You got that backwards: All businesses would rather axe 20% their contractors. At least.
Oh yes, and nobody likes taxes, I wonder why?
As many as 20 per cent of UK businesses are axing contractors completely in order to ensure they are fully tax compliant ahead of IR35 changes next year, according to a survey. Recruitment consultancy and IT outsourcer Harvey Nash interviewed 350 businesses employing a significant number of IT contractors. It also found that …
Totally right. Many people would rightly like to get rid of contractors... because they are expensive. You only take on contractors if you have a clear and present need to get stuff done urgently. And contractors will "get things done", as they know they generally won't be kept around unless they are adding value.
Oh, and when business slows down you don't have to think about redundancy payments, you just shrink your contractor workforce. No hard feelings, and thanks for all the fish.
And contractors will "get things done", as they know they generally won't be kept around unless they are adding value.
That's the idea but that's not the reality. There's two types of contractors - those that have a very strong skillset and can get things done quickly, and the second type which basically can't hold down a permie job. In my 25 years experience, the latter vastly outnumber the former.
Those with the skillset are usually extremely good to work with and would be able to command even higher rates were it not for the latter type soaking up so much cash.
Oh, and when business slows down you don't have to think about redundancy payments, you just shrink your contractor workforce. No hard feelings, and thanks for all the fish.
Not very likely in finance. What we do is cut rates by 10% thereby keeping all the output but trimming the input costs. There's an exceptions list usually for each managers best contractors, but you can only put one or two names on it so you have to be choosy.
There's two types of contractors - those that have a very strong skillset and can get things done quickly, and the second type which basically can't hold down a permie job. In my 25 years experience, the latter vastly outnumber the former.
I agree with your two types, but in my experience the former vastly outnumber the latter. There's a good reason for this: movement.
Whereas a permie can settle into a position and stay there for years, most contractors move on every few months. They then have to "sell" themselves to the next client. If they did a bad job for the last few clients, they won't be able to provide positive testimonials or references. Agencies will start black-listing them. Gaps will start to appear in their CV. Added to which, they are likely to meet contractors from previous clients, who will let their client know about previous experiences with them.
On top of all of this, if the work is not getting done the client can get rid on the spot.
In my experience, "bad contractors" don't continue contracting for very long. They are fairly quickly found out and struggle to find any more clients.
There's two types of contractors - those that have a very strong skillset, get things done quickly, prove their worth and get their contracts extended (If they so wish to stay) with a company\client that doesn't wish to hire a permie staff member & the second type which basically can't hold down a contract or a job.
In my years of experience, the former vastly outnumber the latter.
Icon - As people will be leaving voluntarily or involuntarily due to IR35 & despite being on the other side of the pond my colleagues & I have just been given 3.5 months notice of our redundancy in the name of cost cutting.
There's a 4th type. That enjoys the job, enjoys the people, is good, wants to stay but cause of bullshit politics gets pushed around for 7 years contracting in the same role despite asking for a perm role. Then suddenly gets dropped due to more bollocks politics. And in all those years never got these high contractor wages people talk about.
Yes I was stupid for staying but when you like the place and people its very difficult to start all over again elsewhere.
Now a perm somewhere else and treated a lot fucking better.
"Many people would rightly like to get rid of contractors... because they are expensive."
That is often stated as being the case, it isn't necessarily true. Yes, contractors outwardly appear to get more than a permie, but the cost to the business is almost exactly the contractor's rate (plus the recruitment agency's pound of flesh in most cases) whereas a permie also costs the business in NI costs, business insurance, pension contributions and so on
Recent experience from a large tech. company:
Assume engineer on a salary of £50k ~£200/day
Overhead 120%: day rate £440/day.
Overheads are the pro-rated costs of various functions that don’t book to projects (HR, Accounts, IT support, functional management) plus running costs (facilities, rent, utilities, insurance, etc.), holiday pay, sick pay, pension costs, marketing/bidding costs, etc.
