back to article UK.gov departments accused of blanket approach to IR35

Government departments have been accused of applying a blanket approach to tax changes under IR35, meaning the majority of contractors are being found within the scope of the legislation by default. One contractor, who had previously worked for the Intellectual Property Office, said all its IT freelancers had been deemed …

  1. Simon Watson

    Stop taking the p***

    Contractors get paid more, they need to, to cover the fact that they face risk, regular gaps in employment and need to cover their own holiday pay and pension provision. Fair enough, I get that.

    It isn't however, an excuse to pay less tax. If a permi and a contractor are getting paid the same, they should be paying the same tax.

    As for off-books permis, you deserved everything you get.

    1. Matt Siddall

      Re: Stop taking the p***

      The problem is not with the contractors, but with the way the tax law in this country is structured. Why not just have all income taxed at the same rate, and allow for dividend payments to UK nationals to be made before Corporation Tax is taken out (and for non-uk nationals, ideally: corporation tax is a bad tax).

      If you want people to respect the spirit of the law, get someone competent to write the words to match.

      1. Anonymous Coward
        Anonymous Coward

        Re: Stop taking the p***

        Some other countries requires a certain level of PAYE income before any dividend income from a close company will be taxed as dividends (it will otherwise be taxed as PAYE income instead). That threshold tend to be quite high, such as £45k to £50k.

        Which is fully reasonable - PAYE is income from work to live off and pay household bills. Dividends is a share of the company's capital distributed as a result of a good trading year.

    2. ISYS

      Re: Stop taking the p***

      You kind of contradicted your own argument there. If a contractor gets paid the same as a permie but then has fund his own holiday pay, sick pay and pensions why should he pay the same tax?

      1. Simon Watson

        Re: Stop taking the p***

        Not really. I did open with the fact that I expect a contractor to be paid more for the same role.

        My point was that two people being paid the same should be paying the same tax.

        1. Wensleydale Cheese Silver badge

          Re: Stop taking the p***

          "My point was that two people being paid the same should be paying the same tax."

          The only way to achieve that is by scrapping personal allowances.

          No more tax relief for anyone for anything.

          1. Anonymous Coward
            Anonymous Coward

            Re: Stop taking the p***

            ""My point was that two people being paid the same should be paying the same tax."

            The only way to achieve that is by scrapping personal allowances.

            No more tax relief for anyone for anything."

            No, there's another way to achieve it. Calculate the value things permanent staff get that contractors don't, and use that as part of the salary of permanent staff for tax purposes, That would simplify things enormously; I'm sure the original poster would be more than happy as long as people pay the same amount of tax in the end.

            Was always happy to have the pay/tax discussion with permies when I was on a public sector contract; strangely they always gave up on it when asked if they would happily lose their holidays, sick pay, training and see pensions simply swapped to a private sector average scheme, their notice period changed to seven days, and so on.

            1. Simon Watson

              Re: Stop taking the p***

              "I'm sure the original poster would be more than happy as long as people pay the same amount of tax in the end."

              Very true, and that was my point. I've got no issue with people earning more, if you can get it, good for you. What I take issue with is it being possible to structure your income, after expenses and provisions, in such as way as to pay a lower rate of marginal tax.

        2. Roland6 Silver badge

          Re: Stop taking the p***

          I did open with the fact that I expect a contractor to be paid more for the same role.

          Yes my company invoices at the market rate for the job (ie. whatever rate I can negotiate with a client), just like the big SI's. The only connection between that day rate and my salary is that I need to work a minimum number of fee earning days each year in order to earn my 'salary'; a variable number that is wholly dependent upon the fee rates I manage to achieve.

          Thus my day rate also needs to include some contingency to cover the payroll costs when it's employee isn't fee earning. Aside: I suppose my company could engage me on a zero hours contract and thus transfer the risk from the company on to the employee.

          My point was that two people being paid the same should be paying the same tax.

          They do, whatever my company has determined to be my salary, is subject to exactly the same NI and income tax rules as an employee, being paid the same, are subject to.

          The only flexibility is with regards to the structure of the total package. For example, my company can make it's pension scheme non-contributory enabling the full contribution to be deducted before NI and Income Tax - For reasons best known to themselves many companies insist on having contributory schemes, in these the employee's contribution is subject to employers and employees NI. Similar consideration can be given to all the other P11D benefits that companies offer to reduce NI and/or income tax liabilities.

          So if you are set on being an employee, I suggest you get to understand the total cost to an employer of your package and negotiate from there - structured correctly, you could add a few thousand to your net take home with no increase in the gross cost to the employer.

      2. flibble

        Re: Stop taking the p***

        If the permie salary is exactly the same as the contractor would take home for the same work, then you're better off taking the permie role! IT contractors usually attract a higher rate of pay than permies, for various reasons.

        The key point however is that none of the items you mention (holiday pay, sick pay, pensions) are funded from taxation (sick pay use to be state funded, but for many years now it's been a cost to the employer in almost all cases).

        The state pension is different of course, and most IT contractors will be entitled to a full state pension due to the quirky way National Insurance works.

        (For completeness, there are a couple of minor quirks, eg. paternity pay, though the amount the state pays is trivial compared to an IT contractors rate so it's essentially inconsequential.)

        The question then becomes: why should a contractor pay less tax than a permie, for the same take home pay, when the contractor is actually getting essentially the same benefits from the state as the employee does?

