for this because I was not actually married. However when I tried to claim benefits I was refused because I was technically "common law" married.

    The main problem I have is expenses. Sure some contractors try to take the piss but a blanket 5% only for expenses is not necessarily acceptable. Training can cost thousands, IT gear will also cost thousands plus travel / hotels / insurances etc.

    And all of these are things that you are likely to get as a permanent employee, but without having to pay for them. It would be far fairer is expenses were only limited by having to be legitimate rather than just capped.

    This guy looked stupid though, he must have known IR35 would catch him but he didn't change the contract or pay the dues.

  140. Anonymous Coward
    Unhappy

    Lee - 5% expenses cap

    Good point about the 5% expenses cap Lee, as this perfectly illustrates NuLabour & Gordon Brown's understanding of small businesses, or should I say contempt for small businesses. If NuLabour wanted to support IT then expenditure on training and re-certification would be allowed as an additional expense under IR35.

    If a contractor's skills are in current demand he or she will typically work as hard as possible to bring in as much income as possible, knowing there will be dry spells some time in the future. This does not leave much time for training & certification exams, even though the 5% cap may be sufficient to cover all the associated expenditure.

    When work starts to dry up and new skills/certifications may need to be acquired and marketed, although there may be time available there is no longer enough money in the 5% cap to fund all this.

    At exactly the time when investment has to be made in the contractor's small business is the time NuLabour have reduced available funds.

    I believe when NuLabour were confronted with this their response was that contractor's could fund such re-skilling out of their own pockets, just as any permanent employee could.

    <Irony> And we all know that permies pay for all their tech training, tech exams, equipment etc out of their own pocket.</Irony>

    With bitter humour I'll point out that, in a worst case scenario, compared to a large company that only has to bring in £1000 income to pay for £1000 of training, a contractor may have to bring in enough to cover tax, EE's NI, ER's NI and VAT before the £1000 is there for training; possibly nearly three times as much! Hence 'Education, education, education'. The buggers aren't supporting learning they just want to charge three times as much from people wishing to make some effort for the future.

    (Currently permie, but over 50 now so expecting to have to go contracting again soon.)

  141. tony trolle
    IT Angle

    not only IT

    I belive intependent truck drives have the same problem.

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