Worst case scenario

[WordIsBond]

"Those who engage a worker through a PSC would need to consider whether or not IR35 applies and, if so, deduct the correct amount of tax and NIC's as they would for direct employees"

This is perhaps the most insulting part of the whole thing. They are saying you aren't a business and you don't even have the right to plan and make decisions. For instance, you can't decide your business will make pension contributions.

I could live with it if they say engagers have to declare / report a contract as inside or outside, and that engagers are held liable if they report it outside and it is found inside. It would be an additional reporting burden on engagers that they won't like. But at least it would still allow us, within IR35, to make SOME decisions as to how we are going to operate. And if a client decides to play it safe and declare everything inside, well, I'd expect a higher fee. Why should I earn less (net) because the client wants to play it safe? Fair enough, I can live with that scenario.

But if I can't even mitigate the damage by making pension contributions, because the client is operating PAYE on everything they pay my company, then I'm looking for an even higher fee.

To me, this is the worst case. It means employee and employer NI will be paid on my pension contributions. As a general rule, I don't work on site. So the expenses thing, which is reprehensible, won't hit me personally very much. And I'm in a position to be able to tell clients they are going to pay for it if they throw me into IR35. But if they actually force me onto client payroll, it's going to cost a lot. Think both employee and employer NI on £40K.

And I can't imagine that this will sit well with clients, either. They have to put someone on payroll for three months, or six months? Get P45s? Deduct the 5%? Etc? Engagers will hate this. They want someone to come in, do a job for a few months, get paid well for it, and then go away. They don't want paperwork, payroll, etc, etc.

This is yet another "idea" that hasn't been thought through. Idiots.

If they weren't idiots, they would recognise that their dividend tax has significantly reduced the difference between being inside or outside IR35. So there is a lot less incentive to cheat on it, and a lot less to be gained by doing stupid things that cost businesses even more red tape and reduce their flexibility even more. When you are already bringing IR35 in by the back door (dividend tax), it's stupid to break down the building to try and force it through the front door.

[Guesstimator]

I was under the impression that the end client would not have to do anything other than declare to hmrc that they consider you inside ir35?

From that point on, Hmrc now have everything they need to tie up the loose ends on what should have been paid PAYE/NI from the engager (via the new reporting requirements) and what the limited company actually paid via rti

If the end client does have to take on the burden then I can certainly see that creating an issue with them.

[SueEllen]

Carry on, everyone will have to make their own decision. Those who live and contract in and around London will probably be impacted the least as they wouldnt have far to travel to find work while those of us out in the sticks regularly have to travel an hour or more each way.

Just my opinion though.

You seriously have no clue.

Those who live in London and the SE regularly do hour or more commutes whether they are contract or permie. The only people who tend to refuse to are temps.

Getting rid of expenses would mean that everyone in London and the SE is on a same footing, which is what the government wants.

There are permies who spend 4-6K on a annual travel card travelling into London from the home counties. So as far as the government is concerned why should we not pay the same?

The fact that our contracts aren't annual and so may end up in a different part of the SE 3 months later maybe something to do with it.

[Danglekt]

So can anyone do any rough maths on income impact of it all if worst case kicks in?

Thats what I was interested in in starting the thread, but I've not seen it yet.

Interesting about the PAYE deducted at source - scuppers any income planning for lean months too which is a big pain. So much for taking a year off at some point

[expat]

If the changes to IR35 go through as they stand in the discussion document it could be the end client that's liable for PAYE taxes if the contractor is under SDC so they'll definitely take notice:

"Those who engage a worker through a PSC would need to consider whether or not IR35 applies and, if so, deduct the correct amount of tax and NIC's as they would for direct employees"

Yes, that is literally The End Of Contracting. Which is probably what they want: the "flexible workforce" can be achieved by "flexible" employment, there is no need for people making their own decisions.

You certainly can't expect to make anything like contract rates on this plan, you have the engager's managers, Admin, HR, Payroll dept, H&S, Legal, and shareholders to support. Just look at the difference between large vendor billing rates and their employees' salaries: that is what is in store.

Expat in glass-almost-empty mode.

[expat]

So can anyone do any rough maths on income impact of it all if worst case kicks in?

Thats what I was interested in in starting the thread, but I've not seen it yet.

Interesting about the PAYE deducted at source - scuppers any income planning for lean months too which is a big pain. So much for taking a year off at some point

Take your annual turnover, e.g. 400/d 20d/m 10m/y = £80,000.
Guess expenses 1000/m = £10000.
Leaves £70,000, plug that into the non-IR35 option of an IR35CALC site.

Start again, plug £80,000 into the IR35 option, then take off expenses.


I tried one site, couldn't specify 10m/y so I just said this to get a ball-park figure:
Outside IR35, £350/d (i.e. after expenses) ==> Net monthly = £4611.
Inside IR35, £400/d (i.e. before expenses) ==> Net monthly = £4080. Less expenses = £3080.

[ShandyDrinker]

If you go full IR35 salary-only, you won't have to worry about the dividend tax.

Expat in glass-half-full mode.

While this is an option, I think for many it will be the difference as to whether contracting is commercially viable or not.

Yes, that is literally The End Of Contracting. Which is probably what they want: the "flexible workforce" can be achieved by "flexible" employment, there is no need for people making their own decisions.

You certainly can't expect to make anything like contract rates on this plan, you have the engager's managers, Admin, HR, Payroll dept, H&S, Legal, and shareholders to support. Just look at the difference between large vendor billing rates and their employees' salaries: that is what is in store.

Expat in glass-almost-empty mode.

Unfortunately I think this is the more likely end game of the successive governments. Why have contractors and the like when you can deliver the flexible workforce by neutering the unions, reducing workers rights, having zero hours contracts and so on. Essentially everyone becomes a contractor anyway without the benefits of being permanent.

[eek]

Take your annual turnover, e.g. 400/d 20d/m 10m/y = £80,000.
Guess expenses 1000/m = £10000.
Leaves £70,000, plug that into the non-IR35 option of an IR35CALC site.

Start again, plug £80,000 into the IR35 option, then take off expenses.


I tried one site, couldn't specify 10m/y so I just said this to get a ball-park figure:
Outside IR35, £350/d (i.e. after expenses) ==> Net monthly = £4611.
Inside IR35, £400/d (i.e. before expenses) ==> Net monthly = £4080. Less expenses = £3080.

That's not right.

Using the CUK site on £400 a day, £10k expenses, £10k wage


Outside IR35 net monthly income: £6,452 with expenses paid.


Inside IR35 net monthly income: £4,288 with expenses still be paid.


with expenses included
Gross income
outside £6452
inside £4288


after expenses
outside £5619
inside £3455


Note the very slight difference in take home (after expenses pay)...

[expat]

That's not right.

Using the CUK site on £400 a day, £10k expenses, £10k wage


Outside IR35 net monthly income: £6,452 with expenses paid.


Inside IR35 net monthly income: £4,288 with expenses still be paid.


with expenses included
Gross income
outside £6452
inside £4288


after expenses
outside £5619
inside £3455


Note the very slight difference in take home (after expenses pay)...

Interesting. Thank you for the correction. I used a different site and I am afraid that I misread the results.

I'm obviously too tired to think straight today, let me just get back to the client's work.

[northernladuk]

I thought the worst case scenario was to get hit by a meteor the day before the IR35 announcement so wiping out 99% of life on the planet and to top it off we find out that we are all hit by IR35 in the announcement.