So when costing a project this engineer would cost the project £440 per day.
This company loads zero overhead on contractors - mainly because it has tight rules on how they can be brought in - they really have to be specialist and short term - so a contractor charging £500 a day wouldn't be costing a project much more than a senior engineer.
Many companies charge a reduced overhead on contractors, but when the sums are done, and when easy management and offload are taken account of, even higher rates can look OK to companies compared to having to recruit, onboard, manage and sack permanent staff.
Understanding these issues, and discussing them with clients, gives options for bidding and winning work. I've got a breakdown of my company's running costs, including pension/sick assumptions, that I can share with clients who baulk at my rate. I've won work by submitting fixed price against a set of well-defined deliverables because the client couldn't sell my day rate internally, even though the fixed price was more than it would have cost them on day rate cos I built risk into it. This latter approach also gives flexibility because it means you're not being paid by the day, so don't have to be on site to show your face unless really necessary.
IR35, however well, badly or stupidly implemented is going to make life at one end of the contracting business much more difficult. Long-term gigs where you become part of the furniture through the "house" agency for a decent whack are already disappearing. If you want to continue contracting then I think that the answer is to move up the food chain by ensuring that you maintain a set of skills, experience and attitude that companies value enough to pay a premium for.
"Oh, and when business slows down you don't have to think about redundancy payments, you just shrink your contractor workforce. No hard feelings, and thanks for all the fish."
I agree 100%. Seasonal business will be hit pretty hard. So will companies that hire in expert help for projects.
Some time ago, a friend that was the engineering manager at an aerospace company I worked for talked about forming a loose "company" to bid on technology contracts the US government puts out from time to time (SBIR and similar). The idea would be to have a minimum core group of people and a pool of engineers that would be brought in to perform the research/engineering to fulfill any contract awards. In essence, the vast majority of the workers would be outside contractors. You don't want to have to pay redundancy to a room full of rocket scientists.
Because they are expensive
Total rubbish, if you think hiring a professional is expensive try hiring an amateur!!
Next time you see a day rate you think is too high, phone your plumber and ask what he charges.
I reapply for my contract every 3 months, when did you last reapply for your job ?
Finally if you don’t like contractors then just refuse to work with them, your company will appreciate your honesty and flexibility.
I am sick of people playing down the skills of contractors, if your employer thought YOU could do he wouldn’t need us.
"There is a fear that such a move could land them with a retrospective tax bill as HMRC may view that as an admission that they ought to have been paying higher taxes previously."
That's the nub of the problem. In the absence of clear guidance from HMRC, no contractor would want to risk staying with the same client and moving from outside to inside IR35. Consequently, there will be a huge game of musical chairs over the next few months as most contractors try to find new clients. It will be massively disruptive to business.
Anecdotal evidence only, I know, but from a few contractors of my acquaintance it would seem that it's mostly large organisations, with significant numbers of contractors currently, who have made the decision not to hire (IT) contractors at all and run down existing contracts. It's not just the contractors who are concerned about risk.
Seems pretty dumb. If those contractors weren't adding value in the first place, then why did you have them? If they were adding value, then who's going to do that going forward? If you could have found perm people and you were willing to pay them enough and treat them well, then you probably would not have needed the contractors in the first place.
If you could have found perm people and you were willing to pay them enough and treat them well, then you probably would not have needed the contractors in the first place.
It could be that some orgs judge that the value of clarity of tax liabilities justifies a higher perm salary which can now attract the right candidates for a position that would previously have needed a contractor.
Also, as almost all business decisions are capricious and stupid so it may just be a category error to attempt to deduce the reasoning.
There is apparently this thing that business has with the size of the salary line in the budget sheet - they like to have that minimized, for some unfathomable reason. So they don't hire, but take on consultants because those guys go under operating costs, or some other bull like that.
I will never understand the reasoning behind that. I would prefer having the talent in the company, ensuring that, when things go wrong, I have the people who know how things work on-site and ready to intervene, and that in the long term.
