Member Since: 13th Aug 2015
22nd Feb 2020
I respectfully put it to you that the situation is a lot more complicated than that:
(1) It isn’t generally possible to contract in the UK as a sole trader any more - IR35 and other employment legislation have pushed all agents and big companies into only handling contractors at arms length and always through a PSC.
(2) When working through a PSC contractors have the choice of paying two lots of NI - the one uncapped at 13.8% or taking dividends and paying none. So the majority of contractors have naturally opted to pay a low salary and take dividends.
(3) Since the Dividend Tax was introduced contractors are paying more combined CT and IT than employees which has certainly addressed the issue of missing employees NIC - indeed high earners can be paying more tax than IT and employees NICs.
(4) HMRC seem fixated on the missing employers 13.8% NICs and I assume that the latest off payroll complications to the IR35 legislation are their hamfisted way of accessing this hidden lost revenue. If we go back to the time when big employers were laying off their staff and bringing them back as contractors, it’s hard to be certain how much, if any, of these employers NIC costs were passed to the contractor in the rate and how much retained by the company as a saving. To me it is not reasonable to expect contractors to pay double NI when they are basically self employed so a solution which enabled them to pay a single fair rate of NICs should have been HMRCs objective.
Personally, speaking as a contractor, I believe these off payroll changes are grossly unfair to genuine contractors who have to travel to temporary work locations for projects with no certainty of work beyond the usual month’s notice in the contract and with significant expenses incurred to be at the client site for the months required. From my perspective being taxed on say £120k earned during a good year, first taking off the 13.8% employers NI and then taxing through PAYE as though I am a permanent employee despite having none of the benefits or certainty of employment, crowned by expecting me to pay my own expenses to be temporarily in London, Manchester, Aberdeen etc. is too much. On the back of an envelope I can see £120k reduced to £40k on a London based job (I live in the North East) and this is just not possible for me. I will be either looking for that £50k permanent job in the North East or hopefully, Brexit permitting, working exclusively in Europe and paying my tax there.
In the UK we have gone from being one of the best places to be an independent to one of the very worst. HMRC aided and encouraged by successive governments have really killed the goose which lay the golden egg this time I fear.
10th Feb 2020
Of course we have yet to see how many contractors will feel they can afford to contract in the UK from April.
The prospect of being remunerated as a temporary employee without benefits and on the assumption that an endless stream of work is available so it’s reasonable to tax as though the income earned on a contract is continuous is not an attractive one.
Not to mention no possibility of claiming business travelling expenses and the (to my knowledge) as yet unclear issue of where the employers NI will land.
In my view those implementing this kind of poorly thought out “one size fits all” legislation do not deserve to be crowned with success or indeed to reap the supposed financial benefits that their simplistic spreadsheet modelling predicts.
I for one will be doing my best to work outside the UK from April onwards!
7th Feb 2020
When training to be an accountant,
I recall being told by one of the lecturers that the actual reason Mike [***] was expelled from the ICAEW was failure to keep up his professional subscription - nothing to do with his unethical mercenary activities! It raised a laugh in the classroom at the time but whether it is true - who knows?
16th Sep 2019
I agree in general with your point but I’m not sure whether any contractors are working through a PSC to avoid employers NI. I believe this was an initial reason why so many large companies transformed employees into contractors in the late 1990s and early 2000s but this was saving the large company money not the contractor.
It is this implicit wrong assumption that seems to underlie much of HMRCs efforts in this area. If this latest IR35 amendment goes ahead as planned they will now be taking employers NI out of the contractors’ remuneration when it was never there in the first place!
I expect there are many contractors like me who would be happy to pay a single NI charge just as sole traders do but of course are not happy to pay the employers NI across all income from their PSC when in fact that element of remuneration is not there in the rate but is a saving made by the large companies who from time to time employ us on their projects.
16th Sep 2019
I don’t understand what you mean when you say that “IR35 is long overdue”. This ill considered legislation has been around for a couple of decades - this is merely the latest lazy attempt at making it work as HMRC believe it should.
If a contractor is really effectively an employee working for years at the same client then I agree that they should be treated the same but that would include getting all employee benefits as well as paying the same taxes. However this seems to be a situation which HMRC already have full power to identify and tax accordingly.
One of the biggest problems with this latest bright idea is that it means genuine self employed contractors who travel from one short term assignment to another will be unable to claim their business expenses, which can be very significant. For me this is an absolute non starter.
HMRC already solved the supposed employee/contractor tax difference with their poorly thought out dividend tax in 2017 - anyone forced to use a limited company as I am (the unintended consequence of earlier HMRC IR35 efforts) now pays 6% extra on top of income tax across all their dividend income.
