back to article UK tech freelancer numbers down for first time in 5 years since IR35 tax reforms hit public sector

After a boom in IT contractors over the last decade, the number of freelance techies working in the UK dropped last year in the wake of public sector off-payroll working reforms. According to Office for National Statistics (ONS) data, there was a 2.4 per cent fall in IT contractors to 121,989 in 2018 compared with the previous …

  1. BebopWeBop Silver badge

    Bu bu but - that goes against UK government's stated policy to make people more self reliant (ahhh not that way)

  2. Anonymous Coward
    Anonymous Coward

    "The IR35 rules ensure that individuals who work alongside PAYE staff pay similar income tax and national insurance contributions as employees. However, as contractors, they are not entitled to the same holiday and sick pay benefits."

    NO. Once again El Reg is spouting flawed definitions about IR35.

    If a person would otherwise be an employee, but for the intermediary vehicle between the business and the individual (think Ltd company, partnership etc) that person is a "deemed employee and must pay the same taxes as though they are employed (not just "similar" as mentioned above). Sick pay, holiday pay etc is irrelevant and not part of IR35.

    If you are an individual working next to a PAYE person, you are not a PSC contractor - you are an individual.

    If you are an employee of a Ltd company who sits next to a PAYE person, you might be a deemed employee, you might not be. That has NOT changed and will not change in April. What IS changing, is who makes that determination.

    1. AMBxx Silver badge

      And more worryingly, lots of companies are assuming always inside IR35

      1. Velv Silver badge
        Boffin

        Yes, however most are doing this as they are simply not willing to putting the effort into saving themselves money. Rates will go up as a result and the market will balance itself.

        Companies are putting themselves in a dangerous situation. By declaring roles as inside when they have previously condoned the classification of those roles as outside they risk not only the contractor being investigated but also themselves being investigated.

        Contractors are going to walk and businesses are going to struggle to deliver their planned work, exactly as has happened in the public sector. CEO's however report to shareholders, not government ministers, so at best bonuses are not going to be paid, some may even be sacked by the shareholders for failed business change.

    2. Doctor Syntax Silver badge

      The fact remains, however, that the package for the direct employee is different. It includes holidays, sick pay etc. as tax-free benefits in kind. In order to maintain "fairness" - which was much trumpeted by the likes of Red Dawn - surely those should be taxable. And while we're looking at such things why not assess the value of a permanent contract of employment. It would be a little more difficult to value because some "permanent" posts are more permanent than others but then HMRC have never been hesitant about valuing things if it brings in taxes. How would they value their own posts?

      1. Dr. Mouse Silver badge

        holidays, sick pay etc. as tax-free benefits in kind. In order to maintain "fairness" - which was much trumpeted by the likes of Red Dawn - surely those should be taxable

        This isn't entirely accurate (and I say that as a contractor who deplores the IR35 regs, new and old*).

        Holiday pay and sick pay are taxed. They are just income as far as HMRC are concerned. For contractors, part of our increased rate over a permie is to cover these for ourselves, which is also similarly taxed.

        There are tax-free benefits a permie gets, like employment protections.

        * My main problem with them is the existence of inside IR35 contracts: IR35 is supposed to be about disguised employment, so if you are found to be inside, you should not be a contractor but an employee, with all the benefits and privileges that come with it. "Inside IR35 contracts" are not much more than mechanisms for companies to avoid giving employment rights to an employee, which should not be allowed.

        1. d3vy Silver badge

          "* My main problem with them is the existence of inside IR35 contracts: IR35 is supposed to be about disguised employment, so if you are found to be inside, you should not be a contractor but an employee, with all the benefits and privileges that come with it. "Inside IR35 contracts" are not much more than mechanisms for companies to avoid giving employment rights to an employee, which should not be allowed."