I'm obviously not modern CEO material
Probably a bit more subtle than that in some cases. The magic number isn't salaries it's "head count". If a business can tell the stock market they're reducing head count by getting rid of X,000 staff the wise heads in the stock market nod approvingly, stock price goes up and so does the value of manglements' stock options. Of course the work still has to be done so the redundant staff have to be replaced.
In other circumstances things are closer to reality. Work load isn't constant. To some extent a manager can smooth that out by deferring some work at busy periods but not entirely, especially if an important project comes along when everybody's fully committed. There's also the factor that staff availability isn't constant; people go on holiday [mp]aternity leave, get sick, retire, even die. Nobody's going to be able to staff at such a level that even minimum staff availability leaves enough bums on seats to cover peak demand. The flexibility of contract staff evens things out.
There's also a few cases where someone only needs particular expertise for very short periods at widely spaced intervals: I had one client where it was a matter of visiting for a day every few months - and occasionally dialling in to sort them out when they had an urgent mess.
"There's also a few cases where someone only needs particular expertise for very short periods at widely spaced intervals: I had one client where it was a matter of visiting for a day every few months - and occasionally dialling in to sort them out when they had an urgent mess."
This scenario would not be IR35. That is exactly what self-employed consultants are supposed to look like.
"This scenario would not be IR35"
Are you sure? There seems to be plenty of people out there who aren't, and that's a big partof the problem. It should be clear cut and easy to decide, but it isn't. Even the people making the rules don't appear to understand them.
Indeed it is not. But if you have an office full of a dozen consultants that are there every working day of the month for a "project" that is planned over two years (a scenario I have seen repeatedly where Sharepoint is concerned), then I think you're going about the hiring process in the wrong way.
In France or Luxembourg, I would publish a time-limited contract for one year, renewable twice, and advertise the job to be done. That is perfectly legal and, when the project ends after it is finished in the allotted time (yeah, I'm dreaming, but humor me), the participants go away and leave copious documentation for those in charge of maintaining the beast (again, humor me).
"Seems pretty dumb."
We're talking about management of large businesses here so are you surprised?
The contractors are being taken on by people working at the sharp end. The decision is made by people .... let's say not so sharp.
What's likely to happen is that either by April the word will have got back that those contractors are going to have to be kept on or, if internal communications are slower, sometime after April the word will get back that they're going to have to be got back.
As the article says clients are going to have to work out how to ensure the conditions are kept clearly outside IR35, something they should have been doing all along.
I work a lot in the SME sector, where the problem is slightly different. Good IT people, especially sysadmins and managers, are expensive, and if you want them on the payroll you will need to be finding north of 45-50K. But that level of salary will often put them above senior managers or even directors in a typical SME, which gives them an implicit seniority, because seniority is reflected in salary. It's simply not appropriate for a company to pay someone a board-level salary for doing a mid-level-management job.
And there's a parallel problem in the public sector, eg in schools, where the network admins can't be even paid as much as the teachers. So you get some competent IT folks working for comparatively poor wages because they have a social conscience - and you also get some school networks run by muppets who know less about IT than your average year-10 student.
When i graduated University, i did 3 months at a school helping out the IT manager. It was great secops training. My favorite rule was no deliveries accepted between 2:45pm and 3:45pm. More than one lorry driver has been seen chasing kids with boxes down the street.
I beg to differ with you on one point:
>It's simply not appropriate for a company to pay someone a board-level salary for doing a mid-level-management job.
It's perfectly appropriate to pay skilled staff more than board members in the right situation. Management is a skill set in exactly the same way that IT is, there are zero logical reasons why a very skilled IT person should not be paid more than an unskilled or semi-skilled manager.
The idea that managers have to be paid more than their staff is a completely artificial construct perpetuated by the fact that those making the salary decisions are often incapable of putting their own ego aside.