        The generally trotted out answer is because the contractor is taking more risk; but that's why they charge more than permies.

        I've been on all three sides of this (ie. an employee, an employee and an IT contractor); my main conclusion is the income tax system in this country needs to be massively simplified. National Insurance is now basically nothing more than a tool used by politicians to keep people in ignorance of the real tax rate they're paying.

      3. DavCrav Silver badge

        Re: Stop taking the p***

        "You kind of contradicted your own argument there. If a contractor gets paid the same as a permie but then has fund his own holiday pay, sick pay and pensions why should he pay the same tax?"

        I must have missed the bit where the UK Government pays for people's holiday and sick pay. That's nothing to do with taxes, and is why contractors get paid more. They should still pay the same *rate* of tax as other people, as the precariousness premium should already be on their wage bill, not taken out of the schools budget.

    3. Anonymous Coward
      Anonymous Coward

      Re: Stop taking the p***

      I invoice more than the chap who sits next to me earns as a permi. Before I see my money I have to pay pay:

      Corporation tax

      Various insurances

      I then pay myself but then I have to pay, before I can buy a beer, the following:

      personal tax,

      100% of pension,

      100% medical insurance

      More subscriptions to make me look less IR35

      Holiday pay

      Sick cover insurance

      Etc

      So, I pay tax twice, I have to pay a lot of money to look "normal", I pay money to backfill the perks that permi gets. I'm not that better off than him. Give me two weeks downtime and I'm worse off.

      Stop messing about with the IR35 - we're not taking the piss anymore - we just like the freedom of moving around.

      1. Anonymous Coward
        Anonymous Coward

        Re: Stop taking the p***

        "So, I pay tax twice..."

        No, the employer pays it once and the worker pays it once, same as everyone else. It ain't your money cos you're not a limited company. You're welcome to try going self employed if you like. Doubt you'll get much work.

        1. Kevin Johnston

          Re: Stop taking the p***

          Were you to check I suspect you would find all the 'contractors' you are referring to actually are Limited Companies due to previous 'Make it up as you go along' decisions from HMRC which caused companies to stop accepting 'Sole Trader' self-employed contractors. The only way forward was for everyone to form a limited company.

          This means the invoice has to cover employee costs AND employer costs already.

          Oddly enough, being hit with IR35 doesn't remove your requirement to pay for an accountant to produce your audited accounts each year, not to pay for 101 other 'Ltd Company' things which don't just go away because the tax man has decided to ignore actual legal contracts in the hope of raking in a few extra shekels.

          1. Anonymous Coward
            Anonymous Coward

            Re: Stop taking the p***

            "...actually are Limited Companies"

            That's exactly what I said. My point was you need to be careful not to confuse the company's revenue with your personal revenue. Treating the company's bank account as if it's your bank account is _exactly_ what gets you caught out by the tax man.

            You are not the company. The company is not you. You aren't invoicing the client, the company is.

            1. Sir Sham Cad

              Re: You aren't invoicing the client, the company is.

              Yes, that's correct. That's why you shouldn't confuse the headline £-per-hour/day figure as contractor pay. That's what the company needs to charge in order for the contractor (an employee of the LTD) to be compensated for their labour in the same manner as a permie (The LTD will still need to pay a salary if the employee is sick or on leave even if the LTD is not receiving income for that period. So there's a shitload of different HMRC contributions, insurances as well as the general cost of doing business to come out of the headline "contractor rate".

              I used to run a small IT consultancy LTD and am very comfortable in permie land where I never have to look a fucking tax return in the face again!

            2. Anonymous Coward
              Anonymous Coward

              Re: Stop taking the p***

              The HMRC seem to be past masters at ignoring that fact and then treating a limited company as it if was not there at all.

              I can't wait for all those projects to be delayed and/or go over budget because of this stupidity.

              It will probably end up costing HMG more expenditure than they might ever get my contractors being inside IR35.

            3. Anonymous Coward
              Anonymous Coward

              Re: Stop taking the p***

              The clue to this misconception is in the words many contractors use:

              "I am a limited company"

              NO you are most certainly not. The limited company is a legal entity. You yourself is a very separate physical entity. You happen to own the shares in that legal entity. That doesn't make it "you". You work for the limited company and receive a (usually a small, far below living wages) salary for the work you do. That makes you an employee. You are most certainly not self-employed.

              https://www.gov.uk/working-for-yourself

              "if you own a limited company ... you’re not classed as self-employed by HMRC. Instead you’re both an owner and employee of your company."

        2. Doctor Syntax Silver badge

          Re: Stop taking the p***

          "No, the employer pays it once and the worker pays it once, same as everyone else. It ain't your money cos you're not a limited company."

          I sort of take your point. The worker isn't the limited company and this really should be emphasised.

          But the likes of the first post fail to make the distinction and ISTM that the previous A/C was replying in terms that they might understand. The amount invoiced isn't the amount that's available to be paid as salary and/or dividends. There is a world of difference between the nature of the payments the engager makes out to a permie and a freelancer's Ltd Co.

      2. Simon Watson

        Re: Stop taking the p***

        You headline with corporation tax, which means you're incorporated I guess.

        Which in turn means all the other items you list (with the exception of personal taxation) will be expenses before tax, yes, therefore paid by money earned gross and untaxed.