          I kind of see where you are coming from there - however we need to remember that even inside IR35 our day rates and NET take home will likely be more than we would be able to achieve if in permanent employment - I know the cap on my salary as a permie (without moving from the North West) is around £50-55k gross. As a contractor Its around £85-90k gross *

          Even inside IR35 paying the additional tax I'm better off as a contractor, I see that additional money as compensation for not getting the same benefits as an employee - Its a bit shit but I can live with it. **

          * Average - some years I land contracts that pay a bit more and some years I take more time off...

          ** I mean, I'd rather things stayed as they are now but that's looking unlikely - I fully expect that this time next year things will have calmed down and there will be Inside and Outside IR35 roles being advertised just as happened with public sector - Obviously the competition for outside roles will be higher and I very much doubt Ill be doing my current 2 hour commute to clients offices if I'm inside - unless they cover the cost.

          1. Dr. Mouse Silver badge

            "however we need to remember that even inside IR35 our day rates and NET take home will likely be more than we would be able to achieve if in permanent employment"

            So, that indicates that your employer* would be paying you to not take your employment benefits. This is dangerous and is exactly why it should not be allowed. An inside IR35 role is an employee role, and employment benefits are given to all employees.

            Taken further, what if a company started classifying its staff as "Inside IR35 Contractors". The taxes would be the same, but none of the employee benefits would exist.

            Employment rights should apply to all employees, and "Inside IR35 Contractors" are, effectively, employees.

            * I have chosen the word "employer" specifically because, as stated several times, "Inside IR35 Contractors" are effectively employees.

            1. d3vy Silver badge

              "So, that indicates that your employer* would be paying you to not take your employment benefits. This is dangerous and is exactly why it should not be allowed. An inside IR35 role is an employee role, and employment benefits are given to all employees."

              Agreed.

              Though, I think my comment did say that we are effectively being paid more to give up our employment rights, which is something I'm ok with, I'll take the extra risk for more money... I know not everyone will be happy with this.. I'm not 100% happy with it but if the options are that or be a permie again I know what I'm taking.

              1. Mike 137 Bronze badge

                "we are effectively being paid more to give up our employment rights"

                Paied more for how long, I wonder. Those engaging under IR35 will likely see the benefit of offering lower rates once effectively all contractors can be considered to be under IR35. The option to ask for higher rates to compensate for notional absence of employment rights will thus be closed off.

                BTW though, as contractors under contract for services we're not "giving up" employment rights - we're not eligible for them as they apply only to contracts of service. The assumption was always that as employees of our own limited companies, our companies provided those benefits (hence the higher rates charged to the end client).

                Under IR35 the essential nature of the working arrangement with the end client ceases to be "as per contract" and becomes a matter of opinion - typically giving the side with the whip hand the freedom to determine the position to suit its own best advantage. Oh the joys of capitalism. Roll back to the nineteenth century with its mill owners and "hands".

            2. d3vy Silver badge

              "Taken further, what if a company started classifying its staff as "Inside IR35 Contractors". The taxes would be the same, but none of the employee benefits would exist."

              Just re-read and yeah I see what you're saying, I wasn't looking at it from and employees point of view.

              That said, there's not much to stop employers doing this now... Isn't that pretty much why the BBC got into trouble recently.. requiring presenters to be private contractors.

              1. Dr. Mouse Silver badge

                The point is that having the grey area of "Inside IR35 Contractor" allows for abuses. They could probably be taken to employment tribunals and have it sorted there, but the mere fact they are allowing the status muddies the waters and gives tacit approval from the govt.

      2. fwthinks

        Every benefit that an employee receives has a specific value that can be used to calculate the total remuneration package. Employee packages are not some magic pot of unlimited gold that companies cannot control. Companies can also mitigate risk using insurance to further control costs.

        Comparing contractor and employee packages is very simple. In either case, each person needs to decide if the overall package/rate meets their requirement.

        So any contractor complaining that employee's get a better deal are simply ignoring the fact that they personally decide whether they should receive any benefits or take the money instead.