Many years ago I worked for one of the large consultancies and had to put together a team of SAN engineers (just as SAN usage started to take off) and I was paid ~£20k less than several of the people i my team because that was the going rate. It didn't bother me and fortunately the company understood what they needed to pay to get the staff they wanted.
Not long after that, while working for another large company who took your view, we were unable to even get an applicant for a senior DBA role in two years because they were offering £25-30k under the market rate. I wish this was an isolated incident, but I know from talking to others that it's not and it's *always* someone higher up the food chain saying "I'm not paying someone who works for me more than I'm on".
Apart from temporary skill gaps, there are two other key reasons why companies will take on contractors rather than permanent staff
1) Dealing with sacking/redundancies will require a good HR department to follow the correct process - but most companies HR department will typically mess up the process.
2) Teams of permanent staff need to have good managers - but most managers are not very good at managing people. It's just easier to to bully and terminate contractors when they don't do what they are told.
In the main, a lot of contractor positions in big companies are due to incompetence within HR and management rather than the technical skills that a contractor brings to the role.
If those contractors weren't adding value in the first place, then why did you have them?
Because it was easier to offload all the extra costs of holiday allowance and health care, etc. to the contractor so that the company just paid for X hours work, as a service.
That's what pisses of HMRC, the use of contractors to bypass tax/NI obligations. Of course, competent contractors would be arranging all such things through their own company and charging appropriately, but many don't, either because they think it makes them seem too expensive (Duh) or because they're having too much fun raking in the cash & never think about the unexpected or the future (I know many like that, sadly).
In the absence of guidelines from HMRC then the ‘presumption’ is that you should immediately go onto PAYE and how dare you not do that.
Personally speaking as a contractor, I know that you are only employed on a permanent basis in IT until they can get someone cheaper to do your job or you can automate yourself into redundancy, so not a chance.
For FSCK sake El Reg!!!!
"From 6 April 2020, it will be the contracting body's responsibility to determine whether the contractor should fall within the scope of the "off-payroll working" rules, IR35."
NO - ALL contracts fall under the rule, both now AND in 2020. From THIS starting point, a determination is made as to *IF* the engagement is "inside" (i.e. a disguised employment) or "outside" (i.e. business on its own account). the *CHANGE* is that the determination is currently made by the contractor, from 2020, its the engager who makes the determination.
You are the trade press so should know better!
n.b. even this line is an over simplification:
"Those rules state that a contractor doing the same job as an employee should pay similar income tax and national insurance contributions."
"doing the same job" is not just the day to day tasks of getting a task done, the "job" includes the training, benefits and mutual obligations that go hand in hand with being an employee...
A fact often overlooked by the press, jealous permies and even HRMC (as evidenced by their back to back losses at tribunal this week)
Now that the onus is on the company to assess whether the worker falls inside or outside of IR35 and there is no clarity from HMRC about how to make sure the worker is one or the other, companies will have to play safe and either employ the workers or do without.
It seems curious to me that there seems to be a new class of worker who is treated as an employee for income tax and NI purposes but has no holiday, sickness, or pension rights. I'd previously been under the impression that that was illegal under UK and EU law. Maybe this class of worker will become the norm. Unintended consequences, anyone?
"It seems curious to me that there seems to be a new class of worker who is treated as an employee for income tax and NI purposes but has no holiday, sickness, or pension rights"
This is the worst and most dangerous part of IR35. In effect, it allows companies to opt out of providing employment benefits to employees by calling them "inside IR35 contractors".
Being an "inside IR35 contractor" is the worst of all worlds. Extra tax is taken from you, as are many decisions related to running your company, while you get none of the benefits of being an employee (even an employee of your own company).
My view is simple: If a role is really a contract role, it will be outside IR35. If it is inside, it's an employee role and should be filled by an employee with all the rights and benefits thereof. "Inside IR35 contracts" should not exist.