        So when you look at your bottom line, what you can actually take home, pound for pound, you'll pay less tax on it than would someone being paid that same amount and having those benefits provided.

        Oh, and paying two lots of tax isn't paying tax twice.

        1. Roland6 Silver badge

          Re: Stop taking the p***

          Which in turn means all the other items you list (with the exception of personal taxation) will be expenses before tax, yes, therefore paid by money earned gross and untaxed.

          From that comment, I take it you are an employee who has no idea what the true cost of their package is.

          Don't worry, it's not personal, just very common among those who have never thought to venture outside of being employed by someone else's company...

          1. This post has been deleted by its author

          2. Dan 10

            Re: Stop taking the p***

            @Roland6

            It's not unusual. When I worked (perm) at a startup, the CEO would regularly ask us to ask ourselves "is what I'm doing worth my cost to the company?", where cost to the co was assumed to be 2 x gross salary. My ltd co revenue is less than 2 x what I could earn perm.

        2. Anonymous Coward
          Anonymous Coward

          Re: Stop taking the p***

          His company is incorporated, not himself. But I digress.

          Somebody earning £50k a year costs the company £55,775 including Employer's NI. That person receives £36,775 after all deductions. That makes the effective tax rate 1 - 36775 / 55775 = 34%

          A limited company contractor might take a small PAYE salary of £8,200 and receive £8,195 after deductions. The cost to the company is £8,205. The contractor also receive a dividend from the company. To make the cost to the company the same as in the PAYE example above, it will be (£55,775 - £8,205) * (1 - 19%) = £38,531. The first £2k is tax-free so the contractor has already received £10,195 without paying more than £5 in NI and nothing in tax. The contractor then pays 7.5% in dividend tax on £45k - £8.2k - £2k = £34,800. That is £2,610 in tax on that part. The 19% corporation tax taken off above is (£55,775 - £8,205) * 19% = £9,038.

          The contractor receives £8,195 + £2,000 + £34,800 - £2,610 = £42,385. All in all a tax and NI cost of £5 + £2,610 + £9,038 = £11,653. The effective tax rate is 1 - 42385 / 55775 = 24%.

          So around a 10% difference in tax. No, limited company contractors are not "paying the same" (if outside IR35).

          Costs for bookeeping, equipment, travel etc gets taken out from the revenue left in the company. You do leave money in the company don't you? Because if you don't, it is at the brink of bankruptcy and not a going concern anymore. Also, under the Companies Act the directors of the company have an obligation to make contingency plans to restore capital and possibly dissolve the company if less than 50% of the share capital is left in the company, or else face personal liability to creditors, which would sort of defeat the purpose of limited liability.

      3. Anonymous Coward
        Anonymous Coward

        Re: Stop taking the p***

        You seem to have forgotten...

        Professional Indemnity Insurance

        Employers NIC

        But yes I agree with you.

        In the end, I gave up fighing IR35 (one bit of the HMRC said that I was outside and another bit said inside and refused to accept the other ruling) and went permie for a while.

        Now I do contracting but only work 'x' months a year. HMRC can't (famous last words) argue with that at the moment.

        Posting AC because HMRC will be taking notes of who posts here.

        Think of the famous 'Dads Army' sketch where Mainwaring says 'Don't tell him Pike'.

      4. Anonymous Coward
        Anonymous Coward

        Re: Stop taking the p***

        The guy sitting next to you probably earns £65k (average senior developer in London). The cost to the employer is usually calculated as 50% more than that, so around £100k per annum (including a ~10% bonues - e.g. an extra month's pay more or less - employer's NI, pension contributions, group insurance, equipment, training, sick days, paid holidays and certain shared company resources).

        Per contractor day (with some time off between contracts), that would be £100k / 9 months / 21 days = £515 per day paid to the agency. That probably translates into £425 paid to the contractor by the agency.

        The £425 includes holiday pay, sick days etc. However a contractor on par with the £65k permie probably get a bit more than £425.

        1. Roland6 Silver badge

          Re: Stop taking the p*** @AC

          "Per contractor day (with some time off between contracts), that would be £100k / 9 months / 21 days = £515 per day paid to the agency. That probably translates into £425 paid to the contractor by the agency."

          I present the calculation slightly differently: If your current package costs £100K pa. then to achieve the equivalent contracting, you need to be targeting: 100K/200 days = £500 pday fee rate, before the agency adds their slice. I use 200 as it is a round number and helps keep back of the napkin math simple: 365 days - (52 weekends) - (9 public holidays) - (25 days holiday) - (10 days training) - (1 admin day per month) - (5 days contingency/slack/sickness)

          Obviously, being both the employer and the employee, you can be creative in the way you structure your tax affairs, so achieve the same net income on a lower daily fee rate. However, on top this you need to add the company overhead slice (accounts, insurance etc.), so as a ball point daily income and utilisation figure needing to be achieved to maintain your current lifestyle, it isn't a bad starting point.

          What being 'self-employed' has enabled me to do is to use the above to charge "market rates" and use the tax system to accrue a pot of money, which I've then been able to use to explore other business opportunities, ie. R&D and sales; which mean's whilst my Ltd may currently only have one employee, at some stage in the future it may have many... So am I a legitimate business or simply someone trying to con the taxman?