    3. Ogi

      "If you are an employee of a Ltd company who sits next to a PAYE person, you might be a deemed employee, you might not be. That has NOT changed and will not change in April. What IS changing, is who makes that determination."

      To me it seems the client/company that hires you can be held liable. Or at least the companies think so. More and more clients say they are unsure of whether they would be held liable for "disguised employment", and would rather just avoid the issue by not hiring contractors for more than 3 months at a time, if at all.

      Indeed after a few years contracting, I have switched to a permie role, primarily because my current client offered me a perm role, as they were unwilling to renew my contract for 2020 due to the changes (well, either I take the perm role, or a 3 month contract renewal and then I go elsewhere).

      I have noticed contract work drying up over the last year or so, many companies are only offering perm roles, or basic 3 month contracts (with option for one extra 3 month renewal). Quite a few have stopped looking for contractors at all, or insist they hire you through an umbrella corporation, who take their own cut of your rates (one wanted 25% of my day rate just to act as the "middle man", to shield the client from liability).

      If the attempt of this legislation was to force people into permanent roles, it did a bang up job.

      Before, the headaches of dealing with HMRC, hiring accountants, dealing with delayed payments from clients (sometimes for months), and having to involve lawyers quite often in your business life, was worth it for the work/life flexibility and extra income you could earn as a contractor.

      However, with the new legislation, it seems not only do you have to deal with the above, but you may well end up paying as much in taxes as a permie, but with none of the protections or benefits offered (how many permies have to go 3+ months without getting paid, or have clients go bust and never pay you at all, or can get laid off with immediate effect for whatever reason their employer wants).

      Then there is the fact you will no longer get contracts to work on 1 to 5 year projects, so you have to constantly move around between clients every 3 to 6 months, which means the moment you get a contract, you have to start immediately looking for others, so that after 3 months you have an alternative.

      It seems the days of getting a 12 month contract, working hard, getting paid, then taking 6 months off to relax, look for another contract, relocate if necessary (it usually is in my experience), and work some more are finishing, which is a shame. I do find a permie role somewhat stifling, but for the moment that seems to be the way things are heading in the UK.

      Saying that, I am not shown on the numbers in the article, primarily because my current employer has allowed me to keep my ltd company and do other contract work on the side, but without it being my main income stream, the costs of accountants and dealing with HMRC is making me consider shutting the company down, and just going sole-trader for the odd side work.

      1. Anonymous Coward
        Anonymous Coward

        Being laid off immediately is a myth. All of my contracts have had provision for notice periods where appropriate...anywhere from a week or two, to months depending on the role.

        1. d3vy Silver badge

          "Being laid off immediately is a myth. All of my contracts have had provision for notice periods where appropriate...anywhere from a week or two, to months depending on the role."

          Yes, but that is coupled with a clause along the lines of "You will only be paid for invoices accompanied by a signed time sheet"

          And another saying that they have no obligation to give you work (and you have no obligation to take it if they do - You REALLY want this clause).

          So if a client wants rid of you they serve you notice and tell you that theres no more work for you to do.

          Effective immediate termination with no notice... Technically you are on notice, but you're at home for the entire notice period and if you bill for it you wont be paid.

          1. Dr. Mouse Silver badge

            that is coupled with a clause along the lines of "You will only be paid for invoices accompanied by a signed time sheet"... And another saying that they have no obligation to give you work (and you have no obligation to take it if they do - You REALLY want this clause)

            Precisely. This is one of the key indicators that you are not an employee: No "Mutuality Of Obligation".

            However, in the context of notice, this means there is effectively no notice period. They can give you your "2 weeks notice", then offer you no work for those 2 weeks. Similarly, you can give them 2 weeks notice and refuse to accept any more work.

            Luckily I've never had this situation either way. However my father was a contractor for most of my childhood, and he had several experiences of turning up for work on Monday morning and being told to go home as they no longer needed him (and this included contracts where he had just spent several hours travelling to get there).

          2. Anonymous Coward
            Anonymous Coward

            What kind of contracts are you negotiating??