@Dr Mouse: "while you get none of the benefits of being an employee"
If you mean that you don't get pension, holiday pay, sick pay, redundancy pay and protection, etc., then that's only true if your rate doesn't cover the effective cost of those things. That's why contractors' rates are high - to cover sick, hols, pension, professional and liability insurance, marketing, office, phone, IT, banking, transport costs, etc. If your rate doesn't compensate you for all these things, including the extra tax that might be deducted, then you're not charging enough. If your rate does cover all these things but you can't get work because clients think your rate is too high then you're not valuable enough and possibly shouldn't be contracting.
That's why contractors' rates are high - to cover... costs
HMRC & the Government are saying that "inside IR35 contracts" are "disguised employment". This means they are effectively creating a new class of employment which allows the employer to avoid providing employment rights. Whether this is provided with an increased rate of pay to compensate for this is irrelevant: ALL employees are entitled to these rights.
Look at it another way: let's say Asda chose to offer extra pay to their staff in exchange for changing over to "inside IR35 contracts". Many of these workers would "choose" to take the chance on it, not take holidays, hope they don't get ill and ignore the lack of protection against dismissal. This would be very beneficial to Asda, but the employees would be vulnerable. How long before Asda stop taking on employees and only take on "inside IR35 contractors"? How long after that before they drop the pay rates back down?
It makes a complete mockery of the concept of employment rights to allow them to be opted out of. They cease to be rights by doing so, they are purely benefits which an employer can effectively decide not to provide.
"a new class of worker treated as an employee for income tax and NI purposes but has no holiday, sickness, or pension rights"
And this is where it is fundamentally wrong. The responsibility for employment is being split based on the size of company, small companies being split, large companies being ignored.
The "worker" is an employee of company "A" who sell the services of the worker to company "B". It is company "A" who is required by law to ensure all employment laws are adhered to, including holidays, working time rules and all other benefits and conditions. IR35 artificially transfers the responsibility of NI and Tax to company "B" under the assumption everything company "B" pays company "A" for the worker is salary. This is a wrong assumption.
Nonetheless an inital determination must be made by the engager even before offering someone a contract. An IR35 tribunal would take actual working practices in to account, but no contractor is going to accept a contract on the basis of "we'll make an IR35 determination after you've signed the paperwork"
You seem to be missing my point
"Nonetheless an inital determination must be made by the engager even before offering someone a contract. An IR35 tribunal would take actual working practices in to account, but no contractor is going to accept a contract on the basis of "we'll make an IR35 determination after you've signed the paperwork"
Until April 2020 the determination as to whether a role is or is not inside IR35 is up to the contractor to make the engager has no say in it AT ALL. It is currently 100% up to the contractor to do their due diligence, get the contract reviewed and if needed amended and then they can make the determination as to whether they are inside or outside IR35.
The client and the agent have no say whatsoever in this process until April 2020 unless the role is in the public sector.
"we'll make an IR35 determination after you've signed the paperwork"
Is utterly nonsensical as they dont make the determination before, during or after you sign the paperwork.
You get offered a contract you get the contract on offer reviewed, you make your initial determination and then a few weeks in to the contract (assuming you take it) you have the working practices reviewed and make your final decision - in some cases you can get the client to help you determine working practices up front but in reality that's rare.
I just love how HMRC created this rule and then lost pretty much all of their own contractors. I know from a very good source that projects have taken a big hit, some being cancelled etc. Yet another HMRC bod that thought of this to make more money without thinking of the impact on themselves, as well as wider businesses. People who contract are generally specialised and for you to have them work for you, you need to pay their fee's, but once the job is done they want to move onto the next.
It's not limited to IR35 either, apparently HMRC have finally admitted that the tax bill that put Rangers FC in to administration and eventually liquidation was wrong to the tune of £50m. Not a small amount to be wrong by.
In fairness the article says Rangers were still evading tax in excess of £20million, so while an error may have occurred which might have resulted in a different outcome to liquidation, Rangers were still operating a tax evasion scheme. A loan that you never have to repay? That's not a loan, that's a payment, a salary, something that you need to pay NI and Tax on.