      5. Anonymous Coward
        Anonymous Coward

        Re: Stop taking the p***

        You don't pay those things. Your employer (e.g. your limited company) does.

    4. Andy 73

      Re: Stop taking the p***

      Why (should they be paying the 'same' tax)?

      Seriously, it's a question worth asking. We've already established that a company is ok to pay two different individuals different amounts of money to do the same job. We've established that the contractor is likely to be paying more tax (as an absolute amount) than the permanent employee. We've established that the workers have different employment contracts, and different obligations towards risk and career development.

      So, other than the fact that they're sitting in similar coloured chairs, why should they pay the same proportion of tax? The contractor is almost certainly paying more tax whilst doing the same job, so why should they pay more still? Contractors aren't holding anyone to ransom here, they clearly fulfil a function (and a useful one at that judging by the rates companies are willing to pay for them). So why should they actually have to pay something that you, as a permie, are not paying?

      Why is it you get away with paying less (absolute) tax than the contractor sitting next to you? How is that fair? How is it you don't have to re-apply for the same job every few months, with a full interview and references? How is it you can take a day off sick when you feel like it and still get paid? Who's taking the p*** here?

      1. This post has been deleted by its author

    5. Velv Silver badge
      Boffin

      Re: Stop taking the p***

      If a permi and a contractor are getting paid the same, they should be paying the same tax.

      If they are being paid the same then they pay the same tax. Despite what myths you've heard and what your perception are, the contractor cannot escape paying the tax. They do benefit from ways to structure the timing of payment, but ultimately the tax is paid, and since the contractor if often on a higher gross rate, they actually pay more into HMRC than a permie would have.

      1. TheVogon Silver badge

        Re: Stop taking the p***

        "If they are being paid the same then they pay the same tax. "

        No they don't. Tax on corp tax + dividends is not exactly the same as PAYE.

    6. TheVogon Silver badge

      Re: Stop taking the p***

      "Contractors get paid more, they need to, to cover the fact that they face risk, regular gaps in employment and need to cover their own holiday pay and pension provision. Fair enough, I get that"

      No - that's because they are generally highly skilled and like all free markets - it's supply versus demand...

      "It isn't however, an excuse to pay less tax."

      Yes it is. They have a higher risk than a permanent employee...

      1. DavCrav Silver badge

        Re: Stop taking the p***

        ""It isn't however, an excuse to pay less tax."

        Yes it is. They have a higher risk than a permanent employee..."

        Go do one. That's the reason to get paid more, not the reason to let old people die on the street. You seem to be mixing up the company and the Government. One of these is the place that pays you, and the other taxes people to provide hospitals, schools, roads, defence, and so on. You being at higher risk of being made redundant does not mean that you shouldn't pay for the school your child goes to, or the care your parents need, or for the roads you drive on.

        Contractors making themselves 'tax efficient' might be legal, but austerity is your fault: you and Amazon and Starbucks and every other tax cheat.

        1. d3vy Silver badge

          Re: Stop taking the p***

          "Contractors making themselves 'tax efficient' might be legal, but austerity is your fault"

          Really? Because last time i checked it was the banks fault because of sub prime mortgages ten years ago.

  2. AMBxx Silver badge
    Unhappy

    Baby out with the bathwater

    Hardly a surprise though.

  3. Anonymous Coward
    Anonymous Coward

    Ffs...

    Paying less tax does not make a person financially better off. In fact self employed people have to pay 50% on account towards next years tax. How would you feel about that?

    I wish permanent salaried workers would just fuck off and leave the self employed alone. We're not bandits we just want a better life.

    Self employed people have a far harder life that you do. They struggle to get mortgages, they don't get holiday pay, sick pay, maternity/paternity pay, child care vouchers etc etc.

    That said self employed people do have the benefit of living "off peak". Ive not travelled at peak times for years (note for permis: starting at 9am is arbitrary, if you're on flexitime, start at 7am and finish at 3pm, it'll change your life).

    As a result self employed people are less of a financial burden on the system. Id much rather permanent workers got a tax cut in return for less benefits than self employed people getting some form of tax hike for nothing. I dont want state help, I just want to be left alone to run my own life.

    As a self employed worker myself I can tell you im not self employed for the money...far from it. Im self employed because of the freedom it brings. I am an absolute bastard to manage and I cannot tolerate jobsworths...ergo I removed myself from the misery.

    My advice to the "permis" is if you want to pay less tax go self employed ... if you're not brave/smart enough stick with your permanent job and shut up. Simply languish in your world of mediocrity pissing your life down the drain until you retire and have to live off a shitty pension.

    Personally I'm quite content taking risks and being able to spend quality time with my family whenever I feel like it. I will never spend moe time working than I spend with my family. Stop trying to fuck that up out of spite.

    Now heads down permis your boss is probably watching and your KPIs are slipping.

    1. Anonymous Coward
      Anonymous Coward

      Re: Ffs...

      These people are not self employed. They're permanent employees of a limited company. They just happen to be the owner and sole employee at the same time.

      The principal reason for this legal fiction is to provide the required liability shield. Companies won't contract a self-employed engineer because there's no way they can guarantee their work (often to the value of £millions) out of their own pocket.

