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.
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!
There’s a lot to like about this judgement. A small twinkling star on the darkling plain which in recent years has sadly become the backdrop for IT contractors and others forced to work through limited companies to deliver their independent services.
The current market is nothing like that for the majority of IT contractors I fear. You must be thinking back to the glory days of the 1990s! There is so much more competition now from abroad and particularly India. Thousands of jobs have disappeared over the last decade to the internet and these kind of aggressive and poorly thought out measures by HMRC are only likely to make things worse for UK contractors.
Paradoxically contractors have no choice but to use limited companies since the government introduced IR35. No agency or large end client I have encountered will deal with contractors unless they are through a PSC or some kind of umbrella arrangement.
Additionally since the 2017 introduction of the dividend tax, contractors can effectively be paying more tax than an employee since the additional marginal dividend tax rate of just over 6% has no cap.
It is of course generally not the contractor’s choice whether a role is contract or permanent - that’s down to the client. Many contract roles are for specific projects where particular skills are required for a number of months or possibly years. Self employed people have traditionally filled these roles but if these proposed changes are rolled out I see it becoming very difficult to continue, as being temporarily payrolled with PAYE/NIC deducted at source (and no employee benefits) doesn’t seem to leave any possibility to claim the often very significant travel costs which are necessary to perform these short term roles.
In my view the proposed rules are poorly thought out and predicated on the wrong assumption that the average contractor is a long term disguised employee commuting a short distance from his/her home with negligible expenses.
What an excellent idea - at the moment as with other government agencies such as the Home Office, these people seem to be unaccountable to anybody.
Which tax gap?! They were after the poor guy for filing penalties not tax according to my reading of the article.
Nice article; thank you.
Am I correct in believing that if the off payroll rules are applied to private sector this will effectively mean that on a contract where a contractor is assessed as falling within IR35 by their client: (a) the contractor will be taxed as an employee and that tax will be withheld by the client and so (b) the contractor will be unable to claim any business expenses as tax deductible as they will already have deducted tax on gross?
It is this second aspect which effectively destroys the contracting industry in the UK I think. Few will be able to afford to take a short term contract working in a different location if they are unable to recoup their travelling costs and the costs of living in a hotel or apartment during this time.
The overwhelming ignorance of a government/tax authority that push ahead with this approach after already imposing a dividend tax on those forced to use limited companies by their previous intermediaries legislation which more than “levels the playing field” with employees in Philip Hammond’s disingenuous language staggers me.
Please tell me that I am wrong about the expenses!
Given the hammering PSC users are taking at the moment with the new dividend tax, new VAT FRS rules and changes to T&E, I struggle to see the point in HMRC spending yet more time and taxpayers money on this deeply flawed legislation. There now seems very little incentive for any higher rate tax payer to incorporate since it would seem that one is paying more tax operating through a PSC than as an employee now HMRC have "levelled the playing field" as they so disingenuously and inaccurately put it. Of course the unfortunate truth, which again seems to escape those making the laws, is that many of us are forced by agency rules to have limited companies - ironically with the object of protecting the agent and end clients from being assessed as employers under IR35!
I don't think the opinions of people hoping to profit from new technology are a very good basis for assessing its likely impact. Much of this article reads like a sales spiel for technology firms; clearly it isn't a good tactic to tell your clients that in time virtually everything they do will be replaced!
How do the finance professionals under 36 who welcome AI imagine other professionals will be able to get started on the ladder if the entry level roles are being done by machines?
Does Mr Williams who believes that AI will do the number crunching thus freeing accountants up to perform higher value activities such as "analysis and communication" not understand that those things will also be done by AI - in fact it is the ability to analyse, interpret and communicate which identifies a system as being an AI. Mr Williams also asserts that AI is not capable of building relationships or making judgement calls. Not yet maybe but that is certainly the aim of the companies developing it.
If bright, thoughtful individuals like Carney are raising a red flag, we should all be concerned I think.