Worst case scenario

[Danglekt]

Having read a fair few of the threads knocking around, I thought it would be useful to summarise what has been written elsewhere into a worst case scenario for all of us to throw some numbers through and see where it all comes out.

So as I see it these are the bits that MAY impact us:

Dividend changes
IR35 rejig
Expenses changes

Assuming the policy falls through the ugly tree and hits every branch on the way down and next April we are starring down a painful change, what will be the impact on the majority of people who currently operate perfectly fine outside IR35 suddenly getting caught by IR35 or clients who dont want the risk of getting caught up in anything about tax.

Whats the pound and pence impact? My rough maths are:

Dividend is approx 7.5% increase
IR35 would be what? Employers NI and Employees NI?
Expenses would be subject to uplift in line with tax - assuming this would be 40% uplift for most of us in terms of what we need to be pulling out the company as total income.

I'd welcome people refining my assumptions, and giving some additional details.

Be worth slinging my finances through to see what stacks up - not that I am in IR35, or even borderline, but as per the title, this is worst case scenario.

[eek]

You were not subject to ir35 but risk adverse agencies insist that you are under ir35 or not working through them

The worst case scenario (and sadly the likely scenario) is that contracting dies and there are lot of on shoring due to unavailable skills while supply and demand resolves itself

[Danglekt]

ok, I get the "END OF CONTRACTING!" sentiment - but hard numbers - what's the impact?

Surely we each then decide if it's worth carrying on - so for example if I was inside IR35 on my current contract an online calculator says I'd pull approx £4.5k a month after paying nearly half of it in tax.

For some that might still be a better income than working in permie land...

Which is why I am trying to assess the wider changes too - if IR35 counts, then your taking salary so dividend issue disappears, but I think expenses would still be an issue, which would mean 40% increase on expenses (assuming £4.5k PAYE puts me firmly in 40% territory)

Anyway, I'd welcome a discussion on the income numbers rather than peoples views on the impact on the wider market etc.

[BolshieBastard]

ok, I get the "END OF CONTRACTING!" sentiment - but hard numbers - what's the impact?

Surely we each then decide if it's worth carrying on - so for example if I was inside IR35 on my current contract an online calculator says I'd pull approx £4.5k a month after paying nearly half of it in tax.

For some that might still be a better income than working in permie land...

Which is why I am trying to assess the wider changes too - if IR35 counts, then your taking salary so dividend issue disappears, but I think expenses would still be an issue, which would mean 40% increase on expenses (assuming £4.5k PAYE puts me firmly in 40% territory)

Anyway, I'd welcome a discussion on the income numbers rather than peoples views on the impact on the wider market etc.

Hard numbers, impact, surely carry on?

Havent you got your own opinion there?

Hard numbers? If this crap makes it to statute, then, imvho, 99.5% of contractors will be caught by IR35 since it will be virtually impossible to prove you are beyond the 'supervision' of the client.

Impact, will be almost all contractors will not be able to claim expenses, will pay substantially more tax. Will clients increase rates? Why should they, they'll say they are already paying through the nose for their 'contractors.'

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.

[ShandyDrinker]

Hard numbers, impact, surely carry on?

Havent you got your own opinion there?

Hard numbers? If this crap makes it to statute, then, imvho, 99.5% of contractors will be caught by IR35 since it will be virtually impossible to prove you are beyond the 'supervision' of the client.

Impact, will be almost all contractors will not be able to claim expenses, will pay substantially more tax. Will clients increase rates? Why should they, they'll say they are already paying through the nose for their 'contractors.'

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.

^^ What BB said.

For the majority of London based contractors (and by that I mean living within the M25) I think the impact will negligible and be business as usual. As an example, when you consider that 70+% of contract developer roles are based in London (see Developer IT Contracts, Contractor Rates for a Developer), it's only those people living outside of London that I think will be significantly affected by any changes.

Perhaps I am being naive here (I realise I am opening myself up to flaming), but articles such as the following, "IR35 proposal would be devastating, says APSCo" could also be to the advantage of true contractors. In my opinion many engagers pay little attention to IR35 as, quite frankly, there is no comeback for them if they ignore it, only for the contractor and at worst the agency.

[expat]

^^ What BB said.

For the majority of London based contractors (and by that I mean living within the M25) I think the impact will negligible and be business as usual. As an example, when you consider that 70+% of contract developer roles are based in London (see Developer IT Contracts, Contractor Rates for a Developer), it's only those people living outside of London that I think will be significantly affected by any changes.

Perhaps I am being naive here (I realise I am opening myself up to flaming), but articles such as the following, "IR35 proposal would be devastating, says APSCo" could also be to the advantage of true contractors who live in London. In my opinion many engagers pay little attention to IR35 as, quite frankly, there is no comeback for them if they ignore it, only for the contractor and at worst the agency.

Not flaming, just saying.

[LisaContractorUmbrella]

^^ What BB said.

For the majority of London based contractors (and by that I mean living within the M25) I think the impact will negligible and be business as usual. As an example, when you consider that 70+% of contract developer roles are based in London (see Developer IT Contracts, Contractor Rates for a Developer), it's only those people living outside of London that I think will be significantly affected by any changes.

Perhaps I am being naive here (I realise I am opening myself up to flaming), but articles such as the following, "IR35 proposal would be devastating, says APSCo" could also be to the advantage of true contractors. In my opinion many engagers pay little attention to IR35 as, quite frankly, there is no comeback for them if they ignore it, only for the contractor and at worst the agency.

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"

[ShandyDrinker]

Perhaps I am being naive here (I realise I am opening myself up to flaming), but articles such as the following, "IR35 proposal would be devastating, says APSCo" could also be to the advantage of true contractors who live in London.

Not flaming, just saying.

My post was really considering two points, the expenses changes and the IR35 changes.

The expenses changes will definitely be easier to absorb for those with local contracts, thus meaning those that are closest to the majority of contract roles will get an advantage; I know this is a somewhat simplistic view and there are many ways in which the word advantage could be interpreted.

I'm not sure the proposed IR35 changes would be a greater advantage to those living in London than anywhere else.

[ShandyDrinker]

In my opinion many engagers pay little attention to IR35 as, quite frankly, there is no comeback for them if they ignore it, only for the contractor and at worst the agency.

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"

That was my point. As things stand today, there is no comeback for the end client, whereas post changes there would be. Too many end clients don't have an appreciation of IR35 and plead ignorance or worse still brand contractors as difficult if they want to discuss working practices to ensure they are outside of IR35.

Wasn't something similar to this included when IR35 was first proposed?

The biggest problem I see here is that the changes could ultimately push rates up which, while great for the short term tax raised, will be bad for competitiveness. For me the major concern is that the UK will lose work to other jurisdictions as the rates rise. For example, those companies having a presence in Ireland today that can ramp up operations quickly will look incredibly cheap compared to the UK.

[expat]

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

Expat in glass-half-full mode.