      The same liability protection can be achieved by contracting through an agency or an umbrella, which leads us to the second reason people use personal service companies - they're tax efficient. Specifically it's commonplace to have your company pay you minimum wage to avoid national insurance liabilities and higher rate tax, taking the rest of the revenue from your company as dividends at a flat rate. This has become a lot less efficient than it was a few years ago (e.g. dividend allowance has been all-but eliminated) but it's still advantageous, which is why it's still the dominant form.

      Which leads us to the end result where someone is an employee and behaves (in many but not all cases) like a full time worker, but practically without any of the protections a worker requires (e.g sick pay) and paying less tax than they otherwise would as an employee. This makes HMRC unhappy.

      1. yoganmahew

        Re: Ffs...

        "The principal reason for this legal fiction is to provide the required liability shield. Companies won't contract a self-employed engineer because there's no way they can guarantee their work (often to the value of £millions) out of their own pocket."

        Does liability insurance no longer exist?

        My understanding is that companies won't contract a self-employed person because the rules change in the 1990s meant that two consecutive contracts would be equated with permanent employment, leaving the employer open to claims for employee rights. The Ltd company fiction was 'invented' to keep arms length for the self-employed and had the added bonus of sticking all the costs on the self-employed...

        1. Anonymous Coward
          Anonymous Coward

          Re: Ffs...

          "Does liability insurance no longer exist?"

          Not really, at least not for individuals. It goes both ways, too. As a self employed person you are *personally* liable for anything and everything you do. As an employee of your own limited company you're very much not. Additionally companies just aren't tooled up to make contracts with individuals any more - it doesn't fall within the realms of the precious master services agreement so it just gets bounced straight away.

          But let's face it this is about the tax.

        2. Roland6 Silver badge

          Re: Ffs...

          The Ltd company fiction...

          Was up and running in the 1970's, contract agencies wouldn't touch people who were self-employed.

          The rules change in the 1990's meant that many client companies stopped engaging self-employed contractors.

          Thus the current rules change can be seen as an attempt to encourage businesses to stop engaging one-employee Ltd's.

        3. Doctor Syntax Silver badge

          Re: Ffs...

          "My understanding is that companies won't contract a self-employed person because the rules change in the 1990s meant that two consecutive contracts would be equated with permanent employment, leaving the employer open to claims for employee rights."

          My understanding is that it was HMRC's predecessor IR to blame. In the event of a self-employed person defaulting the Ltd Co engaging them became liable. The Ltd Co form of engagement protected the engager against this.

          It seems to be an attitude to risk on the engager's part as I discovered a client who also had freelance graphic designers taken on as SE. I could probably have contracted with them on that basis. However I already had my Ltd Co set up so continued with that.

    2. Anonymous Coward
      Anonymous Coward

      Re: Ffs...

      > We're not bandits we just want a better life.

      > Self employed people have a far harder life that you do.

      So is it better or not? It's a weird combination of boastful condescension and chippy paranoia you've gone for and it makes it hard to work out what your point is.

      Are you a persecuted group who already have it much harder than everyone else or are you on a cushy deal that everyone else is an idiot for not joining?

      1. Anonymous Coward
        Anonymous Coward

        Re: Ffs...

        "So is it better or not?"

        Better.

        Its hard won, permie.

        Just because something is better that doesnt mean its automatically easier. Moron.

        Eating at McDonalds everyday is easier than home cooking, but it aint better for you.

    3. Anonymous Coward
      Anonymous Coward

      Re: Ffs...

      "In fact self employed people have to pay 50% on account towards next years tax. "

      Sorry but that's clearly false. Self employed people don't have to pay 50% on account towards next years tax, payments on account are made 9 & 15 months after the tax year starts. First by end of January and second by end of July. So how do you figure that is paying in advance?

      You can pay towards the next years tax in advance but that's on a purely voluntary basis as far as I know.

      1. Anonymous Coward
        Anonymous Coward

        Re: Ffs...

        "You can pay towards the next years tax in advance but that's on a purely voluntary basis as far as I know."

        Nope, you're wrong, I've been paying towards next year's bill via PAYE on my wages all year.

        Which means when i do my self assessment it will have nothing due as I'll already have paid it.

  4. Aristotles slow and dimwitted horse Silver badge

    Permanent employment.

    What...? That's actually still a thing...? How very quaint.

    Those permies really must love their prescriptives.

  5. Anonymous Coward
    Anonymous Coward

    "As a self employed worker myself I can tell you im not self employed for the money...far from it."

    Well that's okay then, this is only about the money.

    1. Anonymous Coward
      Anonymous Coward

      No its not about the money, money is where its centred because its easier for dimwits to understand. Those that have never been self employed cant understand what it is to be self employed. They simply see lower tax rates and assume skullduggery. Its a blinkered standpoint.

  6. Adrian 4 Silver badge

    self-employment check

    The self-employment checking site claims HMRC will stand by its result if the inputs were correct. How does that stand up against an employer coming up with a different result ?

    1. Anonymous Coward
      Anonymous Coward

      Re: self-employment check

      "How does that stand up against an employer coming up with a different result?"

      Their house their rules? I mean, you're welcome to try and tell the client's finance and contracts departments they're wrong, but I think we all know how that'll turn out for the contractor.

      1. Kubla Cant Silver badge

        Re: self-employment check

        Their house their rules?

        Yes, but it seems to be more a case of "We're big, you're small, so we can do whatever we like". When I've been approached about public-sector contracts recently, I've been told "You will have to work through an umbrella company rather than your own limited company". If true, this clearly implies that the public sector is discriminating against small business.

