IR35 Update following discussion group yesterday - survey request

[SueEllen]

These other contractors, do they have to work via ltd companies or are they able to operate differently?

Use limited, or started with umbrella and went limited.

The reason I know is I asked some about accountants and expenses when setting up (and some are accountants but not the right sort like the knowledgeable ones on here), and others asked me when setting up.

The reason they use limited is because they often have an agency or consultancy involved even though some, particularly those in the creative industries e.g. design and in marketing, also pick up clients direct.

There is legislation which basically forces everyone who is hired via an intermediary to use a limited as it prevents the intermediary being lumbered with any unpaid taxes.

BTW There are actually engineers who post or use to post on CUK. There also has been social workers.

[supersteamer]

Whatever rule you come up with somebody will cry foul, but it really has to be something you can do with a tick box methodology. A time limit with a single main client and cap on trivial travel expenses is along this line.

Absolute clarity of your own tax position and, equally, that of your business competitors, is worth a lot when pitching for work. Things like SDC, Part & Parcel etc. completely cloud this. The question of distinguishing between an employee and a service provider is something for a philosophy class, not a tax return. It should go. Completely.

Yes, the length of time you can spend at a client or how far you need to travel for expenses to be valid may be arbitrary cut offs. But we have that everywhere else in tax: 24-month T&S rule, personal allowances, tax brackets, the threshold for VAT registration, child tax credits etc. The comparative simplicity of these rules outweighs their bluntness. This is why these rules have been around for years and work to a much better degree than IR35 ever did or could.

[sociopath]

Indeed but again I'd much rather have the chance to do up to 2 years and move to stay outside IR35 than be in by default from day one.

I'd also argue there a large number of contractors that make themselves part and parcel well before two years and of those that have been there 2 years plus the ones that are still working hard at protecting their IR35 status and remember to be a contractor after two years is pretty small.

Some projects do last two years but are in a minority compared to people that have done multiple ones and just keep getting handed the next one.

From a business point of view a company builds relations to become a supplier of choice. Collaborative working is being promoted highly these days. There is a difference between a contractor staying at a client having multiple contract extensions and doing what ever work the client finds for them and a company that wins repeat business.

[sociopath]

Use limited, or started with umbrella and went limited.

The reason I know is I asked some about accountants and expenses when setting up (and some are accountants but not the right sort like the knowledgeable ones on here), and others asked me when setting up.

The reason they use limited is because they often have an agency or consultancy involved even though some, particularly those in the creative industries e.g. design and in marketing, also pick up clients direct.

There is legislation which basically forces everyone who is hired via an intermediary to use a limited as it prevents the intermediary being lumbered with any unpaid taxes.

BTW There are actually engineers who post or use to post on CUK. There also has been social workers.

I'm an engineer and consider this forum useful and not just specific to IT contractors.

Engineering projects can vary between 6months to 3 years depending on the magnitude of the project and there are a lot of major project being undertaken the now and in the future.

[LondonManc]

I found an article from 2012; while a bit dated, it lays out the situation to the public in light of the BBC contracting "scandal".

PAYE or off-payroll: the employers and employees dodging tax | Money | The Guardian

A permie gets holiday and sick pay. Neither are paid out by my limited company.
There will be no redundancy paid out by my limited company.

From the Grauniad:
"The official term used by HM Revenue & Customs (HMRC) is a "disguised employee", which describes individuals who are directly employed by a company, but cheat the tax system by claiming they are a freelance or contract worker." Therefore going through an agency seems to negate this issue instantly.

[pr1]

I'm an engineer and consider this forum useful and not just specific to IT contractors.

Engineering projects can vary between 6months to 3 years depending on the magnitude of the project and there are a lot of major project being undertaken the now and in the future.

and longer... look at hs2!

[gables]

Use limited, or started with umbrella and went limited.

The reason I know is I asked some about accountants and expenses when setting up (and some are accountants but not the right sort like the knowledgeable ones on here), and others asked me when setting up.

The reason they use limited is because they often have an agency or consultancy involved even though some, particularly those in the creative industries e.g. design and in marketing, also pick up clients direct.

There is legislation which basically forces everyone who is hired via an intermediary to use a limited as it prevents the intermediary being lumbered with any unpaid taxes.

BTW There are actually engineers who post or use to post on CUK. There also has been social workers.

Hi Sue,

Ta for the response... The bold bit keeps coming up :-( and I presume it's why we can't be sole traders, however, and I've asked this before...

What about a structure that complies with the legislation you mention but taxes like a sole trader? I've used some online calculators to compare the net income and tax paid as follows:

40k turnover
Net income Total tax paid
LTD 31404 (2617) 5584
Sole Trader 28836 (2403) 8157
LTD IR35 24660 (2055) 9982

60k turnover
Net income Total tax paid
LTD 45276 (3773) 11712
Sole Trader 41064 (3422) 15924
LTD IR35 35412 (2951) 18233

80k turnover
Net income Total tax paid
LTD 57276 (4773) 19712
Sole Trader 52668 (4389) 24324
LTD IR35 45096 (3758) 27550

100k turnover
Net income Total tax paid
LTD 69276 (5773) 27712
Sole Trader 64272 (5356) 32724
LTD IR35 54780 (4565) 36866


For the LTD company I've set a salary at £10600 and for LTD and Sole trader I've set expenses at £3000 in an attempt to keep things legal.

And it seems to me to be a good compromise, HMRC gets increased tax revenue, take home pay is better than IR35 caught. For those that want to go the LTD route to get the extra bit then they run the risk of investigation.

After all I am self employed.

[SueEllen]

A sole trader works on their own.

Not everyone I know who is a contractor works on their own for either all the entire time they are a contractor or part of the time for various reasons. (Even I haven't.) This is where IPSE's FLC concept falls down.

Plus limited liability means clients' can't go after personal assets. Some agents try but are told by me and many others that's what insurance is for.

[gables]

A sole trader works on their own.

Not everyone I know who is a contractor works on their own for either all the entire time they are a contractor or part of the time for various reasons. (Even I haven't.) This is where IPSE's FLC concept falls down.

Plus limited liability means clients' can't go after personal assets. Some agents try but are told by me and many others that's what insurance is for.

Yup, I agree, but I do work on my own and all the contractors I've ever met work on their own (I get it's not just about me though). I also hear it a lot on here that we're forced to go LTD (presumably by the legislation rather than clients chasing personal assets) which suggests sole trader would a be route taken if an option.

What I'm suggesting is a structure that gives the protection of a limited company but taxed like a sole trader, thus restoring the options.

[GB9]

Thanks for the update Lisa.

One thing I do disagree strongly with is that if it were up to the end client then all contractors would be inside IR35. Whilst I agree that would be the case in some companies, I can think of several clients i have has that go out of their way to ensure contractors are not seen as part of the organisation.

In terms of T&S, a distance rule seems a sensible option. At my current client I am local and many permies live near me. Why should I get any benefit. But the previous client was 200 miles away and it cost me £2k per month in expenses. I don't know any permies who would pay that from their own pocket. Hence a clear distinction based on distance. And maybe all accommodation claims should be allowable as I certainly wouldn't pay out good money for a room unless I absolutely had to.