            I always agree a price up front that I usually bill monthly for the term of the contract...usually the length of the contract is defined by the scope of work required. Time sheets are never necessary because I don't charge by the hour.

            Typically I work to deadlines not quotas. Day rates not hourly rates.

            I'm an IT professional not a sandwich packer. My world is defined by deliverables and specifications...not units of output.

            I.e. you tell me what you want and I tell you how long and how much. If it's too long and too much, we negotiate based on how much you can pay and how much I can deliver to that budget.

            I feel sorry for anyone negotiating a contract based on hours and timesheets...that's garbage. Might as well be permie at that point. Doesn't make sense. Sounds like a great way for agencies to shaft workers though. Bill a day rate to client and squeeze the worker for a timesheet to shave off some quids.

            Even cabling guys don't quote on hourly rates. It's based on materials and terminations pending a site survey.

            1. d3vy Silver badge

              "What kind of contracts are you negotiating?"

              You've honestly never heard of "time & materials" contracts?

              That certainly explains your understanding of IR35.... *Eye role*

            2. This post has been deleted by its author

      2. Anonymous Coward
        Anonymous Coward

        OP here

        You say:

        "To me it seems the client/company that hires you can be held liable. Or at least the companies think so. More and more clients say they are unsure of whether they would be held liable for "disguised employment", and would rather just avoid the issue by not hiring contractors for more than 3 months at a time, if at all."

        Yes, post April, the client / engager will be making the determination AND taking the responsibility if they get it wrong.

        The 3 months is irrelevant. Length of service is not an indicator of employment status; never has been and this has been confirmed in multiple tribunals.

        1. Ogi

          > The 3 months is irrelevant. Length of service is not an indicator of employment status; never has been and this has been confirmed in multiple tribunals.

          That may be so, but it does not change the fact that companies don't want to offer long term contracts anymore. Whether they are right in thinking this will shield them or not doesn't really matter to me, the result is the same. Their legal team advised them that avoiding >6 month contracts is prudent for a single contractor, so they do. The result is short contract lengths, with refusal to go beyond 6 months.

          I've had a few such contract offers in the last year, all over the country, its just that for me, relocating every 3 to 6 months is a bit too much. 1 to 5 years is ok, but shorter than that and I am basically living out of a suitcase all the time.

          > Yes, post April, the client / engager will be making the determination AND taking the responsibility if they get it wrong.

          And if they get it wrong, HMRC can come down on them like a ton of bricks, including full audits of their books, spooking of their clients in turn (if a company you are working with is being audited by HMRC, it has a negative effect on their reputation, and can make you worry that you will be dragged in too, so cut your losses ASAP and distance yourself), and (if its a big company), possibly hitting the news.

          It is unsurprising that companies no longer want to bother with contractors. Companies are generally risk averse, especially if it can affect profits. Being made liable for determining whether a subcontractor qualifies or not (depending on what HMRC decides), means they will go as far to the side of "caution" as possible. If that means no longer hiring subcontractors, only doing B2B contracts with umbrella corporations, or just offering perm roles, then they will do it.

  3. A.P. Veening Silver badge

    Enforcement

    "Much will depend on whether HMRC takes tough enforcement action and publicly hauls an organisation over the coals. If that happens, it likely will have a chilling effect on the use of contractors. If enforcement action is not forthcoming, the impact of the reforms could be more limited." ®

    Of course HMRC will publicly try to haul an organisation over the coals (and hot ones at that). However, going by past performance and results, this will backfire spectacularly, making HMRC even more ridiculous in regard of IR35 than it already is.

  4. Aristotles slow and dimwitted horse Silver badge

    Simply disjointed...

    So on one hand you have BEIS and the DIT screaming that we need a highly mobile and highly skilled workforce to secure the UKs future as a global leader in high technology, science and research - yet here we have HMRC trying to pin everyone down to the same ways of working as everyone else - when those ways of working are varied from business to business and job to job. It just doesn't make sense. HMRC didn't have the intelligence to enforce it back in the early 000's and I can't see this will change.