        I bet Crapita doesn't have PAYE/NIC deducted at source.

        1. Anonymous Coward
          Anonymous Coward

          Re: self-employment check

          The difference is that it's not Capita's directors or 5%+ shareholders who perform the services they provide to clients.

    2. Anonymous Coward
      Anonymous Coward

      Re: self-employment check

      Similar questions exist in the checker, when asked from the point of view of the public body / end-customer, compared to the point of view of the contractor, but the differences come from the public body answering differently.

      For example checking the right of substitution:

      "As the worker (contractor), are you able to substitute a suitably qualified worker for yourself?" "YES"

      versus (and this is how HMRC answered it when assessing their contractors):

      "As the worker (contractor), would you accept as substitute a suitably qualified worker instead of the worker?" "NO" --->> instant IR35 fail.

      This is despite substitution being in the contracts, and substitution being exercised every single week in multiple teams. It's almost as if they want to shed 33% of their project resourcing so as to justify delaying their self assessment reforms by a year - and blaming greedy tax-shy contractors.

      1. Doctor Syntax Silver badge

        Hypocrasy.

        ""As the worker (contractor), would you accept as substitute a suitably qualified worker instead of the worker?" "NO" --->> instant IR35 fail."

        Once upon a time the IR as it then was had a boiler-plate contract on their site. It was for companies supplying services to them. Let me emphasis that, it was a contract for services, not a contract of service*. It included a term allowing them, the IR, to name specific individuals of the contractor's staff who could not be substituted without their, the IR's agreement. In other words the IR, when they were the client, were quite cool with the idea of a key man clause. I'm sure I still have a copy somewhere.

        *Permies might not understand the significance of this but believe me, it is very important.

        1. Anonymous Coward
          Anonymous Coward

          Re: Hypocrasy.

          Once upon a time the IR as it then was had a boiler-plate contract on their site. It was for companies supplying services to them.

          They also used their standard Ts&Cs on SI's. The SI contract tended to have an appendix which effectively was a list of vetted and approved personnel who could be called upon to substitute for key people. Obviously, if your name was on that list and you joined another 'big' project full-time (as a named person) people got a little upset as it meant they had to go through the process of finding another named individual acceptable to the client and submit a contract variation to add their name to the appendix...

    3. Anonymous Coward
      Anonymous Coward

      Re: self-employment check

      that's good - and a change since I first looked at it. However, HMRC also have a track record of changing rules at a later date, and this does not give any assurance that this time they've got it right, they won't be changing it again due to that loophole they didn't notice ...

    4. Roland6 Silver badge

      Re: self-employment check

      Re: How does that stand up against an employer coming up with a different result ?

      This is where I suggest you need to append the full text of the sequence of questions asked and your agreed responses to your contract. That way if the client company decides to interpret things differently at a later day, a contract change is inorder.

  7. Professor Clifton Shallot

    Off at a tangent - providing cover for absences

    Apologies for the slight deviation but this thread should have the right people reading it to get some useful answers.

    All the contracts I ever signed when "self-employed" decreed my company would supply a worker for a duration - I only had one employee, and that's pretty much always the case for this sort of work so what generally happens when there's an unavoidable absence?

    I always winged it and never had a problem but do people buy insurance against this sort of thing? Do agencies help out with providing cover? Are employers just generally understanding? (I know UK Mail hasn't been recently).

    Anyone have any experience of this sort of situation?

    1. Anonymous Coward
      Anonymous Coward

      Re: Off at a tangent - providing cover for absences

      That's one of the reasons IT contractors get hit with IR35. The fact you're being presented as a fungible resource but in fact have no choice where you work day to day and can't be arbitrarily swapped in and out makes you functionally at least a worker (and probably an employee).

      1. Anonymous Coward
        Anonymous Coward

        Re: Off at a tangent - providing cover for absences

        What IT contractor role requires you to hold a specific desk down? Ive never come across one.

        IT contractors are usually footloose as far as my experience goes.

        I get paid retainers and enjoy a great deal of freedom over where and when I work since my work is heavily dependent on user requirement. I.e. if theres nothing to fix, theres nothing to do...unless I have to deploy / build something in which case thats an entirely different contract.

    2. JetSetJim Silver badge

      Re: Off at a tangent - providing cover for absences

      If you had to not turn up, you are expected to supply a suitably qualified replacement at your (company's) expense. IIRC, if the Company hiring your company doesn't accept your replacement and only wants you, then that looks bad for IR35.

    3. Anonymous Coward
      Anonymous Coward

      Re: Off at a tangent - providing cover for absences

      Personally ive always found my clients to be very understanding, I'm just a one man band. When my son was born all but one of my clients continued to pay me for the two weeks I was gone. They had no obligation to continue paying me but I was extremely grateful.

      That said, I generally report straight to directors / CEOs. They tend to have a better understanding than most. I generally feel better looked after as a contractor than I ever did as a permanent employee.

      The one client that didnt pay, I was reporting to a middle management schmuck that was more concerned about his targets than the wellbeing of another human being.

      As a result, I rewarded the ones that took care of me and fucked off the one that didnt as I was able to see where I was valued.

      The CEO got wind of this and Ive since returned to the one that I got rid of and I now report to the CEO. The schmuck was fired for jeopardising the business for the sake of £200.