I’ve contracted in the UK and Europe for the last 20 years navigating through the increasingly onerous tax legislation. Brexit permitting; I will only be taking work in mainland Europe from next year and paying taxes in whichever country I am temporarily based. I do hope that HMRC have factored this kind of reaction into their cost benefit case.
31st Aug 2019
Presumably these new rules can only apply to UK based clients however the option of easily working abroad for a few months looks about to disappear.
Given the likely situation with Brexit and the fact that historically I have had more work on the continent than in the UK; I fear I will now be forced to exclusively look for projects outside the UK. Almost certainly this will mean the headache of having to deal with a new foreign tax regime every year or so but at least I will be able to claim the business expenses which are so critical for a one man band to survive.
I have contracted through a UK PSC for nearly twenty years but the constant messing around by HMRC has finally overstepped the mark. In my view, they are just about to kill the goose and they richly deserve the drop in tax revenues I earnestly hope they suffer as a result of this final poorly thought out policy.
It’s ironic that when I started contracting, I was most anxious to avoid being assessed as economically resident in countries like Germany, France and Belgium because of their relatively high taxes; whereas now, on the verge of leaving the EU bound for God knows where, HMRC has finally managed to turn the tables and make anywhere but the UK look more attractive to a UK contractor from a tax perspective. You literally couldn’t make it up!!!
As an aside; I have appreciated the opportunity to share my feelings on this catastrophic policy over the last few months with the generally receptive and sympathetic audience on accounting web - no point whatsoever in writing to my MP or even less worthwhile - HMRC!
31st Jul 2019
Even HMRC understand that self employed people won’t move house for a short term contract.
I have worked all over Europe in the last 20 years on short term projects for large companies. I live in the North of England and these jobs usually involve travelling and living somewhere near the client for a period of time - generally three months upwards. These roles are nothing like employment. There are no benefits, no certainty and invariably there is a very short notice period. What starts as a three month contract might with luck eventually become a year or two but it is impossible to plan as the reason the clients want contract resources is for flexibility and specific skills which they don’t need all the time.
It can be quite frustrating when people who often know nothing of the sacrifices involved in this itinerant contracting lifestyle speak as though it’s just like a normal 9 to 5. It absolutely isn’t.
31st Jul 2019
I’m not sure you are completely right about this.
More or less since the inception of the Internediaries legislation no UK agent or client will engage a contractor unless they have a limited company. I initially contacted as a sole trader direct with a client in Germany back in 2000 but since then any role which has involved a UK agent or client has mandated the use of a PSC. I tried to revert to sole trader status a few years ago when the dividend tax came out but my agent would have none of it. The contractor is just the weakest point here with almost zero leverage when dealing with these large companies and HMRC.
Unfortunately this latest development has far more at stake than the previous IR35 setup as my reading of the proposals is that it will be very difficult to claim any expenses in this scenario. From my perspective living in the North East and having to travel long distances for UK work this would rule out any UK assignments. This means that I will be focusing exclusively on European mainland opportunities from next year. Post Brexit this is likely to mean paying tax in the country where I am working from day one. If many others follow this approach, the consequences for HMRC would seem to involve a loss of revenue rather than the gain they are boasting about.
15th Jul 2019
What a disaster - HMRC has paid no heed whatsoever to the very justifiable concerns raised by contractors; the fact that it will not be possible to claim expenses, the lack of any benefits in return for this temporary employee status and that they already dealt with the perceived tax avoidance by the introduction of the Dividend Tax. And what a great time to smash the UK contracting industry just as Brexit looms. I will regrettably be moving the focus for my contracting to continental Europe and paying tax in whichever country I am working from the inception of these rules.
22nd Mar 2019
I completely agree and of course working any way other than through a limited company is rarely an option for independents these days ironically due to IR35.
HMRC's massively simplistic one size fits all approach which seems to be predicated on the assumption that everyone using a limited company is doing it to avoid tax and to mask actual employment is a disaster.
In my experience in the IT contracting industry there are many who are nowhere close to conforming to that stereotype. Indeed a combination of circumstances including the very significant competition for work from outsourcers, the constant turning of the screws by HMRC (IR35, Dividend tax, off payroll working, effective abolition of VAT FRS etc.) and now possibly Brexit threatens the viability of many small self employed contractors.
Paradoxically post Brexit opting to work exclusively in continental Europe (if possible) and to pay taxes in whichever country the contract is based from day one may sadly prove to be a better tax management strategy than allowing HMRC to destroy one's business.
I truly think they have lost the plot!