    If it doesn't, then guess we'll all just be replaced by cheap labour from India which will keep the Home office and the ever agitated political right very happy.

    I don't really care either way. If it is enforced then I'll just head back to mainland Europe and watch with a smile as HMRC wave bye-bye to all of the taxes that I currently pay.

    1. Roland6 Silver badge
      Pint

      Re: Simply disjointed...

      >If it is enforced then I'll just head back to mainland Europe and watch with a smile as HMRC wave bye-bye to all of the taxes that I currently pay.

      Relocation of business and staff... that's tax deductable, better make a plan so that those costs can be set against previous tax years, so HMRC send a cheque to help you on your way...

      1. Symon Silver badge
        Go

        Re: Simply disjointed...

        "head back to mainland Europe"

        Just out of interest, what are the rates and taxes like in Europe? Will you actually be better off 'over there'? I genuinely don't know, but as you are apparently planning this, I'm sure you can inform us.

        1. A.P. Veening Silver badge

          Re: Simply disjointed...

          The one HUGE improvement is getting rid of HMRC. Depending on where exactly you relocate, you can expect different problems, but none as bad. And the Dutch tax office (Belastingdienst) is scarily reasonable as long as you abide by the rules. And while not relevant for individual tax payers or small companies, large companies can make long term agreements with them about how the rules and laws are to be interpreted (just to avoid misunderstandings) and things like that.

        2. Zippy´s Sausage Factory

          Re: Simply disjointed...

          Tax rates vary. Ireland has lower taxes than the UK, Portugal has higher, BUT actually has a lower tax regime specifically designed for use by contractors that would otherwise be in IR35 in the UK because it's so common here (even the checkout operators in the local supermarket are often contractors in the UK sense of things).

          Disclaimer: I'm not an accountant practicing in Portugal, so if anyone out there is please feel free to clarify that for me.

        3. Ogi

          Re: Simply disjointed...

          Well, depends on what your skills are. I found that my rates were roughly 1:1 with the UK. So for example, if I earned £600 a day in the UK, I would earn around €600 a day in the EU.

          In order to keep things simple for me, I kept my UK ltd company and was paid in the UK, so I still paid UK corporate taxes (and had to deal with HMRC), however as director I could put my tax residence outside the UK, which means my income and dividend tax were different (if its lower or higher depends on where you declare your tax residence in the EU).

          However, Brexit threw a spanner in the works for me (as I am only an EU citizen via my British citizenship).

          As a permie, I would be grandfathered in after Brexit, but as a contractor, at next contract renewal (in my case, every 3 months), I would be classed as a "non-EU entity" with a non-EU employee, which would be more of a regulatory headache to work through (especially if ends up being a hard Brexit, because then things like GDPR and IP protection have to be contractually specified, increasing legal and regulatory burdens).

          If on the other hand, you will remain an EU citizen despite Brexit, then the above should not be a concern, and if your clients don't want to deal with a "non-EU" entity you can just open a company somewhere in the EU and carry on as normal.

      2. McToo

        Excellent point!

        There's a lot of recruiters pinging me directly on LinkedIn for contract positions on mainland Europe. Having HMRC essentially pay me to move there would be the icing on the cake.

  5. Pascal Monett Silver badge

    So HMRC basically wants everyone to be employed

    I'm sure that's a great thing, right ? All the government contractors that are going to disappear are going to have to replaced by somebody, and that means hiring, right ?

    Oh but, the government doesn't have money to hire anyone ?

    Well then HMRC is basically putting a halt to every IT project there is in the UK. Well done !

    1. Aristotles slow and dimwitted horse Silver badge

      Re: So HMRC basically wants everyone to be employed

      Kind of. What both GOV and the banks will do is what they always do, they'll just outsource to their cronies at Capita and PWC etc. who will in turn outsource to their own cheap internal teams, or the lowest SI bidder i.e. Wipro or HCL etc. etc. and then end up paying more out of the coffers in the long term dealing with the endless CR's and commercial / technical fuck ups that these companies consistently engender.