      I dont expect special treatment at all, but when I get it I give it back in spades.

    4. Franco Silver badge

      Re: Off at a tangent - providing cover for absences

      Depends on the situation and the client, I've never had to do it myself but the idea is that you would subcontract another PSC to do the work in your place, and the client maintains a right of veto over the substitute but only on "reasonable" grounds. I.e they can't say we want Clifton Shallot becuase we always get him, but if the substitute is not as qualified, or lacks appropriate clearance (E.g. SC Clearance, Disclosure checks, FCA Background Checks) then the client can veto them.

  8. Anonymous Coward
    Anonymous Coward

    Permies bashing Contractors again... who'd have thought it!

    The joys of contract work..... so not only do we have to put up with HMRC defining a PSC that has no legal basis. IR35 which is just plain ridiculous! But then we also have permies saying we shield behind these for tax purposes. For the hard of hearing, companies/agents refused to deal with self-employed years ago without the Limited company, primarily as HMRC were hitting the hiring company for tax if there was an issue.

    Secondly, when my company invoices and pays me a salary, I then also have to pay an accountant, pay employers and employee taxes, corporation tax, VAT and also keep enough funds in the business to cover training (I keep myself skilled up), my pension contributions insurances, slack periods, sickness and holidays. Yes i also pay myself dividends. But as many have recognised this is not tax efficient anyway.

    Then to polish this all off, if I want a mortgage I have a ton more hoops to jump through !

    So permies in the happy comfy world of permiedom, enjoy it. You're welcome to join us, otherwise please understand the actual landscape before you complain on tax points which are only half the picture. If rights of the worker were on parity I'm sure the tax issue would be a mute point but they're not! I for one am happy to manage my own financials as a freelancer without having to pay the permie at source taxes, then still have to pay an accountant, holiday, pension, training, sickness etc.

    1. This post has been deleted by its author

  9. Anonymous Coward
    Anonymous Coward

    HMRC Digital

    Regardless of the rights or wrongs of the legislation.... (cometh the downvoting)

    There are a lot of government departments applying this blanket methodology and utterly shafting themselves in the process.

    HMRC's digital transformation guys are a clear example. They've declared all of their contractors (a couple hundred of them I think) inside. This includes a number who probably should be but also includes a lot of very specialist consultants who really wouldn't be. They haven't applied reasonable care and have gone for the blanket decision because it's easier for them.

    This means that the vast majority of those contractors are leaving and the badly underpaid HMRC permies and shipped in big system integrator permies are going to be left to cope on their own. All of the technical leadership and platform knowledge is just about to walk out of the door.

    Their hope of delivering anything they planned to this year is utterly dead.

    1. Anonymous Coward
      Anonymous Coward

      Re: HMRC Digital

      Having worked with HMRC's "digital" team, the whole bloody lot of them are as good as the textbook definition of IR35. Kicking around Dorset House for literal years, turning up 9-5/monday-friday, reporting in to HMRC management lines, toting HMRC branding on their communications and presenting at conferences as HMRC staff.

      The lack of sympathy for this particular bunch is helped by the fact we really aren't going to miss their "platform knowledge". There's only so many times you can be told to rewrite the world in sticky notes and Ruby before you want to stab someone in the eyes.

  10. Anonymous Coward
    Anonymous Coward

    IR35 is created to make you insane

    "Let's come up with a tax that literally no-one can be 100% sure if they are liable or not"

    "Yeah, then let's fiddle with it over about 10 years so accountants who learn about it have to re-learn and the confusion remains"

    "Then, when people think we should just scrap it and come up with something new, we'll push out to all public sector workers, without telling them it will pushed on private sector people in 6 months".

    Is Kafka running HMRC?

    1. Anonymous Coward
      Anonymous Coward

      Re: IR35 is created to make you insane

      Kafka is firmly in charge of all tax authorities around the world.

      "The Process" was allegedly written as a tax tribunal manual.

  11. Velv Silver badge

    Simple Solution

    Let's face it, the "employer" (private or public) has nothing to gain from "cheating" the government out of tax. Business's use contractors as they are a flexible workforce. You take on someone to do work without needing to make them a permanent employee with all the constraints that brings to getting rid of them when things get tight.

    So instead of employing Limited Companies and insisting those who attend site are inside IR35 the government should simply be employing those people directly on fixed term contracts.

    The government can then leave the Limited Companies to service their multiple clients and save everyone a fortune by ditching IR35 completely.

    1. Anonymous Coward
      Anonymous Coward

      Re: Simple Solution

      I suspect this is where private sector will go. Unfortunately public sector is bound by the tyranny of the pay scale. Technical civil servants top out at c. 50k. Contractors won't get out of bed for that amount of money.

      From their perspective this is a much bigger problem than whether or not their freelancers are dodging their NICs.

    2. Sir Runcible Spoon Silver badge

      Re: Simple Solution

      #"You take on someone to do work without needing to make them a permanent employee with all the constraints that brings to getting rid of them when things get tight."

      As a long time contractor now, can anyone tell me whether I would be entitled to employment privileges the moment I am found inside IR35?

      For example, if I contract somewhere more than two years, can I claim redundancy or unfair dismissal if I am suddenly asked to leave without any prior warning?*

      *Which ,as a contractor, I expect to potentially happen at any time which is why I structure my accounts accordingly. My takehome pay is *not* the same as my company income - far, far from it.