At 20% I'd say they're missing out, if your client is selling/providing exempt goods or services (commonly financial services, or government agencies who don't sell anything). Of course, if HMRC are double dipping and still making contractors charge VAT, then they can go spit. The Irish Revenue tried that on over 15 years ago.
Double and triple dipping - somebody please correct me if I'm wrong but inside IR35 you get taxed NI and Income Tax on the gross and don't get any tax relief on pension payments you make which occur after the NI and Tax have been taken off, unlike employees who do get tax relief on pension payments.
HMRC only receive VAT from the end sale to a non VAT registered entity. However that VAT money flows all the way back up the supply chain, as everyone pays the VAT on their sales, minus the VAT they paid on their costs to HMRC.
Maybe it works differently in the UK, but here (and when I was in Ireland, at the time) orgs that don't charge VAT (i.e. supply exempt goods or services) end up paying VAT on their inputs, and there's no claim back.
However, if the UK treats B2B differently to B2C and even businesses charging their customers no VAT can get it refunded from the HMRC instead of their customers, then my comment is wrong.
"In fact they'll often have a loss of VAT, given that many contractors (at least IME) are not purchasing large amounts of goods and therefore use the flat rate scheme."
They changed the rules on the flat rate scheme a few years ago so so that rather being the 14.5% rate any company on the FRS who are classed as "Limited Costs Businesses" * get bumped up to the 16.5% bracket - because of this for most** contractors its better to jump onto the normal VAT scheme and claim the VAT back on all allowable expenses.
* The definition of this is that they spend 2% or less of their turnover on goods.
Just hearing yet another "Points Based System" quote. Not wanting to enter into the snake pit that is politics or immigration, but I do wonder how such systems will be implemented without contractor workforces. The existing PBS system and other Home Office projects were developed due to their unrealistic demands (long hours including weekends and night shift) using contractors [like me]. Normal employees avoided these projects and often refused to work the extra hours for little reward. Unlike other systems this work cannot be outsourced to Indian companies due to the nature of the data.
It is an individual's right to work under a limited company.
What silly HMRC have clearly not taken in to consideration is that contractors earn substantially more and end up paying a lot more tax than similar paye roles because they earn more. What HMRC did was ignore the increase in earnings and resulting tax revenue and came to the conclusion that these contractors pay less tax than they would if they were paye. They are comparing apples to oranges but they can't see it because they are blinded by their greed.
It is very communist to force people out of working for their own companies to working as an employee. What started out as crack down on overpaid contractors in the public sector is now bleeding through in to the private sector.
How many large companies started out as one man company and grew from there, probably most of them. The impact forcing people to be employee's will have on entrepreneurship is not even considered by HMRC because they blinded by their greedy money grabbing ideals.
@Jackr - not my experience. I run a limited company. I pay myself the "director's" salary of bugger all and take the rest out in dividends. Overall I pay about the same tax as I would if I paid myself a full salary - very approximately (corp tax + divi tax) is in the same ballpark as income tax on salary would be if I took it all as salary. What the exchequer loses is employer NIC (12.5%?) and employee NIC (9%?) - which is a fairly hefty chunk of money to lose.
"I have two clients that I work for the same time and HMRC can lick my coconuts."
That might be, but unfortunately that has little bearing on the IR35 situation... come April your clients will be able to decide if your contract with them makes you an employee and subject to PAYE tax on what they pay you. *
* This is of course making many assumptions about what your company does, but for the time being I'm assuming from the fact you're on the reg that its some form of IT services company.
The fact is that all of the skilled workers will go elsewhere and those that are willing to put in place a process to handle contractors outside IR35 (such as insisting they get a contract review and certificate) will have the very best contractors to choose from for projects. Those that put in a blanked PAYE or nothing will get the ones that are too stupid or unskilled to find another contract and so have no choice but to convert to PAYE. I think the banks will just end up with a bunch of mindless droids with all the real thinkers moving on.