      Then in a couple of years when the PAC starts to get on the Governments back about even MORE costly and delayed projects they'll all start to moan about there being a high-tech skills shortage in the UK and blame the education department, immigrants and poor people. Anyone but themselves and their short term-ist views on things.

      1. The Oncoming Scorn Silver badge
        Coat

        Re: So HMRC basically wants everyone to be employed

        Which is roughly what happened at GSK, when I was there we were already outsourced via agencies to ComputerCenter & in turn working for GSK*. So I am not sure how they are going to work that one other either make everyone permy at CC** or GSK

        *We were treated as "In-House staff" by the IT Manager, who frequently told CC account managers to leave her guys alone, if there is a issue she will deal it & instead of hot desking on their site visits & why didn't they do something more useful like f**k off & play golf. Then alas the "In-House" part of IT Support was passed over to CC & after one "Procedural e-mail" too many I sadly looked for a job closer to home.

        **Or whoever has the IT outsourced contract now

    2. Anonymous Coward
      Anonymous Coward

      Re: So HMRC basically wants everyone to be employed

      Hey friend, it's me, Pap-ita. I hear that someone influenced the government into getting rid of contractors. I can't speculate as to who did that or anything. But just so you know, we at Pap-ita can solve your IT problems! And the markup will only be an extra 40% to pay all our directors! Don't worry, we get extra savings by hiring mostly junior guys and underpaying them.

      I get it, we sometimes screw up and tank/delay massive projects. But don't worry because the taxpayers will pick up the slack! So rest assured we'll be here dodging liability to help you even if things to t/u.

      Your best friend,

      Pap-ita

  6. Anonymous Coward
    Anonymous Coward

    Is that number right?

    There are "121,989" contractors in the UK. I had assumed that the contract market was larger. Ot should that just jave been employed by Public Sector organisations - which would make more sense to me.

    Otherwise this makes IR35 seem even more to be a sledgehammer (and an inaccurately swung one at that) to crack a nut.

  7. Outer mongolian custard monster from outer space (honest)

    And in other shocking news, bear found defecating in woods.

  8. Will Godfrey Silver badge
    Unhappy

    Story time

    Someone should tell HMRC the one about the goose that laid the golden egg.

    Actually, I can think of a few other groups that might benefit from it.

  9. pseudonymous

    So all of a sudden it's problematic?

    Amazing how the big corps have just decided that they may be enabling transgression of the spirit of the law after years letting the little guy on the other side of the contract worry about it.

    1. Roland6 Silver badge

      Re: So all of a sudden it's problematic?

      Well from my viewpoint, I wonder if some of these companies actually do have intelligent people in positions of power.

      One of the big problems I see is the mindset needed to manage permies and contractors. IR35 effectively means the same piece of work needs to be packaged differently (if it is possible) depending on whether it is to be assigned to a bona fida contractor or to an employee. I can see an intelligent company deciding that expecting managers (typically employees) to handle this complexity is an unnecessary burden; given the potential penalties.

      1. Mike 137 Bronze badge

        Re: So all of a sudden it's problematic?

        It's suddenly problematic because many contractors such as myself actually deliver specialist short-term services to fulfil particular needs (e.g. managing complex projects with time limited delivery). The new rules allow an organisation to consider all contractors as within IR35 regardless of the actual nature of the contract or the activities performed, so such specialists will lose heavily.

        Agreed, there have been and probably still are long-term workers classified as "contractors" performing an essentially employment role (e.g. taking orders from a manager), but the blanket right of the end client to classify everyone the same as within IR35 is the big new problem.

        1. Anonymous Coward
          Anonymous Coward

          Re: So all of a sudden it's problematic?

          Well, at my current job there is a particular contractor that takes part in sprints, etc, like everyone else.. but before he takes part on a project, we have to agree on the terms with him.. and sign a contract about it.