      1. Anonymous Coward
        Anonymous Coward

        Re: Simple Solution

        No, you'd be classified as a worker but not an employee.

        1. Anonymous Coward
          Anonymous Coward

          Re: Simple Solution

          HMRC deems you to be working "as an employee". You need to show that to the employer, and they need to provide employee rights or they need to take the decision back to HMRC for correction as you are not an employee. The moment they deduct tax / NI at employee rates, they have a straightforward (moral) obligation to provide employee benefits.

          Nurse ?!!

    3. Anonymous Coward
      Anonymous Coward

      Re: Simple Solution

      Quite. Look at the conduct regulations for a start. It defines 'employment business' as an intermediary putting forward people on their payroll (e.g. office angels etc) or third parties (e.g. contractors) to [i]work under the control of the hirer.[/i] If this is not a temporary worker then I don't know what is. There is clearly an intent for the person engaged to be a temporary worker for the client. Therefore, contractors should stay clear of any agency that presents themselves as operating in the capacity of an 'employment business' or if they still want the gig, go on the agency's payroll or through an umbrella to enjoy those worker's rights.

      The trouble is that there is no incentive for hirers or intermediaries to [i]not[/i] want that control at all times, such as risking Employer's NI and pensions contributions liabilities in exchange for that control.

      If a client wants an independent specialist, they should treat them as such and there should also be an incentive for them to do so.

      On the other hand that would also put a bit more burden and responsibility on the contractor, and many contractors are, frankly, quite comfortable with being part and parcel of the client's organisation while enjoying tax benefits and therefore don't want to go down the route of working to well-defined statements of work and possibly being paid by outcome (milestone, deliverable, sprint etc) instead of for time spent (e.g. by the hour or day).

  12. Anonymous Coward
    Anonymous Coward

    Says it all really..

    "The Department for Business, Energy & Industrial Strategy, which the IPO is part of, has said it is down to individual agencies to apply the rules as they see appropriate."

    If the rules can be applied so haphazardly, then it is obviously just another attempt to bring those struggling for some degree of freedom back into the bonds of corporate slavery.

    Fuck. Them. All.

  13. Anonymous Coward
    Anonymous Coward

    The department I currently contract with issued a guidance note last week that said that they would not be using the type of contract through which you're engaged as a factor in deciding whether you're in IR35 or not. On the very next line they listed the types of contract that were being deemed within IR35. I don't think I've ever seen such an obvious contradiction in such close proximity.

    If the bold statements regarding reasonableness are true, they've really made a rod for their own back.

  14. Anonymous Coward
    Anonymous Coward

    I know someone personally that worked at Vodafone for 2 years as a 'contractor' on £600 a day and paid under 15% tax and almost no NI. These people just take this piss. Take your day rare that's twice what you'd get as a PAYE and pay your 40% tax bracket and full NI.

    Zero sympathy for their whining.

    1. Anonymous Coward
      Anonymous Coward

      There is no way that kind of tax/NI combo can be legally taken. Even on minimum wage salary and the rest as Dividends that can't be possible.

      If there is some fancy scheme HMRC rightfully will be kicking their butt at some point.

  15. Anonymous Coward
    Anonymous Coward

    The same old arguments about contract vs permie vs ltd vs umbrella.

    Sigh.

    Anyway, I just wanted to say fuck the government and its dysfunctional rules. Fuck the civil servants who make up arbitrary rules. Fuck hmrc who just want to ensure nobody gets so much as a penny of untaxed pleasure from their earnings, I presume because they know they're despised, and the tax payer won't pay for their jollies.

    Until the dysfunctional stupid over-legislated over complicated tax system collapses up its own arsehole, it won't get fixed.

    Rant over.

  16. Anonymous Coward
    Anonymous Coward

    I fear a lack of understanding here with statements like "paying two lots of tax isn't the same as paying tax twice"

    Bottom line, the accumulation of Tax (both Corp and Personal) almost mirror the PAYE structure, so the NET to the Contractor is pretty similar now.. Dividend tax is much more of a tax than it used to be..

    And the big point is, making people INSIDE IR35 means that infact they WILL pay double tax, as all earnings (save 5%) are taxed PAYE, then you have to pay you Corp responsibilities etc.

    Also, stuff paid "Before" tax and Gross, is still 80% of the bill and not free! I find people really struggle with the concept of 100% tax deductible, which only means 100% of the TAX (which is 20%)

    1. Anonymous Coward
      Anonymous Coward

      Sigh.

      If you are mentally combining the corporate tax burden and the employee tax burden as your personal tax burden you are the very definition of inside IR35.

      The company is not you, you are not the company.

    2. Anonymous Coward
      Anonymous Coward

      There are two taxes involved, but it's not double taxation. Dividend tax is not taken on the gross company profit before corporation tax, but on what's left after corporation tax has been taken off.

  17. Anonymous Coward
    Anonymous Coward

    Employees? Then give them a job!!!

    But surely, if a contractor is found to be a disguised employee, the Government department must offer them a permanent role. If there is no funding for a permie role, then they must be a contractor.

    I have no idea how any of this really works of course as I am retired :-)

    However, it does rather look like a complete cluster fuck of a situation for all involved and I bet it ends up costing tax payers money in the long run.

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