I think they will soon wise up when projects start failing and they lose millions in income as they cannot keep up with the competition.
Next year will be interesting.
"have to factor in additional costs of holiday pay, pensions and sick pay."
They can't have it both ways. If we are IR35, we should be entitled to the same conditions as employees, if we don't have those conditions, then we should not be IR35 and taxman should take up the fight with employers, not bully the contractors
I solved this problem, Stopped doing contracting work, closed company and basically gave my clients to another company.
I no longer pay VAT, corporation tax, income tax (cheap lifestyle) or NI.
I know someone else will take on the work I dropped but tax man is not getting another bean from me. Ever.
Assuming that the "Contractors" that you end up with are actually employees of the large outsourcer this is kind of OK in HMRCs eyes as they will be paying PAYE on their salary.
If however the "Contractors" that the outsourcing company supply are each working through their own limited companies then you have exactly the same issue - As the money is coming from your company I'd imagine that they still need to make the determination of IR35 status for those people.
There is no change in legislation apart from doing the IR35 assessment is a mandatory thing. Obviously all the bullshit you can read on the internet is just to scare people and it's why media are used by HRMC to do that.
Obviously all the contractors who work through agencies can sleep well as they are not at risk as they have to be outside IR35 and contract should be written in a way they are outside IR35.
Companies who got rid of contractors made only use this legislation "change" to justify that. It has nothing to do with that change and ultimately they admitted to use contractors inside IR35 by doing that.
"There is no change in legislation apart from doing the IR35 assessment is a mandatory thing. Obviously all the bullshit you can read on the internet is just to scare people and it's why media are used by HRMC to do that."
No, there is a change. The change is who makes the determination.
At the moment it is up to the contractor to decide whether they are inside or not, normally by having a company like QDos review their contract and working practices, if we make the wrong decision and get investigated we have to pay back taxes and probably a fine.
However from April the client will need to make the decision, they are faced with two options:
1. Say the contractor is inside IR35
In this instance the contractor is required to pay themselves their full day rate as a salary with all of the tax liabilities that entails.
2. Say the contractor is outside IR35
In this instance the contractor can continue to operate their business as normal and remunerate themselves in whatever way they see fit (Within the law obviously).
However (And this is the bigger bit of the change that people seem to miss) IF the client chooses option 2 and the contractor is outside IR35 and then gets investigated and HMRC decide that they really should be inside IR35 then the CLIENT is liable for the back taxes not the contractor.
So the client has really two options :
1. Declare the contractor inside IR35 and have no liability for their tax.
2. Declare the contractor outside IR35 and potentially get a bill for many (*MANY*) thousands of pounds a few years down the line.
Which do you think they are going to take? Ill give you a hint... its the subject of the article.
Then to compound the issue the HMRC tools have been shown to be unreliable and they guidance isn't due to be made available until March next year, a few weeks before the legislation comes into effect.
Its an utter shit show.
1. Companies do not need to pay Employers NI, provide a pension, healthcare, or other benefits to a contractor.
2. Contractors can be released from their contract very easily.
3. Contractors are not included in Headcount, therefore, if the company has a "recruitment freeze" they can still use contractors.
4. In an IT Team I can swap out resources as and when I need them, so today I need a developer to work on a new native mobile app, and next month I need a developer to work on a web based app.
5. Contractors are not cheap, but neither are they necessarily more expensive, but when you now add to the already higher day rate: the NI, pension, healthcare and other benefits to a contractor your costs have just increased by 20-30% per contractor, that is difficult to swallow.
6. As with employees you get good contractors and bad contractors.
7. But what is the answer? The only options are to hire permanent resources or offshore, so, businesses need to make a commercial decision - can they afford a further 20-30% increase in costs? Or do they need to offshore and make 20-30% in savings. If it's a pure business decision which would you make?
8. Also from a contractors perspective, accept the drop in pay, get the benefits but choose wisely, because you are not going to be able to just jump from one contract to another in future - you need to find a good cultural fit.
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