          Does he take orders from the mgnt? not really, he is part of X squads.. on a contract by contract basis.. not sure he is IR35..

          1. d3vy Silver badge

            Re: So all of a sudden it's problematic?

            The whole "Direction and control" thing is a big grey area as far as developer contracts are concerned, at least that's whats come up in every contract review Ive had.

            Yes, I'm contracted to deliver a specific piece of work (Good)

            But I have to regularly report progress (not so good)

            And the client may impose some rules about how the work is done (language, frameworks etc) (Also not so good)

            And they might also have me working in a team where the focus/part of the project we are working on may change frequently (also not good)

            But Qdos seem to be of the opinion that this isn't as bad as it sounds as its expected of contractors working in development teams to work in this way - same goes for supplying your own hardware and software, if you can great but if you cant its not the end of the world as its a valid security concern for the client.

            And this is part of the problem, clients now get to make the decision as to whether a contract is inside ir35 or not... are they going to pay the money for the reviews and understand the nuances of the working practices OR are they just going to put everyone inside to be safe?

  10. d3vy Silver badge

    I'd be interested in knowing the % that have gone through an umbrella and have gone permanent.

    On the face of it there might not seem like much of a difference but going through an umbrella will mean that contractors remain on a higher day rate than if they took permanent roles... Going perm in most cases means a reduction in gross pay.

    The reason that its important to make this distinction is that (as we have been saying from the outset) if a significant number of contractors end up going permanent the tax take for HMRC goes down....

    If enough contractors go perm HMRCs big claims of £4bn additional tax by 2022 (I think that's what they claimed) will be even more of a wild fantasy than they were when they originally pulled the figures out of their collective butts.

  11. This post has been deleted by its author

  12. Zebad

    Real world example...

    I have worked under a variety of contractual conditions - direct client contracts and through agencies, both within and outside the public sector.

    I worked a few years ago at 'public sector org', outside IR35, the rate was X/day.

    They struggle to find the right people with the right skills (both contract & perm), so I was asked if I would return on a number of occasions.

    The last time they approached me, was after their bean-counter+legal types had decided that *all* contracts would be inside IR35, regardless of circumstances. I did the calculations and worked out that to achieve parity with the previous (outside IR35) rate, an inside IR35 rate would need to be 1.4X - I put this to them, expecting it to be rejected as too high.

    To my surprise, they accepted...

    The upshot is that:

    * I essentially take home the same net income.

    * Public sector org has to pay 0.4X extra

    * HMRC collects 0.4X extra in tax, and trumpets this as a 'victory'

    * Presumably:

    - Public sector org somehow either obtains 0.4X from tax-payer money (i.e. what I paid...!) to deal with the higher contractor budget, or

    - Public sector org suffers with an effectively reduced budget

    In effect, HMRC have taxed the public sector org, not me, and the net gain to 'UK plc' is 0%.

    That's the public sector - the money just goes round in circles. When this lands in the private sector, they have real money to lose if contracts start to fall within IR35.

    My gut feeling is that next April, the private sector will divide into two camps:

    1. The 'bums on seats' contractor users (like the banks already mentioned): These will initially place all contracts inside IR35 in a knee-jerk reaction, and not change their rates (as we see happening already). They may retain some low-end contractors who cannot easily sell their skills elsewhere, but will lose anyone who is any good. Eventually, they will need to either deal with the contracts properly, increase the rates by approx 40% to attract the skilled contractors back, or just stop using contractors.

    2. Organisations who analyse why they need highly-skilled contractors, and bring them in on a time-limited basis (i.e. how it should be done): I believe, after a (hopefully short) period of turmoil next year, that they will tailor contractual arrangements correctly, and these contracts will rightfully be outside IR35. Because it is in their interest to ensure an outside-IR35 arrangement (a 40% saving, effectively), we as contractors will no longer have to battle to ensure that our contracts are outside IR35, end-to-end.

  13. Anonymous Coward
    Anonymous Coward

    LOSS OF TAX

    When the government went against smokers , they did not look at how much tax they would lose

    The same thing will happen with IR35 , so they will take the public is other ways to get the lost money

    1. Mike Pellatt

      Re: LOSS OF TAX

      I suppose I don't need to point out the problem here, as the commentariat is so intelligent,

      but...

      that's not even an apples and oranges comparison.

      It's an apples and lolcats comparison.

      Smokers as a population have horrendous smoking-induced health problems, that our entire society pays for (at least in the UK's healthcare funding methodology). Reducing smoking reduces the health problems too, and that's actually a net gain to the public purse even if the tax take from tobacco products drops (at least in actuarial timescales). Before we even go into "nanny state" arguments.

      The IR35 issue is effectively a self-contained financial one. Even more self-contained when it comes to public sector contractors, as someone further up pointed out. It has no (direct) impacts into other arenas.

      1. NiceCuppaTea

        Re: LOSS OF TAX

        You do realise that the taxation from ciggies more than paid for the the smokers costs to the NHS and then some right?

        You also realise that people dieing earlier due to smoking saves money through not paying out pensions and old age care related expenses right?

        1. BebopWeBop Silver badge

          Re: LOSS OF TAX

          A wee bit more complicated than that, as it (a) does not account for significant reductions in work through illness/incapacity (b) the significant effects on non-smokers of 'passive smoking' (c) improvements in health care that keep people, expensively, hanging on through pensions and care systems. But if you have all the numbers please do share them, I would be intrigued to know (genuinely)

    2. Sir Runcible Spoon Silver badge
      Paris Hilton

      Re: LOSS OF TAX

      Does anyone know what happens to the VAT for these inside IR35 contracts?

      1. d3vy Silver badge

        Re: LOSS OF TAX

        Depends.

        If they go through an umbrella then the umbrella company will charge the client VAT and then pay it to HMRC - the contractor wont have to deal with it.

        If they are PAYE with the client then there wont be any VAT because they will in effect be employed.

        The only time VAT applies is if they are outside IR35, working through a LTD and that LTD is VAT regirstered

  14. John Smith 8

    Just wait until April 2020...

    Then the shit will hit the fan. That's my clocking off time (actually, March 2020, my contract runs out then). Around a 40% rise needed or, a 25% if they pay for my expenses (another thing to be taxed at source, I spent 1K per month). Then all the NI costs will in effect be a substitute for my holidays and pension.

  15. Anonymous Coward
    Anonymous Coward

    "Earlier this month Barclays told contractors that "as a consequence" of IR35 it "will no longer engage contractors who provide their services via a personal services company, limited company or other intermediary"."

    "Lloyds..."

    RBS have also advised their existing contractors of a similar plan, with all existing contracts finishing by 28th February 2020

    1. vulture65537

      > contracts finishing by 28th February 2020

      Did they not notice the leap year?

      1. Big_Boomer Bronze badge

        Check before you comment :-)

        29th Feb 2020 is a Saturday! :-)

  16. SimonC

    TBH I think much of it is knee-jerk reactions from big companies particularly banks. The agents are becoming wise to IR35, finally I have statements of work and QDOS et al approved contracts from the getgo instead of having to explain to a confused agent what IR35 is and why I can't simply sign this contract.

    I reckon the agencies will come up with a standard procedure to adhere to the stricter assessments, and the companies will follow suit, then it'll all blow over.

    Where there's a will, there's a way.

    I could be wrong though, so we'll just have to wait and see...

    1. d3vy Silver badge

      Very much what I've said.

      It just needs clients to actually understand what they're doing and engage us as contractors rather than trying to treat us like perm staff.

POST COMMENT House rules

Not a member of The Register? Create a new account here.

  • Enter your comment

  • Add an icon

Anonymous cowards cannot choose their icon

Biting the hand that feeds IT © 1998–2019